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Operator: Good morning, ladies and gentlemen, and welcome to Enel Chile First Quarter 2026 Results Conference Call. My name is Carmen, and I'll be your operator for today. [Operator Instructions] During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may include Enel Chile S.A. current expectations, intentions, plans, beliefs, and projections. Forward-looking statements are based on management's current assumptions and expectations, do not guarantee future performance, and involve risk and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors. These factors are described in the Enel Chile's press release on its first quarter 2026 results. In the presentation accompanying this conference call, Enel Chile's annual report on Form 20-F on the risk factors. You may access our first quarter 2026 results press release and presentation on our website, www.enel.cl, and our 20-F on the SEC's website, www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate, except as required by law. I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed. Isabela Klemes: [Foreign language] Good morning, and welcome to Enel Chile's 2026 first quarter results presentation. We greatly appreciate you taking the time to join us today. My name is Isabela Klemes. I'm the Head of Investor Relations. Joining me this morning are our CEO, Gianluca Palumbo; and our CFO, Simone Conticelli. Our presentation and related financial information are available on our website, www.enel.cl, in the Investor section, as well as through our investors app. In addition, a replay of the call will soon be available. At the end of presentation, there will be an opportunity to ask questions via webcast chat through the Ask a Question link. Media participants are connected in listening mode. Gianluca will kick off the presentation by covering key highlights of the period, our portfolio management actions, and providing updates on the regulatory context. Following that, Simone will offer an overview of our business economic and financial performance. Thank you all for your attention, and now let me hand over the call to Gianluca. Gianluca Palumbo: Thank you, Isabela. Good morning, and thank you for your participation. Let's start the presentation with our main highlights of the period. Let's begin with portfolio management. During the quarter, hydrological conditions were favorable, which helped us reduce portfolio risk and supported a stable operating performance across the business. We will come back to this point in more detail later on. At the same time, through EGP Chile, we started the construction of 3 battery energy storage projects in the northern part of the country. These BESS projects will add around 0.5 gigawatts of additional capacity and will play a key role in strengthening the flexibility of our portfolio while supporting our commercial strategy. In addition, Enel Generacion Chile signed a new LNG supply agreement with Shell. This agreement allows us to better valorize surplus gas volumes already available and to optimize LNG and Argentine gas supply for our generation business. Importantly, this initiative is fully aligned with our long-term business vision for Chile. This is particularly relevant in the context of the growing deployment of battery energy storage systems, which are essential to ensure a more flexible and efficient portfolio. Let's now move to the country and regulatory context. Starting with the VAD 2020-2024 process, tariff resettlements have been postponed until July 2026. At this stage, the regulator is working on alternative solutions to fund this payment with the objective of avoiding any impact on regulated customers' tariffs. Turning to the VAD 2024-2028 process. During the quarter, the regulator published the preliminary technical report, volume 2, in January 2026. Over the next few months, we are awaiting the publication of the final report. Let's now turn to business profitability. The first quarter of 2026 delivered consistent financial results. EBITDA showed a solid improvement compared to previous years, plus 16% during the period. The extraordinary general meeting approved a capital increase of CLP 360 billion at Enel Distribucion Chile, reinforcing the company's balance sheet and overall financial flexibility. In addition, the annual general meeting approved the final dividend, fully in line with our commitment to shareholder returns and value creation. In the next slides, we will go deeper into each of these areas and provide further details on the key drivers behind these results. Let's move to Slide 4 to talk about hydrology and the progress of our battery energy storage project. Let me begin with our hydro generation. Hydro generation during the quarter remained broadly in line with last year's levels, as shown on the left-hand side of the slide. For 2026, we are forecasting hydro generation at 10.7 terawatt hours. This assumption is based on a conservative view on hydrology, fully consistent with the average evolution observed over the last 13 years that allows us to confirm our 2026 guidance. This is the case, even though the probability of an El Nino event has increased in recent weeks, with potential impacts mainly expected in the second half of the year. This level of performance is supported by our well-diversified hydro portfolio, together with continuous operational optimization. Moving now to gas activities. On gas sourcing, we have signed contracts with Argentine gas suppliers with a longer tenure compared to previous years. These contracts secure firm volumes at more competitive prices, providing stable supply until April 2027. In parallel, in the context of high gas prices and the more flexible demand outlook for our thermal fleets, we concluded a negotiation related to our long-term LNG agreement. This approach is well aligned with our view of a gradual ramp-up of battery storage in the coming years, supported by a solid and reliable gas supply from Argentina. Finally, let me focus on battery storage. We continue to strengthen our generation portfolio through the development of battery energy storage systems. These investments will increase the flexibility of our portfolio and support the long-term resilience of our generation mix. In addition, they will continue to optimize our sourcing strategy. In this context, approximately 450 megawatts of new battery capacity are currently under development and will gradually start operations from [ 12-'27 ] ahead, in line with our planned investment schedule. Now let's move to Slide 5, where we will review our generation portfolio and the energy balance. Let me start with our generation portfolio. We entered 2026 with a solid and well-diversified portfolio. In fact, our total net installed capacity stands at 8.9 gigawatts, of which 78% comes from renewable energy sources and BESS. Therefore, this structure enhances flexibility and supports a balanced and resilient energy mix. Moving now to our energy balance. During the first quarter of 2026, net production remained stable compared to the same period last year. This performance reflects the flexibility of our generation portfolio. Higher contributions from wind, solar and efficient natural gas combined cycles more than compensated for the slightly lower hydro generation. Physical energy sales amounted to 7.5 terawatt hours, fully in line with the level recorded in the first quarter of last year. This confirms the stability of our commercial positioning, supported by our diversified sourcing mix. On energy purchases during the quarter, we maintained a similar purchasing mix compared to last year. This included 1.3 terawatt hours of net spot market purchases and 0.8 terawatt hours sourced from third parties. And now I would like to take a moment to share with you some key topics related to the distribution business, which we will cover on the next slide. Let me start with the tariff review shown on the left-hand side of the slide. We are in the 2024-2028 distribution tariff review process. In January of this year, the regulator released the second version of the technical report. The remaining technical steps are expected to lead a final tariff determination in the second half of 2026. Overall, the review is progressing in line with the regulatory timetable. Turning now to the VAD 2020-'24. The settlement of the outstanding debt with distribution companies, which was originally scheduled to begin earlier, has been postponed to July 2026. For Enel Distribucion, the amount to be received is around USD 65 million, while at the distribution sector level, the total amount involved is approximately USD 900 million. We remain confident that the process will progress toward the prompt resolution, considering its relevance for the sector and the need for orderly completion. Turning to distribution reform. We continue to see constructive and positive engagement from stakeholders, together with the growing and broad consensus on the need to further evolve and modernize the distribution framework in Chile. This is particularly important in the context of electrification and considering the long-term nature of distribution investments. Finally, a few words on grids and execution. We continue to reinforce specific parts of the network, while at the same time expanding digitalization and remote control solutions across the network. These actions allow us to restore service faster, improving customer experience, and strengthen the flexibility and resilience of our networks. Overall, execution and distribution remains solid, with a clear and continued focus on service quality. And with that, I will now hand over the presentation to Simone. Simone Conticelli: Many thanks, Gianluca, and good morning, everyone. I will begin my presentation with an overview of our key results for the period. As shown on the slide, during the first quarter of 2026, EBITDA reached $423 million, with a 16% increase compared to the same period of last year. The improvement was mainly driven by a better integrated margin performance. First quarter net income amounted to $162 million, representing a 7% decrease compared to the result of first quarter 2025, mainly due to higher depreciation following the commissioning of the new renewable plants and lower capitalization of interest. Finally, first quarter FFO reached $122 million, representing a 12% increase compared to the same period last year. The improvement is due to a combination of several factors, which will be commented on the following slides. And now let's move to the next slide to talk about the investment made during the quarter. First quarter investment amounting to $111 million were mainly allocated to the development of BESS project, increasing the value of our power plant fleet, and the reinforcement of our distribution network. Let's review the allocation in more detail. 41% or $46 million were invested in renewable and storage. 31% or $34 million supported thermal power projects. 20% or $31 million was directed toward grids investments. In the renewable segment, we have focused our effort on the development of BESS project, as announced in our strategic plan, on the enhancement of hydro capacity performance, and on the improvement of fleet availability. In the thermal segment, the priority has been the maintenance and performance enhancement of the power plant fleet. Finally, regarding grids, the focus remain on the resilience program to strengthen the distribution network and ensure service continuity under adverse weather condition. Passing to the nature of investment. First, asset management CapEx totaled $58 million, accounting for 52% of the total CapEx. The main activities have been the maintenance of Atacama, Quintero and San Isidro CCGT, the maintenance of renewable fleet aimed at ensuring plant availability, and some activities for the corrective maintenance and digitalization of grids. Second, development CapEx amounted to $40 million, mainly invested in batteries development, which represented 75% of total, and digital meters and grids remote control equipment. Finally, customer CapEx totaled $13 million, mainly invested in low and medium voltage connection project and initiative to support load increase. Let's now go on to the next slide, which provide a closer look at the EBITDA performance. In the first quarter of 2026, our EBITDA reached $423 million. The increase of $58 million compared to the same period of 2025 is mainly explained by the following factors. Starting with the integrated business, we recorded an increase of $67 million, mainly due to, first, lower natural gas costs that reduce the variable production cost of our thermal power plants and the spot energy purchase costs. And second, the positive impact of the optimization of gas sourcing, which allowed us to improve LNG and Argentine gas supply for our thermal fleet, extracting value from our gas contracts portfolio, as previously commented by Gianluca. These positive impacts were partially offset by the termination of certain high-priced regulated contracts and higher provision related to energy and transmission charges adjustments booked in 2025. Going to grids. We recorded a decrease of 18%, mainly due to the positive impact of issuance provision on 2025 and the impact of the higher O&M expenses associated with the anticipation of the 2026 winter plant activities, partially offset by a higher contribution from complementary distribution activities, mainly related to the new customer connections. Now let's move to the next slide to review the net income evolution. Net income amounted to $162 million in the first quarter of 2026. The difference compared to the first quarter 2025 is mainly due to the $58 million improvement in EBITDA, thanks to the more efficient sourcing, partially offset by higher depreciation and amortization, mainly related to the commissioning of new renewable capacity in the generation business and higher financial expenses, partially due to lower interest capitalization in the generation business. And now passing to the next slide, let's analyze the FFO composition for the first 3 months of 2026. In the first quarter 2026, FFO reached $122 million as a result of the following factors: first, EBITDA totaled $423 million, as previously explained; second, the increase of net working capital amounted to $161 million, mainly due to seasonality of energy payments and gas optimization agreement, for which the payment was registered in April; third, financial expenses amounted to $93 million, also including the settlement of hedging derivatives; finally, income tax expense payments amounted to $48 million, mainly related to generation business. Passing to the comparison with the results of the first quarter of 2025, the 2026 FFO was $13 million higher, mainly thanks to the EBITDA increase for $58 million, the lower increase of net working capital for $27 million, mostly due to lower CapEx payment related to the new development capacity, the positive effect of energy payment scheduling, partially offset by the increase of account receivable following the LNG agreement settled in April, the higher financial expenses for $62 million, and the higher income taxes for $9 million, reflecting higher monthly payment tax rates. Now let's take a look at our liquidity and leverage position. Gross debt amounted to $3.9 billion as of March 2026, remaining broadly flat compared to December 2025. The slight increase reflects the seasonal cash and working capital requirements, which were temporarily funded through a $50 million drawdown on the CAF credit line, partially offset by a $9 million reduction in IFRS 16 lease liability. The average term of our debt maturity reached 5.4 years by March 2026 versus the 5.8 years seen in December 2025, and the portion at a fixed rate was 85% of the total debt. The average cost of our debt reached 4.9% as of March 2026, in line with December 2025 figures. Regarding liquidity, we are in a comfortable position to support our capital needs for the upcoming months and cope with next year maturities. As of March 2026, we have available committed credit lines for $640 million and cash equivalent for $454 million. So thank you all for your attention, and now I will pass the floor to Gianluca for the closing remarks. Gianluca Palumbo: To conclude, our resilient and diversified business model supported solid and stable results in the first quarter of 2026, even in a volatile operating environment. A well-balanced portfolio combined with disciplined execution continues to provide resilience, allowing us to navigate changes in market and climate conditions with confidence. Second, electrification is clearly emerging as a key driver of demand growth in Chile. This trend is supported by structural developments across mining, industry, transport and electromobility. In this context, we remain closely engaged and well-positioned to support the country's electrification process, leveraging our integrated offering of clean energy, infrastructure and services. At the same time, we continue to closely monitor regulatory developments and their potential impacts. Finally, our solid financial position and flexible business model continue to support the execution of our investment plan and our ability to meet financial commitments. This financial strength allows us to continue investing in renewables and battery storage while maintaining financial discipline and delivering sustainable returns to our shareholders. Now let me hand it over to Isabela for the Q&A session. Isabela Klemes: Thank you very much, Simone and Gianluca. We now start the Q&A. As a reminding, we are receiving questions from our chat on the application. So I will start now, Gianluca and Simone, with the first question. We actually received this question from several analysts, including Andrew McCarthy from LarrainVial. I will do the questions, okay? So the first one is, congrats on the results. Apart from the gas valorization agreement, which is a positive one-off in your results, could you please indicate which other one-off negatives you have incurred in your first quarter 2026 figures? Basically, I'm interested in knowing the recurring EBITDA booked in the first quarter 2026. Actually, on the same, we also received a question regarding what we have mentioned in the EBITDA, regarding the provisions recorded in the first quarter 2026 related to energy and transmission charges. Simone? Simone Conticelli: So thank you for the question. So you are right, in this quarter, we have more than one nonrecurrent effect. The first one is the impact of the agreement with Shell. That is a positive impact, but then was partially offset by some problem with the transmission line that impacted in our efficiency. And on the other side, this impact can be around $50 million, and then around $60 million of adjustment coming from the previous year. The main part from 2023, it was related to an adjustment of the ancillary services booked in this year after quite a long discussion with the system, we finally take the final decision, and this has an impact of minus $30 million. So to make a synthesis, if you normalize all these nonrecurrent effect, our results is around $360 million, $370 million for the quarter. Isabela Klemes: Okay. So we are receiving several questions. Let me go to the second one. So the second one is coming from Javier Suarez from Mediobanca. Javier has several questions that I will split here. So the first one is, can you update on the key factors on the ongoing negotiations with regulator of the distribution regulatory framework? And also on the same page on distribution, he also is asking why, in other words, what is the reasons for the postponement of the settlement to July 2026 relating to VAD 2020-2024? Gianluca, this is yours. Gianluca Palumbo: Yes. Okay. So let me start for the first part. On the distribution regulatory framework, the VAD 2024-2028 process is still ongoing, so the methodology remains based on the reference model company with a regulated real post-tax WACC, as you know, of 6%. We believe there is still room for improvement in the CNE proposal, and we are actively participating with the distribution association in the observation and the discrepancy process. The final technical report is expected by June 2026, and the tariff decree in early 2027. So regarding the postponement of the VAD 2020-2024 settlement, the estimated impact is around USD 765 million. The recovery mechanism was defined by the SEC in February 2026, but collection was postponed by 3 months. So in this moment, our current planning assumption is collection from July 2026, while the Ministry of Energy is also evaluating alternative mechanisms, including potential debt factoring. Isabela Klemes: Now, another question from Javier. The other question from Javier, Simone, this is for you. Can you give more details on the profitability of the BESS project in Chile in terms of IRR? Simone Conticelli: Yes, thanks for the question. First of all, let me make a initial comment saying that Enel is developing new BESS, following the strategical goal to balance our portfolio. So first of all, we see this BESS project like an improvement of our portfolio and a way to have some energy shift that can result in a better match between the demand and the production curve. But looking at the BESS project as a stand-alone project, what we can say is that we launch this kind of project only if the return is at least 300 basis points above our WACC. Also that we make also some stress test trying to change the market condition to see the resilience of this kind of project also to some more stressed and critical scenarios. Isabela Klemes: So move on. The other question is coming from Fernan Gonzalez. This is also for you, Simone, from BTG Pactual. So the question is: why did energy purchase cost in the generation segment increase so much if volumes were similar with last year and its spot prices were significantly below the first quarter 2025 levels, even in the non-solar hours? Simone? Simone Conticelli: Okay. So in such a way, we answer at the beginning indirectly to this question, because this negative impact from adjustment from the past, entered as sourcing cost, and so You are looking also at the impact of this negative adjustment. Isabela Klemes: So moving on, we're receiving a lot of questions. So the next one is coming from Andrew McCarthy, another question from Andrew from LarrainVial. Good morning. Energy losses in the distribution segment continued to deteriorate during the first quarter 2026. Can you comment on what is driving that, how you expect to evolve, and what can be done to reverse the trend? Gianluca. Gianluca Palumbo: Okay. Thank you for your question. Energy losses increased mainly due to tariff adjustments and some change in customer behavior, which have led to a rise in not technical losses, such as the debt. So in the first quarter, losses were also impacted by lower than expected demand and a more competitive market environment. That said, our loss levels remain below the regional averages, and we have a clear plan to reserve the trend. So we are strengthening our loss reduction strategy through this plan. So first of all, improved inspection targeting using better analytics. Second, expansion of micro and macro metering, so this is an action to help the balance -- micro balance. Increased field action and controls, considering the better analysis that we will do. And finally, enhanced coordination with authorities to address illegal connection. That is one of the problem that we have. So looking forward, we expect losses to gradually decline, targeting around 5.7% by 2028, supported by these operational and technological improvements. That is very important for us. Isabela Klemes: I'm checking here other questions. Okay. So the other question is coming from Felipe Flores from Banchile Citi. The question is: my question is related to the capital increase in distribution. Will this be subscribed by Enel fully using cash? How does the company plan to finance it, or it's already covered? How much would take to recover the money? So Gianluca, if you can give some color on the capital increase. Gianluca Palumbo: Yes, of course. Okay. The capital increase is intended to strengthen Enel Distribucion financial position, and it's expected to be supported by controlling shareholders in line with its long-term commitment to the business. So from a financial perspective, it will be covered through group level financial resources, ensuring obviously efficiency and flexibility. So in terms of returns, this is not a short-term recovery investment. It supports the long-term sustainability of the business through improved financial structure, lower financial costs and maybe it's very clear, the ability to execute the investment plan under regulatory framework. This is the last question that I can add in this case. Okay. Isabela Klemes: I'm checking here. We have receiving another question. Some of them, we have already talked about that is related the capital increase and also on the postponement on the VAD, so I'm continue checking here. Another one was a question also, Gianluca, regarding the VAD 2020-2024, that potentially is going to be a new pack. But Gianluca has already answered this. That is one of the proposals that could be done in order to have the payment on the VAD. So let me -- just a second. Okay. So we have other questions that is coming from Juan Felipe Becerra, that is relating -- he can -- he ask Simone, if you can give more details on the gas optimization contract on Shell. We have already included, but if you can check also. Now, he has another question. Does this optimization imply lower contracted volumes or changing pricing terms with Shell? And regarding the 3 BESS projects highlighting the presentation, can you provide more details on the expected time line for each project to reach COD and enter in EGP capacity? Simone? Simone Conticelli: So let's start talking about the Shell agreement. This is an agreement that has the goal to optimize our portfolio. As you know, we have a very valuable portfolio of gas contracts. Part of the contracts is for GNL. Part of this contract is for gas from Argentina. What I want to stress is that the total amount of volume of gas that we can manage is higher of our needs, even stressing the needs of our power plant during a dry year. So what we have done in this agreement is try to rebalance the amount of the GNL contract to make coherent our portfolio. And we did it in a very right moment in such ways, so we have also positive impact on 2026 results. On the other side, talking about the BESS. Isabela Klemes: Yes. This is go to Gianluca. Gianluca Palumbo: So regarding the 3 BESS, to complement, the answer, regarding the 3 BESS projects highlighted in the presentation, let me know that, we could you provide more detail on expected time line. So in this case... Isabela Klemes: Yes. So the question, Gianluca, was regarding the BESS. What we are expecting the COD on the BESS side. Also what Gianluca was saying that we are expecting -- it's included in our business plan that we have recently presented. And Gianluca, if you want, now your mic is up. Gianluca Palumbo: Okay. I understand. Isabela Klemes: Going back again. Thank you. Gianluca Palumbo: Okay, okay, okay. During 2025, we focused on engineering, permitting and project preparation. With the regulatory framework now in place, we are starting construction in 2026 and expecting the COD during the third and the fourth quarter of 2027. So our strategy also included additional BESS investment, like we presented in the last Capital Markets Day, in 2027 and 2028, reinforcing storage as a core pillar of our portfolio. So we will continue to closely monitor market conditions, maintain flexible approach, focus on profitability and value creation. This is our pillar in our optimization of our portfolio. Isabela Klemes: Another question is coming from Jay Samani from Scotiabank. This is for you, Simone. SO where do you see Enel Chile next avenues for growth, given that lower demand from unregulated customers? He's mentioned about the termination of the PPA -- regulated PPAs. How is Enel Chile position itself for long-term? And can we expect the company to maintain the current earnings level for growth? He's asking about our business plan. Simone Conticelli: So can you repeat me the first part of the question, please? Isabela Klemes: Yes. Jay is asking you, where do you see that Enel Chile is going? What are the strengths of our plan? He's also mentioned that we see -- we have seen the results, not the reduction of the regulated PPAs, so he's asking what we are seeing the long-=term? So we are seeing more regulated customer coming on, new auctions, and how we are positioning ourselves in the long-term? Simone Conticelli: Okay. Enel will confirm its strategy. In this moment, clear we see a reduction in the volumes of regulated contract, but this is related in how the auction now will rise in the market. What we have to stress is that we want the full last to auction also at a valuable price on the market. So we have a very good portfolio in term of price in the short-term. Also, we can stress the fact that the pricing of our portfolio, the average price in the next 3-year, we will maintain the same value, even if the price on the market is going down. And for the full following year, we will keep on looking to a good mix among short-term opportunity and also long-term contract. That can be new regulated auction, but also, long-term contract with the big customer. Isabela Klemes: We have a last question that is coming from Isabella from Bank of America. So she's asking: what is the minimal cash position you are operationally comfortable with? You currently have a cash position of around $454 million. Do you plan on using your credit lines this year, or will you refinance your short-term debt? Simone Conticelli: So thanks for the question. You know that our business has a strong seasonality with some needs in terms of financing in the first and in the second quarter, and then -- and higher cash production in the second half. We have an internal model to define the comfortable minimal cash position to cover the net working capital needs. And then for the future financial needs, we plan to refinance using a long-term financing that in this moment is under negotiation. Isabela Klemes: We do not have any more questions coming here from the chat. So any other doubts that you may have, the Investor Relations team will be fully available to execute other calls and to go into more details. Thank you very much for connecting today. Have a nice holiday. Thank you. Operator: And this concludes our conference. Thank you for participating, and you may now disconnect.
Douglas Eu: Good day, everyone, and welcome to Grab's First Quarter 2026 Earnings Call. I'm Douglas Eu, Director of Investor Relations and Strategic Finance at Grab. And joining me today are Anthony Tan, Chief Executive Officer; Alex Hungate, President and Chief Operating Officer; and Peter Oey, Chief Financial Officer. During this call, we will be making forward-looking statements regarding future events including our business and financial performance. These statements are based on our current beliefs and expectations. Actual results could differ materially due to a number of risks and uncertainties as described on this earnings call in the earnings release and in our Form 20-F and our filings with the SEC. We do not undertake any duty to update any forward-looking statements. We will also be discussing non-IFRS financial measures on this call. These measures supplement but do not replace IFRS financial measures. Please refer to the earnings material for a reconciliation of non-IFRS to IFRS financial measures. For more information please refer to our earnings press release, remarks and supplemental presentation available on our IR website. For today's call, Anthony will deliver opening remarks, after which we will open the floor to questions. As a reminder, we are accepting questions via IR and e-mail at investorrelations@grab.com. Do submit your questions ahead of time, and we will add them to the Q&A queue. And with that, I'll hand it over to Anthony. Ping Yeow Tan: Great. Thanks, Doug. Good day, everyone, and thank you for joining us. We set out to start 2026 strongly, and we delivered against the backdrop of our seasonally softest quarter due to Ramadan and Chinese New Year, on-demand GMV growth accelerated to 24% year-on-year, while group MTUs increased to 52 million. In Financial Services, loan disbursals grew 67% to exceed $1 billion for the first time, and we remain on track for our Financial Services segment to achieve adjusted EBITDA breakeven in the second half of this year. We also delivered our 17th consecutive quarter of adjusted EBITDA growth, expanding our trailing 12-month adjusted free cash flow to $489 million. These results demonstrate the compounding nature of our strategy, which is increasingly being accelerated by our investments in AI. What truly sets our AI capabilities apart however, is the proprietary data foundation we spent the last 14 years building to power them. Today Grab operates as a system of record for local commerce across Southeast Asia. We capture highly localized real-time data on how over 50 million users and partners interact across 8 markets. Over the years, this has generated a proprietary data set of over 20 billion transactions. We feed these multimodal signals from hyper local mapping to in-store payment terminals into our AI Grab intelligence layer to optimize our own marketplace efficiency from dynamic pricing to last mile routing. Crucially, we paired this data advantage with our massive through physical fulfillment network. That closed loop system or ecosystem is our biggest competitive mode, which is why our AI investments translate directly into measurable financial outcomes. We are already seeing significant tangible returns on these initiatives. For instance, I'm pleased to share driver partners who adopted Turbo, our AI-powered driving mode in our Grab Driver app to optimize driver earnings and efficiency, saw a 23% uplift in earnings per online hour compared to driver partners who have not adopted a feature. This has contributed to Mobility transactions growth outpacing Mobility GMV growth with transactions up 28% year-on-year. Within a year of launch, our merchant AI Assistant, Mai has been adopted by approximately half of our active single store-merchant base, driving a 15% uplift in GMV for engaged users. This deepened engagement directly supports our ability to improve monetization with average advertiser spend growing 44% year-on-year as merchants see increasing measurable returns. Following the launch of 13 new AI-powered experiences at GrabX this year, we are turning external AI interfaces into our newest growth engines by acting as the essential fulfillment layer for Southeast Asia, we ensure that whenever customers use AI agents to navigate their day, those interactions, act as top-of-funnel leads that drive transaction directly back to Grab. We're also making steady progress on autonomous vehicles. In April, we successfully transitioned our private trials to full paying public operations. Our AIR service deployment partnership with WeRide is the first autonomous passenger service ever deployed within a Southeast Asian residential estate. The fleet has clocked over 40,000 kilometers and have safely served several thousand public rights. That said, the adoption of AVs in Southeast Asia remains nascent. We see governments and regulators taking a measured approach in implementing AVs, which we believe is the right approach for our region. We will continue to incorporate AVs in our platform at a pace that reflects the trust communities place in us and our emphasis on customer safety. To be clear, we do not expect anyone to be able to deploy impactful disruption to our human driver network in the near future. Yet we remain firm believers in the technology. This has shaped how we have made small investments ahead of the curve to forge international partnerships while doubling down on ensuring our Singapore pilot succeed. We intend to be the most experienced local hybrid AV and human operator in Southeast Asia, one able to amplify the efforts of any AV software player in bringing the smoothest, safest and most cost-efficient service when we eventually scale up in partnership with governments in this region. Now beyond AI and AVs, the structural health of our driver partner supply base remains our top priority. When fuel price volatility emerged in early March, we acted decisively to protect partner livelihoods by deploying targeted fuel rebates and proactively engage with regulators across our markets. In April, we also launched the digital earnings tracker to provide driver partners with greater transparency over their earnings. In 2025, partners earned over $15 billion on our platform, up 19% year-on-year. Looking ahead, our record start to the year is a testament to the resilience of our ecosystem. Whether we are leveraging AI to drive greater marketplace efficiencies today or piloting the autonomous networks of tomorrow, our focus remains on compounding sustainable growth and out serving our communities. Despite macroeconomic uncertainties particularly regarding inflation and fuel prices, our platform is structurally stronger than ever. Against that backdrop, we reiterate our 2026 full year guidance. Group revenue of $4.04 billion to $4.10 billion and adjusted EBITDA of $700 million to $720 million. Our first quarter provides us with a strong foundation. In March, we announced that we are advancing our buyback mandate with a $400 million accelerated share repurchase program. This is a reflection of our conviction in Grab's long-term value at these dislocated prices. Thank you so much. Let's open it up for questions. Douglas Eu: Thank you, Anthony. We will now transition to the Q&A session. [Operator Instructions] Our first and most apps question comes from the line of several analysts Divya at Morgan Stanley, Venu at Bernstein and Piyush of HSBC. As regard to the fuel crisis. So the question is, what's the impact of the ongoing Middle East conflict and higher fuel prices across your various operating countries? Has it started to impact business performance in the second quarter? And can you quantify the impact? And what is our strategy to manage long-term fuel risk? So this is a question for Alex. Alexander Charles Hungate: Thanks, Divya, Venu, Piyush. This is a critical topic. And as I said in my prepared remarks, Q1 results actually give us a good solid foundation entering the year. And as you saw from the slide pack, the demand trends in April have remained resilient. Our Mobility business in April has seen weekly average transaction volumes sustained at plus 32% year-on-year. And our deliveries business continues to see record high daily transacting users in April. So it's a good start to the year. The business, in fact, is in a structurally more resilient position today than it has been through our history. Product innovations we have made have really targeted affordability and reliability. Group orders, for example, has GMV up 74% year-on-year, and we launched group rides at GrabX last month, which is a similar concept for sharing rides to reduce pricing for individual consumers. And that's now available across all 6 of our core markets. GrabUnlimited, of course, is very good value for high-frequency customers, and it continues to account for 1/3 of our deliveries GMV. So all of these are highly affordable products, which keep the demand strong even when consumers are stretched. We're monitoring the fuel situation extremely closely. And of course, we will not hesitate to act further if needed. In the medium term, we are committed to accelerate the EV transition to reduce our driver partners exposure to fuel price volatility. So for example, in Thailand and Philippines, we have a drive-to-own program that connects our drivers with OEMs like BYD and GAC, where we have deals of up to 70,000 vehicles available across 6 markets with accessing to financing so they can own those more easily. In Vietnam, we have secured preferential charging rates also through our charging network partners, EBOOST and Charge+, which helps our drivers in the transition also. And finally, in Thailand, I am pleased to say that our total fleet supply has crossed 30,000 EVs on the platform and demand for those from consumers is also strong, where they can select that EV option, and that demand has grown by over 35% year-on-year. So this fuel crisis has become an opportunity in the sense that it helps us to accelerate that EV transition. Douglas Eu: Thank you, Alex. So move on to the next question. The next question is on financial services and comes from Zhiwei of Macquarie and Venu of Bernstein. So for the Financial Services segment, the loan portfolio showed a modest quarter-on-quarter growth, but there was a step improvement to your segment adjusted EBITDA. Could you describe the factors that led to these improvements? And what can we expect in coming quarters and how do you intend to drive that? So this is a question for Alex again. Alexander Charles Hungate: Thanks, Zhiwei, Venu. Yes, you're right. Strong EBITDA improvement in Financial Services, both quarter-on-quarter and year-on-year. So that is the operating leverage that we've been talking about starting to come through very strongly now as we scale up our loan portfolio. Revenue growth accelerated 43% year-on-year and 38% on a constant currency basis. And more than 1/3 of that incremental revenue dropped straight to the bottom line for Financial Services, demonstrating that operating leverage that we've been speaking about. The loan book growth is strong year-on-year. And importantly, the credit quality is improving alongside that. So loan disbursals grew 67% year-on-year to over $1 billion but the growth was modest. You're right, this quarter because of seasonal factors, and that's a normal factor for first quarter. The ECL as a percentage of our gross loan portfolio has improved year-on-year though. And that does show, I think the improving quality of our credit models. We've been proactive on risk management, though. So we've been tightening for some sectors. And in other sectors where conventional lenders have stepped away, we've seen more opportunity. In Q1, we applied those additional ECL overlays to account for that macroeconomic uncertainty with that selective tightening also part of our change in the risk appetite. Looking ahead, we do have some experience, of course, of managing these kinds of shocks to the macroeconomic situation. So our underwriting models have already been through the similar fuel price shock that we saw at the start of the Ukraine conflict, not to mention COVID as well. And in both instances, our credit quality remained within our risk appetite throughout. So we continue to monitor the portfolio performance super carefully. We aim to generate healthy returns on risk-adjusted returns for our loan portfolio and we are reiterating our second half 2026 breakeven target for financial services. Douglas Eu: Thank you, Alex. So the next question is also another highly asked question, and it comes from several analysts. So from Alicia from Citi, Divya from Morgan Stanley, Zhiwei from Macquarie, Jiong for Barclays and Piyush from HSBC. So regarding recent news in Indonesia. So an Indonesia's cap on rider commissions to 8%, can you clarify if that is applicable to 4-wheels? What are the levers available to cushion the key negative impact from lower rider commission? What's the likely impact of profitability due to the proposed change? And what's the impact in the delivery segment, if any, from the proposed change? And if you can help to quantify it. So this is a very long questions as well posed questions for Alex. Alexander Charles Hungate: Okay. Thank you to all of you, all 5 of you for the question. Let me see if I can cover section by section. Okay. So it does appear that the immediate regulatory exposure is highly specific. So the recent announcements are explicitly focused on O2O drivers, [indiscernible] online drivers, who are our 2-wheel ride hailing partners, so 2-wheel ride-hailing partners [indiscernible]. The 4-wheel drivers earn well above the minimum wage. And so we believe that they're less of a concern for government and regulators in Indonesia. That said, of course, we're engaging very proactively with the relevant ministries, and we try to seek absolute clarity and the technical aspects of how the decree will be implemented. It's essential we believe that, together with regulators, we shape a balanced implementation of these -- of this decree so that our Indonesia and mobility marketplace remains healthy and that driver partners earnings remain well supported. It's worth noting, as I mentioned in my prepared remarks, that 2-wheel mobility, so the O2O drivers that the decree referred to in Indonesia is less than 6% of our total mobility GMV. So O2O drivers in Singapore represent less than 6% of our total mobility GMV. So we are, therefore, reiterating our expectations for Mobility margins to stabilize within the historical range and not to go outside of that range. Douglas Eu: Thank you, Alex. So we'll move on to a related topic as well. This comes from the line of Venu from Bernstein, Sachin of DBS and Alicia of Citi. In relation to the 8% commission cap in Indonesia, is the likelihood of consolidation now looking higher in Indonesia as well. Does the shift in policy in Indonesia change your near- to medium-term investment or resource and capital allocation priorities. So just a question for Peter. Peter Oey: Sure, yes. Look, I want to comment on specific M&A speculation. And -- but I'll speak to how we view our position in this evolving landscape. Within M&A, we always take into account the regulatory environment, it's really critical. And we want to work with the relevant agencies there also, because there's always synergies and dissynergies that we could accrue from any transactions. And as we've -- I've always spoken in many, many quarter -- quarterly earnings, we always have a very high bar when it comes to M&A transaction itself. When specifically to Indonesia, and also just our M&A portfolio, we've always been taking a very diversified approach. And you see that in the lines of our businesses, and you see that our product continues to expand also broadly. We're entering our ninth market, which also shows our diversification also in terms of geographies. So the way we always position the lens that we take is diversification and that's really important. So specifically for Indonesia, as Alex just mentioned, it's really important that we have a very constructive and very healthy ecosystem both for our driver partners, consumers is also for our restaurants. So specifically to Indonesia, our strategy for Indonesia remains fundamentally unchanged despite what we've seen over the weekend and also the way we approach the strategies in Indonesia. Our Indonesian Mobility business continues to grow double digits year-over-year. Remains very, very -- remains stable quarter-on-quarter in spite of the seasonal headwinds. And as I'm always reiterating that we're very highly disciplined in our capital allocation. So when we evaluate any strategic opportunity, it's strictly through the lens of long-term shareholder value and also how can we diversify our Grab business. Douglas Eu: Thank you, Peter. So the next question comes from Alicia, Citi and Wei of Mizuho. So the question topic now moves back to the fuel crisis as well. Given the step-up in partner incentives to offset elevated fuel costs, how does this impact the demand elasticity and translated into revisions to your near-term financial outlook for mobility? Should we expect levels to remain elevated? Or do you see offsetting the levers such as EV adoption and cross-border rights that could bring incentives back down in the second half and support the sequential EBITDA ramp-up implied by your full year $700 million to $720 million guidance? Alexander Charles Hungate: Thanks, Alicia, Wei. Great question. So yes, Q1, you can see that driver incentives was elevated. Two specific drivers there. One is and most importantly was the confluence of Lunar New Year and Ramadan within the first quarter, both in the first quarter this year, creating acute supply pressures as usual during those 2 festive periods. So it's -- the second factor was, of course, the fuel crisis. So towards the end of the quarter during March, we started a deliberate decision to support our driver partners with the elevated fuel prices across some countries in the region. So as we move into the second quarter, of course, the festive-driven incentive pressure normalizes, but fuel does remain an important variable that we're watching very, very closely. The targeted earnings support was -- will continue through into the second quarter, but it no longer with the seasonal impact. We expect this first quarter to be a peak in the driver incentives. We are reiterating the full year guidance, therefore, of $700 million to $720 million for adjusted EBITDA, assuming that peak and not that it's a run rate, but it's more like a peak. But I would say we've got multiple levers available to us, including, if necessary, more emphasis on advertising and financial services monetization to defend the overall margin trajectory for the full year of those fuel pressures persist through the full year. In the medium term, if those elevated fuel prices continue, we would have to pass some more of the costs on to consumers. But of course, we'll do that very judiciously because we want to maintain demand for our driver partners through this difficult time. Finally, I think it's worth emphasizing, we saw that the impact of AI marketplace optimization this quarter was very powerful. And we did use it to manage, for example, incentive spend for consumers. You can see that the incentive spend for consumers became more efficient during this quarter. And so going into the full year, we will also have that powerful capability at our disposal to try and manage some of the volatility and incentive spend. Douglas Eu: Thank you, Alex. So the next question, the topic we'll now move into AI. This comes from Divya, Morgan Stanley and Wei at Mizuho. On AI monetization, are you building toward a merchant and driver SaaS revenue stream that sits outside the current commission rate structure or is going to be remaining bundled into the existing take rate? What AI tools are you investing in mainly into this quarter? So this is a question for Anthony. Ping Yeow Tan: Thanks so much, Divya and Wei. Appreciate the question. Look, our approach to tools like merchant AI and driver AI assistant coach has been to solve everyday promise that our drivers and merchant partners face. There's no reason why our partners should not have access to these tools that will enable them to grow their customers and earnings. If we get that right, the tools and the partnership right, we build something competitors can't easily replicate and it creates high loyalty, high engagement, which results in them choosing us as their primary platform, not just because of the tech, but because of the trust and, of course, growing earnings for them. This has translated into concrete results within our ecosystem. On a year-on-year basis, not only do we see the growth in a number of active merchant partners, but their earnings also grew 12% during the quarter. For our Mobility business, total active driver partners increased 4% quarter-on-quarter and 16% year-on-year to reach another all-time high in spite of macroeconomic uncertainty. So when we build these AI tools well and we may generally partner and outserve them, the economics tends to follow naturally. Douglas Eu: Thank you, Anthony. So another highly asked question is on regional corporate costs and also related to AI. So this comes from several analysts, Jiong at Barclays, Wei at Mizuho, Divya of Morgan Stanley and Ranjan of JPMorgan. So regional corporate costs increased year-on-year to $114 million for the first quarter. Can you help us understand how much of the step-up is AI infrastructure costs, whether it's tokenization of cloud versus general inflation as well as FX? And how should we expect the AI spend to start translating into measurable cost savings elsewhere in the P&L that can offset this higher regional corporate cost run rate. So this is a question for Peter. Ping Yeow Tan: Sure. Let me just start by saying that the step-up that you saw in the first quarter of regional corporate costs was a conscious decision. We made that decision as a management team to invest in the AI infrastructure that we've been talking about for many quarters. And Anthony just answered the question regarding AI and what we will be deploying to our partners as well as now we're starting to deploy to our consumers also at the same time. And that really underpins to the Grab intelligence layer that we spoke a lot about actually a few weeks ago, at the GrabX event regarding the new 13 new product AI experience features that we're rolling out. So we are investing in our -- in the AI specifically towards tokenization stack that we saw in the first quarter and the cloud capacity that needs to run that powers those tokenization at the same time. Now the early returns on those investments is critical also we can't discount because that's also showing up in the numbers. And Anthony just also shared some of those on the driver side and the merchant assist by where they're seeing the impact on earnings, which is really a critical part of that healthy ecosystem. If you look at the adoption of these driver system, which is now over 50%, and we generated over 1.25 million interaction in just 2 months since we rolled it out. We've seen also for merchants that are using the AI assistant, their GMV is also up double digits on a year-over-year basis. So they're thriving as a merchant, and we're benefiting also as a platform from that. And this is the type of things that we want to see more and more coming out from these AI rolloutS, which is really critical. Now if you strip it all these AI investments, and we saw some FX headwind also from the weaker USD, the U.S. dollar and our underlying cost base, which is really important remains lean and disciplined. And that's been a mandate that how we run Grab. So I'm not expecting any further step-ups from regional cooper costs. We expect the regional copper cost to stabilize around the levels that you saw in the first quarter for the rest of 2026. Douglas Eu: Thank you, Peter. So the next question now moves to the share repurchase, and this comes from Ranjan of JPMorgan and Divya from Morgan Stanley. So Grab has announced that acceleration to repurchase $400 million of shares at the end of March itself. Nonetheless, the basic and diluted shares have increased quarter-on-quarter. So what is the impact of dilution from stock-based compensation? And with regard to the share repurchase program, would you consider upsizing this given the current stock price? Peter Oey: Okay. So I'll take this one. If you step back, when we announced a $500 million buyback program earlier this year. And I announced also a $250 million accelerated share repurchase and an additional $150 million in contingent forward purchase on the 24th of March. So a total of $400 million has been accelerated, which means only in the market for 5 to 5 trading days in Q1 itself. So you can't look at it in isolation. Now both these programs are expected to be executed over the next 4 months. So I'll share a lot more in the next quarterly earnings when we look at the Q2 results. Now in terms of share count, it would have amount to roughly around 2% of our total share count, which will more than offset for the dilution from stock-based compensation. So that's how we're viewing it. As a reminder, there's still another $100 million left to go in the share buyback program, and we'll continue to have discussions around capital allocations with our Board. Douglas Eu: Thanks, Peter. So the next question now moves to groceries. This question comes from Wei of Mizuho. So regarding to grocery contribution, you've mentioned that GrabMart is only 10% of deliveries GMV, but growing 1.7x faster than food. When you look at the grocery TAM in Southeast Asia and the economics of the GrabMart model itself, where does GrabMart need to be to basically -- to contribute to delivery GMV by 2028 to underpin the $1.5 billion EBITDA target? And at what point does grocery become margin accretive to the segment rather than the drag to the blended deliveries economics? So this is a question for Alex. Alexander Charles Hungate: So GrabMart is an exciting segment. I mean, the TAM is very large, arguably larger than food delivery altogether. So we are doing a lot to accelerate the product innovation particularly the front end, the AI-powered shopping agent, which we think will transform the ease with which consumers can, for example, create a weekly shopping basket and then improve the targeting for Grab more cross-sell as well. And by the way, Grab more grew more than double-digit quarter-on-quarter. So I think very, very good signs for both of those things. Overall, as a result, the MTUs going into grocery at 2.6x the rate of food MTU growth on a year-on-year basis. So that shows you that it's really expanding the top of our funnel, which is extra important in the age of AI in terms of generating data and deepening the long-term value relationships that we have with our consumers. And then the order frequency that we saw were 1.8x higher than the food-only users, which illustrates that long-term value enhancement that I was speaking about. So over the long term, the North Star is very clear. We've got global peers, who have achieved like 20% to 40% mart penetration as a percentage of their deliveries business overall. So it's definitely the right model that we're pursuing. And with regards to the 3-year guidance that you asked about, we expect that GrabMart will maintain its current growth momentum and outpace delivers growth throughout and therefore the higher basket sizes, the engagement and the lifetime value we can achieve reinforce our conviction to achieve a long-term sustainable economics alongside it as part of a comprehensive super app LTV relationship customers powered by AI. So that's how we think about it rather than a stand-alone vertical by vertical. That's our -- the power of our approach and that power becomes enhanced in the AI world where our optimization across all those verticals to get to the right LTV customers is particularly powerful. Douglas Eu: Thanks, Alex. So the next question, we'll move to Financial Services. This comes from Ranjan of JPMorgan. So a 2-part question. So the first question is regarding the deposits. Deposits have remained flat quarter-on-quarter. The question is, what are the challenges that Grab is facing in growing it's deposit base. The second part of the question is on the loan book and securitization. So would Grab consider securitizing its loan book to free capital to grow the business forward as well. So perhaps the first question will be for Alex and deposits and Peter, a question on securitization. Alexander Charles Hungate: Okay. Well, first of all, we actually don't have any issue at all in raising deposits. We've been really gratified at the trust that consumers have in the Grab brand, the Grab ecosystem, our capabilities to protect their money. And if you look at the pricing of our deposits, we are never the most aggressive in the market. We're able to actually gather sufficient deposits to create the right shape of balance sheet. So there's no point having excess deposits, particularly in this yield curve environment. So what you're seeing is that's carefully managing the level of deposits to make sure that we optimize for P&L purposes. If we needed to raise more deposits, we're very confident that we can do that. Peter Oey: On the topic of securitization, it's a potential tool for us to be able to recapital recycle on a long-term basis, particularly as the loan book grows. Just to remind everyone, we have 2 parts of our lending book we have, the bank's piece also, which are backed by the customer deposits and then you've got also our Grab Financial Services nonbank side, which is on balance sheet equity-wise. If you look at our current priorities, really scaling the lending through our digital banks, we have deposits of roughly $1.6 billion. There's still a lot of headroom in terms of the loan-to-deposit ratio that we could deploy towards those loans. And we are still on target to get to the $2 billion loan book by the end of the year. So our priority now is to use -- make sure that our digital banks capital structure is efficient, and those deposits are an important component of that. But long term, there could be options for us to recycle. That's not an immediate priority right now. Douglas Eu: Thank you. So now we'll move on to the final question for today. This comes from Piyush of HSBC. So regarding to Foodpanda Taiwan recently announced acquisition, can you share the progress and what are the key milestones to watch and likely timings of those milestones? So final question for Alex. Alexander Charles Hungate: Well, maybe a very brief final answer then, Piyush, Thanks. So we're in the middle of the approval process to regulators. So no real updates today, but we'll make sure we provide updates as soon as we get any further feedback. Thank you. . Douglas Eu: Okay. So thanks, everyone, for the questions. So that concludes today's earnings call. Let me hand over the time to Peter to deliver the closing remarks. Peter Oey: Thanks, everybody. Look, great, there's a lot going on, typically in Southeast Asia and in Grab. Hope you got a flavor in terms of how our performance are. Q1 is off to a fantastic start for us across all the financial fundamentals of our business. A lot of questions around fuel prices, obviously, which we hope we've addressed that. We are leaning in. We want to make sure our driver community are also benefiting and also I will be helping them along the way. And people are continuing to make sure that EV acceleration also happens within Southeast Asia. It's a great catalyst for that for us to lean in on EV adoption. A lot of questions around Indonesia, also around the 8% commission. Just to reiterate, our demand or 2-wheels business for Indonesia is less than 6% of our GMV. We continue to reiterate our full year guidance for the rest of the year. What makes us confident is the traction that we're seeing across the portfolios of our businesses today. So all the hard work. Thank you very much for all the Grabbers. Thank you for all the support you gave us in the first quarter to all our driver partners, to all our merchants for all the things that we want to serve and help you also thrive. Thank you very much for the first quarter and also to our shareholders for our support. As usual, the IR team, Ken, Doug and I will be on the road over the next few weeks. We'll be in the U.S., We will be across Asia, Singapore, Hong Kong and also in Australia. Don't feel -- please reach out to us if you want to meet with us or have a chat, have a coffee. We're more than happy to sit down with you. See you all next quarter.
Operator: Greetings, and welcome to the Advanced Energy First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Edwin Mok, Senior Vice President of Strategic Marketing and Investor Relations. Please go ahead. Yeuk-Fai Mok: Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy First Quarter 2026 Earnings Conference Call. With me today are Steve Kelley, our President and CEO; and Paul Oldham, our Executive Vice President and CFO. You can find today's press release and presentation on our website at ir.advancedenergy.com. Before we begin, let me remind you that today's call contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially and are not guarantees of future performance. Information concerning these risks can be found in our SEC filings. All forward-looking statements are based on management's estimates as of today, May 4, 2026, and the company assumes no obligation to update them. Any targets beyond the current quarter presented today should not be interpreted as guidance. On today's call, our financial results are presented on a non-GAAP financial basis unless otherwise specified. Detailed reconciliation between our GAAP and non-GAAP results can be found in today's press release. With that, let me pass the call to our President and CEO, Steve Kelley. Stephen Kelley: Thanks, Edwin. Good afternoon, everyone and thanks for joining the call. First quarter revenue came in above the midpoint of guidance, driven by record data center revenue. Total revenue increased 26% year-on-year and gross margin exceeded 40%. In the second quarter, we expect to deliver record revenue, largely due to strength in semiconductor. Looking into the second half of 2026, we see increased demand in all of our markets. We are particularly well positioned to benefit from AI-related capacity investments in data centers and wafer fabs. We are also seeing steady improvement in the industrial medical market as evidenced by a 14% sequential increase in bookings, and a growing backlog. We delivered over 40% gross margin in the first quarter. The culmination of a multiyear effort to improve our manufacturing and efficiency and product differentiation. Our investments in leadership technology and world-class manufacturing are paying off. Looking forward, we believe that we can further increase gross margin as high-value products ramped to volume and manufacturing efficiency continues to improve. Given our progress over the last few years, we are confident that we can achieve the longer-term goal of greater than 43% gross margin. Given the strong demand environment, we are executing our capacity expansion plans in Malaysia, the Philippines and Mexico. Moving forward, we will focus on building out capacity at our new 500,000 square foot facility in Thailand. Qualification builds for semiconductor and data center products are kicking off this quarter, with initial production slated for late '26 or early '27. Exiting the year, we expect to have over $2.5 billion in revenue generating capacity. The addition of Thailand will bring total capacity to over $3.5 billion once it is fully built out. Now let me provide some color on each of our markets. Semiconductor revenue increased quarter-over-quarter and was flattish year-on-year. In the first quarter, customer forecast strengthened considerably which we believe will drive record performance in 2026 and continued growth in 2027. We are delighted by the widespread customer acceptance of our eVoS, eVerest and NavX plasma power technologies. These technologies enable significant improvements in throughput and yield at the leading edge and are expected to drive market share gains into the next decade. In addition, we are seeing wider adoption of these technologies across multiple generations of processes, and device types. We are also benefiting from an uptick in demand for our system power products, largely due to recent wins in test and wafer fab equipment applications. In data center computing, we delivered record revenue in the first quarter. Overall demand in the data center market remains very strong. Based on customer forecast, we expect second half revenue to be stronger than first half. We continue to make solid progress developing next-generation technology, including 800-volt solutions. We are working closely with multiple customers who view AE as a technology leader in this space. The attributes, which have fueled our success in the data center market, power density, efficiency, reliability and development speed will be equally critical to our success in next-generation platforms. In the first quarter, leveraging our technology expertise and product portfolio, we secured multiple new wins with second wave data center customers. Factory qualifications should be completed this year ahead of production ramps in 2027. Industrial & Medical revenue was up year-on-year but down sequentially. Although demand is improving, factory priorities in the first quarter limited our output. We expect to increase our factory output in the short term, which should enable I&M revenue to track bookings moving forward. In Medical, we secured multiple wins in therapeutic, diagnostic and life science applications. In Industrial, we won key designs in test and measurement, factory automation and battery backup applications. We secured many of these wins by adding custom features to best-in-class technology platforms. enabling us to meet customers' unique requirements. We have won a number of opportunities with new customers, many of whom discovered AE products on our website. Some of these wins have been quite large reinforcing our view that the new website is acting as a force multiplier in the I&M space. Telecom & Networking revenue grew to its highest level since 2023, driven by the production ramp of several AI-related wins in the networking space. Now I'd like to provide an update to our 2026 view. Based on strengthening demand and new product momentum, we are now expecting year-on-year revenue growth in the low to mid-20% range. This outlook represents the second consecutive year of greater than 20% growth for Advanced Energy. In semiconductor, we expect demand to start accelerating in the second quarter, supporting a stronger outlook for 2026. With some of our new products moving into high-volume production later this year, we believe that we are well positioned to drive further growth in 2027 and beyond. In data center, based on strong customer adoption of our high-power AI solutions, we are raising our full year revenue growth expectation to the mid-30% range. In the Industrial & Medical market, we expect sequential revenue growth over the next few quarters, supported by improved market conditions and their production ramps of several key design wins. Now for some closing thoughts. First, demand across all of our markets is strong, and we are raising our growth target for the year. While supply and cost challenges have begun to surface, we are well prepared to navigate a dynamic environment. Second, we continue to see strong pull for our new products across all target markets. Our design win pipeline is growing and is expected to drive higher revenue and profits in the coming years. Third, we're proud to have achieved 40% gross margin in the first quarter, but we are not done. We have line of sight to 43% and based on the success of our new products and efficiency gains. Finally, we have a solid pipeline of potential acquisitions and we'll continue to actively pursue opportunities, which make strategic and financial sense. Paul will now provide more detailed financial information. Paul Oldham: Thank you, Steve, and good afternoon, everyone. Overall, we executed well in the first quarter. Revenue of $511 million increased 26% year-over-year and was ahead of our guidance driven by strong data center computing revenue. Importantly, we achieved our initial milestone of gross margins of over 40% despite ongoing tariff expenses and less favorable market mix than we originally modeled. It is the highest level since the Artesyn acquisition in 2019, highlighting the structural improvements we've made in operational efficiency and our product portfolio. With solid operating leverage, we delivered record operating income of $98 million. As a result, first quarter earnings per share were $2.09, exceeding our guidance and up 70% year-over-year. Now let's review our first quarter financial results in more detail. First quarter semiconductor revenue of $219 million grew 4% sequentially, finishing just below our mid-cycle peak last year. Looking forward, our outlook is increasing based on stronger customer demand. Data center computing revenue was another record at $194 million, up 9% sequentially and 102% year-over-year. While demand remains high, we continue to experience frequent customer changes in demand mix due to various downstream constraints. While we expect this demand volatility to limit revenue in Q2, we anticipate the ramp of several programs to support a stronger second half. Industrial & Medical market revenue was $72 million, down 8% from last quarter, but up 12% from last year. We prioritized factory production to meet demand in other markets, impacting revenue for the quarter. On the other hand, demand is strengthening as bookings grew 14% sequentially, reaching the highest level since 2023. Distributor sell-through increased again and inventory levels further normalized. Telecom & Networking revenue increased 17% sequentially and 16% year-over-year to $25 million, ahead of expectations due to strength in AI-related networking programs. First quarter gross margin was 40.1%, up 40 basis points from last quarter and 220 basis points from last year. Gross margin was above our previous guidance, driven by better product mix and lower other cost of sales. Looking ahead, we expect to further expand gross margins on ramp-up of higher-margin new products, improved manufacturing efficiency and higher volume. Operating expenses of $107 million were down slightly from last quarter and at the low end of our target range. OpEx increased 9% year-over-year, well below half of our revenue growth rate of 26%. As a result, first quarter operating income reached $98 million and operating margin was 19.1%, up 560 basis points from last year. Depreciation was $10.5 million, and our adjusted EBITDA was $108 million, up 66% year-over-year and also a record. Other income was roughly breakeven versus $1 million in Q4 and mainly due to higher realized FX losses. For Q1, our non-GAAP tax rate was 14.5%, below our target, mainly due to timing of discrete tax items. First quarter earnings were $2.09 per share compared to $1.94 in the previous quarter and $1.23 a year ago. Turning now to the balance sheet. Total cash and cash equivalents at the end of the first quarter was $700 million with net cash of $131 million. During the quarter, we increased inventory by $48 million, mostly in critical piece parts to support growth and improve supply resiliency. As a result, inventory days increased 10 days to 135 with terms of about 2.7x. Correspondingly, DPO increased from 68 days in Q4 to 80 in Q1. DSO increased 6 days to 66 days in Q1 on higher revenue. As a result of the increased trade net working capital to support growth and the seasonal factors such as timing of incentive and tax payments, cash flow from continuing operations was an outflow of $6 million. During the first quarter, we spent $37 million in CapEx as we continue to invest in capacity and capability across our factory network. We paid $3.8 million in dividends, and we repurchased $300,000 of common stock at an average price of $209.36 per share. Turning now to our guidance. We are forecasting our second quarter revenue to be approximately $540 million, plus or minus $20 million. We expect the majority of the sequential growth to come from the semiconductor and industrial and medical markets while data center will moderate sequentially based on timing of customer deliveries. We expect Q2 gross margin to improve 20 to 50 basis points sequentially, driven by higher volumes and more favorable mix. We expect Q2 operating expenses to increase to $112 million to $114 million due primarily to investments in new products and annual merit increases. We expect other income to be approximately $1 million and the tax rate to remain within the 16% to 17% range. As a result, we expect Q2 non-GAAP earnings per share to be $2.18, plus or minus $0.25 on 40.6 million shares outstanding. For the full year 2026, we are raising our revenue growth target from the high teens to the low to mid-20s. The increased growth outlook contemplates solid customer demand as well as some tightening in supply and increasing input costs. In semiconductor, we expect revenue to accelerate in the second half with 2H revenues likely up over 30% from the prior year. In data center, despite a moderating Q2, we expect sequential growth in the second half and are raising our full year revenue growth outlook from over 30% to the mid-30s. In Industrial & Medical, we expect revenue growth throughout the year on higher demand and increased factory output. With continued improvement in gross margin and operating leverage in our model, we expect earnings to grow meaningfully faster than revenue for the year. Finally, we expect our 2026 CapEx will be in the $170 million to $180 million range up slightly from our previous outlook based on initial investments in the Thailand factory to support earlier customer qualifications. Despite higher capital spending, we are targeting 2026 free cash flow to be at or above '25 levels. Before opening it up for questions, I want to highlight a few points. Demand is strengthening across our markets. Our diversification strategy is paying dividends as we are benefiting from accelerating growth in semiconductor, increasing investments in data center and AI infrastructure and a recovering Industrial & Medical market. In addition to positive market trends, we expect our design win pipeline to contribute incremental revenue in '26 and to support more meaningful growth in 2027 and beyond. We are excited to have achieved gross margin of over 40% this quarter and expect to further improve our margins for the full year. Longer term, with higher value new products, ongoing improvements in factory efficiency, and higher volumes, we remain confident in our ability to achieve our long-term goal of over 43%. Finally, our balance sheet remains strong, enabling us to invest in capability and capacity to capture growth ahead while providing ample liquidity to pursue strategic acquisitions that create shareholder value. With that, we'll now take your questions. Operator? Operator: We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Steve Barger with KeyBanc Capital Markets. Jacob Moore: This is Jacob Moore on for Steve, actually. First, I was hoping you could provide us some more detail on the uptake of the new semiconductor products. I mean, for leading edge, of course, but also for the opportunity at nodes larger than 2 nanometers that I think you were alluding to. How has qualification and uptake progressed since your last update, how do you expect it to progress through the rest of the year? And what milestones are you watching out for to determine different levels of success in that rollout? Stephen Kelley: Jacob, this is Steve. Yes, we're seeing quite a bit of uptake on our leading-edge technologies, namely eVerest, eVoS and NavX. And so what these technologies provide to fab operators or improved yield and improved throughput at the leading edge. So right now, that's where the battles are being fought at the leading edge, and we're winning every battle that we're engaged in. So we're in a very good spot. And so once these customers see the improvements we can bring at the leading edge, they want to see those same improvements at some of the other nodes they operate at. And we've also seen migration from one device type to other device types. So we think this is a good thing for the company ultimately because it will allow us to basically ramp our new product revenue faster than we originally expected. We expect to see most of the new product revenue become meaningful, starting late this year, but really into '27 and '28 as some of these node transitions occur. Jacob Moore: I appreciate that. That's helpful. And then second question from us. I actually wanted to focus on Industrial & Medical, which looks like it could represent either another leg of growth or help extend the growth profile beyond the next, call it, 12 to 18 months. So I guess, first, can you just speak to the split that you're seeing between market growth and share gains? And then maybe you could touch on the status of potential M&A, rehash what you're targeting and how that landscape has changed since you first began the hunt to expand there? Stephen Kelley: Sure. Yes. So I think the good news regarding Industrial & Medical is the market has recovered. So we just went through a painful 2-year inventory correction period after the COVID supply chain issues. So based on what we see today, as far as our increased bookings, increased backlog, we think we're in very good shape from a market standpoint. And we're seeing both the industrial and the medical markets pick up. And within those markets, test and measurement, aerospace and defense, factory automation, robotics and anything related to AI are leading the way. We think that the market share gain that we expect over the next 1.5 years is coming from new products. We have a number of significant design wins in our target segments. They're going to help us pull ahead of the competition essentially. So I think we're in very good shape in I&M. As far as M&A goes, and I've said many times that our primary focus is to increase our breadth in Industrial & Medical. And so we think this is a pretty fragmented market where we can in addition to our organic efforts, grow inorganically. So this will be an objective for us. And we think some of the valuation mismatch we've had in past years, those mismatches are starting to close and that will allow us to make an acquisition sometime in the not-too-distant future. Operator: Our next question is from Mehdi Hosseini with SIG. Mehdi Hosseini: Yes, it was on mute. Steve, just a clarification. You talked about 2 capacity expansion and talked about incremental revenue. Can you just tell me what your revenue would be once you're done with these capacity expansion projects? Stephen Kelley: Yes. So in my prepared remarks, I referred to the investments we're currently making in the Philippines, Malaysia and Mexico. And then we expect to be at a run rate or a capacity revenue run rate of over $2.5 billion. So this is our potential essentially after the investments in the current factory network are done. Second remark I made was on Thailand. So we are going to bring up Thailand earlier than we expected based on the strength we're seeing in data center in semiconductor. And so we think once Thailand is built out, that adds more than $1 billion of revenue-generating capacity. So in total, I think we'll be in a position to ship in excess of $3.5 billion with our current factory network plus Thailand. Mehdi Hosseini: Got you. And this capacity expansion projects, when would it materialize? Would that be in the next 1 or 2 quarters? Or would you need more time for the expansion? Stephen Kelley: Yes. So for the current factory network, it's -- the expansion effort is underway, and we'll have that in place in the second half of this year. So that's right around the corner. For Thailand, we'll start the investments late this year. So we're pulling in some of the spending we had expected to make in '27 into second half of '26 so that we can start up production lines for data center as well as production lines for semiconductor. And we're going to start that effort with large customers in with the higher volume products. Mehdi Hosseini: And the 43% margin target, is that inclusive of this capacity expansion projects? Stephen Kelley: It is. Yes. We comprehend the Thailand expansion in that number. really, that number is going to be driven by increasing new product mix. So as we introduce new products, they typically carry better margins than the older products. And secondly, we think we get better from a manufacturing efficiency standpoint. Mehdi Hosseini: Sure. May I squeeze 1 more follow-up. And that actually as a follow-up to this capacity expansion projects. And just strategically, why not focus on executing on these expansion projects, executing on expanding TAM, especially on the data center, why dilute your effort by having M&A on the side or in parallel? Stephen Kelley: Yes, I think it's possible to do both. I think we spent the last 3 years basically streamlining our manufacturing capacity. If you remember, we broke ground on Thailand in 2023. So this has been in the works for a while. I think at the same time, it's very difficult to reach our growth targets in I&M without acquisition. So this is why we think in I&M in particular, it makes sense to push forward organically and inorganically. Operator: Our next question is from Krish Sankar with TD Cowen. Sreekrishnan Sankarnarayanan: Steve, first question is on the data centers. I understand there's like quarterly volatility in data center revenue. But if I take your first quarter and analyze it, it's almost like low 30% growth. You're guiding to mid 30% plus. I'm just wondering, is the data center growth this year inhibitor due to the fact that components are constrained? Or is there something else going on in terms of the build-outs or market share or something else? Stephen Kelley: Yes, I think that's a great question. And as we look forward into 2026, the forecast -- the unconstrained forecasts are quite strong, but our customers are dealing with downstream constraints. And so that's really tempering expectations for 2026. However, I think we think that some of these constraints will be addressed and so that would allow us to increase our forecast. So I'd say in data center, there's definitely a bias to the upside in our '26 forecast. But again, some of these constraints need to be knocked down and then we'll be able to take advantage of a better short-term SAM. I think you may have noticed that our inventory is going up. And much of that increase is us preparing to take advantage of these upsides that appear as our customers knock down these short-term constraints. So we are ready to respond if these constraints are addressed. And actually, there is some of that in the first quarter. We were able to outperform in data center in the first quarter largely because some of the constraints were addressed by our customers. Sreekrishnan Sankarnarayanan: Got you. And then a similar question on the semiconductor side. When I look at your full year revenue guide, let's say, mid-20% revenue growth, data center mid-30%. It looks like semis is probably under growing what your dep and etch customers are talking about for WFE in the high 20%. So I'm just curious like what's going on in the semiconductor side. Are you just being conservative? Or do you think that semi growth could be actually high 20s for you, too? Stephen Kelley: Yes. I think if you look over time, we had a good year last year, it was our second largest revenue year in our history. And so we came into 2026 pretty hot. And as you look forward in 2026, Actually, if you compare the second half of '26 to the second half of '25, our revenue in semiconductor will be up more than 30%. And so we're going to be going very hot into 2027. And so we're we are very happy with our backlog in semiconductor. And that's one of the reasons we're going to be opening in Thailand faster than we expected. Operator: Our next question is from Jim Ricchiuti with Needham & Company. James Ricchiuti: I just wanted to go back to the data center computing growth that the moderation you're anticipating in Q2. Was there any pull-in activity into Q1? And as you talk about growth accelerating again, is that something we should see as early as Q3? Or do you -- the constraints to your customers that they're facing, does that mean the growth pickup is more in Q4? Stephen Kelley: Yes, Jim, I wouldn't characterize the Q1 outperformance as a pull-in. I think it was us taking advantage of an opportunity that was created when our customers were able to address their supply constraints downstream. And so I think that's an indicator of what's going to happen in future quarters in '26. Very difficult to predict, but we know the demand mix is quite dynamic. We're trying to stay in a position where we can respond quickly to changes in demand from our customers. So I think that, again, there's upside potential in data center this year and we're positioning to take advantage of that. James Ricchiuti: Okay. When you talk about the factory priorities, limiting the I&M I'll put in Q1. Wondering if you could size that. And so maybe elaborate, were these resources shifted to other verticals. Can you talk about that? Stephen Kelley: Yes. Yes. So we build the I&M product in the same factories as we build the data center product. And so we had a surge in demand from data center in Q1, particularly in the last month of the quarter. And so our factories pivoted to data center. And unfortunately, we underperformed in Industrial & Medical. So I'm giving my personal attention to make sure we catch up to that demand over the next 2 quarters. So I think we'll solve this problem. The good news is we know what to build. Our backlog is robust now. So we're not taking a guess. We know exactly what the customers need and we're going to build it. James Ricchiuti: Okay. Do you expect to catch up in Q2 there? Stephen Kelley: Yes, it'd be Q2 and into Q3, and I think we'll be caught up. James Ricchiuti: And maybe one final question just for me is, are there semi device types in particular that you're gaining traction with the new products? Stephen Kelley: So you're talking about semiconductor processes and so forth, Jim? James Ricchiuti: Yes. Stephen Kelley: I think we've basically focused on the leading-edge processes, both in memory and in logic. And so we've been working with our customers are very closely for the past 3 years. And also, our customer's customers are also involved in the equation. So a lot of iteration going on. And what it's leading to is the realization that these technologies provide real benefits at the leading edge. And so that's why we're excited about the potential to grow share based on these new technologies, and we can grow share in both memory and in logic. James Ricchiuti: Are you willing to share any kind of revenue expectation for this year from the new products collectively? Paul Oldham: Yes. We haven't really guided to that, Jim. We said we made our goals last year. We expected to increase that significantly this year. But based on the timing of when these nodes start to ramp, we said that it'd be more significant growth in 2027. Operator: Our next question is from Scott Graham with Seaport Research Partners. Scott Graham: I have a couple of follow-ups on data centers and maybe I'll just ask it all at the same time. So your sales in the first quarter were above your thinking. And it looks like that's going to sort of stabilize kind of go a little bit the other way in the second quarter. And I understand it's a customer thing. But I guess my question is, why wouldn't customers -- I mean, data center demand is so dynamic right now, as you guys know. And it seems like these same customers faced some challenges yet we're able to kind of, for a lack of a better term, fix them in the first quarter. Why won't that happen in the second quarter? Stephen Kelley: Yes, it's possible, that happens. But I think we do tend to guide conservatively. We see what's in front of us. We take the forecast into account and we typically will not include the upside in our forecast. But again, we're trying to stay as flexible as we can so we can respond quickly to our customers' change in forecast. So I think if there is an upside, we can take advantage of it. Scott Graham: And I also know that your guidance for the quarter and the year in data centers was not including new customers. So I'm wondering if you have a flat period in 2Q, does that enable some revenues harvested from new customers to backfill? Stephen Kelley: I don't think so. So the position we're in right now with the second wave customers is that we've completed a number of qualifications in the first quarter, and we're working on additional ones this quarter. And those second wave customers are now qualifying our factories to produce those products. That's typically a 6- to 9-month process. So right now, we expect the second wave customers to begin contributing meaningfully on the revenue line in '27. But there is some potential to pull some of that revenue into the fourth quarter of '26. Scott Graham: And then I guess my last question is on the gross margin. So I think we -- in our conference call last quarter, you talked about, hey, we think we're going to hit a 40% gross margin this year, implying one of the quarters. So now it looks like you're going to not only hit it in the first quarter, but now you can hit it again in the second quarter off of your guidance. And I'm just wondering is now a 41% gross margin, a point higher doable for 1 of the next -- 1 of the 2 quarters in the second half? Paul Oldham: Yes. This is Paul. Yes, I think you're right about that. Clearly, we are a little bit ahead in Q1. We think we can build on that going forward because we are seeing traction on some of our new product mix. We're making progress in some of the factory optimization and other things. And in general, as we have higher volumes, we should get some benefit. So when we look forward, we see that we should be able to improve gross margins modestly each quarter, which could definitely mean that we could get to 41% by the end of the year. Operator: Our next question is from Elizabeth Sun with Citi. Yiling Sun: I guess my first question is on the 800-volt transition. Steve, you mentioned in your prepared remarks, you are working with multiple customers working on some solutions. So I was just wondering if you could double click into what kind of solutions you are working on and what kind of customers you're working with and the ramp -- the timing of the ramp in 800 volt, I think your competitor is talking about second half ramping actually. And also, what will be the puts and takes for AE's demand when the transition happens? Stephen Kelley: Yes. Thanks, Elizabeth. So right now, we're sampling our solutions to key customers and we have a number of different options. So we have developed some 800-volt to 50-volt modules that provide 4,000 watt power, 6,000 watt output power and 8,000 watt output power. So we have different options for our customers. What differentiates us is very high efficiency, around 98% efficiency, high-power density and high reliability. So these are very important to customers. And we've been told that we're leading from a technology standpoint. So we've got a number of customers that are very interested in technology. We're sampling it. We expect the initial production revenue, most of that will start next year. I think you'll see some small amount of revenue this year, but really, it starts in earnest in '27 and becomes more meaningful in '28. We think it's also good news for us because we think it increases our dollar content per rack. And generally speaking, these types of changes in technology are good for AE because we have a lot of the knowledge already in-house. So we're, I think, very well positioned as some of these data centers transition to 800 volts. Yiling Sun: Got it. And the follow-up on the second wave of customers in data center. First question is just a clarification. If the demand pulls in into the later half of this year, would that be incremental to the 35-ish percentage data center growth? And also like how should we think of the size of the ramp or like -- and the size of the volume potential. And also, if it pulls in, do you have enough capacity to support the ramp, if that pulls in early? Paul Oldham: Yes. Elizabeth, this is Paul. Yes, so we don't have any forecast for our second wave customers in our guidance for 2026. So any of that we're able to pull in would be upside to the 35% growth. And I think getting started on winning some of the designs and getting started on the actual manufacturing line qualification on that I think is pretty exciting for us because we're seeing, in general, that pull in. We haven't quantified what that is. These aren't going to be customers that are the same size as our kind of primary customers, but they could be meaningful, and there are several of them. So on balance, we see this as a pretty significant driver or supportive to growth in 2027 from data center as we essentially expand our penetration across a broader set of customers. Operator: Our next question is from Quinn Fredrickson with Baird. Quinn Fredrickson: Yes, thank you for the question. Just as we think about the data center outlook that you've outlined for 2Q and the back half, how should we think about supply constraints playing out from here? Or are you anticipating those sequentially ease at all or stay the same in order to hit the guide that you've discussed? Stephen Kelley: Yes. Quinn, the supply constraints I discussed so far have been downstream supply constraints. So they're really constraints our customers are dealing with. That's been the limiting factor, I think, in our forecast. So far, I think we're doing a pretty good job of managing our supply chain. That's not to say we won't run into issues. But so far, nothing has really stopped us from shipping product. So yes. I'm hopeful that our customers can knock down some of the supply chain issues later this year and we can increase our forecast. Quinn Fredrickson: That's helpful. And then Second, just on the new products. Curious if there's been any move forward in the timing of your dielectric etch wins converting to revenue at all? I know one of your larger customers is recently discussing a pull forward of NAND conversion spending? Is there a potential that could move up the timing of new equipment orders and your wins in dielectric etch at all? Stephen Kelley: Yes. So on dielectric etch, we haven't been too specific about wins, but I'm very confident that we'll be able to communicate wins later this year. I think that what we're doing probably has little connection to the NAND upgrade exercise, it has a lot to do with next-generation nodes in DRAM and logic. Operator: Our next question is from David Duley with Steelhead Securities. David Duley: I guess, first off, as far as the improvement in gross margins in the March quarter, that was done with the semi revenue being down, so I'm kind of curious if you could just elaborate on why the gross margin was better in Q1 given the semi mix was down. And I guess a second question I have is regarding your new growth rate for semi in the second half of accelerating, I think, by 30%. Do you think that's more driven by your products actually starting to ramp up or is it more driven by just 2-nanometer spending is broadening out definitely beyond TSMC as we've seen in the news lately with both Samsung and Intel kind of joining the party? Paul Oldham: Yes. Good question, David. I'll take the first one. Yes, margins were up in Q1. And I think the thing that we saw that was pretty encouraging was that at the product level, the mix was better. We're seeing a little better traction on our new products kind of across the portfolio, which carry better margins. And so even though as a proportion, data center was higher and semi was a little bit lower. At the product level, we saw improvement. I think that's encouraging because, as you know, we're counting on that being a driver of gross margins as we move towards our 43%. And frankly, we think that can carry on through the year, and we should get some benefit given the -- what we see accelerated growth in semiconductor right now. We also saw a little better, what I'll call other cost of sales, just a variety of things were a little bit better, including some cost of quality, made a little bit of progress on some of our ramp costs and efficiency. And we had a very modest pickup from tariffs. So on balance, we had a few things kind of go the right way, and that offset kind of more broadly our factory ramp costs and slightly higher material premiums. On balance, we feel good about the progress we're seeing. We think that can carry forward, which is why we've essentially modeled up slightly our gross margin outlook for the year. Stephen Kelley: Maybe I'll make a few comments on the revenue increase. I think as you look at our forecast for second half and the growth that we're forecasting is primarily due to growth in our flagship product revenue. When I say flagship, I mean the older products that have been designed in for a while. We're also being helped by wins in the system power space with semiconductor testers as well as wafer fab equipment. The new products become significant starting in Q4 this year, but they become a bigger factor in 2027. David Duley: Maybe you could comment a little bit on what your customers are saying about growth in 2027. And if the 2-nanometer kind of ramp is spilling over into 2027? I would think that your semi business would perhaps go faster in '27 than it grows in '26? Stephen Kelley: Yes. Yes, our customers in semiconductor are very enthusiastic about 2027. And I think one of the key factors is -- at the leading edge, there's a lot of new clean room space coming online in '27. And so they'll have a place to put all this new equipment. So again, if you combine that with new product revenue becoming more significant in '27 due to the node transitions, I think it's going to be a very good year for Advanced Energy in the semiconductor space. David Duley: Okay. Final thing for me, as you mentioned it twice in your prepared remarks and the Q&A here as the systems business for, I think, you said test semiconductor testers and other wafer fab equipment. Can you just kind of help me understand how that's different than the boxes you provided for your big OEM customers at this point? Stephen Kelley: Yes. Yes. So let me just explain that. We divided broadly into 2 categories. Plasma power is basically RF or pulse DC power we provide that's injected into a plasma chamber, and that's been our traditional business. Now when we talk about system power, we're talking about the power that the machine uses to operate. So this is -- think of it as between the wall and the machine, that's system power. And so that could also be relatively sophisticated because these machines are very complex. And we've made a push into this area over the last few years and they're starting to pay off for us. David Duley: How big a TAM do you think this is? Yeuk-Fai Mok: Dave, what we have said is that in aggregate, also our plasma power is over $1 billion market opportunity for us. That's what we disclosed in 2025 analyst event, and that's what we have said. Operator: Our next question is from Brian Chin with Stifel. Brian Chin: Maybe 2 questions from us. First, on the data center, definitely hear that the quarterly revenue progression in D.C. is more owed to timing and variability. But just thinking on a full year on your perspective, Increasing power content per rack wasn't a major tailwind last year. It should still be a tailwind, but would you say it might be less pronounced this year relative to last year? Stephen Kelley: I don't think so because we continue to develop solutions for increased power. It's just a continuous exercise for us. And so I would say this is one of our advantages because the basic challenge is to continue to increase the power density at the same time, don't sacrifice reliability or efficiency. So basically, you have the same amount of space, but you have to produce a lot more power. And to do that reliably and efficiently is a challenge from a design standpoint. And so that's one reason we've been able to be successful with our hyperscale customers, and we've been successful now with the second wave customers because we have that combination of technical features as well as good speed of development. And then finally, we've got the factory network to produce these boxes in high volume. Brian Chin: Okay. And then second question on semi cap. And answer this however you're comfortable addressing it, but in terms of that second half guide that you're providing. Do you think you're shipping in sync with customers or perhaps a little ahead given that multiyear visibility and outlook? And then kind of second part of that is from a supply chain perspective, given the duration of visibility certainly well into next year, has that given you a lot of confidence to go out and maybe be really proactive sourcing some of those components, maybe call it chips, other materials that can be issues as you get through like a multi-quarter growth period? Stephen Kelley: Okay, Brian. So on the customer demand being in sync with their requirements or are they putting in inventory essentially. Our view is that we're more or less in sync. I think what we've seen is across the customer set that we've received increased orders. And that's because of leading the edge primarily. So we know the end market demand is there. I think the constraint right now in semiconductor is really clean room space. And so if some of these clean rooms come on faster than expected, then that will increase demand and if they come on slower than expected, then we may create a little bit of inventory, but I don't think it will be much. Now as far as supply chain goes, it's a hot topic, right, especially after COVID when we had to deal with so many issues. So we have been leaning into the inventory so that we are able to have some reserve in case things get tighter, lead times go out. So I think we spent quite a bit of time on the supply chain topic. And one of the things we did during the COVID supply chain shortages was to develop more second sources, which we've done. So that gives us more flexibility and where we couldn't develop a second source, then we put in extra inventory. So I think we're going into this with our eyes wide open, and we're pretty aggressive on the inventory front. Operator: Our next question is from Jim Ricchiuti with Needham and Company. James Ricchiuti: Paul, you may have given this, I apologize if you did. But any color on OpEx as we look out over the balance of the year beyond Q2? Anything we should be thinking about? Paul Oldham: Yes, Jim, obviously, OpEx was down a little bit in the first quarter. So we've done a good job controlling spending there. But in the second quarter, we do have our annual salary or merit increases. So we've guided second quarter of $5 million to $7 million. We continue to expect that, that run rate will increase a little bit every quarter, kind of what we said before, as we invest in these new programs, primarily in engineering as well as some variable costs with higher volumes. So we would expect operating expenses to be in the $460 million range for the year and kind of graduating up kind of sequentially to basically at that level. Operator: Thank you. This concludes our question-and-answer session and our conference for today. We thank you again for your participation. You may disconnect your lines at this time.
Operator: Good afternoon, and welcome to Cryoport, Inc.'s first quarter 2026 Earnings Conference Call. All participants will start in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. As a reminder, this call is being recorded. I will now turn the call over to your host, Todd Fromer from KCSA Strategic Communications. Please go ahead. Todd Fromer: Thank you, operator. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events, or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on the information currently available to our management team. Our management team believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events, and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1A Risk Factors and elsewhere in our Annual Report on Form 10-Ks to be filed with the Securities and Exchange Commission and those described from time to time in the other reports which we file with the Securities and Exchange Commission. As a reminder, Cryoport, Inc. has uploaded their first quarter 2026 in review document to the main page of the Cryoport, Inc. website. This document provides a review of Cryoport, Inc.'s financial and operational performance and the general business outlook. Before I turn the call over to Jerry, please note that because of the strategic partnership that has been established with DHL Group, and the related sale of Cryo PDP to DHL in June 2025, Cryo PDP's financials, which were previously a part of Cryoport, Inc.'s Life Sciences Services reportable segment, are now presented as discontinued operations. Please note that unless otherwise indicated, all revenue figures discussed today will refer to continuing operations. This includes Cryoport, Inc.'s fiscal year 2026 revenue guidance. It is now my pleasure to turn the call over to Mr. Jerrell W. Shelton, Chief Executive Officer of Cryoport, Inc. Jerry, the floor is yours. Jerrell W. Shelton: Thank you, Todd, and good afternoon, ladies and gentlemen. With me today is our Chief Financial Officer, Robert S. Stefanovich; our Chief Scientific Officer, Mark W. Sawicki; and our Vice President of Corporate Development and Investor Relations, Thomas J. Heinzen. Our first quarter results continue to demonstrate our market-leading position, as revenue was $47.8 million, up 16% year over year, which puts us off to a very strong start for the year. This growth is a combination of our momentum over the past several quarters across our integrated services and products platform. Revenue in support of our commercial cell and gene therapy grew 26% to $9.1 million, while revenue from clinical trials grew 18% to $12.9 million. We continue to support one of the industry's broadest cell and gene therapy pipelines, and our leadership across both commercial and clinical programs positions us well for future sustainable growth. As of March 31, we supported a record total of 766 global clinical trials, a net increase of 55 clinical trials over the prior year, with 91 of these clinical trials in Phase III. From this market-leading base, we believe we will continue to drive robust growth in our commercial revenue in both the near and the longer term. During the first quarter, I am happy to report that our client, Rocket Pharmaceutical, received an accelerated approval from the FDA for their gene therapy, Crislotti. With this approval, the number of commercial therapies we are supporting has increased to 21. For the remainder of 2026, based on current information, we expect another 10 BLA or MAA application filings and up to eight additional new therapy approvals. Our Life Sciences Services segment delivered a strong quarter, with revenue increasing 18% year over year, including 21% growth in biostorage/bioservices. This performance reflects increasing adaptation of our full-service portfolio in conjunction with the increasing scope and complexity of the cell therapy programs we support. It also underscores the critical role we play in supporting our clients with our extensive array of integrated temperature-controlled supply chain services and solutions. Our Life Sciences Products segment also performed well, generating 15% revenue growth driven by global demand for MVE Biological Solutions cryogenic systems. For over 60 years, MVE has provided high-quality, reliable cryogenic systems to the market, and every day it continues to further reinforce its position as the global leader. For example, during the first quarter, MVE introduced its new Fusion 800 series, which is a self-sustaining cryogenic freezer that eliminates the need for a continuous liquid nitrogen supply feed, delivering exceptional reliability, safety, and sustainability in a compact footprint designed for space-constrained environments where a source of liquid nitrogen is not readily available. This is quite an accomplished engineering feat, which will pay dividends for years to come as we open up new markets that were heretofore inaccessible. Growth across both our reporting segments—Life Sciences Services and Life Sciences Products—combined with solid gross margins and continued operational discipline, drove a $2.2 million year-over-year improvement in adjusted EBITDA from continuing operations, advancing us meaningfully along our pathway to profitability. We also reached a milestone moment during the first quarter as our IntegraCell team shipped its first cryopreserved clinical trial patient materials from both our Houston, Texas, and Liège, Belgium, facilities for two separate clients. This achievement highlights IntegraCell's progress as it continues to develop and moves us a step further toward being a meaningful contributor to the cell and gene therapy industry and to Cryoport, Inc.'s future revenue and profitability. In parallel, we continued to advance our digital and information strategy, including initiatives in digitization and generative AI to support complex internal workflows and improve our effectiveness and efficiency in day-to-day operations. Our focus is currently on enabling employees to use secure, enterprise-approved generative AI tools to automate repetitive tasks, analyze data in real time, manage risk, and accelerate decision-making and execution. We are already seeing tangible benefits and believe AI will play an increasingly important role in our future. Reflecting on our strong performance for the first quarter and our increased visibility into the remainder of the year, we are raising our full-year 2026 revenue guidance to $192 million to $196 million. We continue to review our guidance on a quarterly basis and we will make any further adjustments as warranted. We also believe that, based on our progress year to date, we will achieve positive adjusted EBITDA in the second half of this year. This concludes my prepared remarks. We will now open the call for questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. You will hear a prompt that your hand has been raised, and should you wish to cancel your request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from the line of Puneet Souda from Leerink Partners. Please go ahead. Puneet Souda: You had a $3 million beat versus the consensus, but you are raising the guide by $1 million. How much of that is prudence being early in the year? Any other considerations? And how should we think about 2Q, if you can provide some context there, given the momentum you are seeing in the business versus core clinical trials? Jerrell W. Shelton: Thank you for the question, Puneet. We think that Q1 was an outstanding quarter, but we think it is a responsible guide given the continued uncertainty on a global macroeconomic basis. We will continue to evaluate this on a quarterly basis and adjust the guidance if warranted. Puneet Souda: Maybe switching gears to MVE Life Sciences Products. You had 15% growth against an easier comp. How should we think about growth for Life Sciences Products overall with the new product introduction this year? Wondering if Robert can comment on that too. Jerrell W. Shelton: Robert can comment on it, but I will start. All products in life sciences take time to ramp up, whether it is products or facilities. It will take time for those products to ramp up in the marketplace and to have any kind of an impact. We do think the markets are solid and have solidified, and we see continued indications that support that. We think that we will have a high single-digit growth market going forward. We may exceed that from time to time, but that is our assessment. Robert, you may want to add some things there. Robert S. Stefanovich: The outperformance during Q1 was really driven by strong demand across all geographies and solid performance, particularly in animal health, but also life sciences overall. MVE is the number one leader in the market worldwide. We already saw stability in 2025 in terms of the return of product demand for cryogenic systems, and we continue to see that improvement as demonstrated in our Q1 performance. Puneet Souda: We have seen improvement in biotech funding in the fourth quarter that has continued so far in the first quarter. Are you seeing higher momentum from that for RFP or contract volumes in the first quarter or the second quarter so far? Your net clinical trial adds were only six, but are you seeing momentum from customers given the funding environment? Jerrell W. Shelton: Mark will take that. Mark W. Sawicki: Happy to. We are seeing definitive continued investment into Phase II and Phase III programs. If you take a look at our numbers, the Phase II data itself and Phase III data are increasing very nicely. Phase III was up five trials sequentially, which is very unusual, and we have not seen that in a long time. Year over year, Phase II is up almost 30 programs. A lot of that money is going into pushing these late-stage clinical assets over the finish line. We do see very positive signs from that. Jerrell W. Shelton: To add to it, it is less about the number of increases in clinical trials. It is really looking at the 706 clinical trials we are supporting. That is a very strong number. As Mark mentioned, the maturation of those trials moving into Phase II and Phase III is key. You will remember that the majority of cell therapies approved to date went directly from Phase II to commercial launch, conducting their Phase III in parallel. You really have to look at the [inaudible] Phase II clinical trials and the 91 Phase III as potential for commercial launches. Puneet Souda: That is super helpful. Congrats on the quarter. Robert S. Stefanovich: Thank you. Operator: Your next question comes from the line of Anna Snopkowski from KeyBanc Capital Partners. Please go ahead. Anna Snopkowski: Thanks for taking my question, and congrats on a great quarter. You mentioned you shipped your first clinical trial patient material for IntegraCell, which is very exciting. Could you walk us through your initial learnings from this rollout and what your expectations are for IntegraCell in 2026? Mark W. Sawicki: We are really pleased that we are now supporting actual clinical processes in both locations—the site in Belgium and the site in Houston. It is a very nice achievement and something we have been working toward for a long period of time. IntegraCell, as an organization and as an asset, is going to be a very important driver for long-term revenue and margin expansion. It is a long cycle time for onboarding. It typically takes 12 to 18 months in some cases to onboard. We have active projects ongoing and additional clients coming on board now. Our overall outlook is extremely positive. From a learning standpoint, it has been extremely well received. One of the key elements is the fully integrated platform—our fully integrated service platform includes biologics and bioservices—and our initial clients are using all of our competencies. That is very important for our team as we harmonize and optimize those processes to really drive efficiency for our clients. Anna Snopkowski: On the EBITDA side, could you walk us through some of the assumptions to get to second-half positivity? It seems like there are some facilities ramping that should help, and then also the commercial therapies mix. Any variables and areas of upside would be helpful. Robert S. Stefanovich: If you look at our Q1 performance, we were very close to breakeven on the adjusted EBITDA side, with a negative $600 thousand. We reiterate reaching positive adjusted EBITDA in the second half of the year. This is driven by the revenue growth we see. You mentioned some of the initiatives and investments we have; those are really going to drive operating leverage in 2027. The achievements for Q2 of this year are driven by current organic revenue growth. The new facilities are investments we began in 2025 and are completing now in 2026. They are going to drive further enhancement of our profitability and adjusted EBITDA in 2026 and beyond. Operator: Your next question comes from the line of David Joshua Saxon from Needham. Please go ahead. David Joshua Saxon: Good afternoon, everyone. Thanks for taking my questions, and congrats on the strong start to the year. In the script this quarter and last quarter, you talked about AI initiatives that are helping reduce OpEx. How durable is that and can it be applied to more of the business, or are we seeing the full extent of the savings potential? Jerrell W. Shelton: All of our AI initiatives are durable, and they are focused internally to enhance our efficiency and effectiveness. It is a very powerful tool that will reshape our business over time. We are excited about our AI initiatives, but they are focused today on practicality—improving efficiency and effectiveness in internal operations. David Joshua Saxon: My second one might be for Robert. On the supply chain centers in Paris and Santa Ana, both in the second half, what is baked into guidance from those two coming online? When could we start seeing customer audits of those facilities? Anything from a gross margin perspective we should be aware of? Robert S. Stefanovich: These initiatives we started in 2025 are being completed this year. The Paris, France site went operational with biologics in November, so that is already starting to ramp and clients are doing their audits. We will complement that with bioservices in Q3 of this year. The second is the Santa Ana, California site, which gives us a significant West Coast presence. It consolidates three of our existing locations into one and expands to about 94 thousand square feet to offer biologics, bioservices, consulting, testing, and ultimately space for IntegraCell. These are significant initiatives driven by client demand. From a guidance perspective, the revenue contribution is smaller because they come online in the second half. Clients will conduct their audits this year, and they will start contributing more significantly in 2027. David Joshua Saxon: Anything on gross margin from that, or just generally how to think about gross margin? Robert S. Stefanovich: What we mentioned at year-end still applies, albeit we came in higher on services gross margins than initially expected. We expected gross margins in the first half to have some pressure and to start rebounding in the second half. We did not really see that pressure in Q1, but margins should come back more significantly in the second quarter and second half of this year. Operator: Your next question comes from the line of Analyst from Guggenheim, on behalf of Subhalaxmi Nambi. Please go ahead. Analyst: Hi. This is Ricky on for Subbu. Thanks for taking our question. The commercial cell and gene therapy revenue grew 26% year over year in the first quarter. Is that the right growth rate to think about for the year, or should we expect more acceleration as newer approvals ramp? Is the growth concentrated in a few key therapies like Carvykti, or is it broad-based across your supported commercial products? Robert S. Stefanovich: On commercial revenues, research reports on the market range on the low end 20% and on the high end 40%. You are right—we saw solid revenue growth on the commercial side. We do expect that 2026 will be a very good year for commercial revenue. Our revenue guidance is really based on the existing commercial therapies that we are supporting. While there may be some revenue contribution from new approvals, the guidance is based on the existing platform we have for 2026. Thomas J. Heinzen: Bristol Myers and J&J have already reported, and they reported a strong Q1. We cannot really talk about the rest of our commercial therapies we support because they have not reported their quarters yet. Operator: Your next question comes from the line of David Michael Larsen from BTIG. Please go ahead. David Michael Larsen: Congratulations on the great quarter. Sticking with commercial products, how many commercial products are you supporting now, and did I hear you say that you could have potentially eight more launch within the next 12 months? Robert S. Stefanovich: We are supporting 21 today, and yes, there are eight potential approvals of new therapies this year. Five of them already have PDUFA dates set by the FDA. David Michael Larsen: Can you talk about the dynamics of a commercial product you are supporting versus a clinical trial product? Is there a difference in margins or revenue per product? On the commercial side, since they are in the market being used, I would think there would be much more revenue potential per product because it is being used across the world for patients and not limited to one specific clinical trial. Any color on the revenue potential and margin relative to clinical trials? Robert S. Stefanovich: A couple of things related to commercial therapies. One, as we support clinical trials, we then work with their commercial team in preparing for the launch of the commercial therapies, whether in one country or globally. We are part of the launch and provide program management that is billed separately as well. The increase in commercial revenues is driven by the patient population. As more commercial therapies come to market and move from teaching hospitals to regional or outpatient settings, the acceleration of patients being treated occurs, which drives more revenue. We are continuously expanding our service platform—initially biologics, adding bioservices, and ultimately IntegraCell cryopreservation services—which further expands revenue on a per-patient basis as we provide services along the supply chain of the cell and gene therapy market. David Michael Larsen: Your revenue growth this quarter versus two years ago is a huge positive. What do you attribute the resurgence in growth to? Is it simply the cell and gene therapy market coming back after working through the IRA? Robert S. Stefanovich: It is a number of things. We have broadened our revenue stream; bioservices, which is a newer offering, increased over the last couple of quarters—20% plus year over year—and we expect that to continue. On the product side, we saw in 2025 demand normalizing and coming back. Across our different revenue streams, we are seeing stronger demand, and that has been driving revenue, which led us to increase the guidance for the full year. Operator: Your next question comes from the line of Richard Baldry from Roth Capital. Please go ahead. Richard Baldry: On the commercial acceleration, has it been concentrated around the CAR-T area with the regulatory burden easing, or is that still a catalyst ahead that has not really had an impact yet? Thomas J. Heinzen: Cell therapies are the majority of our commercial customers. Gene therapies have had a slower start, but cell therapies are pulling the wagon—Bristol Myers, Gilead, J&J. Looking at our clinical trial portfolio, close to 90% of the clinical trials we are supporting are autologous and allogeneic cell therapies. Operator: Your next question comes from the line of Analyst from Craig-Hallum Capital Group. Please go ahead. Analyst: Nice start to the year. Regarding the Fusion 800 series, could you talk a little bit about the pipeline? You mentioned positive response and some early adoptions, but what does that pipeline look like? Jerrell W. Shelton: It is early to comment on the pipeline. We sell through distributors, and the first thing we do is get our 800 series into distribution. We are moving out very nicely, but it is too early to comment on the pipeline. Analyst: Switching gears, we are approaching a year since the REMS was removed. There was a lot of build-up as patients moved out of hospitals to ambulatory and other centers. Has that momentum continued? Are you seeing that opportunity expand beyond the core hospital setting? What can that mean for growth later this year and into next year? Jerrell W. Shelton: Tom, you may want to comment on that. Thomas J. Heinzen: If you look at companies that have reported—J&J and Bristol—outpatient and community hospital growth is helping to drive their revenue, which in turn helps to drive ours. Operator: Your next question comes from the line of Analyst from Stephens. Please go ahead. Analyst: Good afternoon, and thank you for taking my questions. Following up on margins, MVE product margins were relatively light compared to our expectations. What are you seeing in terms of the storage industry in general and how are energy prices factoring into performance in the quarter and expected to factor into the remainder of the year? Robert S. Stefanovich: Energy prices did not factor into the quarter for our products business. The margin variance is purely a result of specific product mix. Year over year, margins are pretty close. Sequentially it is down, but that is related to product mix we typically see in the first quarter. There is no pricing erosion or competitive element; it is product mix related. Analyst: It has been about six months since funding really started to tick back up. As you look at how the quarter is shaping up to date, what can you tell us about the level of activity and sentiment within your customer base today? Robert S. Stefanovich: Overall, it is very good for the industry, especially for companies in need of raising funds to drive their clinical trial portfolio. Many clients we serve are very well established and funded, especially given the large number of Phase II and Phase III programs that are close to the finish line pre-commercial. We do not see a huge risk on the funding side there. It is mostly smaller companies in need of funding. It is certainly good for the industry to see funding coming back, with strong funding especially in April. Thomas J. Heinzen: To peek under the hood with our clinical trial count, it increased by six net sequentially. There were 29 new trial adds in the quarter and 23 removed—net six. Of those 23 removed, 16 of the trials were completed. That is a great thing that shows the maturation of our pipeline. That means ones are going to go to twos, and twos are going to go to threes. Operator: Your next question comes from the line of Matthew Jay Stanton from Jefferies. Please go ahead. Matthew Jay Stanton: Robert, to close the loop on margins, given inflationary pressures over the last few months on commodities and logistics, can you remind us of your pricing structure? I believe you are able to pass along an uptick as part of the contracts you have in place. Can you remind us of the mechanics on pricing as it relates to inflationary pressure coming back into the P&L for the rest of the year? Robert S. Stefanovich: In transportation and logistics—the component of our solution—fuel surcharges are normal. They may go up or down, but they are passed on to our client base. That is common practice, so it does not impact our gross margins. From a product side, we have not seen an impact from increased oil prices at this point, but we are keeping an eye on it like everyone else. Matthew Jay Stanton: On the product side, I think, Jerry, you said that market could grow high singles. I think prior you thought products could be mid-singles for the year, maybe high singles if things came back better. After a strong Q1, do you feel like products is more like a high single-digit business in 2026 than mid-singles? Jerrell W. Shelton: I do feel like it is high single-digit growth. It seems like it is solidifying across the globe, so I have no reason to think differently. Matthew Jay Stanton: Maybe one for Mark to go back to IntegraCell. Now that customers at those two sites have started to move product, any finer point you can share on the volume or size of product you expect there? I know it takes a while to get things validated and started, but now that they are started, how meaningful could that be as IntegraCell ramps up? I think prior you had been bullish on the revenue opportunity given the number of products and services as part of IntegraCell. Jerrell W. Shelton: We are bullish about everything we do. Since we formed the company, we have set standards in the industry. IntegraCell is another example of our industry-leading movement forward based on what the markets need and conversations with clients. IntegraCell is off to a good start. We would always like to have a more robust start, no matter what it is, but it is gaining a lot of attention. It does take time for these things to take hold, for other clients to come in, and for our integrated services approach to take effect. Stay tuned. As Mark said, it will unquestionably be a very important contributor to Cryoport, Inc. in the future. Operator: There are no further questions at this time. I will now hand the call back to Mr. Shelton for any closing remarks. Jerrell W. Shelton: Thank you, operator. Ladies and gentlemen, thank you for your questions and our discussions. In closing, I would like to remind you that we continue to be the market leader, and we have had a great start to 2026, marked by 16% revenue growth year over year and strong double-digit growth across both our reporting segments. Our Life Sciences Services revenue increased 18% year over year, driven by 21% growth in biostorage/bioservices revenue; a 26% increase in revenue from commercial cell and gene therapy support; and clinical trial–related revenue growth of 18%. At the same time, our Life Sciences Products revenue grew 15%, driven by global demand for MVE's cryogenic systems. Remember, MVE is the world leader in cryogenic systems. Our top-line growth was accompanied by solid gross margins, contained operating expenses, and continued operational discipline, which resulted in a $2.2 million year-over-year improvement in adjusted EBITDA from continuing operations, pushing us further down our pathway to profitability. Based on these results and the progress we have made with our strategic initiatives, we are more positive on our outlook for the year than when we last spoke on our year-end earnings call, and that led us to raise our full-year revenue guidance as we continue to execute on the opportunities ahead of us. We look forward to keeping you up to date on our progress. We appreciate your continued interest and support, and we look forward to speaking with you again when we report our second quarter financial results. We wish all of you a good evening. Operator: This concludes today's call. Thank you for participating. You may all disconnect.
Operator: Greetings, and welcome to The Baldwin Insurance Group, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bonnie Bishop, Executive Director, Investor Relations. Thank you, Ms. Bishop. You may begin. Bonnie Bishop: Thank you. Welcome to The Baldwin Insurance Group, Inc. First Quarter 2026 Earnings Call. Today’s call is being recorded. First quarter financial results, supplemental information, and the company’s Form 10-Q were issued earlier this afternoon and are available on the company’s website at ir.baldwin.com. Please note that remarks made today may include forward-looking statements subject to various assumptions, risks, and uncertainties, including, for example, our strategy with respect to our capital allocation in the future. The company’s actual results may differ materially from those contemplated by such statements. For a more detailed discussion, please refer to the note regarding forward-looking statements in the company’s earnings release and our most recent Form 10-Q, both of which are available on The Baldwin Insurance Group, Inc. website. During the call today, the company may also discuss certain non-GAAP financial measures. For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures, please refer to the company’s earnings release and supplemental information, both of which have been posted on the company’s website at ir.baldwin.com. I will now turn the call over to Trevor Baldwin, Chief Executive Officer of The Baldwin Insurance Group, Inc. Trevor Baldwin: Good afternoon, and thank you for joining us to discuss our first quarter results reported earlier today. I am joined by Bradford Lenzie Hale, Chief Financial Officer, and Bonnie Bishop, Executive Director of Investor Relations. We had a solid start to the year on the heels of closing our partnerships with CAC, Ovi, and Capstone in January. We delivered total revenue of $532 million, adjusted EBITDA of $137 million, adjusted EBITDA margin of 26%, and adjusted diluted earnings per share of $0.63. Overall, commission and fee organic revenue growth was 3%, and total organic revenue growth was 2%. Adjusting for the impact of the QBE builder book transition, which we lapped on May 1, continued softness in our Medicare business due to disruption in the Medicare marketplace, and the procedural change impacting the timing of revenue recognition in IAS, overall organic revenue growth would have been 5%. Layering in the impact of the March partnerships as if they had been owned by The Baldwin Insurance Group, Inc. in both comparable periods, overall organic revenue growth would have been 9%. Collectively, those three partnerships grew 27% over 2025—a remarkable start to the year. In Insurance Advisory Solutions, overall organic revenue growth was 4%, driven by sales velocity of 13% before layering in the results from CAC and Capstone, which compares to 14% in the prior year period. As a reminder, sales velocity is seasonally lowest in the first quarter as a result of a bulk of our employee benefits renewals booking on 1/1. The impact of rate and exposure in the quarter was a 70 basis point headwind. Including both CAC and Capstone as if those businesses had been owned in the prior year period, organic growth would have been 10%. Combined sales velocity, including the acquired businesses, was 24%. We are incredibly enthused by the early contributions from CAC and Capstone, which delivered the strongest quarterly results in each of their respective histories. CAC generated new business of $38 million in the first quarter, up 39% compared to the same period in the prior year, and total revenue was $92 million, representing growth of 27% in relation to 2025. CAC sales velocity in the quarter was 61% across all product lines, and 15% for recurring lines of business. Net growth of transaction-related product lines, which consist primarily of our transaction liability and certain project-specific construction lines of business, was 22%. Going forward, we will report sales velocity on an aggregate basis, as well as broken out for recurring lines of business. Separately, we will call out net growth in transaction-related product lines. These transaction-related product lines have some variability quarter to quarter due to the variable nature and timing of transactions and project starts. CAC’s strong growth in the quarter was driven by strong new business across key specialty industry groups, strength in the private equity and transaction liability practices, which supported several marquee transactions at the nexus of the AI infrastructure buildout across the U.S. and globally, as well as strong momentum from cross-sell opportunities between the legacy The Baldwin Insurance Group, Inc. and CAC teams. Our integration work is running ahead of schedule. Today, over $34 million in cost synergies have been actioned, representing nearly 80% of the three-year $43 million target we laid out on our last call. We expect these to materialize in the P&L throughout the balance of this year and in 2027. On the revenue side, in the quarter we realized $1 million of revenue synergies, and as of today that number has grown to nearly $3 million, with over $10 million in client cross-sell opportunities being actively worked. Four months in, we are tracking ahead of plan on every dimension of this powerful business combination, and the industrial logic we saw is pulling through more quickly and more significantly than we had anticipated. Moving to our Underwriting, Capacity and Technology Solutions segment, organic revenue growth was 3% in the quarter, with core commissions and fees growing by approximately 6%. Importantly, we recognized a large one-time contingent payment in our real estate investor program in 2025, normalizing for which UCTS’s organic growth would have been 9% for the quarter. The underlying momentum across the segment remains strong. Our multifamily business grew revenue 10% in the quarter, and Juniper Re grew over 90%, both reflecting the durable scale advantages of our proprietary capacity strategy. We did continue to see pressure in our E&S homeowners book; revenue was down roughly 30% in the quarter as we deliberately maintain underwriting discipline in a soft property environment. The transition of our builder book from QBE to Brev, our inaugural reciprocal insurance exchange, remains on track. Brev is now licensed in seven states and positioned to begin migration of business outside Texas in the back half of the year. Our second proprietary builder program with Hippo and Spinnaker remains on track to launch later this year. Over time, we expect this to materially increase our capture rate of Westwood’s builder business in new proprietary MSI programs from approximately 30% today—a meaningful multiyear growth opportunity for our MGA, and a meaningful expansion of vital insurance capacity for our builder partners and their homebuyer customers. Our Main Street Insurance Solutions segment organic revenue growth was down 5% in the quarter, driven primarily by continued year-over-year headwinds from the QBE commission rate reduction at Westwood and softness in our Medicare business. Normalizing for impacts of those two headwinds, overall organic revenue growth was 7%. We fully lapped the QBE impact on May 1 and expect organic growth in our MIS segment to begin ramping again from here. We are also seeing growing momentum in our embedded mortgage businesses, which went live in April with Fairway Independent Mortgage, a top-10 independent mortgage originator in the country. While Fairway has only been live on the platform for one month, early signs are very encouraging. The 3B30 Catalyst program is now fully underway. In the first quarter, we executed the first phase of role transformation within IAS and remain on track to deliver $3 million to $5 million in in-year savings. You can find additional information in the 3B30 Catalyst slide in our earnings supplement. Now, let me address the question of AI directly, because it is increasingly central to how we are running this business and how I expect us to outperform over time. We are leaning into AI with conviction. Over the past several quarters, we have been building our own proprietary AI orchestration layer that enables delivery of fully automated workflows. The early productivity gains from the tools we are deploying internally are running up to 80%. We are embedding AI directly into our operating platforms, including VIP, our proprietary operating system supporting the MGA, and we are using AI to elevate and enhance the work our colleagues do every day. Catalyst is the operational expression of this strategy—AI-enabled process redesign, bold transformation, and an accelerated path to operating leverage. Said simply, AI is a meaningful tailwind for our business, and we are investing aggressively to capture it. On the question of disintermediation, our thesis is unchanged and the underlying structural advantages have only strengthened. First, the clients we serve—middle market, upper middle market, and large organizations—have complex, multi-location, multifaceted risks that require deep and specialty advisory solutions, human judgment, and a multitude of risk transfer counterparties and vehicles in order to thoughtfully and effectively manage and finance risk. The CAC combination further shifts our center of gravity upmarket away from the account segments most exposed to AI commoditization. Second, our embedded distribution strategy places insurance at the point of major life and business transactions and workflows consumers are unlikely to bypass for a standalone insurance buying experience. Third, our UCTS business vertically integrates our platform across the entire value chain—owning the client relationship, advising on complex risk issues, building proprietary insurance products, and arranging the third-party risk capital that stands behind them. We are the disruptor in this marketplace. The combination of human expertise and judgment, embedded distribution, proprietary product and risk capital formation, and AI-driven productivity is the right architecture for the AI era. As we enter 2026, we are pleased with our first quarter results and confident in our positioning to accelerate performance ratably through the year and beyond. The underlying momentum across our segments is strong. The idiosyncratic headwinds we have discussed—the QBE commission change we have now lapped, the Medicare market disruption, and the IAS revenue recognition procedural change—will all be substantially behind us by the end of the second quarter. CAC is exceeding our expectations on both revenue and expense synergy execution. The Catalyst program is delivering, and we are deploying AI across our platform with real and measurable productivity gains. Quite simply, our business was built for this era. We are leaning in to accelerate our impact and our results. I want to extend our gratitude to our clients for their continued trust in us to provide strategic guidance, expert insights, and innovative solutions, and I want to thank our nearly 5 thousand colleagues for their dedication to helping our clients protect what is possible. I will now turn the call over to Bradford Lenzie Hale, who will detail our financial results. Bradford Lenzie Hale: Thanks, Trevor, and good afternoon, everyone. For the first quarter, we generated organic revenue growth of 2% and total revenue of $532.2 million. Looking at the segment level, organic revenue growth was up 4% in IAS, up 3% in UCTS, and down 5% in MIS. Adjusted for the three transitory items Trevor walked through, underlying organic revenue growth would have been 5%. We recorded GAAP net loss for the first quarter of $1.9 million, or GAAP diluted earnings per share of $0.20. Adjusted net income for the first quarter, which excludes share-based compensation, amortization, and other one-time expenses, was $89.3 million, or $0.63 per fully diluted share. A table reconciling GAAP net income attributable to The Baldwin Insurance Group, Inc. to adjusted net income can be found in our earnings release and our 10-Q filed with the SEC. Adjusted EBITDA for the first quarter was up 21% at $137.2 million compared to $113.8 million in the prior year period. Adjusted EBITDA margin declined approximately 170 basis points year over year to 25.8% for the quarter, compared to 27.5% in the prior year period. The approximately 170 basis point margin decline is fully explained by two items. First, the consolidation of CAC, which has different margin seasonality due to timing and mix of revenues, and second, the UCTS profit-sharing contract Trevor mentioned. Adjusted free cash flow for the first quarter was roughly flat compared to $26 million in Q1 2025. The decrease was driven by working capital timing, which resulted in a $60 million use of cash. More than half of the working capital headwind was from CAC, given a material payout of approximately $40 million in previously accrued cash bonuses and commissions, which The Baldwin Insurance Group, Inc. assumed in the opening balance sheet. As mentioned on the year-end call, we would expect CAC’s free cash flow conversion in the year to be better than legacy The Baldwin Insurance Group, Inc.’s rate. As such, we expect the timing headwind to reverse in quarters two through four. It is important to remember that Q1 is expected to be our lowest quarter of free cash flow conversion, given the payout of bonuses, as well as the substantial receivables that are built in our employee benefits business, the majority of which renew in January with payment monthly throughout the balance of the year. This was somewhat exacerbated in Q1 2026 because of approximately $15 million of CAC transaction costs, representing a material increase in one-time cash outlay. Our full-year cash flow trajectory remains on track for double-digit growth in 2026. We ended the quarter with net leverage at approximately 4.3 times, as we deployed approximately $50 million of our $250 million buyback authorization to repurchase 2.2 million shares. We will remain prudent in our share repurchase program as we assess overall market conditions and act on market dislocation opportunities relative to other capital allocation alternatives to drive shareholder returns. The January 2026 partnerships with CAC and Ovi generated a significant net deferred tax liability, which resulted in a benefit to income tax expense in Q1 of approximately $145 million from the reversal of the majority of our valuation allowance. As an offset to this benefit, we recorded an above-the-line operating expense to establish a liability associated with our tax receivable agreement of approximately $130 million. Note that the impact of each of these one-time transactions has been removed from adjusted EBITDA and adjusted EPS. We would expect income tax expense/benefit for the balance of 2026 to be minimal, and changes to the TRA liability will largely flow to the balance sheet going forward, with minimal further expected impact on the P&L. There will be no change to the manner in which we calculate the tax impact to adjusted net income in 2026. Looking ahead, our full-year consolidated guidance remains unchanged. Despite the challenging market backdrop, we remain confident in our ability to accelerate our total organic growth throughout the year. For the second quarter, we expect revenue of $485 million to $490 million and organic revenue growth in the mid-single digits. We anticipate adjusted EBITDA between $113 million and $118 million and adjusted diluted EPS of $0.44 to $0.48 per share. In summary, we are pleased with the quarter, encouraged by the strong contribution from our recent partnerships across both cost savings and revenue synergies, and by the early operational impact of our 3B30 Catalyst program. Organic growth momentum is building, and we continue to expect a clear inflection in financial results in 2026 as we fully lap the idiosyncratic headwinds of the past year. We remain focused on accelerating execution across our platform, fully integrating our recent partnerships into The Baldwin Insurance Group, Inc., and leveraging new and innovative technology and AI solutions to enhance our client impact and long-term shareholder value creation. We will now open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. The first question comes from the line of Charles Gregory Peters with Raymond James. Please go ahead. Charles Gregory Peters: Well, good afternoon, everyone. For my first question, I would like to focus on the organic revenue results and then briefly the comments you made about the revenue growth at CAC. The one area that caught me by surprise was the result in the UCTS line, which I think you called out there is a one-time item in there. Even on a pro forma basis, it seems like it is tracking lower than I might have envisioned for the year. So maybe you could provide some color there. And then related to your comments around growth, if you could go back and more slowly go through what seems to be some positive indications of growth coming out of CAC, that would be helpful. Trevor Baldwin: Yes. Hey, Greg, appreciate the question. Let us start with UCTS. I did mention there was a large one-time contingent item in the prior year period. Normalizing for that, you are looking at 9% organic in the quarter for UCTS. We continue to have very strong underlying momentum in the UCTS segment. Our multifamily portfolio grew double digits in the quarter. Juniper Re continues to have very strong momentum with growth of over 90%. As broader evidence of that underlying momentum, we expect organic growth to recover to high single digits for UCTS in Q2 and back into the teens in the back half of the year. We are seeing continued headwinds in our E&S home portfolio as a result of soft market dynamics. As we push through Q1, the impacts of that in the prior year were already fairly material and should have less of an impact. Specifically, our E&S home portfolio was down 30% in Q1; however, we expect it to be down high single digits for the full year, which should give you a sense of the recovery we expect over the balance of the year. At a high level, the underlying momentum at UCTS continues to be quite strong. It is a double-digit growth business, with a combination of a one-time item and an acute prior-year-period impact from the soft dynamics in E&S home normalizing through the balance of the year. Moving on to CAC, when we announced that partnership, we did it with conviction. We had that conviction because of the industrial logic of the combination, the quality of the people, the scarcity value of the capability set, and how that enables us to continue to grow and strengthen the impact we can deliver for our clients. I said the CAC team is a Ferrari; we were going to put them on the track and let them run. They have come out of the gate fast. We expected strong results, but the strength has pleasantly surprised us—both in speed and scale. On expense synergies of approximately $43 million, we have already actioned over $34 million, well ahead of plan. On revenue synergies, which typically have a fairly long sales cycle, we have already realized $1 million in the first quarter, and as of today, nearly $3 million, with more than $10 million of active cross-sell opportunities being worked by the combined teams. We are seeing strength not in any one pocket but broadly—industry practice groups, legacy middle market, and the transaction liability group, which is taking share. Combined with the legacy The Baldwin Insurance Group, Inc. teams, we are leveraging those capabilities to drive more significant impact for existing clients. It is all incredibly positive. Charles Gregory Peters: Great. I think I have to pivot from my follow-up question to the Catalyst program slide you put in your slide deck. You talk about this initiative in the context of the 3B30, getting to the 30% margin target. Can you walk us through the run-rate annualized savings and the positive payback? Does that get us to that 30% run rate that you are thinking about, or are there more levers you have to pull to get to your objective? Trevor Baldwin: I think this on a standalone basis does not fully get there, but regular-way operating leverage that is in the business, in combination with the Catalyst program, does. As I mentioned, the program is live, on track, and the early results are positive. You may have seen a press release around our expanded partnership with Anthropic’s Claude on an enterprise basis, as well as the work we have been doing to build out our proprietary orchestration layer, driving real productivity and efficiency into our operations. A recent example: our product team at DMGA came together to build and launch an admitted insurance product. Historically, creating an admitted product requires a series of competitive analyses, rate and product feature determinations, and filing creation tasks—a process that has historically taken months, three on average, with significant manual manipulation of documents and data. The product management team leveraged Claude on top of our proprietary data across each phase of the process and significantly compressed the timeline from months to three days. As you think about how that translates into the velocity of new products we can bring to market—whether the new builder products we expect later this year, a mortgage product we are working on, or a manufactured home program for a number of our property management software clients—the impact will be real and significant. We are excited about what we are seeing. Bradford Lenzie Hale: Greg, I would just add it is the combination of the Catalyst program and the meaningful investments we have made in the business, such as mortgage embedded, in addition to the products that Trevor highlighted. The maturity of those businesses is also a meaningful driver of margin expansion toward the 3B30 goal. Charles Gregory Peters: That makes sense. Thanks for the detail. Trevor Baldwin: Thanks, Greg. Operator: Thank you. Next question comes from the line of Thomas Patrick McJoynt-Griffith with KBW. Please go ahead. Thomas Patrick McJoynt-Griffith: Hey, good evening. You sounded optimistic about the early signs of success around cross-sell with the CAC Group. Could you give us some examples of where you are actually seeing success there? Is it finding new solutions or taking market share from other brokers? Maybe elaborate on that point. Trevor Baldwin: It is all of those things, and it is going both ways. A couple of examples: The CAC team has deep industry capabilities across natural resources, private equity, and real estate, and we have historically had deep capabilities across construction. One of the CAC colleagues brought forth an opportunity for a large general contractor prospect that historically they probably would not have pursued because they did not feel like they had all the capabilities to serve them at the level CAC seeks to serve clients. Because of the combination with our platform, they were able to bring in some of our construction professionals and, through an RFP process, we won that client. The incumbent was a top-five global broker, and our competition included both global brokers and large nationals. It was a standout win and brought momentum to the team. Similarly, at legacy The Baldwin Insurance Group, Inc., we have professionals with deep expertise and strong relationships across private equity and the M&A universe, and CAC has an incredibly deep bench of talent here, not only on transaction solutions but also broadly across portfolio solutions. The legacy The Baldwin Insurance Group, Inc. team had a client entering into a complex cross-border international M&A transaction. I cannot get into detail due to NDAs, but this was highly complex. The CAC team stepped in, delivered a set of solutions that helped facilitate a seamless signing, and it is a significant six-figure revenue opportunity for an existing client that otherwise likely would have gone to one of our global broker competitors. The pipeline is robust across construction, energy, data center, and power generation, as well as broad-based large upmarket complex opportunities. Momentum continues to build. Thomas Patrick McJoynt-Griffith: Thanks. Switching gears to one of the headwinds you have been calling out—the Medicare side. Can you remind us, is the cadence or seasonality such that the 2026 headwind has been baked in? Or is that more of a 2027 issue? Trevor Baldwin: We expect that headwind to largely resolve itself beginning next quarter. While we are not expecting a miraculous turnaround, we do not anticipate a meaningful headwind going forward there. Operator: Next question comes from the line of Charles William Lederer with BMO Capital Markets. Please go ahead. Charles William Lederer: Hey, thanks. I want to go back to UCTS for a second. I know you called out the headwind, but you also had a fairly nice tailwind in the earned premium line there. If I exclude that, you were down a little bit more in UCTS. Is that all E&S home and the real estate product? And what is going to drive the improvement over the rest of the year? Trevor Baldwin: That is right. We did benefit from continued growth in the multifamily earned premium in the captive, which we view as incremental economics on a high-performing overall program. The headwind was almost entirely the one-time contingent as well as the headwinds in the E&S business. We expect momentum to pick up across most, if not all, of our product sets over the balance of the year, as evidenced by our confidence in high single-digit organic growth in Q2 and returning to teens organic growth in the back half of the year. Momentum is strong, with nuances from last year both in where the E&S book stood and that one-time contingent. Charles William Lederer: Got it, thanks. Then on the buybacks, can you talk about how motivated you feel now to still buy back shares? Or now that the stock is closer to peers, maybe it is less of a priority? Bradford Lenzie Hale: Our capital allocation priorities remain intact: number one, organic investments; two, M&A; followed by buybacks; and then dividends or debt paydown. We are not an indiscriminate buyer. We are thoughtful about price as we deploy capital, and we continue to target the best risk-weighted return alternative. To the extent we see dislocation of price, we will continue to be active. Trevor Baldwin: Put differently, we can continue, even at these prices, to buy in our own shares at a meaningful discount to what smaller, lower-quality private agencies trade for today. We continue to find our stock price attractive. Operator: Thank you. Next question comes from the line of Elyse Greenspan with Wells Fargo. Please go ahead. Elyse Greenspan: Hi, thanks. I will continue on the buybacks. You did not raise the EPS guide for the year, but you obviously bought back in Q1, and it sounds like, Trevor, based on what you just said, you are open to continuing to buy back your shares. How come not raising the EPS guide? Or is the guidance assuming no additional buyback over the remaining three quarters? Trevor Baldwin: We are not going to assume how stock price performance goes. To the extent we have the opportunity to buy back shares at an attractive price, that could create some upside. To the extent we do not, that likely reflects recovery in trading dynamics. Elyse Greenspan: Thanks. My second question: you provided some figures on CAC highlighting strong new business growth and revenue growth in the first quarter. On the three deals, the revenue and EBITDA contributions you expect for 2026 have not changed, but it sounds like things are running ahead of expectations. Are you waiting to update that, or is it that some are running ahead and some are running below plan relative to the guidance you reaffirmed? Trevor Baldwin: Broadly, the three partnership businesses are running ahead of plan, but we are one quarter in, so it is early to fully extrapolate. As I mentioned, momentum at CAC is incredibly strong. Some of that momentum is in transaction liability solutions, where there can be variability quarter to quarter and year to year. The pipeline in that part of the business is at an all-time high, and we continue to take share. We feel good about the momentum but believe it is early in the year to extrapolate to full-year expectations. Elyse Greenspan: Lastly, on market impact, what are you seeing from an overall pricing perspective in the property market? We have heard about aggressive price declines. What are you embedding over the next three quarters? Trevor Baldwin: The property market is deeply soft. We are seeing pricing levels that have returned to circa 2017. For large shared and layered coastal placements, we are seeing rate decreases at times of 30% to 40%. While those may not make long-term sense, our clients certainly enjoy them. We expect a more significant rate and exposure headwind in the second quarter, which is the heaviest quarter for property renewals. Whereas we saw approximately 70 basis points of headwind in Q1, I expect that to be 400 to 500 basis points in Q2. As a result, we expect our legacy IAS segment to be roughly flat from an organic standpoint in the second quarter before returning to mid- to high-single-digit organic growth in the back half of the year as we fully lap the procedural accounting change headwinds. Based on what we are seeing today, rate and exposure headwinds in the back half of the year should be pretty close to flat—maybe a slight headwind in Q3 and a slight headwind or a tailwind in Q4. Overall, for the year, we expect rate and exposure to be a 100 to 200 basis point headwind, and that is fully incorporated into the expectations we have shared. Operator: Thank you. Next question comes from the line of Andrew Kligerman with TD Cowen. Please go ahead. Andrew Kligerman: Hey, thanks a lot. Good evening. I want to follow up on IAS organic growth. You had 4 points in the quarter of organic, and then CAC, if normalized, contributed 4 to the overall book. If IAS and CAC had been there for over a year, you are well into the double digits, which is fabulous. You noted transaction liability can be volatile, but typically when you do an acquisition you get a good year one and similar organic in year two. Extracting out the volatility of transaction liability, all else equal, you would probably be looking at high single into double digits potentially next year once you get a full year on board. Am I thinking about it right with regard to IAS? Trevor Baldwin: At a high level, yes. It is a double-digit organic growth business inclusive of CAC and results, which we think is a standout outcome in today’s market backdrop. Specific to 2027, it is too early for us to opine on organic growth next year. However, everything we are seeing from underlying trends and datasets is very positive. Pipelines are building, cross-sell opportunities are growing. We expect in the back half of the year legacy IAS organic to re-rate back up into the mid- to high-single digits. Considering CAC’s momentum, historical seasonality, and pipelines, it is incredibly strong. We are proud of the results—relative to peers, a standout in the quarter, inclusive of CAC and Capstone. They reflect the wisdom of the business combination and the combined strengths of the organization across industry and product segments, enabling us to solve clients’ challenges and deliver meaningful impact to help them manage risk and grow their enterprises. We feel really good about the momentum. Andrew Kligerman: Following up on capital management, it sounds like the intrinsic value of the stock is still attractive here, so I want to make sure I heard that right. With respect to leverage, which inched up to 4.3 times—partly due to the buyback—where do you see leverage toward the end of the year? Do you get to three to four times, or is the stock so attractive that you are willing to let it hover where it is? And does that imply limited major M&A near term? Bradford Lenzie Hale: We would continue to expect leverage to hover in the 4.0 to 4.5 times range over the intermediate term, particularly as we continue to execute on the buyback program. We are not price indiscriminate, so that can change, but that is our current view. Trevor Baldwin: We continue to believe that mechanically deleveraging six months earlier, while our equity trades at a material discount, is a destruction of shareholder value, not a creation of it. We are comfortable here, particularly if we can take advantage of market dislocation. On M&A, it is difficult for us to find a financially prudent way to structure a deal that makes sense based on where our equity trades today. That plus where leverage sits creates a hurdle. Historically, we have allocated capital to M&A in a way that has created value intrinsically, and while we are very early, we appear to be off to a great start with the 2026 class of partnerships. Within our financial leverage policy and objectives to delever over time, and subject to us having a currency that supports M&A in an accretive fashion, we think it is a very good use of capital over time. The circumstances today dictate a more narrow set of priorities. Andrew Kligerman: Super helpful. Thank you. Operator: Thank you. Next question comes from the line of Pablo Singzon with JPMorgan. Please go ahead. Pablo Singzon: Hi, thank you. First, can you unpack what is going on with the E&S homeowners business? I am a bit surprised. Given what other companies are reporting, pricing in homeowners is not experiencing the same pressure as in personal auto. Are you dealing with a different set of competitors in that business, and is that why you are a little more cautious? Trevor Baldwin: No. That may be homeowners broadly across admitted and E&S products, but E&S home specifically has seen rate come in 40% to 50% plus. Eighteen months ago, we were writing $1.314 billion of new premium a month, and over the past twelve months averaging 2 to 3. As we continue to tweak our product, we are rolling out multiple new E&S home product variants to better compete in pockets of the market we find attractive. We expect new business flow to go up. We saw that reflected in March with over $4 million of new E&S home premium booked, the highest new business month in the past twelve months. That is one month, not a trend, but we feel like we hit the bottom in Q1 and will march back up through prudent product design and pricing tweaks and rollout of incremental product variants to resume growth. Pablo Singzon: Thanks, Trevor. Second, could you talk about the Construction Risk Partners business you acquired some time ago? I think it is a decent-sized portion of IAS. Other brokers have spoken about activity related to data center construction. Are you getting benefit from that economic activity today? Trevor Baldwin: The CRP team—the Baldwin Construction practice, which reflects the historical Construction Risk Partners business—has the largest and strongest pipeline in our construction business’s history. That is a combination of an influx of new cross-sell opportunities from CAC and a breadth of opportunities at the nexus of the data center and AI infrastructure buildout. The construction market is a tale of two cities. Overall expectations for construction spend this year are roughly flat year over year, if not modestly down, buoyed by significant spending in data centers, offset by slowdowns in non–data center areas. That means results will be lumpier because data center opportunities are fewer but larger in scale. We have some wins under our belt and multiple very large multibillion-dollar opportunities in the near- to intermediate-term pipeline, and we feel good about taking more than our fair share. Operator: Thank you. Next question comes from the line of Joshua David Shanker with Bank of America. Please go ahead. Joshua David Shanker: Good evening, everybody. I want to point out that 90% growth in Juniper Re and 27% growth in the new partnerships are staggering numbers. But it also implies contraction in legacy businesses that are older in the portfolio. If someone wanted to argue that The Baldwin Insurance Group, Inc. has bought growth but not long-term runners, and is once again buying growth, what is the pushback on that thesis? Trevor Baldwin: The pushback is in the numbers and expectations we have shared. The headwinds have been well discussed—idiosyncratic drivers from Medicare to the IAS procedural accounting change to the QBE book roll transition to our reciprocal exchange. Normalizing for all three, you have a mid-single-digit growth business in the quarter and a business we expect to grow organically at double-digit rates exiting this year, before the impact of the three partnerships that grew 27% in the quarter. All businesses have ebbs and flows, and the market impacts are real across the industry. We are relatively uniquely positioned to accelerate to high single-digit and then double-digit growth by the fourth quarter, despite no expectation for market headwinds to meaningfully abate. Joshua David Shanker: So you still believe if the insurance distribution industry at year-end is growing mid- to low-single digits, The Baldwin Insurance Group, Inc. will be growing at high single digits, edging toward double digits? Bradford Lenzie Hale: That is correct. Joshua David Shanker: Okay. I wish you the best of luck there then. Very good. Bradford Lenzie Hale: Thanks, Josh. Operator: Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to hand the floor over to Trevor Baldwin, CEO, for closing comments. Trevor Baldwin: Thank you all for joining us this evening. As I noted at the open, we are pleased with our first quarter and confident in our trajectory through the balance of the year. The momentum here is real—our embedded distribution, our advisory businesses across our MGA platform, and as evidenced in the integration of our partnerships. It is the direct result of the work our colleagues are putting in every day. I want to thank our colleagues for how they show up in support of our clients, one another, and for the firm we are building together. To our clients and insurance company partners, thank you for your continued trust. To our shareholders, thank you for your engagement and support. We continue to deliver against our Catalyst 3B30 goals and objectives. We look forward to speaking with you again next quarter. Bonnie Bishop: Thank you. Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and welcome to the First Quarter 2026 Paymentus Holdings, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, please press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, David Hanover, Investor Relations. Please go ahead. David Hanover: Thank you, Operator. Good afternoon. Welcome, and thank you for joining the webcast to review our first quarter 2026 results. Our earnings release documents are available on the Investor Relations section of paymentus.com. They include the earnings presentation that we will reference during this webcast. This webcast is being recorded. I hope everyone has had a chance to review those documents. Our founder and CEO, Dushyant Sharma, will make some opening remarks before Sanjay Kalra discusses the details of the first quarter and our guidance. Following our prepared remarks, we will take questions. Let me remind you we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we will refer to non-GAAP financial measures during this webcast. Forward-looking statements are based on management’s current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause our actual results to differ materially from expectations are detailed in our earnings materials and in our SEC filings, which are available on both the SEC’s website and our website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials available on the website. With that, I would like to turn the webcast over to Dushyant Sharma. Dushyant, thanks. Dushyant Sharma: Thank you, David. We are off to a tremendous start in 2026, with record revenue and strong growth exceeding our CAGR model across all key metrics. We believe these results underscore the durability and long-term growth potential of our business model. That strength is driven by our platform, our ecosystem, our expertise and scale, and our quality of service with support, security, availability, and compliance frameworks, along with a broad and continuously evolving innovation framework. In addition to our very strong financial results, we also announced an important product launch today that we believe will transform how service providers interact with their customers. Today’s agenda will proceed as follows. First, I will provide a brief overview of our results. Sanjay will then provide a detailed financial review and discuss our outlook. I will then come back and discuss the strategic product announcement we have made today. We will then answer any questions. Let me start with financial highlights as shown on Slide 3. First quarter revenue was a record $358.4 million, an increase of 30.2% year over year. Contribution profit was $109.7 million, up 25.2% year over year. Adjusted EBITDA was a record $42.4 million in the quarter, representing 41.5% growth year over year and a 38.7% margin. Once again, a majority of our year-over-year growth in contribution profit fell to our bottom line. We exceeded the Rule of 40 for the quarter again, coming in at 64 versus 61 in Q4. This reflects our team’s solid execution and our focus on delivering consistent revenue growth alongside high-quality earnings. These results are exciting for multiple reasons. First, they speak to our vertical diversification and our enhanced pricing strategy over the years, whereby the impact of the elevated energy price index on our numbers has been materially reduced. Second, as we have shared in the past, we operate on a two-fiscal-year horizon. Therefore, this outperformance is not just about one quarter. It gives us confidence and additional visibility for the rest of the year, and when combined with our backlog and bookings, we are also feeling good about 2027 visibility. Now on to our business results on Slide 4. We continued our strong momentum in the first quarter with robust bookings and a very substantial pipeline. We also continue to expand and diversify our customer base by signing new clients in several industry verticals, including utilities, insurance, telecommunications, government agencies, property management, consumer finance, banking, education, and health care. Complementing this, we signed channel partners in the education and telecommunications verticals. Onboarding our substantial backlog remains a priority for us, and our team continues to demonstrate solid execution. We also saw better-than-expected seasonal performance in the first quarter, largely from the large cohort of new customers that we added in the second half of last year. In addition, during the first quarter, we onboarded clients throughout multiple verticals, including utilities, consumer finance, government agencies, telecommunications, banking, insurance, and education. With that, I will turn it over to Sanjay to review our financial results in more detail. Thanks, Sanjay. Sanjay Kalra: Thank you, Dushyant, and thank you all for joining us today. Before I discuss our first quarter results and outlook, I would like to remind everyone that the financial results I will be referring to include non-GAAP financial measures. Our Q1 press release and earnings presentation include reconciliations of these non-GAAP financial measures to their corresponding GAAP measures. Both are available on our website. Turning to Slide 5, we delivered a strong start to the year with first quarter results that came in much stronger than we had anticipated, driven by higher transaction activity from both new and existing billers. This helped drive strong double-digit growth for revenue, contribution profit, and adjusted EBITDA. Combined with our strong bookings, sizable backlog, and strong pipeline at quarter-end, this supports our positive outlook for 2026. Our first quarter 2026 results included revenue of $358.4 million, contribution profit of $109.7 million, and adjusted EBITDA of $42.4 million. On a Rule of 40 basis, we came in at 64, which we consider a solid result and a record for the company. We are encouraged by this achievement, especially given the macro backdrop we are operating in. We also saw a sequential acceleration in the year-over-year growth rate for the number of transactions, revenue, and contribution profit despite tough year-over-year comps and a challenging macroeconomic environment. Moreover, the sequential growth rate we saw for all three of these metrics in Q1 was greater than the sequential growth rate we saw during the same period last year. Simply put, both our annual and sequential growth rates accelerated in Q1 2026, boosting our confidence for the full-year 2026 outlook. These strong results also enabled us to once again exit the quarter with a much stronger cash position and gave us the flexibility to allocate capital with a continued focus on longer-term growth, which also contributed to robust bookings. Now let us review our first quarter financials in more detail. As I mentioned earlier, first quarter 2026 revenue was $358.4 million, up 30.2% year over year. This growth was largely driven by the launch of new billers over the past year, as well as increased same-store sales from existing billers. We also processed a higher number of transactions during the first quarter, reaching 203.4 million, up 17.4% year over year. Our average revenue per transaction increased by approximately 11% to $1.76 in the first quarter compared to $1.59 in the prior-year period, continuing a robust trend of double-digit annual growth in revenue per transaction over the past seven quarters. This was mainly due to the biller mix, or more specifically, the large enterprise billers that we launched during 2025 with higher average payment amounts. The first quarter guidance we previously provided did consider some of the anticipated upside from large enterprise accounts, but as you can see, results still exceeded our expectations. First quarter 2026 contribution profit increased to $109.7 million, up 25.2% year over year. This increase reflected the launch of new billers and higher transactions from existing billers. Contribution margin was 30.6% for the first quarter, compared to 31.8% in the prior-year period. The year-over-year reduction reflects the increased mix of large, high-volume enterprise billers in our growing customer base. This change in contribution margin was largely offset by a year-over-year reduction in operating expense margin, which resulted in a record adjusted EBITDA margin of 38.7%. This is consistent with our continued focus on profitability. Contribution profit per transaction for the quarter was $0.54, an improvement from $0.51 in the prior-year period, demonstrating our ability to expand market share without sacrificing comparable contribution profit per transaction. As we have noted before, variables that are outside of our control, such as an increase in average payment amount or changes in the payment mix, can affect contribution profit on a quarter-to-quarter basis. Therefore, we treat this as a secondary metric, while our gross revenue and adjusted EBITDA remain primary metrics for us. First quarter 2026 adjusted gross profit was $92.4 million, up 27.3% year over year and ahead of our contribution profit growth rate as we achieve operational economies of scale. As we anticipated, first quarter 2026 non-GAAP operating expenses increased 16.3% year over year to $53.0 million. This increase was primarily due to higher sales and marketing expenses. You may notice our OpEx year-over-year growth rate increased this past quarter. This is a positive leading indicator for our business, as it means we are aggressively converting our substantial pipeline to bookings. We expect to make similar investments throughout the year as we continue to execute our go-to-market strategy, calibrate operating expenses with contribution profit expansion, and deploy our growing cash balance to support further organic growth. These expectations are already incorporated into our guidance, which I will review shortly. First quarter 2026 non-GAAP net income was $26.9 million, or $0.21 per share, compared to non-GAAP net income of $17.6 million, or $0.14 per share, in the prior-year period, reflecting an annual EPS growth rate of 50%. This EPS incorporates a non-GAAP tax rate of 25%, which is based on our current expectation of our long-term projected tax rate and is reflected in our 2026 guidance. First quarter 2026 adjusted EBITDA increased 41.5% to $42.4 million, compared to $30.0 million in the prior-year period. Adjusted EBITDA also represented a record 38.7% of contribution profit, an annual improvement of 450 basis points compared to 34.2% in the prior-year period. Our incremental adjusted EBITDA margin was approximately 56%. Related to this, once again we exceeded the Rule of 40 for the quarter, coming in at 64, a record. Now I will discuss our balance sheet and liquidity position on Slide 6. We ended the first quarter with total cash and cash equivalents of $342.1 million, compared to $324.5 million at the end of 2025. The $17.6 million sequential increase was primarily comprised of $30.5 million of cash generated from operations, partially offset by $9.4 million used in investing activities, primarily for capitalized software, and $3.3 million spent in net settlement of employee RSUs. The company does not have any debt. Free cash flow generated during the quarter was $20.9 million. This was primarily driven by strong adjusted EBITDA, offset by investments in working capital, primarily in accounts receivable. Driving organic growth continues to be our primary focus. That said, our strong cash position enables us to maintain financial flexibility to keep room for working capital investments as we scale. In addition, our ample liquidity allows us to explore attractive M&A opportunities that may arise in order to expand our growth prospects. Our days sales outstanding at the end of the first quarter was 29, comparable to 28 days at the end of the prior quarter and much better than our expected range. Working capital at the end of the first quarter was $365.4 million, an increase of approximately 6.7% sequentially. We had 129.3 million diluted shares outstanding during the first quarter, pretty much comparable to the prior quarter. Now I will turn to Slide 7 to discuss our second quarter and full-year 2026 raised guidance for revenue, contribution profit, and adjusted EBITDA. Before discussing full-year guidance, I want to mention that we are continuing to follow the same prudent approach to guidance that we have followed for the past three years, which has proven to be successful for us. For Q2 2026, we expect revenue in the range of $340 million to $350 million, contribution profit in the range of $108 million to $111 million, and adjusted EBITDA in the range of $38 million to $40 million. On a Rule of 40 basis for 2026, our guidance implies a range of 51 to 55. For the full year 2026, we now expect revenue in the range of $1.425 billion to $1.440 billion, an increase of 2.3% from the midpoint of our previous guidance. This guidance now represents 19.7% annual growth at the midpoint and 20.4% annual growth at the high end. Contribution profit in the range of $450 million to $457 million, up 1.5% from the midpoint of our previous guidance and now representing 17.4% annual growth at the midpoint and 18.3% annual growth at the high end. Adjusted EBITDA in the range of $165 million to $172 million, up 4% from the midpoint of our previous guidance and now representing 22.6% annual growth at the midpoint and 25.2% annual growth at the high end, and a non-GAAP tax rate of 25%. On a Rule of 40 basis, our guidance implies a range of 53 to 56 for the full year 2026. During our past few earnings calls, we provided long-term growth targets for both revenue and adjusted EBITDA—our two primary financial metrics. We stated that our goal was to grow revenue at approximately 20% and grow adjusted EBITDA between 20% and 30%. The full-year updated 2026 guidance range we have provided today reflects the expected achievement of these long-term targets. In summary, we are very pleased with our strong start to 2026, reflecting the continued momentum we have shown across the past several quarters. During this time, we have consistently demonstrated our ability to generate profitable growth. This enabled us to end the first quarter with a substantial backlog and pipeline. Given our solid footing and strong visibility, we continue to believe we are well-positioned for further growth in 2026 and beyond. Thank you for your attention. I will now turn it back to Dushyant for final remarks before we open up the call for questions. Dushyant Sharma: Thanks, Sanjay. After seeing the impact of our state-of-the-art platform and ecosystem on the broader service economy, we find ourselves at an exciting juncture similar to what we experienced at our inception. As we look at the economy broadly, we realized that almost all investments in commerce have gone toward product or retail commerce, with a focus on how to sell more to customers and have them check out quickly. This product commerce paradigm is also retrofitted in service commerce, which at its core is not transactional but instead relational. This mismatched paradigm has led service commerce to lag behind, as enterprises spend millions of dollars on a myriad of mismatched components and tools. At Paymentus Holdings, Inc., we realized that to truly solve the issue, we needed to bring about a paradigm shift with a full-stack, purpose-built, AI-native platform with service-native components. Even before our IPO, employing our proactive thinking, we wanted to make sure that we not only built a platform with full-stack components, but also incorporated AI, which we knew would become mainstream. Additionally, we knew we would need to seek patent protection on all major components, thereby creating a long-term moat and ecosystem. In line with that, today we announced that we are establishing a new category—AI-native service commerce—where every service interaction becomes intelligent, secure, and outcome-driven. As you can see from Slide 9, there are three key gaps in service commerce. First, there is no native payment method that preserves the service provider–customer relationship and identity. Second, static service and transactional documents must become intelligent and interactive. Third, there is a lack of intelligent orchestration across fragmented systems. To address these three pain points, as you can see on Slide 10, we have created a new paradigm called Billio that has four key components, all of which have been patented. First is Bill Wallet, a purpose-built digital wallet designed specifically for bill and service payments. Unlike traditional retail wallets that store cards for one-time purchases, Bill Wallet establishes a persistent, secure relationship identity between the customer and service provider, linking accounts, service relationships, and payment credentials into a unified layer. Bill Wallet is designed to reduce time to complete a payment by approximately 75% and to work across all dimensions—agentic, digital, social, physical, and vocal. Second, Billio transforms static bills, invoices, and statements into intelligent, interactive experiences. Billio enables consumers to understand charges, resolve issues, and take actions directly within the document itself. Third, AI 360 is an AI-based integration, orchestration, and data intelligence framework that powers both Billio and Bill Wallet and enables systems to automatically interpret, connect, and operate across disparate data sources. AI 360 also provides data visualization and business intelligence capabilities, replacing third-party BI tools. Fourth, all interactions are secured through Paymentus Holdings, Inc.’s patented PCI-compliant secure service framework, which we believe will ensure end-to-end protection, trust, and compliance across every service interaction and payment flow. Putting this in context, in the past we have mentioned the opportunity to monetize interchange in the outer years. By design, the interchange cost we incur today is big and getting bigger as we scale. To us, that represents an incremental, untapped TAM. Additionally, with the advent of generative and agentic AI, the industry is predictably moving in our direction and has opened up opportunities far beyond payments with our existing and prospective clients and users of our platform across all of our current and prospective verticals. Let me discuss both in detail. Bill Wallet is an IPN-native wallet, purpose-built for bill payments and service commerce. As a result of Bill Wallet, a customer visiting their insurance company’s website can complete their premium payment in seconds rather than minutes with their Bill Wallet ID. We believe that Bill Wallet will also significantly improve security and reduce fraud, whether the interaction takes place through an agent, in a self-driven car, via wearable technology, or any other traditional self-service or assistive channels. It is also intended to work well in a physical context. For example, at a government or utility walk-in center, a customer can pay their bill simply by providing the Bill Wallet ID—no card swipe, no manual entry, no POS terminals. This establishes a new paradigm for service commerce, away from the retail commerce paradigm. We believe this will result in a massive improvement in convenience, speed, and security, and also create a more direct link between service providers and their customers. As Bill Wallet scales in the next several years, we also intend for it to include native funding capabilities, enabling us to participate in interchange economics while increasing transaction frequency and depth of engagement for our clients. Bill Wallet works in all aspects of the service economy—B2C and B2B. Let me now discuss early success. As you know, we reported that in December 2025, users on our platform numbered 53 million, which we believe represents approximately 40% of U.S. households and possibly businesses. Out of that customer base, we have made Bill Wallet available to a mere fraction of our end-user base, but across various cities—early 100 thousand users across more than 1 thousand cities—with a very high conversion rate and no marketing spend. Not a single dollar of marketing from Paymentus Holdings, Inc. We believe these results speak to the pervasive nature of our platform, the power of the network effect, and the ease of use—unlocking an additional dimension to the durability and profitability of our longer-term growth algorithm. After seeing this early success, we are getting increasingly excited about exploring how Bill Wallet can be fully rolled out over the next several years. In addition, we recognized years ago that with the advent of AI, service documents like policies, bills, invoices, and other transactional documents such as bank, credit card, loyalty, or mutual fund statements must evolve to become more intelligent. As a result, we patented our technology called Billio that transforms traditional bills, invoices, and statements into AI-powered interactive experiences. With Billio, a utility customer can simply ask, “Why is my water bill higher this month?” Or a customer can interact with any other Bill Wallet and Billio-enabled service provider—such as a plumbing or HVAC service provider—and automatically schedule a visit and pay for it in advance, based on rules set by the user. Or a customer can interact with the Billio-powered mutual fund statement and ask why their portfolio returns are trending lower than the indexes. Billio is designed to answer, resolve, and execute, eliminating friction, driving faster payments, and reducing support costs for billers and other service providers. Billio is also a full-stack service commerce platform, and with the help of Bill Wallet, it has the potential to transform legacy websites into multimodal Billio sites, potentially ending the era of retail paradigm–based old-school portals and replacing them with secure, interactive, and agentic Billio sites. Once a customer is recognized using Bill Wallet, the entire Billio-enabled website is hyper-personalized, and payment can be made—but more importantly, many questions can be asked and answered—whether the interaction is from your car, your personal agent, wearable technology, or any other traditional mainstream channels, such as your computer or mobile phone. These are not just patents, but rather families of patents. All patent families referenced have granted patents in the U.S. and some international jurisdictions, with additional patent applications pending in domestic and many major international markets. As exciting as the depth and breadth of our further expanded moat is with our patent families, we want investors to know that this success is not an accident. We have a carefully crafted business strategy executed over the past several years, emanating from our mindset that the proverbial technological puck will be at a specific place in the future, and we want to take full advantage of it. We believe this strategy will augment our already very strong growth algorithm, further helping Paymentus Holdings, Inc. attain its goal of becoming a multibillion-dollar business and ensuring that our efforts are patent protected so that our customers, our partners, our employees, and of course, our investors are able to enjoy the benefit of their trust in Paymentus Holdings, Inc. That concludes our prepared remarks. We will now open the call for questions. Operator: Thank you. Due to time restraints, we ask that you please limit yourself to one question and one follow-up. To ask a question, please press star 11. To withdraw your question, press star 11 again. Our first question will come from the line of Madison Suhr with Raymond James. Your line is open. Madison Suhr: Hey, good afternoon, guys. I wanted to start on the new AI product. I really appreciate all the color around the technology, but was hoping you could also provide a little more detail on the economics. Do you expect any differences in gross or contribution dollars per transaction in the near term? And then longer term, does this open up Paymentus Holdings, Inc. to other revenue opportunities outside of the traditional per-transaction model? Dushyant Sharma: The revenue opportunities, yes—let me start with that—but not necessarily outside the transaction model. As we have shared previously, our pay-per-use and success-based pricing model has withstood the test of time and, in our view, is further validated with the advent of AI as the world moves toward pay-per-use models. Our approach remains the same: we want to offer more to our clients, and as they achieve success in reducing their cost to serve and improving their end-user experience, we participate in those economies and benefit. We plan to remain in a consumption-based model. Our clients love that model. They can clearly understand where the success is, what the success KPIs are, and how Paymentus Holdings, Inc. will get paid. It does open up opportunities. If you think about the paradigm change of the service economy, as we scale over the years to come, Paymentus Holdings, Inc. will not only provide a total service platform; users should be able to do almost anything with it related to their service providers—for example, schedule a service, ask a question like “My hot water heater is not working—can you schedule someone to come in and take a look?”—and that could include a payment transaction as well. In terms of the gross and net, the long-term strategy here is to convert interchange expense into interchange revenue, and we believe Bill Wallet and Billio will play a big role in that. Sanjay Kalra: And if I may just add, Madison, on any near-term impacts: we remain committed to our model—top line to grow approximately 20% annually and bottom line between 20% and 30%. As you have seen from our past performance, we remain committed to deliver this model with operating leverage. In the near term, there should be no significant impacts here, but especially over the longer term, as Dushyant described, we are going to get much better than where we are today. Thank you. Madison Suhr: Awesome—thanks for that. Then, Sanjay, just a quick follow-up on free cash flow. It was down a little bit year over year. I understand the dynamics with working capital, but when do you expect some of that to normalize? And any color you are willing to share on free cash flow expectations for the full year? Sanjay Kalra: Sure, Madison. In Q1, free cash flow is down compared to last year, and that is primarily working capital, as you correctly pointed out. If you look at our accounts receivable balance itself, we put around $15 million into working capital. Last year in Q1, we actually extracted around $19 million to $20 million from working capital. So that swing itself is about $35 million. Apples to apples, if the working capital position was exactly the same, our free cash flow would have been more than $50 million in the quarter. That said, working capital is very timing dependent and, within the year, very much temporary. It could come back either in Q2 or Q3. We are navigating our way to capture the market at a very good pace, and at times customers get implemented later in the quarter versus the beginning, and that creates timing differences, which dissipate over one or two quarters. We feel very good about where the business is progressing. All the working capital is in very good shape. Rather than focusing on free cash flow in isolation, the right way to understand our business—given the pace—is to look at total working capital increasing. As I noted in prepared remarks, working capital is up more than 6% sequentially. Whether it is in cash or accounts receivable, both are very good. In fact, the DSO of 29 days versus 28 days is pretty awesome—much better than our model, which dictates ~32 days. We feel very bullish about free cash flow for the full year. Last year, we generated around $125 million. This year—while we do not guide for cash flow—we are marching on the same path, except for temporary working capital adjustments. We think we are on the same path or better than last year. Operator: One moment for our next question. That will come from the line of Dave Koning with Baird. Your line is open. Dave Koning: Hey, guys. Thanks so much. Great job. My first question: the economics of the wallet. I think it is kind of the Paymentus trifecta—if I load $1 thousand every month, first, you get float revenue. Secondly, I make payments out of that, and you get to keep the debit interchange instead of paying it out, as you mentioned. And then thirdly, I think you would get the nonregulated debit economics because you are not a large issuer. So there are three nice combinations of economics, it seems, in my view. Am I getting that right? Dushyant Sharma: Yes, that is part of the strategy—though not immediate—but that is where we are marching toward. There are other options as well. Bill Wallet is an IP-native instrument, and we will also potentially open it up as a network play. And there are fees coming from our clients for the services we are providing them, with Bill Wallet as part of that. Dave Koning: Great to hear. Then when I look at the cadence of revenue through the year, Q2 typically is up sequentially in contribution profit. This year, you are guiding to flat. Is that related to fuel? And maybe talk a little bit about fuel/energy prices and how that is impacting numbers. Sanjay Kalra: Sure, Dave. There are two pieces here. On Q2 guidance, there is seasonality in the business, as you would have observed from the past few years. Generally, we guide a little lower than Q1 because we do not know how seasonality will play, and the seasonality of government billers affects Q2. Although it could be similar to Q1 revenue or maybe slightly higher as well if all things come in the right path, we have just onboarded a lot of large enterprise customers recently—some in Q1 and some in the second half of last year. We really want to have a full-year history to forecast accurately, so we take a prudent approach. That prudence is why you see modest softness in Q2 compared to Q1, and that flows through to the bottom line as well. Regarding energy prices, delivering 25% contribution profit growth in Q1 when energy prices are in the news daily is telling. As we have captured more of the market over many years, we have seen vertical diversification, and our enhanced pricing strategy has helped reduce the impact of the elevated energy price index on our numbers. Even within utilities, only a small subsector is affected. It has not fully dissipated, but as we have scaled, it has lost relevance and materiality. Our prudent guidance methodology already captures any modest impact. Operator: One moment for our next question. That will come from the line of Analyst with Wedbush Securities. Your line is open. Analyst: Hey, good evening, guys. Congrats on a great quarter. I have two questions. First, more color on the AI-native service commerce platform you launched. You gave a lot of color around the strategy, but can you talk about what is specifically in the pipeline for this product in the year? Is there any inclusion of revenue coming from this cohort in 2026, or is it strictly in 2027 and beyond? And can you talk about the ramp of this AI-driven cohort moving forward? Dushyant Sharma: This will be a transactional model, and our goal remains to capture as many of the transactions for a given customer as possible. It applies to all of our existing and prospective customers. The goal is to build momentum using the patented technology by moving customers away from the retail-commerce paradigm to the service-native paradigm. That will take time because of the installed base. What we are seeing—and expect to continue—is momentum in market capture. If I summarize the strategy into two parallel streams: stream one is evangelize the marketplace with the new paradigm so more customers sign up with Paymentus Holdings, Inc.; stream two, right behind that, is monetize the transactions differently than historically. It was very important to have patent protection on all this. We are not counting anything in 2026 from it, other than continued market momentum. We are feeling good about 2027, given our momentum and bookings. Analyst: Got it. Thank you for the color. And, Sanjay, on the full-year revenue guidance—you basically had a $20 million beat in Q1 but raised the midpoint by about $30 million, implying a stronger back half with strong bookings and backlog. What is holding you back from a larger full-year 2026 raise? Is it conservatism, or onboarding timelines? And similarly on the Rule of 40—about 65% this quarter, guiding to 51% to 55% for the full year—can you break that down? Sanjay Kalra: Since the past three years, we have followed a consistent methodology for guidance, which is dominated by prudence. You answered it in your question—prudence prevails. We remain cautious about what is coming. We want to deliver; we do not want to count chickens before they hatch. The business is very good, the pipeline is encouraging, bookings are strong, and our vertical diversification is healthy. We are bringing in a lot of Fortune 500 companies. We feel very good about 2026 and outer years. Our renewal rates are very strong, and our customer contracts are longer-term, giving us more visibility—now six quarters or so—into 2027 as well. Dushyant Sharma: If I may add, the reason we are prudent is to create long-term shareholder value. You can erode value faster than you can build it by being irresponsible in guidance. We want a smooth road for executing a thoughtful strategy. It takes discipline. It is far easier to pound our chest than to deliver. Our interest is to create long-term shareholder value by having prudent guidance with very aggressive execution behind it, and not create a noisy environment. Operator: One moment for our next question. That will come from the line of Analyst on for Darrin Peller with Wolfe. Your line is open. Analyst: Hey, guys. Thanks for taking my question. Quickly on your new products, Billio and Bill Wallet: do these products change who you compete against? Are there any incumbents we should think about? And overall, have you noticed any changes in the credit environment recently? Dushyant Sharma: We are excited about where we are headed. The market is moving in our direction, and it has taken us years to get to this point—not a reaction to a wave of AI press releases. We wanted to create long-term value and a long-term competitive moat for our investors and, more importantly, for our customers. After disrupting the bill payment world—when we started, banks had the majority of payments and are now down significantly, primarily because of the model we championed—we believe trends under pressure accelerate in our favor. You will see more momentum as time goes by, and we have prepared the company for this so our investors, partners, customers, and employees benefit from thoughtful and innovative execution. Analyst: Thanks. One quick follow-up: on go-forward focus verticals, does utilities still remain at the top? Which verticals will contribute most to this new AI-centric model? Dushyant Sharma: Utilities will remain a key vertical for us. It is among the most complex and sophisticated at large scale. We had to be really good to drive more value for utilities and their customers. As noted in our prepared remarks, we are signing customers across all our verticals. Our goal is to go through a household’s and a business’s bills, look at all the bills they have, and start making markets in each of those—then capture more and more transactions in each market using the new service-commerce paradigm powered by Billio. Operator: One moment for our next question. Our next question will come from the line of Tien-Tsin Huang with JPMorgan. Your line is open. Tien-Tsin Huang: Hope you can hear me—I am at the airport here. Good results. On Billio and Bill Wallet, to clarify, will you be managing the Bill Wallet ID, and is the ID distributed through consumer service providers? Subscription payments are important. In an agent world, who would wear the risk? I know that is a big debate on the agent side, and I think subscription payments could be a big part of this. Dushyant Sharma: Our approach is that any technology or service that distances service providers from their own customers will not last. Paymentus Holdings, Inc.’s approach with Bill Wallet—regardless of channel or mode of interaction—allows service providers to have a direct relationship with their end users. That is our goal, and that is what we have built. Unlike traditional retail-centric wallets, billers/service providers set the rules for identity—how they identify and authenticate their own customers. Bill Wallet enables that across channels—intelligent glasses, car interfaces, phone, etc. Tien-Tsin Huang: Understood. So the wearing of the risk band in the agent example—that would be borne by Paymentus Holdings, Inc. given how you described it? Dushyant Sharma: In some ways, yes; in other ways, it would be arranged between us and our clients. Tien-Tsin Huang: Understood. More to talk about—ambitious and makes sense given the network you have built. One quick follow-up: Sanjay, you mentioned seasonal impact in terms of the upside for the quarter. Can you clarify that? What seasonal impact was there, if any, that surprised you? Sanjay Kalra: The impact is modest. On the high end for Q2, our guidance is approximately 2% softer than Q1, primarily because prudence prevails and seasonality of government billers is a part of it. We also need to experience the full-year cycle of new large billers implemented in 2025. These factors in combination are creating small modest softness in Q2 compared to Q1. Operator: One moment for our next question. That will come from the line of Will Nance with Goldman Sachs. Your line is open. Will Nance: Thank you for taking the question. On the wallet product, can you talk about distribution and how to incentivize adoption by consumers over time? How do you think about marketing required to drive adoption given the competitive wallet landscape? Dushyant Sharma: The simplicity and time savings for end customers are compelling. In the small fraction of our base where we launched, conversion rates were high, and we did not spend any marketing dollars. The scale of our platform and ecosystem is already pervasive, and that will play a big role. Our focus is the technological advantage as the key reason to sign up: “I do not want to remember where to log in or how to find information—can I just use my Bill Wallet ID?” That is why patent protection was important. We will also create other incentives within the wallet for repeated use. Will Nance: Appreciate that. And on energy prices—can you remind us what fundamentally changed about the enhanced approach to pricing adopted several years ago? Do contracts automatically reprice with higher average ticket sizes? What mechanism has reduced the exposure within the utilities vertical? And secondarily, how much has the utilities vertical declined as a percentage of total over the last three or four years? Dushyant Sharma: On pricing, you are right that in some cases it is auto-priced—as the average payment amount changes with inflation, our pricing changes with it. We have also moved customers to different pricing models that are favorable to both customers and to us. Previously, we had the ability to change pricing but later in the process; now it is more proactive. In the remaining cohort where there is still some immaterial impact, we have regular meetings with clients to discuss impacts and readjust pricing. We are simply more proactive than before. As for utilities as a percentage of revenue, traditionally it has been higher than 50%, but it is now a little less than 50%—still substantial, but the pricing model evolution means we are not seeing a material impact from energy prices. Only a small subset of utilities is modestly impacted, and overall it is immaterial for us now. Operator: One moment for our next question. As a reminder, if you would like to ask a question, please press star 11. Our next question will come from the line of Craig Maurer with FBN Partners. Your line is open. Craig Maurer: Hi, thanks for taking the question. What is your take on the acquisition of Kubra by Repay, and how might that change the competitive dynamics in the space? Dushyant Sharma: Kubra has been around for a long period of time—we know Kubra and Repay well. From our perspective, the market has been moving in our direction, and we are excited about that. Customers and prospects know where the innovations are coming from and who is taking the approach seriously. We are very excited about our business and wish competitors the best. Operator: Thank you. I am showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Sharma for any closing remarks. Dushyant Sharma: Thank you so much, everyone. We really appreciate the opportunity to speak with you. Have a great day. Thank you. Operator: This concludes today’s program. Thank you all for participating. You may now disconnect.
Operator: Good afternoon. Thank you for standing by. Welcome to Allison Transmission Holdings, Inc.'s first quarter 2026 earnings conference call. My name is Shamali, and I will be your conference call operator today. At this time, all participants are in a listen-only mode. After prepared remarks, Allison Transmission Holdings, Inc. executives will conduct a question-and-answer session. Conference call participants will be given instructions at that time. As a reminder, this conference call is being recorded. If anyone should require operator assistance during the conference, I would now like to turn the conference call over to Jacalyn C. Bolles, Executive Director of Treasury and Investor Relations. Please go ahead, Jacalyn. Jacalyn C. Bolles: Thank you, Shamali. Good afternoon, and thank you for joining us for our first quarter 2026 earnings conference call. With me this afternoon are David S. Graziosi, our Chair, President and Chief Executive Officer; Scott A. Mell, our Chief Financial Officer and Treasurer; G. Frederick Bohley, Allison Transmission Holdings, Inc.’s Chief Operating Officer and Allison Transmission business unit leader; and Craig Price, Allison Off Highway business unit leader. As a reminder, this conference call, webcast, and this afternoon's presentation are available on the Investor Relations section of allisontransmission.com. A replay of this call will be available through May 18. As noted on slide two of the presentation, many of our remarks today contain forward-looking statements based on current expectations. These forward-looking statements are subject to known and unknown risks, including those set forth in our Annual Report on Form 10-K for the year ended 12/31/2025. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those that we express today. In addition, as noted on slide three of the presentation, some of our remarks today contain non-GAAP financial measures as defined by the SEC. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in the appendix to the presentation and in our first quarter 2026 earnings press release. Today's call is set to end at 5:45 p.m. Eastern Time. In order to maximize participation opportunities on the call, please take just one question from each analyst. Please turn to slide four of the presentation for the call agenda. During today's call, David S. Graziosi will provide a business update and briefly review the company's performance. Scott A. Mell will then discuss Allison Transmission Holdings, Inc.’s segment reporting structure, and further review our first quarter 2026 financial performance and our full-year guidance update prior to commencing the Q&A. Now, I will turn the call over to David. Thank you, and good afternoon. David S. Graziosi: Please turn to slide five of the presentation for our first quarter business update. First, I want to recognize and thank our global employee base for all the work done so far this year. Our teams have been working diligently on integration and value capture within both Allison business units. Our execution has tracked closely with our planning, and the integration process is proceeding in a disciplined and structured manner. Having said that, it has not been without a tremendous amount of effort by the Allison teams to arrive at where we are today. As our teams more closely coordinate efforts, we are beginning to see the initial phases of synergy realization take shape across several key areas and expect to begin to see financial benefits later in 2026. It has been encouraging to see the groundwork laid prior to the transaction translate into real momentum and reaffirmed guidance in achieving our target of $120 million of annual run-rate synergies. We remain confident in our acquisition thesis: accelerating sales growth through the strategic combination of the two business units, strengthening our localized production footprint, and generating sustainable cost reductions that enhance long-term shareholder value. Allison Transmission Holdings, Inc.’s reach is now greatly expanded with our global operations allowing for more localized production and opportunities for cost reduction. By leveraging increased purchasing scale and utilizing in best-cost countries, we expect to drive value creation and margin improvement across our business. I want to give another welcome to our new colleagues around the world and thank you for all that you do. It has been a productive first quarter and exciting times for Allison Transmission Holdings, Inc. as we enter this new chapter. Moving now to a brief update on first quarter sales performance and end market outlooks for both of our business units. Please turn to slide six. Starting with our legacy Allison Transmission business, first quarter net sales were $733 million, a year-over-year decline of 4% when compared against a robust 2025. In the North America On-Highway end market, we continue to view the truck market with cautious optimism. Although order trends have shown strength and imply a slight ramp throughout the year, we believe there is still uncertainty surrounding geopolitical impacts including tariffs and final rulings on emissions regulations that are hindering end users' new vehicle purchasing decisions. Continuing with the Allison Transmission business unit, the Defense end market had an extremely strong first quarter with revenue up 64% year-over-year. We continue to see strength from international customers primarily in tracked programs, with both legacy and new products, including our 3040 MX cross-drive transmission. We hold a favorable outlook for the Defense end market as national security becomes even more relevant to nations around the world leading to increased budgets and new programs being funded. Please turn to slide seven. The Allison Off Highway business unit generated $673 million of sales in the first quarter with continued growth in the mining end market driven by elevated commodity prices, including gold, copper, and rare earth minerals. The construction and material handling end market also performed in the first quarter as global construction markets are seeing steadier investments and positive developments, particularly in Europe. In the agriculture end market, while commodity prices remain a driving factor there are early positive indicators in certain subsegments and regions—for example, the low horsepower market in India—but overall, a fairly muted environment even prior to the start of conflict in the Middle East. On that topic, the conflict in the Middle East currently has undetermined impact and implications, both favorable and unfavorable, across multiple end markets across Allison business units. While the duration of the conflict remains uncertain, we have not seen any material disruption to our business at this time. We recognize the potential for indirect impacts across our supply chains, energy markets, and broader macroeconomic conditions, and our teams are actively monitoring and maintaining close coordination. In summary, integration is progressing as expected, and value capture is materializing. End markets, although impacted by uncertainty in some aspects, are steady if not showing signs of recovery. To everyone across our organization, thank you for the extraordinary commitment, resilience, and teamwork you have shown. Your efforts have laid a strong foundation for Allison Transmission Holdings, Inc.’s future. To our investors, we are confidently positioned to unlock meaningful synergies, accelerate growth, and create lasting value. Now I will pass the call over to Scott for a review of Allison Transmission Holdings, Inc.’s segment reporting structure, first quarter 2026 financial performance, and full-year guidance update. Scott? Scott A. Mell: Thank you, David. And thanks to those of you joining us on the call. Please turn to slide eight of the presentation. Before we begin with segment and consolidated results, I want to quickly go over some housekeeping items and outline our new reporting structure. First quarter results now include segment reporting for Allison Transmission, Allison Off Highway, and Allison Central Group. The Allison Transmission business unit is the company's legacy business excluding certain costs now accounted for within the Allison Central Group, while the Allison Off Highway business unit reflects the business acquired from Dana at the beginning of the year. Allison Central Group is a centralized cost center, which includes certain functional costs that support the company's global operations. Now, on the left-hand side of slide eight, we provide sales, operating profit, and adjusted EBITDA by segment. Segment operating income flows over to the consolidated table on the right, with further detail down to net income and the non-GAAP financial measures of adjusted diluted EPS and consolidated adjusted EBITDA. Please note that first quarter gross profit in the Allison Off Highway segment was negatively impacted by approximately $76 million of one-time acquisition-related purchase price accounting items. On a consolidated basis, first quarter net income decreased year-over-year to $112 million driven by the addition of costs from the Allison Off Highway business unit, including approximately $76 million of expenses related to the stepped-up basis in inventory and incremental depreciation expense related to the stepped-up basis in fixed assets, and an additional $22 million of intangible asset amortization expense. The year-over-year decrease in net income was also driven by higher interest expense, net, along with approximately $17 million of one-time acquisition-related integration expenses. Moving down to per share earnings, first quarter diluted EPS was $1.33. When excluding the effect of noncash, nonrecurring, infrequent, or unusual items, including the costs associated with the acquisition of the Allison Off Highway business unit, adjusted net income and adjusted diluted EPS were $216 million and $2.57 per share, respectively. As a reminder, reconciliations for non-GAAP financial measures can be found in the appendix of the first quarter earnings presentation and earnings press release. There will also be more detail provided in our 10-Q to be published later this week. Please turn to slide nine of the presentation. First quarter adjusted diluted EPS of $2.57 increased 6% year-over-year, and we expect the acquisition of the Allison Off Highway business unit to be accretive to earnings on a full-year basis. Adjusted EBITDA for the first quarter was $362 million, increasing 22% year-over-year, with adjusted EBITDA margin at 26%, reflecting disciplined execution across our business units despite the less than ideal operating environment. As we have discussed previously, we believe that improving end market conditions in both business units will have a favorable impact on margins. Our value capture and synergy realization will also provide an uplift to our margins, with our target for adjusted EBITDA margin in the 27% to 29% range. Cash generation continues to be a key attribute of Allison Transmission Holdings, Inc., with the ability to generate substantial cash flow while successfully integrating the Allison Off Highway business unit and navigating uncertain end market environments, including geopolitical policies and conflicts. Now I will briefly highlight our capital allocation priorities. We continue to invest for long-term and sustainable growth across our business units with new products and initiatives targeting identified growth opportunities. We are also focused on debt reduction to achieve our near-term leverage targets while simultaneously returning capital to shareholders through share repurchases and our quarterly dividend. At the bottom of the slide, you can see how we allocated capital in the first quarter. During the quarter, we repaid $150 million of the $300 million of outstanding borrowings under our revolving credit facility, which were used as part of the funding for the Allison Off Highway acquisition. During the quarter, we also increased our quarterly dividend for the seventh consecutive year. Currently at $0.29 per share, our quarterly dividend has nearly doubled over the last seven years. And finally, we maintained our commitment to share repurchases, with $20 million of our common stock bought back in the first quarter. We ended the first quarter with approximately $1.2 billion of share repurchase authorization remaining. Even with the recent appreciation in our share price, we continue to view our stock as undervalued relative to the underlying strength of our business units and long-term earnings potential and believe share repurchases remain an attractive use of capital at this time. On the right side of slide nine, you can see Allison Transmission Holdings, Inc.’s liquidity and leverage metrics at the end of the first quarter. We ended the first quarter with $311 million of cash on hand and approximately $845 million of available revolving credit facility commitments. Our net debt is just under $4 billion, resulting in a pro forma net leverage ratio below three times when giving consideration to a full year of earnings from the Allison Off Highway acquisition. In the near term, we plan to reduce our net leverage to a target of two times through a recovery in our end markets along with margin improvement through value capture and synergy realization. We will reduce our leverage ratio through both increased earnings and a concerted effort towards debt reduction. Before moving on to the 2026 guidance update, building on David’s comments, I want to summarize our financial performance for the quarter. In summary, our businesses are performing well. Macroeconomic clarity across our end markets would be well received and likely drive increased volumes with favorable drop-throughs to margin performance and per-share earnings. Importantly, we continue to generate substantial cash flow and invest for long-term growth while also reducing debt and returning capital to shareholders. Please turn now to slide 10 for a review of our full-year 2026 guidance. Given first quarter results, and taking into consideration current macroeconomic and geopolitical uncertainty, we are reaffirming our full-year 2026 guidance provided to the market on February 23. For 2026 revenue, we expect consolidated net sales in the range of $5.575 billion to $5.925 billion. This includes net sales for the Allison Transmission business unit in the range of $3.025 billion to $3.175 billion and net sales for the Allison Off Highway business unit in the range of $2.55 billion to $2.75 billion. For earnings, we expect consolidated net income in the range of $600 million to $750 million, subject to the completion of purchase price accounting associated with the acquisition of the Allison Off Highway business unit. Our net income guidance for 2026 includes more than $100 million of one-time pretax expenses associated with the separation, integration, and restructuring of the Allison Off Highway business unit. Despite these one-time costs, we expect the Allison Off Highway acquisition to be accretive to net income and earnings per share in 2026. Further, we expect consolidated adjusted EBITDA in the range of $1.365 billion to $1.515 billion. At the midpoint, this implies a 25% adjusted EBITDA margin. For our 2026 cash flow guidance, we anticipate consolidated net cash provided by operating activities in the range of $970 million to $1.1 billion, consolidated capital expenditures in the range of $295 million to $315 million including one-time separation and integration capital of approximately $45 million, and consolidated adjusted free cash flow in the range of $655 million to $[inaudible] million. Please note that our consolidated net cash provided by operating activities guidance includes approximately $55 million of one-time cash outlays associated with our acquisition of the Off Highway business unit. This concludes our prepared remarks. Shamali, please open the call for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, we ask everyone in the queue to please limit themselves to only one question to allow others a chance to ask. Our first question comes from the line of Robert Cameron Wertheimer with Melius Research. Please proceed with your question. Robert Cameron Wertheimer: Yes. Hi. Thank you, good evening. There has been a lot that has changed in the world since you announced the deal and even since you closed. I wonder if you could kind of talk about what versus your deal model has changed most, the positive and most of the negative, if you would. David S. Graziosi: Hey, Rob. Thank you for the question. To your point, I think we made this comment on the last call when we were asked about tariffs and so we just got on the call; we have not checked the news a minute or two to see what happened. That continues, right? The rate of change and volatility in the overall market—every day is truly an adventure. Having said that, we are very pleased with the acquisition, frankly. We would assess it currently as exceeding expectations in terms of the additional capabilities. Frankly, I think the attributes that are required to really excel in this type of market with the level of volatility that we are seeing—the operational footprint flexibility that we now have, the additional talent in multiple regions to really address and try to mitigate. At the same time, as you know, with trade developments being what they are and some of the regional realignment that is going on, a broader footprint is really much more to our benefit than we had anticipated when we originally put the deal thesis together. Having said all that, the team is very engaged in dealing with those developments, but also, as I mentioned in the prepared remarks, working on value capture as well. One thing that has become clear as we are dealing with various issues is other opportunities as well that are arising out of that. But again, if we go back to pre-acquisition, the ability to deal with from an Allison perspective would have been a bit more challenged, frankly, just given the rather limited footprint we had at that stage. So I would say in summary, very pleased with what we have seen and what we continue to work on, but also our ability to deal with the volatility in the broader markets. Robert Cameron Wertheimer: So more internal capability and flexibility that is more beneficial in this changed world. And then on end markets, you inherited some troughy-ish end markets. Any change overall in where you see those either standing or going? Thank you. David S. Graziosi: It is good in terms of an update there and, between the prepared remarks and what we had listed out in the press release as well as the IR package, I would say overall, our view in terms of end market conditions has not really changed. I think to use your word, troughy, that still really is our view. If nothing else, it is pointing out as, hopefully, we all get some clarity in terms of these geopolitical developments what the future holds. But it is very clear equipment in our end markets continues to be utilized, and that will always lead to demand. It is just a question of when exactly that will happen, but we feel very good about overall the point that we entered the markets. Operator: Thank you. Our next question comes from the line of Timothy W. Thein with Raymond James. Please proceed with your question. Timothy W. Thein: Thank you. Good afternoon. The question is on the target for adjusted EBITDA margins of 27% to 29%. David, just curious what, in terms of your internal model, when you see that as a potential realization? And to the extent has that moved up or down as you closed the acquisition—essentially, the timeline to hit that—has it changed, and how are you thinking in terms of realization of that target? Thank you. David S. Graziosi: Tim, I appreciate the question. I would say overall, very comfortable with the target range that you mentioned. From a timing perspective, given a few of the near-term issues that have arisen that I just mentioned, there is no longer-term impact in terms of our timing. As we said at the time of the acquisition announcement and close, we still feel that is very attainable within a few years. One thing I would certainly repeat is the work that the team has been doing on value capture and synergies—with some of these market condition changes—has really pointed out a number of other areas that the team is diving into as well. So again, we feel very good about the range and the timing being realized over the next handful of years. Jacalyn C. Bolles: Thank you, David. Operator: Thank you. Our next question comes from the line of Ian Alton Zaffino with Oppenheimer & Company. Please proceed with your question. Ian Alton Zaffino: Hi. Thank you very much. I just wanted to ask on the medium-duty side. When do we think that starts bottoming out and improving in a larger way? And then when we think about just the business in general, what could potentially offset that as far as vocational? Any other color you could give us there? Thanks. G. Frederick Bohley: Sure, Ian. This is Fred. Relative to medium duty, the first quarter was still extremely soft. I will say we are starting to see some signs that would give you some optimism there, relative to the lease-rental guys—some of them leaning into the market a little bit. I think the unknown for 2026 is really where we end up on medium-duty engines, which I think we need some direction from the EPA and how that is going to impact the cost of engines going into 2027. As we have the year modeled, we have had and continue to have the second half stepping up somewhat from the first half. Relative to Class 8 straight truck, versus our initial expectations, it was a little stronger in Q1 and continues to remain steady in demand. Ian Alton Zaffino: Okay. Thanks. And then just as a follow-up on use of capital or use of cash flow. I know you talked about buybacks and deleveraging. How are you kind of prioritizing one versus the other? Because I know the stock is cheap, but at the same time, you want to delever. And then are we kind of done on the M&A side for the foreseeable future, just given you are in the midst of integrating a very large one? Any color there? Thanks. Scott A. Mell: Yes, it is Scott. On the capital allocation, as I mentioned on the call, fortunately, we have not had to make overly challenging decisions on the allocation of capital. We feel very comfortable with the cash-generating abilities of both business units and the overall company. We have talked about this year targeting getting down to a two-times net leverage multiple here in the very near future, next couple of years. We paid $150 million off in the first quarter. I think you should anticipate seeing that rate somewhat continue as we go throughout the course of the year. And obviously, we are still in the market repurchasing shares. At share prices where they are today, it is not as dilutive to shares outstanding, but still demonstrative of our ability to continue to buy back shares. So that is not going to change. I think what you saw in the first quarter is a good precursor to what we expect to see over the course of the rest of the year. David S. Graziosi: And, Ian, on your second question in terms of future inorganic opportunities or otherwise, we continue to be active assessing different opportunities. So our capital allocation model that Scott went through—overall leverage targets, etcetera—and the ability of the business, the new business so to speak, to generate cash, we are continuing to be active looking at different opportunities. That being said, as you know and from your comments, the team is very engaged working on a sizable acquisition with our new team members. In the meantime, we are also assessing, as part of the combined business, other opportunities that could present themselves from an inorganic perspective. In summary, we remain engaged in that process and will certainly provide an update should one be necessary. Operator: Thank you. Our next question comes from the line of Jerry Revich with Wells Fargo Securities. Please proceed with your question. Jerry Revich: Yes. Hi. Good afternoon, everyone. I am wondering if you could just talk about your expectations for sequential performance in the business. I think normally, for both the Allison and the Dana Off Highway business, we have production ramping up sequentially 2Q versus 1Q and margins up sequentially. Is that how we should be thinking about this year? And then separately, can you just comment on your expectations of synergy capture as we go through the year? Do you expect any cost benefits 2Q versus 1Q? G. Frederick Bohley: From a sequential standpoint, Jerry, this is Fred. We do expect things on the Transmission side to step up sequentially, and as we have it modeled, we have Q2 up off of Q1, and then Q4, based on the number of days, stepping down a little. I think the drivers there will really be whether there is a meaningful prebuy in Q4. And, Craig, maybe you want to talk a little bit about what you are seeing sequentially? Craig Price: Yes, sure. From the Off Highway side, there is a step up in Q2. A greater portion of our business is in the European segment where in Q3 we get into the European holiday mode, so Q3 and Q4 can tend to go down for us. That is the picture from the Off Highway side. Scott A. Mell: And on the synergy capture, as David and I mentioned, we are starting to get much clearer line of sight relative to the specific opportunities—size, timing—everything that you need to start to see that impact through the financials. What I will tell you is our expectations on the amount of opportunity and the timing of the opportunity has not changed whatsoever, and as we go throughout the course of the year, I think you should expect to hear from us relative to providing more detail on impact and updates on when we think we will get the full run-rate of those impacts. Jerry Revich: Super. Thank you. And Fred, can I just ask a clarification? You mentioned we will see what the EPA wants to do. What is the range of outcomes? Is there a scenario under which EPA ’27 is delayed, or considering the timing of engine rollout, is there a potential for higher prebuy in medium duty? What is the range of outcomes that you alluded to that you think is reasonable? G. Frederick Bohley: We are not expecting a delay. I think most are expecting some sort of modification to the warranty. My specific comment was really relative to medium duty and the ability of everybody to meet the requirements of 2027—and if not, what could be some associated fees for being noncompliant—and then how that might impact a prebuy or not in 2026. Operator: Thank you. Our next question comes from the line of Tami Zakaria with JPMorgan. Please proceed with your question. Tami Zakaria: Hi. Thank you so much. The $673 million of Off Highway revenue this quarter—could you tell us how that compares to last year? And related to that, could you comment on price realization by segment—On-Highway and Off Highway, please? G. Frederick Bohley: I will take the price one first and then let Craig roll through what he is seeing in generalities on a year-over-year basis. From a price standpoint, within Allison Transmission in the quarter we generated about 325 basis points of price. We expect to be in that range for the full year. And as we talked about on the last earnings call, we anticipate price for Allison Off Highway to be neutral year-over-year. Craig Price: And from the Off Highway end market year-over-year comparison, I would say that we were up probably just over 10% year-over-year. It was a combination of currency factors, given the footprint and sales in Europe—we went from a euro conversion of about $1.07–$1.08 to roughly $1.17—and we also saw significant strong demand across a number of our segments. As David alluded to in his prepared remarks, we saw the construction market that was positive for us in Europe but was slightly negative in North America. Agriculture was a positive trend as well for us. The different subsegments of high horsepower business in Europe were strong. Also, the low horsepower business out of India came in strong. And the mining segment was up significantly as well, driven by the higher commodity prices seen at this time. Tami Zakaria: Understood. Thank you. Operator: Thank you. Our next question comes from the line of Angel Castillo Malpica with Morgan Stanley. Please proceed with your question. Angel Castillo Malpica: Hi. Good evening. Thanks for taking my question. I was hoping to go back to the end market discussion. I think, David, you mentioned that end market views have not really changed. It sounds like at least in North America On-Highway there are some pockets that maybe are coming in a little better than expected. I fully understand there is still a lot of uncertainty in the second half, but as you think about the unchanged full-year guide, could you go through the other Transmission end markets? Any others where you are seeing particular pockets of maybe better performance? I know Defense looked like it was a pretty good quarter here. Any others that maybe are offsetting that and where you are seeing a little bit more weakness? In particular, any commentary you have in terms of order books or customer commentary would be helpful. G. Frederick Bohley: Hey, Angel. This is Fred. I think we have already covered North America On-Highway, the largest end market. You mentioned Defense—it was an amazing quarter, with revenue up 64%, and we anticipate the balance of the year looking a lot like Q1. I would say relative to the quarter, things were a little softer outside North America On-Highway than what we had initially modeled. We do expect the service parts business to be stepping up sequentially into Q2. We are seeing, as Craig mentioned, strength from a mining standpoint in his business unit. We think we have some upside in our Global Off-Highway relative to mining as well as hydraulic fracking. Angel Castillo Malpica: Got it. That is helpful. And maybe just some housekeeping questions as we try to model the pro forma business. The $12 million of corporate, I think that was in the first quarter—is that a good run rate for how we should think about that part of the business, the Central Group, on an EBITDA basis? And then will you be giving the end markets that you gave for Off Highway historicals for 2025? Scott A. Mell: I will answer the second question first. No, we do not intend to provide that level of detail for the business since we did not own it. Relative to the Central Group function EBITDA number of $12 million, when you carve out the nonrecurring and the noncash stock comp, I think that is a reasonable number to apply on an annualized basis. Angel Castillo Malpica: Got it. Thank you. Operator: Thank you. Our next question comes from the line of Luke Junk with Baird. Please proceed with your question. Luke Junk: Thanks for taking the question. Maybe just continuing on that Defense thread, Fred, wondering how you think about the interplay between Defense and North America On-Highway if the latter comes back later this year. Historically, there has been a level of interrelationship there from the supply chain standpoint to some extent in the past, but maybe looking forward, that relationship is not as strong or as relevant in the current geopolitical environment. Can you just talk about that interplay a little? Thank you. G. Frederick Bohley: I would say at this point, with a lot of the growth in Defense being driven by non-U.S. government, outside North America volume—and we talked about the successes we are having with Hanwha in Korea with the K9 howitzer, our 3040 MX and our 4040 MX, new products for us—with Borsuk out of Poland, the Kaplan out of Turkey, BAE Hägglunds—there is a really good backdrop for Defense. We have invested in these products even pre-pandemic. They are coming to market. We are extremely excited about them and expect to have a great year in Defense. So I would not, based on the fact that it is primarily driven by outside North America, see much connectivity back into the North America On-Highway end market. Luke Junk: Maybe just related to that, is any of this flowing through the Outside North America On-Highway segment? I know you can tend to pick up some commercial terms that are better there. Are we seeing any of that in that part of the business? G. Frederick Bohley: We do flow the wheeled portion of the Defense through the Outside North America On-Highway, primarily because we are selling a lot of times to the same OEMs. We are seeing strength primarily in Europe relative to wheeled volume. We are also seeing some strength in Europe from a vocational standpoint as well. Luke Junk: Very helpful. I will leave it there. Thank you. Operator: Thank you. Our next question comes from the line of Kyle David Menges with Citigroup. Please proceed with your question. Kyle David Menges: Great. Thank you for taking the question. I just wanted to go back to some of the pricing comments and how to think about price versus cost for the two business units for the year. The 350 or so basis points for the Allison Transmission piece of the business—at that level, are we price/cost positive for the year? Are we confident in that? And then it sounds like for the Off Highway business, if price is flat, I am assuming cost inflation is greater, so then the price/cost would be negative in that business for the year? Scott A. Mell: On the Allison Transmission business, yes, we do anticipate our year-over-year price to cover inflationary cost factors, with obviously the delta in the first quarter being the volume and mix impact there. On the Off Highway side, while they obviously have less pricing leverage, they certainly have shown the ability to take costs down on a year-over-year basis relative to either operations or purchasing. Craig, you can expand a bit. Craig Price: Sure. I would classify it as pretty neutral. To Scott’s points, there are some minor price givebacks, but we are able to offset those within our operational structure. Kyle David Menges: Helpful. Thank you. Operator: Thank you. Our next question comes from the line of Analyst with Bank of America. Please proceed with your question. Analyst: Hi. Good afternoon. Just looking at the first quarter, adjusted EPS was up about 6% year-over-year and adjusted free cash flow is down about 34%. I understand reaffirmed guidance calls for both to grow on a year-over-year basis for 2026, but can you give us some color on the seasonality of working capital for the new business and what Allison Transmission Holdings, Inc.’s free cash flow profile looks like now through the year? Scott A. Mell: Yes. A couple of questions in there. I think the cash flow profile is going to be very similar to what you experienced prior to the acquisition, with it being said that the first quarter for the Off Highway business unit is a substantially meaningful user of cash during the quarter, just given some of the seasonality and the fact that it is a European-centric organization. But as you think about your modeling on a go-forward basis, you should expect to see the quarterly trends that you have seen in the past in terms of Q1 being a use of cash, Q2 turning the other way, Q3 turning back, and then Q4 generating cash as we get to the end of the year. Analyst: Thank you. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back to David S. Graziosi for closing remarks. David S. Graziosi: Thank you, Shamali. Thank you for your continued interest in Allison Transmission Holdings, Inc. and for participating on today's call. Enjoy your evening. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Deborah Belevan: Good evening everyone and welcome to Duolingo, Inc.'s first quarter 2026 earnings webcast. Today, after market close, we released this quarter's shareholder letter, a copy of which you can find on our IR website at investors.duolingo.com. On today's call, we have Luis von Ahn, our cofounder and CEO, and Gilian Munson, our CFO. They will begin with prepared remarks before we open the call for questions. Analysts may ask a question by using the raise hand feature. Please note this call is being recorded and all participants are currently in listen-only mode. Before we begin, please note we will make some forward-looking statements regarding future events and financial performance. These statements are subject to risks and uncertainties described in our SEC filings and are based on our assumptions we believe to be reasonable as of today. We undertake no obligations to update them. We will also discuss both GAAP and non-GAAP financial measures. Reconciliations between the two can be found in our earnings materials, and we encourage you to review them when evaluating our performance. I will now turn it over to Luis. Thanks, Debbie. Luis von Ahn: And thank you all for joining. Q1 was about execution. We said we were going to prioritize teaching better and changes in growing users, and that is exactly what we did. DAUs grew 21% year-over-year, right in line with what we expected as we make this strategic shift. I want to spend a few minutes on what we shipped this quarter related to language learning, because teaching better is the foundation of everything we are building toward. Speaking practice has historically been the hardest thing to do well on a mobile app. This quarter, we made it a bigger part of the experience for free users and paid subscribers. We introduced spoken tokens, which let learners speak their answers to almost any exercise. We started rolling out speaking adventures, which put learners in real-world conversational scenarios. And we launched flashcards, which help learners build fast recall by saying words aloud. And for our paid subscribers, video call keeps getting better. Over the past year, we have more than doubled the average number of words spoken per user in that feature. We also reached a major milestone on content. We now offer courses up to professional proficiency, which is B2 on the CEFR scale, across our nine most learned languages. And we got there fast. In Q1 alone, we published 20.5 thousand course units. To put that in context, that is more than 10 times what we were shipping per quarter just two years ago. AI has fundamentally changed what is possible for us, and I believe we are just scratching the surface. The product is better than it has ever been, and I could not be more excited about what is ahead. I will now turn it over to Gilian. Gilian Munson: Thank you, Luis. Q1 was a solid quarter. We achieved double-digit growth in both bookings and revenue, expanded gross margin, and delivered adjusted EBITDA of $83 million, which is about 29% of our revenue. As you consider 2026, it is worth reiterating how we are thinking about the year. We are investing deliberately to set us up to be a larger, more durable, long-term business. This means that for this year, we are managing the business towards the targets that we shared on the fourth quarter call. Specifically, 10% to 12% bookings growth, 15% to 18% revenue growth, and an adjusted EBITDA margin of about 25%. To help with your modeling, we have provided point estimates for full-year 2026, consistent with those ranges: bookings growth of roughly 10.5%, revenue growth of roughly 16.1%, and an adjusted EBITDA margin of 25.7%. A few things we want to make sure are on your radar as you build out your models. On bookings, our expected Q2 bookings growth of about 6% reflects a tough comp. The prior-year quarter included the initial rollout of Energy, a price increase on our most popular subscription plan, and exceptional advertising performance. We expect about 17% growth in Q2 for revenue, after which we expect growth to step down in Q3 before stabilizing in Q4. We do expect bookings growth to accelerate through the second half with about three points of acceleration in Q3 and a further rise in Q4. For gross margin, we expect it to be approximately 71% in Q2, after which it will trend down to roughly 69% by the end of the year as AI-powered feature use in our products expands. Adjusted EBITDA margin in Q2 should be roughly 24%. We expect Q3 adjusted EBITDA margin to be flat to slightly down from Q2 before approaching 27% in Q4. The overall message is that 2026 is a key strategic investment year for us, and it is playing out as we expected so far, as demonstrated by the point estimates for our financials that we have shared. We enter Q2 with over $1 billion in cash, no debt, and expect to generate over $350 million in free cash flow this year. We plan to continue executing on our buyback authorization under which repurchases to date are 514 thousand shares, or about 1% of our fully diluted shares outstanding. 2026 is a big year for Duolingo, Inc., and I am very excited about what we are building. I will now turn it back to the operator, and we can take your questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please use the raise hand bar, which can be found at the bottom of your screen. You may remove yourself from the queue at any time by lowering your hand. When it is your turn, you will receive a message on your screen asking to be promoted to a panelist. Please accept and wait a moment. Once you have been promoted, you will hear your name called, and you may unmute your video and audio and ask your question. Your Zoom application may disappear momentarily. This is expected, and your window will reappear. We are allowing analysts one relevant follow-up to their main question. We will now pause a moment to allow the team to gather and assemble the queue. Alright. We are waiting one moment for Wyatt Swanson with DA Davidson to accept. Wyatt, please turn on your video and audio and ask your question. Wyatt J. Swanson: Thanks for the question. Appreciate it. Could you talk to some of the different drivers of DAU growth this quarter and maybe entering Q2? Whether it is performance marketing, word-of-mouth maybe starting to return, or something else? And could you also talk to what regions you are seeing any particular strength or weakness? Luis von Ahn: Thanks for the question. DAU growth is very important to us; this is the most important thing we are trying to do this year. We are growing in every single region, as we have been for several years, but some regions are growing faster than others. Asia in particular is the fastest-growing region. In terms of growth drivers, they remain pretty similar. Word-of-mouth has historically been the main growth driver for us. Most of our users come to Duolingo, Inc. through word-of-mouth. We have some amount of marketing, some amount of performance marketing that we are doing. We have increased that budget a little bit, but it is not massive compared to other apps our size. Historically, another place where DAU increases is just improvements in retention. That is the work of making the product stickier. That has gone really well. We have been making a lot of changes to the product, some small, some larger, that make retention higher. The way you would see that is an increase in our DAU-to-MAU ratio, which keeps increasing pretty much every quarter, and it increased again this quarter. Wyatt J. Swanson: Perfect. Thanks. And then one quick follow-up. Can you provide some color on how you expect DAU growth to look in Q2 and whether 20% is still the right way to think about DAU growth through 2026? Luis von Ahn: Everything we said in the last call remains. We expect that it is going to stay at around 20% throughout the year. There will be slight ups and downs depending on comps, but it is around 20% for the rest of the year. Nothing has changed from the last time we spoke. Operator: Your next question will come from Ross Sandler with Barclays. We are waiting for a moment for him to accept. Ross, please turn on your audio and video and ask your question. Ross Adam Sandler: Luis, you had mentioned a couple interesting things 90 days back as part of the plan this year. One was to revitalize some of the engagement in the free tier, that top 20% of the free tier. Curious to hear any update on that effort. Then you also mentioned getting inspiration from some of the big mobile gaming companies in terms of new things you could potentially bring into Duolingo. Curious to hear what you have learned and any new strategies on that front. Thanks. Luis von Ahn: Thanks for the question. In terms of the free tier, we have done a few things. We made it so that the free tier is better than it was two months ago. These changes take time—it has only been two months since the last earnings call—so it is not like we have done a thousand changes, but there are more things available to free users, and we are very happy with that. We think over time that will increase word-of-mouth. In terms of getting inspiration from mobile games, we have always gotten a lot of inspiration from mobile games. Ultimately we are trying to make something as good at teaching as a one-on-one human tutor but also as fun as a mobile game. If you look over the last quarter, very soon you will see really cool avatar costumes—that is directly coming from mobile games; users are going to love that. We are making changes in how we show rewards to users; for example, showing them as cards now, which feels really collectible. Another thing important for the free tier: we want monetization tactics that are not at odds with the free tier. We found some really good ones this quarter. One is longer free trials. Historically Duolingo, Inc. has given a seven-day free trial. We are finding that giving longer free trials is really good. It increases bookings, and it is good for the user. For example, a one-month free trial feels great to them. We are pretty happy with that. Operator: Our next question will come from Andrew Boone with Citizens JMP. Please unmute your audio and video and ask your question. Andrew M. Boone: Thanks so much for taking the questions. I would love to talk about MAU growth and top of funnel at large. Help us understand the deceleration there—understood the comp and everything from last year—but how do we think about what has been the deceleration and whether that needs to accelerate to support DAU growth? Luis von Ahn: It is not just one team looking at that. Related to MAU growth is top of funnel, and that we do work on. The reality is that top of funnel has been about flat for this quarter, and we would like to accelerate it. We are working on that. There is a lot with marketing that I think will be really good, particularly in underpenetrated regions. That is one thing. The other is making changes to the product to teach better and be better for free users. That should accelerate word-of-mouth. Historically, the main driver of top of funnel has been word-of-mouth. Word-of-mouth is beautiful because it is free, but we do not have that much control over it in the way we can measure retention. So we are doing things we think will be really good for word-of-mouth, but we do not have the same granularity of control. Andrew M. Boone: And then, Luis, just a strategic question in terms of keeping users on platform. You have always focused on fun. It seems there is a change as we think about more of a voice-front experience. Talk about keeping the entertainment value and what has to change as you move toward more of a voice-like experience. Thank you. Luis von Ahn: I understand why you might perceive a change, but internally there is no change in terms of fun. We are huge believers that the hardest thing about learning something by yourself is staying motivated. That is the secret sauce of Duolingo, Inc. What has gotten us so far is that we know we have to motivate our users. People may say they want to learn something, but ultimately they will do what is most fun. So we spend a lot of effort making it fun. We think making voice and speaking more prominent does not decrease fun. Our metrics suggest it does not; it can be a pretty fun experience. Humans are very visual creatures, so you will continue to see beautiful animations and game-like elements even with voice in there. Our teams dedicated to making the app more fun are really firing on all cylinders. You will see a bunch of stuff in the next couple of days. For example, avatar costumes—I am dressed up as a hot dog, and I love it. Operator: Your next question will come from Eric Sheridan with Goldman. Please unmute your audio and video and ask your question. Eric Sheridan: Hi, great to see everybody. Thanks so much for taking the questions. Maybe a two-parter. Luis, for you, what have been the key lessons so far in terms of scaling AI, both in terms of the user experience as well as the scale of content for the platform over the last couple of months? And, Gilian, as AI scales on both sides of that equation, how should we think about what that means for margins longer term? Thanks to both. Luis von Ahn: Great question. We are very excited about AI. At the highest level, we are trying to make something as good at teaching as a one-on-one human tutor and as fun as a mobile game. For the teaching part, AI is what will get us there. For example, our video call feature that practices conversation has gotten significantly better over the last year. The conversations are more fluid, and users are saying about twice as many words on average as they were a year ago. Similarly, content: the amount of learning content we put out in the last quarter dwarfed everything we have ever done. We put out 20.5 thousand units of content in one quarter—about what we put out in the entire year last year. And last year we were already using AI. We are just getting better at using it. We are also working on models picking what exercise to give each user, with significantly more personalization—exactly what a one-on-one human tutor does. Gilian Munson: From a cost perspective, there are two things to think about. One, the adoption of AI in customer-facing features. You see our gross margin guidance has us landing at about 69% in the fourth quarter, and that assumes we are going to put a lot more of that ingredient in our product. Two, our operating expenses: we have started to see some pretty big increases in AI costs internally, and our guidance reflects that. But there are always waves of efficiency that come with AI. You might have AI costs come up, and then the team optimizes, and then you move forward. In Q1, gross margin was better than we would have expected and pretty good year-over-year, even with a lot of new AI content, because on a per-unit basis the costs have come down a lot. It goes in waves: costs come down, we adopt more, and we manage that. As you think about overall margins, expect us to be in that 69% range on gross margin, and we will manage operating expenses accordingly. Operator: Your next question will come from Bryan Smilek with JPMorgan. Your line is open. Unmute your audio and video and ask your question. Bryan Michael Smilek: Great, thanks for taking the questions. Luis, going back to last earnings as well—great to see voice being infused across the ecosystem. Can you discuss the affiliated impact on Max overall? Are you seeing Max subscribers cross back down to Super? How should we think about the product go-to-market for Max now that AI is becoming more available across the broader ecosystem? Luis von Ahn: Thanks for that question because it helps us clarify. What we said last time was that we wanted to add video call to our medium tier, Super Duolingo. It is important for us to do that because video call is such a good feature in terms of teaching, and we want significantly more people to have access to it. We started doing that. At the moment, we have a number of experiments giving video call to Super subscribers, particularly new Super subscribers. We have not scaled this to all our existing user base. So at the moment, there is no change for Max. There are a lot of possibilities for what Max could be. We could lower the price of Max, or give Max subscribers unlimited video call versus not unlimited for Super. There are a number of options, but it has only been two months since we last spoke, so we have not run all the experiments. In terms of metrics we are not seeing a big difference, except that a cohort of new users is not even seeing Max—they are only seeing Super—and that is one of many experiments. Bryan Michael Smilek: Thank you. That is helpful. And for Gilian, looking at the guidance—understand the tougher comp on bookings into Q2—can you help me think about the puts and takes that drive back-half reacceleration? You mentioned about 20% DAU growth with ebbs and flows each quarter. Would that back-half guidance imply that DAUs would improve from early benefits from these product initiatives? Gilian Munson: As you look at the second-half guidance, in general we are planning the business based on that 20% DAU growth basis. You may see some early returns on the investments we are making, but I would not bank on a lot of that. We are taking the long view this year and want to allow ourselves to operate in the range of bookings guidance we gave so we can make all the investments we want and do what we think is right for customers. Q2 is a really tough comp because of the release of Energy in particular and a handful of other features that made bookings a year ago really strong. You will see us bounce back from that comp, and then you will continue to see DAU numbers drive bookings. Operator: Your next question will come from Nathan Feather with Morgan Stanley. Please unmute your audio and video and ask your question. Nathaniel Jay Feather: Thanks for taking the question. The rapid increase in your ability to do content generation is really interesting. Now that you have a full course set across language learning, at least across most common languages, are you starting to A/B test new content for different engagement? Historically, have you seen an increase in retention, pay rates, etc. with higher quality content? And looking further, how does that impact your thought on expanding into additional subjects beyond language learning now that the cost to entry is lower? Luis von Ahn: Thanks, Nathan. Yes, one exciting thing is we have been working for years to have the top nine languages reach Duolingo score 129, which we now have. Internally someone said, “That is just the beginning.” Now that we have all this content, we are in a much better spot to make it significantly better based on how users perform. We are starting to do that. We have seen that changes in content quality and the type of content shown have meaningful impacts on retention, particularly new-user retention. We are running many experiments; for example, what we teach in the first unit matters a lot. Do we teach greetings, or words like “mom” and “dad”? It is not as simple as “always teach greetings.” These choices impact retention. We are also likely to move to generating content just for you based on everything we know—maybe not the immediate next exercise, but two exercises from now we might generate a sentence just for you. We are getting to that point, which is very exciting. In terms of other subjects, each has unique challenges. AI is helping us add new subjects faster—chess is a great example; we added it in about nine months. But each subject has its own content needs. Adding math is relatively easy if you want a wall of text like ChatGPT, but if you want diagrams and user interaction, that is harder. AI makes it easier, but it is still not trivial. We are happy with the subjects we have and are very excited about Math. You saw we started this call with a video for Math. We have reached a point where our math course covers pretty much all content between grades two and twelve and can actually explain things when you get them wrong. We are very excited about that. Nathaniel Jay Feather: Great. That is helpful. And thinking about the balance sheet—you have a lot of cash and high free cash flow. What are your thoughts on the right level of buybacks, and what are some central uses of that cash going forward? Gilian Munson: As we look at the cash, you saw we returned some level of cash back to shareholders via a buyback in the quarter. We have a $400 million authorization, so we are willing to spend that money. In general, we are focused on operating the business, so we are investing in the business as well. It will be a balance of the two. On a buyback, you buy more when the stock is lower and less when it is higher. We will look at where the stock is; we think it is a great time to buy our stock. It is a great way to offset dilution from the last couple of years. With our free cash flow estimates, we are going to generate almost as much cash as that buyback anyway this year. On capital allocation, of course there is M&A. We are out there always looking, but as you have seen, a lot of what we have done is fairly small in nature—not a big deal that hits the balance sheet hard. Duolingo, Inc. is very focused on growing Duolingo, investing in Duolingo, and going from there. Luis von Ahn: GameStop wants to buy eBay. We may want to do that too. I am kidding. Operator: Your next question will come from Ryan MacDonald with Needham. Please unmute your audio and video and ask your question. Deborah Belevan: I am going to leave that last comment alone a little bit. We are not buying eBay, just so you know. Ryan Michael MacDonald: Maybe we can talk about the announcement in late April about advanced content being available across all the top subjects. From a marketing perspective, how big of an unlock is that in terms of deploying incremental performance marketing budget now that you have all the content available? How should we think about how that may help replenish the top of the funnel through the back half of the year and into next year? Luis von Ahn: In performance marketing, this matters most for English learners. English learners are most interested in more advanced content. Some of the main places we are using performance marketing are underpenetrated markets, particularly in Asia. In a number of large Asian markets we can do profitable performance marketing. Historically, because our free version is so good, it has not been easy for us to do profitable performance marketing—people we acquire are super happy as free users. But we are finding we can do that in some places; for example, in China we are able to acquire profitably, and these are English learners. I would say the main thing is we have historically underinvested in performance marketing, and we are getting a lot more professional about it this year. You will see the benefits in the next few months. We are building the infrastructure for the right attribution to users and the right place after you acquire them—things a company our size should have built years ago, but we kind of ignored it. We are pretty excited about that. Ryan Michael MacDonald: And as you are testing video call in Super Duolingo for a cohort of net-new paid subs, what are you seeing thus far in terms of elasticity on pricing and the potential demand to pay incrementally for that feature at the Super level? And, Gilian, how is that informing your view on gross margin profile as we move forward? Luis von Ahn: We are running tests on what the right price should be for Super with video call. I cannot tell you all the results yet. We started this work a couple of months ago, and it takes time to build and run A/B tests and get results. What I can tell you is that people are willing to pay more for Super with video call. How much more, I will be able to tell you in a quarter or two. Gilian Munson: One of the reasons we have been focusing everyone on operating within ranges of financials is to allow ourselves to do this kind of work—testing different ways of approaching the customer on price. All of that is anticipated in the guidance around the ranges we want in 2026. In any given quarter, it might be a little more or less, but we anticipated that coming into the year and are executing against it. No big surprises, and the financials we have laid out for 2026 can accommodate that. Operator: Moving forward, we are allowing analysts one relevant follow-up in order to get through the queue. Thank you. Your next question will come from Ralph Schackart with William Blair. Please unmute your audio and video and ask your question. Ralph Edward Schackart: Hopefully this is relevant. Luis, historically you have a bit of a paradox: you over-monetized historically, and now maybe we are in a duration where you are under-monetizing the user base. Stepping back, what signals are you looking at today that inform you you are on the right path? And more broadly, when would be the right time to start monetizing again? It is only been a couple months since the last call, but would love to hear your thoughts. Luis von Ahn: Great question. We are at the same time under-monetized and over-monetized. Roughly 12% of our monthly active users are paying subscribers. We think that number should be much higher. If you look at other freemium models, they are much higher—Spotify is close to 50%. At the same time, certain types of monetization we probably overdid, making the free user experience have too much friction. Many monetization tactics were at odds with DAU growth—more friction drives some people to subscribe, which is good, but some people leave. What we need to do, and what we are doing, is finding ways to monetize that do not put DAU growth at odds with monetization. Those ways exist. I mentioned longer free trials. We have not experimented much with trial length historically. Other scaled subscription businesses often have one-month or even three-month free trials. You will see us experiment with that. We are seeing that one-month trials increase revenue and are not at odds with DAUs. Saying “one month free” does not drive users away. The work we are doing is finding ways to monetize that are not at odds with DAU growth. They exist; they are just not as quick as adding friction to the free user experience. This year is for experimenting. We will probably experiment with a three-month free trial. That is something we could not have done without operating with the guidelines we set for this year, because a three-month trial delays bookings by a whole quarter. This operating approach gives us room to do that. Operator: Your next question will come from Mark Mahaney with Evercore. Please unmute your audio and video and ask your question. Mark Stephen Mahaney: Thanks. I want to ask about gross margins. Your guidance implies they are going to phase down to the high 60s in the fourth quarter. Is there a reason to think margins hold at that level? Is there a reason to think they should recover higher? How should we think about the trajectory after this year? Gilian Munson: When we think about margins that have AI content in them—take gross margin—you tend to find that as you introduce features, they might be more expensive at first, and then we optimize costs over time. In Q1, margin held up nicely versus the year before because per-unit AI costs came down a lot. As we look forward, we want to put more and more AI as an ingredient in the product. That is why we have margin guidance down to 69%, which is essentially where we were last quarter too. That implies a lot more AI content, which we think is great long term. It is possible we could optimize more, but we want to be putting that much AI in the product. I think 69% is a good place to think of us exiting the year. This is a changing environment, and some optimizations come faster than you expect, so you could see both up and down. Operator: Your next question will come from Justin Patterson with KeyBanc. Please unmute your audio and video and ask your question. Justin Tyler Patterson: Thank you very much, and good evening. Duolingo has always had a high pace of product velocity around A/B tests. Synthetic coding has made it easier to do lots of those. How are you thinking about engineer productivity as a whole, the number of tests being run, and how should we think about that influencing long-term headcount needs? Luis von Ahn: Great question. We A/B test a lot—running hundreds of A/B tests concurrently at all times. That has been our product philosophy and how Duolingo, Inc. has gotten better over time. We are finding that the number of A/B tests we can run is increasing. We believe that is because of AI usage, particularly in our engineering and product organization. The increase is not huge, but it is the first time we have seen an increase on a per-capita basis in years. Last year you might have read on Twitter that you can program anything in five seconds and run 10,000 A/B tests at once with a single engineer—that is an exaggeration. Up until very recently, companies at our scale had not seen a real increase in velocity overall, but we are starting to see that increase. It is still moderate, but it is increasing, and we are happy with it. I do not think we will run 10 times as many A/B tests per engineer, but the trend is positive. Operator: Your next question will come from John Colantuoni with Jefferies. Please unmute your audio and video and ask your question. John Colantuoni: Thanks for taking my questions. Can you give a bit of color on how U.S. DAUs are trending relative to international DAUs and what that relative geographic growth could mean for bookings over time, given U.S. users generally adopt a subscription at a higher rate than international users? Luis von Ahn: DAUs are growing in the U.S., and they are growing in pretty much every country, but in the U.S. they are growing less than in many international markets. Asia is the fastest-growing region. In terms of how that affects monetization, it does not seem to affect it that much. The U.S. monetizes well, but a lot of countries monetize relatively well. A good example is China—China monetizes about as well as Western Europe, which is not as high as the U.S., but pretty high. Given the growth rate in China, that matters. I do not think slower growth in the U.S. implies lower bookings growth overall. My hope is that by making the product teach better, increasing word-of-mouth, and investing some in marketing in the U.S.—which historically we had not—we will drive higher year-over-year growth in the U.S. than we currently have. Operator: Your next question will come from Shweta Khajuria with Wolfe Research. Please unmute your audio and video and ask your question. Shweta R. Khajuria: Thank you for taking my question. With AI-driven content creation, there was a meaningful increase in content. How are you managing quality of content as that continues to grow against volume and engagement? Luis von Ahn: We spend a lot of effort on quality. The main reason our content is not growing even faster is because we are making sure it is very high quality. We do evaluations of our content with AI and with humans. We then test it with our own users in small amounts to see if it is high quality, and if it is, we increase exposure. As amazing as AI is, if you are not careful you can get a lot of slop. We are trying very hard for that not to happen. Over the last couple of quarters, the quality has actually increased. We know this from spot checks and rating the quality across content. Operator: Your next question will come from Omar Dusa lki with Bank of America. Please unmute your audio and video and ask your question. Analyst: Hi. I want to get back to performance marketing. Glad to hear the company is treating that with more seriousness. Last time we spoke, I got the impression the product would be leaps and bounds better in the future and really change the way people learn languages. Does the maturity of the product itself bottleneck scaling performance advertising spend? Performance advertising typically tries to optimize specific behaviors in users. Is that the case? And do you have any sense of when you might be ready to really put the pedal to the metal, assuming your organization has done its experiments—when would the product be ready to go full-bore on performance marketing? Luis von Ahn: I would say the bottleneck for performance marketing for us has been, first, building the infrastructure to be a much more serious performance marketing machine, which we are doing now. Second, and not the quality of teaching, is how good our free tier is. One problem, depending on region and what we advertise, has been acquiring a user and having them be very happy free users rather than subscribers. That is the main bottleneck we need to overcome. At the moment, in some geographies we have profitable performance marketing, but in many we do not. Gilian Munson: The only thing I would add is that we are making an investment in marketing this year, and it is not just performance marketing. The team has a multi-tiered approach to marketing and to stepping up that investment that is well thought through and has diversity to it. Analyst: I want to make sure I am not thinking about performance marketing the wrong way, because I thought it would be difficult to performance market a product that is not stable or mature, since you do not actually know what you are marketing if it is changing so much. Luis von Ahn: I would not say that. Duolingo, Inc. has been around for 15 years. It has never stayed the same, and it never will. That is not going to change, but I do not think that has been the problem. Operator: Your next question will come from Alex Brondelow with Wells Fargo. Your line is open. Please ask your question. Analyst: Thanks so much for the question. You mentioned how fast China is growing. There have been two successful brand tie-ins over the last 12 months—Luckin Coffee last year and Meituan in March. Are there learnings we can take from how successful those brand tie-ins have been in China to extend that success to other markets over the next year? Luis von Ahn: Thank you. We have had incredible brand partnerships in China. Our IP and brand in China are very strong, and that commands some of the largest brands wanting to partner with us. For example, we very soon have a partnership with McDonald’s in China. Large brands come to us. Brands in China, like Luckin Coffee, are more open to partnerships than many Western brands—you do not see Starbucks changing all their stores every two weeks with a new brand, whereas Luckin does. There are learnings our partnerships and marketing teams in China are bringing to other places, particularly in Asia. But some of this is specific to the China market. Also, China is not just growing fast because of partnerships; it is kind of the other way around. The great partnerships are coming in part because we are growing fast and seen as a very cool brand. There is a huge appetite for English learning in China that keeps growing, and that is the main reason China is growing. Operator: Your next question will come from Alexander Sklar with Raymond James. Your line is open. Please ask your question. Alexander James Sklar: Thanks. On the relationship between DAUs and top-of-funnel growth versus the visibility you have talked to on the shape of the bookings inflection this year, what early tests—or maybe it is tier or geo mix—are providing your visibility in terms of that bookings inflection exiting the year? Gilian Munson: On bookings, if you look at the quarterly progression we are guiding to as you go Q2 into Q3 and Q3 into Q4, it is fairly on par with where the company has been in the last couple of years. We are playing a long game here, and the investments we are making may show some things this year, but we are really looking beyond this year. 2026 is about operating around that 20% DAU growth and growing the business. What you are seeing in Q3 and Q4 is typical seasonality. There has been an adjustment in Q1 and Q2 to our new monetization balance, but in Q3 and Q4 what you are seeing is quite typical for us. Operator: I am showing no further questions. This concludes the Q&A section of the call. I would now like to turn the call back to the host for closing remarks. Luis von Ahn: Thank you. Thanks, operator. I would like to thank everyone for joining us, and we look forward to seeing you on the next call.
Operator: Good afternoon. I would like to welcome everybody to Repay Holdings Corporation's First Quarter 2026 Earnings Conference Call. This call is being recorded today, 05/04/2026. I would like to turn the session over to Stewart Joseph Grisante, Head of Investor Relations for Repay Holdings Corporation. Stewart, you may begin. Stewart Joseph Grisante: Thank you. Good afternoon, and welcome to Repay Holdings Corporation's First Quarter 2026 Earnings Conference Call. With us today are John Andrew Morris, Co-Founder and Chief Executive Officer, and Robert Hauser, Chief Financial Officer. During this call, we will be making forward-looking statements about our beliefs and estimates regarding future events and results. Those forward-looking statements are subject to risks and uncertainties, including those set forth in the SEC filings related to today's results and our most recent Form 10-K. Actual results may differ materially from any forward-looking statements that we make today. Forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them except as required by law. In an effort to provide additional information to investors, today's discussion will also reference certain non-GAAP financial measures. Reconciliations and other explanations of those non-GAAP financial measures can be found in today's press release and in the earnings supplement, each of which are available on the company's IR site. In connection with our 2026 annual meeting of stockholders, we intend to file a definitive proxy statement and related materials with the SEC. Our directors, and certain of our executive officers and employees, will be participants in the solicitation of proxies in connection with the annual meeting. Stockholders are encouraged to read the proxy statement and related materials when they become available as they will contain important information, including the identity of the participants and their direct or indirect interest by security holdings or otherwise. As you may know, Veridae Partners submitted a request for the Board to waive the timeliness requirement of our bylaws for stockholders to provide notice of intent to submit director nominations for candidates to stand for election to the Board at the annual meeting. The Board determined to deny the request, and on Friday, May 1, we filed our preliminary proxy statement with the SEC. Veridae failed to comply with the requirements set forth in our bylaws and is not entitled to make lawful director nominations at this year's annual meeting. Additionally, the Board previously confirmed receipt of an unsolicited nonbinding proposal from Forger Capital to acquire the outstanding shares of the company. Earlier today, we sent a letter to Forger Capital and issued a press release providing that the Board has unanimously rejected the nonbinding proposal because it significantly undervalues the company and is therefore not in shareholders' best interest. At this time, we will be making no further comments or taking any questions on Veridae, Forger Capital, or any matters related to the [inaudible]. With that, I will now turn the call over to John. John Andrew Morris: Thanks, Stewart. Good afternoon, everyone, and thank you for joining us today. Repay Holdings Corporation had a solid start to the year after exiting 2025 with continued momentum. Since reporting full-year 2025 earnings in March, we announced a strategically significant acquisition to create a scaled bill payment provider with the technology and market position to lead the digital journey across the payment ecosystem. I will talk more about the Kubra acquisition in a little bit, but let us first go over the highlights of our Q1 results and progress we have made. During Q1, Repay Holdings Corporation remained focused on our core growth and operational execution. We achieved 4% revenue growth, approximately 43% adjusted EBITDA margins, and continued to generate positive free cash flow. We exited the quarter with over 297 software partners across our consumer and business payment verticals. In Consumer Payments, Q1 revenue increased approximately 4% year over year as we implemented new enterprise clients who are adopting more payment channels and modalities. We have seen strong interest in our digital wallet capabilities and began our phased rollout of Repay Voice AI to select enterprise clients. Throughout last year, Repay Holdings Corporation has been investing in our sales and customer support teams while also enhancing many of our software integrations to help further penetrate existing partnerships and create overall better user experiences. The teams are working through the onboarding, implementation, and ramping of clients in our sales pipeline, which we are confident will drive accelerating growth as we move through the year. During the quarter, we continued to automate workflows and deployed AI capabilities to improve processes such as performance and risk monitoring for our ever-growing volumes on our gateway. We have also been optimizing network routing, leading to tangible payment efficiencies. In addition, we completed a strategic partner investment leading to an immediate EBITDA uplift from existing volumes during the quarter. And finally, we have strengthened our Consumer Payments leadership. We are excited for Matt Morrow to join Repay Holdings Corporation in the coming weeks as a new executive leader of Consumer Payments. Matt brings over a decade of payments and business services experience managing growth through disciplined strategic planning. His extensive experience and history with embedded payment partners will oversee the Consumer Payments growth, sales, and operational initiatives going forward. Now moving over to our Business Payments segment. Business Payments had another quarter of strong performance with Q1 revenue increasing approximately 18% year over year. The business added two new software partners in the quarter, leading to many new clients across our verticals. Our sales pipeline continues to build in our automotive, property management, government, and education verticals. New client wins include regional multi-location auto groups, and multiple government and school districts within certain regions. In addition, the political media vertical started to see an uptick in processing ahead of the back-half-weighted political media cycle heading into the 2026 midterm elections. We ended Q1 with over 665 thousand vendors in our supplier network, an increase of over 70% year over year. Vendor enablement is a great example of where we are deploying automation to improve vendor matching for clients. During the quarter, we were able to automatically match more than 15 thousand new vendors, which will allow us to improve our digital monetization for both new and existing volumes over time. The last topic I would like to discuss is our recently announced acquisition of Kubra. In evaluating capital allocation alternatives, including share repurchases and M&A, we believe the Kubra acquisition offers the most compelling long-term value creation opportunity given its scale, nondiscretionary, recurring revenue profile, and synergy potential. We have received feedback from certain shareholders on Kubra and wanted to address those points directly. Before doing so, I should reiterate our Board's continued support of the acquisition and management's belief in the long-term benefits. The acquisition is supported by fully committed financing. As such, the teams are moving forward expeditiously, and we expect to close the transaction during Q2 2026. We have also been asked about our plans for integrating the companies. Our teams have been actively planning for the integration to hit the ground running on day one to provide the identified value creation opportunities in the near term. This incorporates integrating technology, employees, and most importantly, client relationships and the support for a seamless transition. I look forward to engaging with Kubra's clients in the coming months once the deal is closed. Given the acquisition is yet to close, there are limits to the level of detail we can provide at this time; however, we will provide additional detail following closing. The Board and management remain confident in the strategic and financial rationale of the Kubra acquisition. As with any integration of this scale, execution will be critical, and we are focused on disciplined integration planning to mitigate operational and client transition risk. Together, we offer a comprehensive end-to-end digital platform. This means spanning across bill presentment, communication services, and payment processing with our own clearing and settlement engine. The acquisition will result in a compelling strategic combination in the market, leading to management and the Board's confidence in creating long-term value for all stakeholders. The Board remains focused on the fiduciary duty to maximize long-term shareholder value and regularly evaluates strategic alternatives, such as the Kubra acquisition. We believe the Kubra acquisition provides that significant scale. Based on 2025 Kubra results, we will approximately double our revenue, interact with over 40% of US and Canadian households every month, and process over $130 billion in annual payment volume as we serve nondiscretionary categories with recurring billing cycles. Importantly, the transaction is expected to enhance our free cash flow profile over time and provide identifiable cost and revenue synergy opportunities. We are targeting a return to below 3x net leverage within approximately eighteen months of closing, supported by the combined company's cash flow generation, synergy realization, disciplined capital allocation, and, as appropriate, ongoing evaluation of opportunities to further enhance balance sheet flexibility. We expect to generate strong free cash flow over this period and look forward to providing additional updates following closing on our progress throughout 2026. With that, I will turn the call over to Rob to go over Repay Holdings Corporation's Q1 financials. Rob? Robert Hauser: Thank you, John, and good afternoon, everyone. In the first quarter, Repay Holdings Corporation delivered results that were in line with our internal expectations across key metrics. Revenue was $80.8 million, representing 4% growth year over year. Consumer Payments revenue increased 4% year over year. Business Payments reported revenue increased 18% year over year, and normalized revenue increased approximately 16%, which excludes the positive political media contributions during the quarter. We expect this positive momentum and sustained contributions from existing clients as well as incremental contributions from new clients will increase growth momentum as we move throughout 2026. We also started to see early contributions from the political media spending cycle that occurs every two years, which we typically see a majority of in Q3 and Q4 around the November elections. Q1 adjusted EBITDA was $34.4 million, representing approximately 43% adjusted EBITDA margins. During the quarter, we began to benefit from cost improvement initiatives such as optimizing volume routing, and the immediate accretion from a strategic distribution partner investment we made during the quarter. As we updated in our flash Q1 performance last week, we raised our adjusted EBITDA outlook, which represents an improvement in our margin expectations, to approximately 42% for full-year 2026. This improvement includes the volume mix impacts that we have recently seen and the ongoing growth investments towards our sales, customer support, and technology. First quarter adjusted net income was $19.4 million, or $0.22 per share. Free cash flow was $5.4 million during the quarter, resulting in 16% free cash flow conversion. During Q1, we made approximately $15 million in tax receivable agreement payments related to the 2024 tax reporting year. In addition, we paid approximately $22.5 million for a strategic distribution partner purchase. We immediately benefited from this investment as the volumes were already on Repay Holdings Corporation's platform. The investment resulted in immediate EBITDA uplift during Q1 and for full-year 2026. In January, we used approximately $37 million in cash and drew $110 million on our revolving credit facility to refinance our maturing 2026 convertible notes. Total debt outstanding at quarter end was comprised of $288 million of convertible notes due in 2029 with a 2.875% coupon and the $110 million draw on our revolver facility. As of March 31, we had approximately $44 million in cash on the balance sheet and net leverage of approximately 2.7x. With a strong and resilient Q1 behind us, we are confident in achieving our 2026 outlook for double-digit revenue growth. As previously mentioned, we recently increased our full-year adjusted EBITDA outlook to represent 42% margins for 2026. For the full year 2026, Repay Holdings Corporation expects revenue to be between $340 million and $346 million, representing 10% to 12% reported revenue growth, and, when excluding political media, approximately 7% to 9% normalized revenue growth. Adjusted EBITDA is now expected to be between $141 million and $146 million, and we are confident in achieving our free cash flow conversion target of 45%. Please keep in mind that net interest expense is included in our free cash flow, which includes the interest payments associated with our 2029 convertible notes and the recent $110 million draw on our revolving credit facility. We are also expecting to benefit from a strong midterm election cycle, with the majority of political media contributions occurring in Q3 and Q4, to positively impact revenue by $8 million to $10 million, representing approximately three percentage points of reported growth year over year. Our current 2026 outlook does not incorporate contributions or expenditures related to the recently announced Kubra acquisition. We remain confident closing during 2026 upon receiving regulatory approvals. As I outlined on our previous earnings call, Repay Holdings Corporation's capital allocation priorities are focused on creating long-term value while maintaining strong cash generation for future opportunities. In light of the Kubra acquisition, our overall capital allocation framework remains unchanged, and we are working toward closing the transaction and then deleveraging. In 2026, we have and will continue to deploy capital towards key strategic priorities of organic growth and M&A catalysts to achieve long-term growth. Our first priority is to remain focused on organic growth opportunities. We continue to make targeted investments to strengthen our position and accelerate our growth opportunities. We have announced strategic M&A and partnerships. The Kubra acquisition is expected to generate compelling value creation opportunities, including the identified cost synergies by streamlining operations, integrating tech platforms, and better aligning Repay Holdings Corporation's overall corporate structure. Following the closing of the Kubra acquisition, we will continue our commitment to prudently manage balance sheet flexibility and leverage. With the strong free cash flow accretion of the combined companies, we are targeting a return to below 3x net leverage supported by strong free cash flow generation, synergy realization, and disciplined capital allocation within eighteen months of closing. We believe maintaining a prudent level of CapEx for product and technology initiatives to deliver the best experience for our clients and their consumers is mission-critical. As we move through 2026, we are focused on accelerating our growth and achieving our 2026 outlook and are committed to implementing our capital allocation strategy. I will now turn the call over to the operator to take your questions. Operator? Operator: Thank you. We will now open the call for questions. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Joseph Anthony Vafi with Canaccord Genuity. Please proceed. Joseph Anthony Vafi: Hey, guys. Good afternoon. Nice to see the revenue outlook guidance and the accelerating growth here. I know you do not provide quarterly guidance, but as we look at the year and the ramp on the top line, excluding political media, how should we think about how the quarters progress on the top line? And then I will have a quick follow-up. Robert Hauser: Hey, Joe. Thanks for the question. We had a strong first quarter, coming in at 4% growth. Excluding political media, we expect the full-year ramp to be at the 7% to 9% growth as we guided. As I talked about last quarter, we had some new client wins that pushed into the second half of this year. In Q1 of this year, we are also lapping some small attrition that happened in the back half of last year. So we are at 4% growth this quarter, and we expect a ramp as we get into Q2 and really into Q3, as some of those new client wins come on. We feel really confident about that. When you include the reported numbers, the 10% to 12% double-digit growth for the year, we have a strong political media cycle in this midterm election season that really ramps in Q3 and Q4, and that is what really gets us to the reported double-digit growth for the year. Joseph Anthony Vafi: Thanks for that, Rob. And then could you remind us on the dynamic in Consumer? I know you are expanding offerings with some customers, and there is a dynamic that leads to maybe a short-term headwind and then a longer-term tailwind. And then, is there a macro assumption built into the outlook here for 2026? John Andrew Morris: Hello, Joe. Specifically, we continue to see a stable consumer based on the trends we see currently, and that same outlook is considered in our full-year outlook. Operator: Our next question is from Peter Heckmann with D.A. Davidson. Please proceed. Peter Heckmann: Hey, good afternoon. Thanks for taking the question. Just in terms of the Kubra deal and evaluating it versus, let us say, buybacks or other smaller deals, what are one or two of the most compelling aspects of Kubra? What does it bring to Repay Holdings Corporation? And then, in terms of thinking about the combined company, what attributes would you see two years out that really make you feel like either your growth rate, margin profile, or both will really drive additional shareholder value? John Andrew Morris: Yes, we are very excited about it. It gives us a comprehensive end-to-end digital platform, taking the best of both of us, which really allows us to expand across our bill presentment capabilities, our communication services, and our overall payment processing with our own clearing and settlement engine. We take the strengths of both as we deliver new solutions together on behalf of our clients, and we think that is a great long-term value creation opportunity. I would also point you to slide eight in our earnings supplement. We think we become one of the leading providers in these resilient verticals. It expands our TAM, really increases our scale, and there are some compelling synergies that we have talked about in this transaction. On a post-combined basis, as we look out into the next eighteen to twenty-four months, it gives us what we consider to be very attractive financial strength as well. Robert Hauser: I would just add that the free cash flow generation of the combined company is what really excites us as well—pretty decent free cash flow conversion as we go into the out years. As John mentioned, we are committed to hitting those synergies, and we are really confident in those synergies out of the gate. We have plans in place and are very confident on day one of close to start executing on those. John Andrew Morris: Let me touch on a couple of other points I mentioned earlier. It approximately doubles our revenue. We will be able to interact with over 40% of all US and Canadian households every month and process over $130 billion in annual payment volume. These are very nondiscretionary categories with highly recurring billing cycles. Think about this as becoming a very large consumer bill pay processor on a combined basis. We think it is recession resistant as well. Peter Heckmann: That is helpful. And then on the small, relatively small deal in the first quarter, does that contribute any revenue, or does it eliminate, like, a rev share or residual so it really just has an impact on the EBITDA line? John Andrew Morris: No additional revenue contribution there. It is a fully integrated strategic partner, so no additional revenue, but it is a fantastic opportunity for us as a highly strategic distribution partner. Robert Hauser: And on the EBITDA side, it contributed a little less than $1 million in Q1, and it was part of our full-year re-guide for EBITDA—about a $4.5 million increase. And remember, it is not a full year because we brought it in toward the end of the quarter. We hit our quarter guide, and we still feel strong about the guide we gave in the fourth quarter. Really, the uptick was due to this strategic distribution partner. Operator: Our next question is from Mike Grondahl with Northland Securities. Please proceed. Mike Grondahl: Hey, guys. John, in the Consumer side—auto and personal loans—how would you describe the headwinds you are facing there versus tailwinds? If you could handicap those two businesses for us, that would be helpful. John Andrew Morris: Good afternoon, Mike. It has been fairly consistent for the last few quarters, and we are not seeing any major differences. We still see resiliency. One example would be that we had a strong February and March on the Consumer side from a tax refund season perspective. We see positive trends in our volumes. Currently that is what we are seeing, which we think are very stable trends across our verticals. Mike Grondahl: Got it. And over the course of 2026, any important larger customer renewals to call out? John Andrew Morris: Specifically for core Repay Holdings Corporation, nothing that I would call out beyond what is normal for us. As most of you are aware, in the payment processing world, many contracts have some type of automatic evergreen. Nothing unusual there. Mike Grondahl: Got it. And then lastly, you noted your digital wallet capabilities in the press release. Could you highlight those again? John Andrew Morris: Sure. From a digital wallet perspective, think about your card statement or bill being automatically dropped into your native wallet—your Apple or Google wallet on your phone. We are delivering that solution and are currently rolling some of it out with clients. We will be able to take consumer invoices or consumer bill presentments and present that directly into their native Apple device. We see significant interest from our clients, including billers. We also talked earlier about using AI to help with our product development. Specifically, we have used that to create what we consider to be IVR reimagined into Repay Voice AI, an interactive AI solution on behalf of our billers. When someone calls in and wants to make a phone payment, we are able to use AI to help them drive that. We are in the early stages of testing and rolling some of those things out with our clients but see significant interest in our product development. Operator: Our next question is from Timothy Chiodo with UBS. Please proceed. Timothy Chiodo: Great. Thank you. A topic that we brought up on a prior call—we hit on this a little bit—but I see a comment in slide four. It seems as though it has risen to a greater level of materiality. You have a comment that says gross profit margins experience near-term impact from changes to enhanced data programs at the card networks. I was hoping you could expand upon that comment. John Andrew Morris: Hi, Tim. Yes. We have seen what we expected regarding the impact coming through from Level 2 and Level 3 on the CEDP in the Business Payments side, predominantly on the AR side. We have seen that impact come through as expected, and that is embedded in our annual outlook as well. We do see opportunities from our growth in our B2B space on total payment volume to continue to drive monetization in addition to that. Robert Hauser: I will just reaffirm that we had always forecasted that impact, and our original guide had baked the L2/L3 impact into our numbers. You are seeing that impact fall through as we expected. Operator: As a reminder, press star one on your telephone keypad if you would like to ask a question. Our next question is a follow-up from Joseph Anthony Vafi with Canaccord Genuity. Please proceed. Joseph Anthony Vafi: Thank you. Just one quick follow-up. You mentioned a few new customer ramps that you have good visibility to. Are there any other organic go-get requirements to get to your guidance this year—other than maybe small, normal-course items—or is the visibility pretty good on these new client wins? Robert Hauser: Thanks for the question. For 2026, we feel really good about those bookings—they are already booked—and it is really about executing on deploying those clients and ramping them in the second half, which we have a lot of confidence around. A lot of the work that our sales team is doing now is starting to focus toward 2027. Our confidence level on those bookings is high; it is just a matter of deploying in the second half. Operator: We have a follow-up question from Mike Grondahl with Northland Securities. Please proceed. Mike Grondahl: Hey, guys, just one more. As I was looking through your new May 2026 deck, page 22 lists a handful of acquisitions that you have done. John, what was the best acquisition you did and why? And which one was maybe the toughest and why? John Andrew Morris: Specifically on acquisitions, acquiring TriSource—which is our back-end clearing and settlement—has fundamentally advanced our understanding of payments and the whole technology stack and infrastructure. Our ability to use that to maximize our overall margins, throughput, and overall client experiences has to rank at the top, though not as a single item. Our B2B acquisitions have been very positive for us as well. On the challenging side, sometimes the smallest ones can be a bit more challenging because of the ability to move certain technology pieces around despite the ROI. Ultimately, the challenge can be in combining things together. We have not done an acquisition in the last three years, so we are very confident in what we have done and how we have merged our tech stack together and enhanced our overall product offerings. We think we are in a really good spot from an overall product competitive perspective. We have really monetized many things across both sides of the business. If you add what we are doing with AI and how we are leaning hard into AI on a lot of different things—investments in integrations and implementations—we have not fully turned our flywheel there as we want to. We will continue to use that to enhance the experience, improve front-office and back-office processes, and speed up implementations. We think there are fantastic opportunities ahead. Combined with what we have learned over the past several acquisitions, this gives us a great deal of confidence in the Kubra transaction. We know execution is critical, but we think we are set up well to execute. Operator: There are no further questions at this time. I would like to turn the floor back over to John for closing remarks. John Andrew Morris: Thank you, everyone, for joining us today. Repay Holdings Corporation had a strong start to the year, and we remain focused on executing against our priorities, including closing the Kubra transaction. We are also focused on accelerating toward double-digit reported growth with strong profitability and our 2026 outlook. We believe the Kubra acquisition will put us in a better position to scale and benefit from the opportunities ahead. Thank you so much for joining us. Operator: This concludes today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Ladies and gentlemen, greetings and welcome to the Lattice Semiconductor Corporation First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please signal an operator by pressing star and 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Rick Muscha, Vice President of Investor Relations. Please go ahead. Rick Muscha: Thank you, Operator, and good afternoon, everyone. With me today are Ford Tamer, Lattice Semiconductor Corporation’s CEO, Lorenzo A. Flores, Lattice Semiconductor Corporation’s CFO, and Sanjoy Maiti, AMI’s CEO, who will provide a financial and business review of 2026, an overview of the AMI acquisition, and the business outlook for 2026. Both a copy of our earnings press release and the press release announcing our planned acquisition of AMI can be found at our company website in the Investor Relations section at latticesemi.com. I would like to remind everyone that during our conference call today, we may make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution you that such statements are predictions based on information that is currently available and actual results may differ materially. We refer you to the documents that the company files with the SEC, including our 10-Ks, 10-Qs, and 8-Ks. These documents contain and identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. This call includes and constitutes the company’s official guidance for 2026. If at any time after this call we communicate any material changes to this guidance, we intend that such updates will be done using a public forum, such as a press release or publicly announced conference call. We will refer primarily to non-GAAP financial measures during this call. By disclosing certain non-GAAP information, management intends to provide investors with additional information to permit further analysis of the company’s performance and underlying trends. For historical periods, we provide reconciliations of these non-GAAP financial measures to GAAP financial measures that can be found on the Investor Relations section of our website at latticesemi.com. Lastly, we streamlined our financial reporting to better align with our strategic focus. Beginning this quarter, we will break out revenue across two primary end markets: compute and communications; and industrial and embedded. Our consumer business is now included within the industrial and embedded end market. For comparability, we have recast all prior period results so you can make a direct apples-to-apples comparison. With that, I will turn the call over to our CEO, Ford Tamer. Ford Tamer: Thank you, Rick, and welcome, everyone, to our first quarter earnings call. Lattice Semiconductor Corporation delivered an excellent start to 2026 with results that underscore both strong market tailwinds and our disciplined execution against a clear strategy. Our first quarter performance exceeded expectations, and our second quarter outlook reflects our expected continued momentum across the business. This is the seventh earnings call since I joined Lattice Semiconductor Corporation, and I hope we have now demonstrated that we consistently say what we will do and do what we say. These positive factors in aggregate provide the foundation for our proposed acquisition of AMI. This acquisition positions Lattice Semiconductor Corporation to create the industry’s most comprehensive secure management and control platform and enables us to deepen our customer relationships and expand our long-term growth opportunity. Now turning to our results and outlook. Revenue for the first quarter was $170.9 million, representing 42% year-over-year growth, with strength across all end markets. Our compute and communications end market achieved record revenue, driven by continued momentum in data center AI applications. In Q1, 62% of our revenue came from compute and communications products, with expanding opportunities ahead. As Rick highlighted in the safe harbor, we have now merged our industrial and automotive end market with our consumer end market into what we now term industrial and embedded. The revenue from our industrial and embedded end market grew more than 20% sequentially, reflecting improving market conditions and expanding adoption of Lattice Semiconductor Corporation solutions. As importantly, along with increased consumption, channel inventory reduced from three months last quarter to close to two months of inventory on hand, and we expect this trend to continue to under two months in Q2. As we anticipated, profitability grew faster than revenue, with EPS up 86% year over year. These results demonstrate the operating leverage in our model and our ability to scale efficiently as revenue accelerates. Demand trends continue to build across AI servers, networking, industrial automation, and emerging physical AI applications. We are seeing accelerated bookings which now support a strong backlog that extends well into 2027. We are also witnessing improved customer visibility and healthy design win momentum across our FPGA portfolio. Taken together, we are confident that we are in the early innings of a multiyear growth cycle and our ability to deliver sustained above-market growth for the foreseeable future. Our results also highlight the progress we have made in evolving Lattice Semiconductor Corporation into a system-level solutions company. Customers increasingly value Lattice Semiconductor Corporation not just for low power programmable hardware, but for complete solutions spanning connectivity, security, management, and control. As system complexity increases, particularly in AI-driven and advanced computing architectures, our customers are giving their highest priority to platforms that reduce integration risk, shorten development cycles, and enable faster deployment at scale. These trends continue to expand Lattice Semiconductor Corporation’s role within customer systems, increase attach rates, and drive higher value per design. We also continue to benefit from our everywhere companion chip strategy, positioning Lattice Semiconductor Corporation broadly across the ecosystem. Rather than competing with CPUs, GPUs, or other processors, our low power FPGAs enable and enhance them, providing secure boot, power sequencing, platform management, IO aggregation, sensor bridging, and control. This approach allows Lattice Semiconductor Corporation to participate across hyperscale data centers, communication infrastructure, industrial automation, aerospace and defense, automotive, medical, and emerging physical AI applications, while remaining silicon agnostic and ecosystem neutral. Looking to the second quarter, our revenue guidance of $185 million at the midpoint represents nearly 50% year-over-year growth. This underscores our confidence in the accelerating momentum of the business. Our midpoint EPS outlook of $0.44 reflects roughly 80% year-over-year growth. It highlights the powerful operating leverage in our model and the differentiated products we bring to market. We maintain a disciplined capital strategy and believe we will be able to consistently drive earnings growth that significantly outpaces revenue growth, and we are committed to continue to do so. Turning now to the planned acquisition of AMI we announced earlier today. We are excited to have signed a definitive agreement to acquire AMI, a leader in firmware, orchestration, and system-level manageability. The combination of Lattice Semiconductor Corporation’s low power programmable hardware with AMI’s industry-leading solutions, including BIOS, BMC, and platform security, creates the industry’s most complete secure management and control platform. Together, we will enable customers to accelerate development, simplify system integration, and bring increasingly complex platforms to market faster across AI servers, advanced compute, communication infrastructure, and industrial applications. Strategically, this acquisition represents a pivotal milestone in advancing Lattice Semiconductor Corporation’s long-term growth strategy. AMI’s firmware is expected to remain processor and silicon agnostic, preserving open ecosystems and customer choice, while Lattice Semiconductor Corporation’s FPGAs provide a complementary hardware foundation, reinforcing our everywhere companion chip strategy. We expect this transaction to be accretive to gross margin, free cash flow, and EPS on a non-GAAP basis. It also supports our trajectory toward exceeding a $1 billion annual revenue run rate by 2026. We look forward to welcoming the talented AMI team to Lattice Semiconductor Corporation and expect this combination to strengthen our system-level roadmap and long-term growth profile significantly. Looking forward, we are encouraged by the continued durability of demand across our end markets, the depth of customer engagement, and the expanding role Lattice Semiconductor Corporation plays in next-generation systems. With a differentiated strategy, a scalable financial model, and an increasingly complete platform spanning hardware, firmware, security, manageability, and control, we are confident that Lattice Semiconductor Corporation is exceptionally well positioned for the future. With that, I will turn over the call to Lorenzo for a comprehensive review of our first quarter results. Lorenzo? Lorenzo A. Flores: Thank you, Ford, and good afternoon, everyone. We will begin with an overview of our first quarter 2026 financial performance and our second quarter outlook, followed by an overview of our planned AMI acquisition. With a quarter this good and guidance this strong, it is worth repeating some of what Ford said. Revenue reached $170.9 million, growing 42% year over year and 17% quarter over quarter. Earnings performance was even stronger, as Q1 non-GAAP EPS demonstrated the leverage in our model. EPS grew more than 80% year over year to $0.41, a 30% increase quarter over quarter and above the high end of our guidance. We expect Q2 to continue this growth trend and I will detail our guidance in a few moments. Back to Q1. Revenue growth was driven by a record performance in compute and communications, up 86% year over year and 15% sequentially. We continue to benefit from strong data center growth as Ford noted. Additionally, our industrial and embedded end market grew 21% quarter over quarter, primarily driven by increased demand in factory automation, robotics, and medical applications. Q1 non-GAAP gross margin was a little better than expected at 70%, up 60 basis points quarter over quarter and 100 basis points year over year. Our gross margin continues to reflect the value and differentiation our products provide for our customers. Non-GAAP operating expense was $60.8 million, up roughly 8% sequentially and 18% year over year. Much of the sequential increase is from performance-based bonuses and commissions as our revenue and profitability are exceeding expectations. We also continue to invest in order to capitalize on our near- and long-term opportunity. Our Q1 non-GAAP operating margin expanded 370 basis points to 34.4% and our EBITDA margin increased 310 basis points to 39.6%. Both were a little better than expected. Q1 cash flow was impacted by year’s annual bonus payout as well as revenue linearity in the quarter associated with our rapid growth. GAAP net cash flow from operating activities for Q1 2026 was $50.3 million compared to $57.6 million in Q4. Free cash flow trended with operating cash flow. In Q1, free cash flow was $39.7 million, down from $44 million in Q4. We expect a strong recovery of cash flow as we continue to grow. During Q1, we repurchased $15 million of stock. We ended the quarter with $140 million in cash and no debt. Now for our guidance. We are targeting closing the AMI acquisition in Q3, so this guidance reflects expectations for Lattice Semiconductor Corporation standalone. In Q2 2026, we expect revenues to be in the range of $175 million to $195 million. At the midpoint of this range, this is almost 50% growth from Q2 2025 and 8% over Q1. We expect gross margin to be 70%, plus or minus 1%, on a non-GAAP basis. We expect non-GAAP operating expense to be between $64 million and $67 million. Most of the growth in OpEx will be in R&D and reflects disciplined investments to drive long-term sustained revenue growth. We expect the income tax rate for Q2 to be 4% to 6% on a non-GAAP basis. We anticipate non-GAAP EPS to be in the range of $0.42 to $0.46 per share. At the midpoint of this guidance, we expect that we would again exceed 80% year-over-year earnings growth as we continue to demonstrate the leverage in our model. Turning now to the AMI transaction. I am just as excited as Ford, our Board of Directors, and our leadership team that we have entered into a definitive agreement to acquire AMI. AMI is a leader in platform firmware, secure boot, device management, and system control software. This acquisition represents a strategic expansion of Lattice Semiconductor Corporation’s capabilities to deliver system-level solutions, further accelerating our growth. The total consideration of the deal is expected to be $1.65 billion with $1 billion of cash and $650 million of equity. This is approximately 5.4 million shares based on the closing price on May 1. We expect the acquisition to be equally compelling from a financial perspective. With AMI, we expect our revenue to exceed an annual run rate of $1 billion by the end of this year. We anticipate AMI’s software-centric, asset-light model to further enhance Lattice Semiconductor Corporation’s already strong business model. We expect that the transaction will be immediately accretive to gross margin, free cash flow, and EPS on a non-GAAP basis. We will cover our pro forma expectations in more detail after we close the transaction. In closing, we are truly excited about our organic growth and financial performance. We are all very enthusiastic about the opportunity to combine Lattice Semiconductor Corporation’s strengths with those of AMI. Finally, the Lattice Semiconductor Corporation team remains focused on execution and taking advantage of the expanding growth opportunities ahead. We are well positioned to drive continued short- and long-term revenue growth, expand our operating margin, increase free cash flow, and grow earnings faster than revenue. Operator, that concludes our formal remarks. We will now open the call for questions. Ford Tamer: Operator, before we jump into questions, can we introduce AMI CEO, Sanjoy Maiti, who has a few remarks? Sanjoy? Sanjoy Maiti: Thank you. At AMI, our management team, our employees, board, investors, and I are equally excited to be joining with you and the Lattice Semiconductor Corporation team. The strategic combination with Lattice Semiconductor Corporation pairs the low power programmable leader with the leader in the platform firmware and infrastructure manageability for cloud and AI data centers. Lattice Semiconductor Corporation and AMI share a long history of collaboration and a common vision for a secure management and control platform. Now together, we can build on that foundation, extending the reach of Lattice Semiconductor Corporation’s low power FPGAs and AMI’s trusted platform, while we will maintain the open, silicon-agnostic, multivendor support our customers value. We also share the same commitment to disciplined execution, strong margins, and a focus on building value for our investors. Thank you again. I am very excited and looking forward to building a great future together. Ford Tamer: Sanjoy, great to have you here. Welcome to Lattice Semiconductor Corporation. Operator, we can now take questions. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We will wait for a moment while we poll for questions. Our first question is from Ruben Roy with Stifel. Please state your question. Ruben Roy: Yes. Thank you. Hey, guys, congratulations on the strong results and outlook and the deal announcement. I guess, Ford, to start, in the press release, you talk about doubling the SAM opportunity here. Can you talk about how we should think about that expansion? How much is incremental addressable opportunity from AMI and their existing firmware installed base versus combined solution categories that perhaps neither company could attack independently? And as part of that question, the core business is inflecting, particularly on the compute side. If you think about 2026, how are you thinking about mix of revenue from servers specifically and maybe AI overall? Thank you. Ford Tamer: Thank you, Ruben. Good question. We expect our total serviceable available market to double from about $6 billion currently to about $12 billion jointly with AMI over the next three to four years. That main increase would come from the compute and communications subsegment. As you pointed out, the two major indicators in that segment are the percent server and the percent AI. On percent server, that has been growing steadily for us from the teens a couple of years ago to this year expected to be about 38% of our total revenue coming from server. On the percent of our revenue coming from AI, it grew from the mid-teens in 2024 to the high teens last year, to where we expect it to be about 25% of revenue in 2026. AMI plus Lattice Semiconductor Corporation is going to be uniquely positioned to provide solutions to customers in this compute and communications market. Ruben Roy: Thank you, Ford. If I could ask a quick follow-up for Lorenzo. It is great to see that you are flagging the deal as immediately accretive on gross margin, free cash flow, and EPS. Can you give us a framework for the gross margin profile? I know it is early, but any thoughts on the software and firmware business relative to your 70% non-GAAP gross margin run rate at this point? How much of the accretion as you look ahead would be structural versus maybe dependent on synergies? Lorenzo A. Flores: That is a great question, Ruben, and we will get into this in more detail once we close. The way to think about this acquisition, as Ford said, is that it is very strategic and in the midterm opens up really significant growth opportunities for us. The really nice thing about it immediately, thinking about this deal strategically and looking at the very complementary P&L structure and operating model that AMI has, is that we are not dependent upon synergies to make the deal accretive. In fact, AMI’s business is very high gross margin. It is higher than ours, and we will share more detail on that later. They have a different structure, but at the operating margin level, it is pretty close to ours. They generate a very significant EBITDA percent of revenue, close to ours or maybe slightly above ours right now. So if you think about it that way, there is not a dependency on cost cutting. We will look at efficiencies through time, for sure, but on a go-forward basis, we are able to fund the debt and cover the interest and still show accretion immediately. Ruben Roy: Appreciate all the detail. Congrats again. Operator: Our next question comes from Christopher Rolland with Susquehanna International Group. Please state your question. Christopher Rolland: Hi, guys. Thank you for the question. I wanted to dig in a little bit more on the strategic value of AMI. Looking over the website, it seems like they offer firmware but also infrastructure management software. Would love to know the cross synergies here between Lattice Semiconductor Corporation FPGAs and what you are going to do with this software. And perhaps if you could also talk about the growth rate for AMI. I know you talked about $200 million revenue in 2026, but that growth rate expectation moving forward would be helpful as well. Ford Tamer: Yes. Thank you, Chris. Let me start by drawing on my background where I have done this twice already; this is the third time. At Broadcom, we were second in switch market share to Marvell, and by the time I left, our team had done a great job becoming number one. One of the key acquisitions we did along the way was a company called Level 7 that provided us with protocol software. We used that to come up with reference designs for the ODMs in Taiwan that made it much faster for customers to go to production with their switch systems. Think of this protocol software almost like hardware—very low-level stuff. Then at Inphi, when I joined, we were second to II-VI; by the time I left, we were the number one leader in optical interconnect. Along that journey, we partnered with Microsoft to deliver a DCI module, 80-kilometer, then called Colors. That complementary addition of a system or subsystem, if you wish, with a module was very critical. We debated whether this was a departure from selling silicon and components, but it made sense. About 80% of the business ended up being components we were selling as a platform and 20% was the module, which started with Microsoft and eventually became standardized across the whole market. The addition of that module/system skill was very critical to help the silicon side go to market faster and do a better job. AMI has 40 years of developing test cases and very deep knowledge of the whole industry—from server to switch to NIC. They are the first ones to be brought up when a CPU gets brought up, the first when a GPU gets brought up, and with a lot of systems. They are a very key complementary partner to the BMC, the board management controller, today, and we intend to continue to be a very strong partner to all of these BMC vendors—HPE, Nuvoton, NXP, and others in the market. It is an extremely strategic move that complements our low power FPGA business. The growth rates are going to be in the high teens, and we expect next year to be accelerating. We do expect to bring solutions to market together that will help grow our revenue faster. We are growing at 40% on revenue and 80% on EPS, and we should be able to grow faster on both revenue and EPS together in the 2028 timeframe as these solutions go to market. Solutions are being fitted today; we had many discussions with many customers about these solutions. They are very excited. We have an investor deck on our website that details the AMI acquisition. On slide 5, it shows the challenges that data centers face today as you go from managing servers to racks to pods and the whole data center. Modularity becomes extremely important. AI is adding a lot of complexity, uptime is critical, and there is huge pressure on time to market and shift-left. Then if you jump to slide 11, it shows the solutions that we are providing together—rack boot, power and cooling, retrofit, and plug-and-play—along with our low power FPGAs and AMI’s platform firmware and manageability infrastructure. Very exciting future ahead. Christopher Rolland: Thank you for that, Ford, and congrats on this deal. As a follow-up, I think you said inventory maybe was even under two months at this point in time. We should have an uplift here; I think we can see it in the guide. If you want to talk about it more broadly as you are no longer burning, could there potentially even be an opportunity to refill? How are you thinking about all this into the future and next quarter? Will we be balanced? Ford Tamer: Good question. We are very excited about it. When I joined about a year and a half ago—this is my seventh quarterly call—I said we would bring this under control. When I joined, the numbers were closer to six months. We thought we would be at three months by the end of last year, and we were. By 2025, we got to three. I thought we were going to be in the twos; we are in the twos. I told you we would bring it under two, and we are on our way to under two. The last time the company was under two, we had 10 good quarters ahead in one-point-x. We may be entering a very strong period here. Our industrial and embedded business grew 22% sequentially, which is amazing, and hopefully more to come. Lorenzo A. Flores: The way to think about channel inventory right now is that it is no longer a business imperative to bring it down. We are focused on keeping the right balance of inventory at distributors across the globe and the right type of inventory so they can service their customer needs. I would characterize this as a non-issue for Lattice Semiconductor Corporation going forward. We now have much greater, more direct visibility into end-customer demand, so our build is much more efficient. Christopher Rolland: Appreciate it. Congrats. Operator: Our next question comes from Melissa Weathers with Deutsche Bank. Please state your question. Melissa Weathers: Hi there. Thank you so much for letting me ask a question. Congrats on nice results and an interesting deal, and to Sanjoy, looking forward to working with you in the future. For my first question, I wanted to touch on the data center side of things. In the past, you have given an FPGA attach rate per server, and it seems like the applications you can use an FPGA for in the data center are growing massively, and those conversations with engineers are happening live. We heard Jensen talk at GTC about using more FPGAs in those racks. Can you help us with an updated framework for FPGA attach in the data center? I am also curious on the wireline side in addition to the server side—any help on content in the data center would be helpful. Ford Tamer: Thank you, Melissa. A couple of trends I will highlight. In recent customer visits, a server OEM showed me how the “unit of rack” has evolved from an all-in-one rack to now four racks together—a compute rack, networking rack, power rack, and cooling rack. That is a profound change and will allow us to increase our content in comms as well as power and cooling. Second, in data centers now, these cooling racks are attached by large pipes coming from the ceiling. It is going to be much harder to change the cooling racks, so this cooling rack may have longevity needs closer to our industrial embedded business, lasting for many years, as opposed to the faster cadence on the compute side. In the AMI presentation, we highlight Rack Boot on slide 11 where the cloud would like to power up not just a server at a time, but the whole rack at once. We can have very interesting applications for our FPGAs in that new application. The third bullet on slide 11 shows retrofit—customers want to retrofit older systems for better uptime, security, and fault detection. That is another new opportunity. From a modeling point of view, we still have a forecast of a 16.5 million server market in 2026. We are roughly saying about three FPGAs per server overall. You can then calculate total FPGAs and revenue contribution. We gave you today a breakdown of that server business in Q1—about 38% of our revenue—so you can use our Q1 revenue to estimate ASPs and content. Lorenzo A. Flores: Our ASP is continuing to increase on a per unit basis through this progression as we keep finding more value-added opportunities for our customers. Ford Tamer: As we said in the past, what is helping us is number of servers increasing, AI increasing, and, even in the shorter term, big demand increases not only from AI but also traditional CPU and storage because of things like cloud and generative coding. That drives not just AI but also traditional CPU and storage. The attach rate continues to find new applications, new ASPs with new products. The ASP continues to increase, hence increasing that server dollar amount. Melissa Weathers: Thank you for all the color. And then maybe just a quick follow-up. These growth rates seem to be a lot faster than what we were expecting coming into the year. From a supply perspective, can you talk about your ability to secure supply? It seems like your customer visibility is increasing, but what about your supplier visibility? Do you have the front end? Do you have the back end? Anything we should consider there? Ford Tamer: We do. Our SVP of Operations, Divya Shah, has been in the industry for a long time. We have had many calls with our suppliers. This is definitely straining us, and we are working hard on it. We have been able to secure supply. It comes at a cost, but we are working with our customers and suppliers to deal with this, and we are in good shape. Lorenzo A. Flores: Unlike some other industry players, our wafers are more legacy-node wafers, and our supply there is less challenged. The back end is where we see pressure, and we keep expanding our supply chain in that area to provide a diversity of suppliers and additional capacity. We are beginning to bring our lead times down as we expand supply. Melissa Weathers: Perfect. Thank you. Operator: Our next question comes from Tristan Gerra with Robert W. Baird. Please state your question. Tristan Gerra: Hi. Good afternoon. As a follow-up to an earlier question, is there any step-function increase in the content for root of trust security with the upcoming cyber and payment platform? And also, is there any potential for Avant content in data center, or is that going to be in other end markets? Ford Tamer: We are not commenting on specific platforms, but our security continues to be a major factor in allowing us to grow our business here. Tristan Gerra: Regarding Avant and whether there is any data center potential opportunity for the higher-density FPGA that is coming up—what type of use cases do you see for Avant, and whether there are any data center applications, potentially datapath or anything else outside or even for a root of trust? Ford Tamer: Thank you. You are asking whether our mid-range FPGA Avant platform has application in data center. So far, it has been mostly our Nexus and pre-Nexus products that are applicable for data center. Over time, Avant may find its way there, but Avant is really focused on our industrial embedded segment. Tristan Gerra: And then just a quick follow-up. Your gross margin is starting to increase again, and your lead times have been expanding, which typically is good for ASP. I know you only guide a quarter at a time, but what is the potential for gross margin to go higher given the supply constraint and the state of demand versus supply? Lorenzo A. Flores: We have talked about this a few times, especially leading into the year, where we thought we should be prudent about our outlook on gross margin because we saw the supply chain cost increases coming. We have been able to work with our customers on ways to offset the cost increases we are seeing. We do also expect that the cost pressure will continue and increase in the second half of this year versus the first half. We will provide more specific guidance as we get into the second half on how the cost increases are playing out. Our approximate range remains about 69.5% plus or minus 1%. This quarter we happened to be at 70%, a little higher than that, but that is the approximate range we see going forward. Tristan Gerra: Thank you. Operator: Our next question comes from Joshua Buchalter with TD Cowen. Please state your question. Joshua Buchalter: Hi, guys. This is Manny on for Joshua. Congratulations on the quarter, and I will extend my congratulations for the deal as well. Focusing on the core business quickly, you have mentioned that Lattice Semiconductor Corporation is still on track for hitting that over $1 billion run rate in the fourth quarter of this year. Can you clarify if that is specifically for the core business, or is that inclusive of the AMI acquisition as well? Ford Tamer: It is inclusive of the AMI acquisition. Joshua Buchalter: As a follow-up, as it relates to AMI, what capabilities does this give Lattice Semiconductor Corporation that you did not have before? And can you talk about AMI’s current go-to-market monetization strategy and how that fits with Lattice Semiconductor Corporation’s business model currently and going forward? Ford Tamer: Thank you. Together, we expect to exit the year at this $1 billion run rate with roughly 40% free cash flow, so you can see we would be able to delever pretty fast from there. The combination is going to be very strong financially. From a capability point of view, it gives us much stronger system skills jointly and allows us to bring these solutions to customers much faster. We will be able to discuss further at our next quarterly call when we discuss Q2 and guide to Q3, and give you a lot more details on AMI’s business and financials. Today, we wanted to focus on our business and introduce the acquisition. We expect to close in early Q3, and at that time, we will provide full details. Joshua Buchalter: Alright. Thank you very much. Operator: Our next question comes from Quinn Bolton with Needham and Company. Please state your question. Quinn Bolton: Thanks for squeezing me in, guys. I will also add my congratulations, Ford. High-level question on the AMI acquisition. AMI talks about security and board management. You have historically talked about similar things for your FPGAs. Is there any place where the two businesses compete, or is it truly complementary? Does the Lattice Semiconductor Corporation FPGA root of trust protect the AMI firmware/BIOS as it resides in the servers? Any direct overlap? Ford Tamer: Great question, Quinn. We have been working together since 2019, so it has been seven years of close collaboration. There is no place where we compete. This is totally complementary. It is very complementary to our customers and should really benefit our customers and partners. We are committed to remain agnostic. They support all the other silicon partners, and we are partnered with the same silicon partners. We see it as very complementary and beneficial to our customers and partners. It should be very strong—one plus one equals three. Sanjoy is sitting with me today; he wants four, five, and six, hopefully. He is laughing here. Quinn Bolton: You had a great start to the year in terms of revenue growth. We came into the year thinking the server business could be up something like 20% to 40%, and industrial and now the embedded business up 5% to 15%. It looks like you are tracking well above that. Are you prepared to talk about growth rates for those businesses given the strong start? Lorenzo A. Flores: For the year, it is still early. The trend that started late last year and has led to our results in the first quarter continues. Our business continues to book in very strong. Customers are continuing to increase their demand, and we are booking out even longer in time. At this point, we have high confidence that our growth this year will be strong—stronger than we originally thought at the beginning of the year. Compute and communications as an end market will be a key driver for the reasons we all know. Industrial and embedded is recovering, and we saw signs of that in the first quarter. The extremely high year-on-year growth rates might not hold for the rest of the year for compute and server, but they will be pretty strong. The comms business will be aligned; it goes up and down relative to compute growth rate, but it is still going to be high. Industrial and embedded will continue to grow, but probably not at the Q1 versus Q4 rate. They did grow 10% year over year in Q1, and that is a pretty good range to think about for the year. Ford Tamer: And, Quinn, right now, as Lorenzo said, demand is strong for the foreseeable future with bookings well into 2027. Quinn Bolton: Got it. A quick clarification on the deal. Will THL Partners be locked up for any period post close on that $650 million of equity issued, or are they free to sell once the deal closes? Lorenzo A. Flores: They have a lockup that extends for 12 months from close—25% per quarter. Quinn Bolton: Perfect. Thank you. Operator: Our next question comes from Bank of America. Please state your question. Analyst: Hi. Thank you for taking the question. Congrats on the strong results as well. Following up on some of the earlier gross margin questions. You have been talking about bookings strong well into 2027, backlog is building up, lead times are expanding, and AMI margins are stronger. Is it possible that the margin structure is now more structurally higher than before? I think you have not really sustained 70%+ before. Should we think this is more achievable now? Ford Tamer: This opens up opportunities for us that we may have shied away from before and across various markets. We do not intend to go much above that. We can, but right now there are opportunities we have not gone after that we could go after, so it could potentially open up a higher top line. Analyst: Got it. One follow-up on broader competitiveness of the supply chain. Intel has now divested Altera and it is now a standalone company. They have a different supply chain with internal manufacturing. Does that give them more advantage in this supply-constrained environment? If not, why? Ford Tamer: Our suppliers have been fantastic. We are with UMC, Samsung, and TSMC on the fab side—extremely supportive. We have strong assembly and test partners and are adding more because this is where the shortages are. We feel very good about our supply chain and our ability to supply. That is not an issue for us. Operator: Ladies and gentlemen, that concludes the time we have for the Q&A session. I will now turn the call back to the company’s Rick Muscha for any closing comments. Rick Muscha: Great. Thanks, everyone, for joining us on the call today. We will be attending the following investor events this quarter: the JPMorgan 2026 Global TMT Conference on May 19 in Boston, and the TD Cowen 54th Annual TMT Conference in New York City on May 28. This completes our call. Thank you very much for your participation, and have a good evening. Analyst: Goodbye. Operator: Ladies and gentlemen, the conference call of Lattice Semiconductor Corporation has concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon. Welcome to Fabrinet's Financial Results Conference Call for the third quarter of fiscal 2026. Later, we will conduct a question-and-answer session, and instructions on how to participate will be provided at that time. As a reminder, today's call is being recorded. I would now like to turn the call over to Garo Toomajanian, Vice President of Investor Relations. You may begin. Garo Toomajanian: Thank you, Operator, and good afternoon, everyone. Thank you for joining us on today's conference call to discuss Fabrinet's financial and operating results for the third quarter of fiscal 2026, which ended March 27, 2026. With me on the call today are Seamus Grady, Chairman and Chief Executive Officer, and Csaba Sverha, Chief Financial Officer. This call is being webcast, and a replay will be available on the Investor section of our website located at investor.fabrinet.com. During this call, we will present both GAAP and non-GAAP financial measures. Please refer to the Investors section of our website for important information including our earnings press release and investor presentation, which include our GAAP to non-GAAP reconciliation as well as additional details of our revenue breakdown. In addition, today's discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management's current expectations. Statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise them in light of new information or future events except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings, in particular the section captioned Risk Factors in our Form 10-Q filed on 02/03/2026. We will begin the call with remarks from Seamus and Csaba, followed by time for questions. I would now like to turn the call over to Fabrinet's Chairman and CEO, Seamus Grady. Seamus Grady: Thank you, Garo. Good afternoon, everyone, and thanks for joining our call today. We delivered an outstanding financial performance in the third quarter, along with several notable achievements that we believe can extend our strong growth trends into the fourth quarter and fiscal year 2027. Revenue was above our guidance range at a record $1.214 billion, with year-over-year growth accelerating to an impressive 39%. Record non-GAAP EPS of $3.72 also exceeded our guidance range, reflecting continued excellent execution. Looking at our quarter by product area, Optical Communications revenue growth increased to 35% from a year ago. This was driven by 55% year-over-year growth in telecom revenue, which was fueled by strong growth in a wide range of products. Within telecom, data center interconnect revenue grew a robust 90% from a year ago and 38% from Q2, and we believe strong longer-term DCI growth trends remain firmly intact. This remarkable telecom performance more than offset softer-than-expected datacom revenue, which grew 4% year over year but declined 6% from Q2. Underlying datacom demand remains exceptionally strong. In fact, demand during the quarter far exceeded what we were able to ship, meaning our reported revenue does not fully reflect the true momentum of the business. Right now, demand is outpacing the broader supply of certain components, and we are actively working to narrow that gap. While we expect the supply-demand imbalance to persist into the fourth quarter, we remain optimistic that supply conditions will improve over time. The strong demand we are seeing today positions us well as that improvement unfolds. As we have outlined, our datacom strategy is to continue supporting the strong demand trends we are seeing with our largest customer, while actively expanding into new high-growth channels such as direct engagement with hyperscalers and partnerships with merchant vendors. With that in mind, we are happy to report that we have made meaningful, tangible progress on both fronts. First, we are excited to share that we have successfully completed and have already begun shipping two datacom transceiver programs directly to a hyperscale customer, with initial ramps starting in the fourth quarter. We expect volumes to ramp steadily throughout fiscal 2027, with these programs becoming a meaningful contributor to our datacom revenue over time. Second, building on the groundwork laid over the last several quarters, we are on track to qualify and ramp multiple merchant transceiver programs, including several for data center scale-out applications, with existing and new customers. We expect production to begin in the second half of the calendar year, aligning with the early part of fiscal 2027, with additional ramps progressing into the second half of the fiscal year. We expect this combination of hyperscale and merchant program wins to further diversify our datacom revenue and provide multiple new growth vectors in the new year and beyond. In non-Optical Communications, revenue jumped 52% year over year and 8% sequentially from Q2. This growth was driven primarily by high-performance compute revenue, which continues to ramp as we support our customers' transition to their latest product generation. At the same time, we are seeing encouraging traction beyond the current ramp, with new program wins and expanded scope across additional products that we will be manufacturing to support their accelerated computing infrastructure. We are also increasing capacity to align with the customers' ambitious growth plans, reflecting a deepening and increasingly strategic relationship. Automotive revenue moderated in the third quarter, as anticipated, with revenue decreasing modestly from Q2. This decline was more than offset by continued growth in industrial laser revenue, which was up 9% from a year ago and 7% from Q2. An important area of strategic focus for us over the past several years has been co-packaged optics, or CPO. In this space, we are deepening our engagement with customers across the CPO ecosystem including optical components, external laser source pluggables, as well as other integrated precision optical packaging solutions, building on our longstanding silicon photonics expertise. CPO relies heavily on advanced semiconductor packaging technologies, and we have been actively investing to expand our capabilities in this area with a focus on scalable, high-quality manufacturing processes and broader system-level integration. This includes leveraging and extending our in-house silicon photonics expertise, but also partnering with key technology providers to enhance our ability to deliver more integrated, end-to-end manufacturing solutions. With that backdrop, we have made a minority investment in Raytec Semiconductor, a Taiwan-based provider of advanced wafer-level packaging technologies, as an ecosystem partner. We already serve a number of common customers and expect this collaboration to further strengthen our capabilities and extend our offering. This investment supports our continued evolution from silicon photonics into more advanced packaging and integration solutions, reinforcing our role as a key manufacturing partner within the CPO ecosystem. Looking at our business as a whole, we are very excited by both the number and size of customer engagements for our advanced manufacturing services. The breadth and depth of these projects provide us with significant opportunities to demonstrate our differentiation and expertise that we have established as a key enabler for the success of our customers' most advanced products. As you know, we have been expanding our capacity to support our accelerating growth trends. We continue to make progress in the construction of Building 10, which will add 2 million square feet to our current 3.7 million square feet of space. With plans to be fully completed around the beginning of the new calendar year, we are on track to have a portion of Building 10 ready by next month, consistent with what we described last quarter. In addition to that, with our accelerated construction timeline, we now expect to commission an additional floor in this five-storey structure by September, with the rest of the building still scheduled to be completed by January. Beyond Building 10, we have sufficient land available at our campus in Chonburi for two additional buildings of more than 1 million square feet each. While this means we expect to have ample capacity available for the next several years, we continue to think ahead. In that context, we have recently acquired a building and land in the Navanakorn Industrial Estate in Thailand, not far from our Pinehurst campus. We have already begun renovations to make the existing 100,000 square foot building a world-class clean room factory, with sufficient space on the eight-acre site for additional expansion at a later time. In summary, our success in the third quarter extends well beyond our strong financial performance. We are particularly encouraged by the multiple new growth vectors we are adding across our datacom business, while our diversified telecom portfolio continues to show solid momentum and our non-Optical Communications segment expands further. This combination of execution and strategic progress reinforces our confidence in sustaining our growth trajectory, extending our leadership position in the fourth quarter, and carrying that momentum into fiscal year 2027. Now I would like to turn the call over to Csaba for more details on our third quarter results and our outlook for the fourth quarter. Csaba? Csaba Sverha: Thank you, Seamus, and good afternoon, everyone. We delivered another record-breaking performance in the third quarter of fiscal 2026. Revenue of $1.214 billion exceeded our guidance range, with revenue growth accelerating to a remarkable 39% from a year ago and 7% from the prior quarter. Strong execution and FX revaluation tailwinds led to non-GAAP EPS of $3.72 that also exceeded our guidance range. Turning to revenue by market in the third quarter, Optical Communications revenue was $889 million, with growth accelerating to 35% from a year ago and 7% from Q2. Within Optical Communications, telecom revenue was a record $628 million. Within telecom, revenue from data center interconnect modules, or DCI, jumped to $197 million, growing 90% from a year ago and 38% from the second quarter. Datacom revenue of $260 million increased 4% from a year ago, but moderated 6% from Q2 due to broadening component and material supply constraints in the quarter. Turning to Non-Optical Communications, revenue reached $326 million, growing 52% year over year and 8% sequentially from Q2. This strong performance was once again driven primarily by continued momentum in our HPC program, which delivered $107 million in revenue. Automotive revenue declined slightly as anticipated to $115 million, up 25% from Q2, while industrial laser revenue increased to $44 million. As I discuss the details of our P&L, all expense and profitability metrics will be presented on a non-GAAP basis unless otherwise noted. Gross margin in the third quarter was 12.1%, a 10 basis point improvement from a year ago and a 30 basis point decline from Q2, as anticipated, primarily due to foreign exchange headwinds. We continue to demonstrate operating leverage with operating expenses declining to 1.4% of revenue. This resulted in an operating margin of 10.7%, a 50 basis point improvement from a year ago and a 20 basis point decline from Q2. Interest income was $7 million, and we saw a foreign exchange revaluation gain of $7 million in the quarter. Our effective GAAP tax rate for the quarter was 6.7%. We expect our tax rate to moderate in Q4, resulting in a mid-single-digit effective GAAP tax rate for the year. Net income was a record $135 million, or $3.72 per diluted share. Turning to our balance sheet, we ended the third quarter with cash and short-term investments of $946 million. Operating cash flow for the quarter was $53 million, down $60 million from Q2. Capital expenditure spending of $64 million reflects continued accelerated construction of Building 10, as well as capacity expansions to support the rapid growth across the business. As a result, free cash flow was an outflow of $11 million in the quarter. Before getting into our guidance, I want to provide some additional color on our recent capital allocation decisions. As Seamus mentioned, we have made a minority investment in Raytec Semiconductor to support our efforts in advancing manufacturing solutions for CPO. In April, we completed a private placement of approximately $32 million for 20 million shares of Raytec, representing approximately a 14% position. This investment deepens our partnership and supports our joint efforts toward bringing CPO technology to market at scale. Early in the fourth quarter, we expect to complete the purchase of an eight-acre campus in the Navanakorn Industrial Estate, Thailand, located approximately fifteen minutes from our Pinehurst campus. The Navanakorn facility currently consists of a 200,000 square foot building, with additional space on the site for future expansion. We have already initiated minor renovations to support world-class clean-room manufacturing capabilities, and we expect to begin utilizing the space early next quarter. The total purchase price of $11 million will be reflected in our fourth quarter financials. With our very strong balance sheet, we are well positioned to deploy capital efficiently, support our growth initiatives, and continue to generate superior returns while remaining committed to returning surplus cash to shareholders through our share repurchase program. In the third quarter, we did not repurchase a meaningful number of shares. However, our share repurchase program remains active, and we ended the quarter with approximately $169 million available under our current authorization. Now, turning to the details of our guidance, we expect revenue in all major product categories to increase in the fourth quarter despite a broader supply-constrained environment, with datacom growth expected to be more measured as we continue to navigate component availability that is not keeping pace with strong demand. At the same time, we are excited by the number of new customer programs coming online that we expect will contribute more meaningfully to our performance in fiscal 2027 than in the fourth quarter. With that backdrop, we expect total revenue to be in the range of $1.25 billion to $1.29 billion, representing year-over-year growth of approximately 40% at the midpoint. We expect gross margin dynamics to be similar to Q3, with continued operating leverage as top-line growth continues. As a result, we expect non-GAAP EPS to be in the range of $3.72 to $3.87. In summary, our third-quarter results were exceptional, with record revenue and earnings that exceeded our guidance as growth continued to accelerate. We also made strong progress against our longer-term strategic priorities, establishing additional vectors of sustainable growth that we expect to begin contributing as early as the fourth quarter, positioning us to extend our strong track record into fiscal 2027 and beyond. Operator, we are now ready to open the call for questions. Operator: Thank you. Ladies and gentlemen, to ask a question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from George Notter from Wolfe Research. Your line is open. George Notter: Hi, guys. Thanks very much. I just wanted to click on the datacom business. I know that last quarter, you talked about having some new supply of 200-gig-per-lane EML coming online that would help support growth in the data business. It sounds like that did not happen. I am just wondering what is going on in terms of EML supply. Is that the gating item you are referencing, or are there other components that are problematic now? Anything more you can tell us there would be great. And then I just wanted to ask one also on CPO. I just want to be clear on where you guys see your opportunity in CPO. I assume that ELSFP that go into CPO switches are a real natural for you. Are you also going to manufacture other elements of CPO switches? Historically, you have not really been involved in manufacturing the switches themselves, but, obviously, this is a unique architecture. There is a large amount of fiber attached that goes into that CPO package. I just want to be clear on what you guys see yourselves doing in terms of that manufacturing exercise. Thanks a lot. Seamus Grady: Hi, this is Seamus. There are a number of commodities, you could say, that are causing us constraints. First of all, we are very excited at the breadth and depth of the opportunities in front of us, not just with our main customer but across a number of new products and new markets for us. Since we started to see the revenue accelerate from this AI-driven demand, our strategy has been to support the existing demand while pursuing additional hyperscale-direct and merchant relationships. We are excited with the progress we are making there. What we are managing right now is not demand risk; it is supply constraints. With respect to datacom supply, we saw a broadening of supply shortages for components and materials for datacom products, and as a result, shipments and revenue were well below demand levels. We could have shipped a lot more if we had those components. Without these supply constraints, datacom revenue would have been a new record by a wide margin. While we expect the constraints to get resolved over time, we do have to deal with them in the near term. We anticipate that supply volatility will continue, and it is in a number of areas. It is not any one component. It is a number of areas, mainly lasers, memory—which is no secret, there is a global shortage of memory—and also certain ASICs, so it is across a number of commodities. On CPO, for us, CPO is really an evolution from silicon photonics and precision photonics packaging capabilities that we have had for many years. It continues to be an area of investment for us to align our capabilities with our customers’ roadmaps. For many years, CPO has been just on the horizon, but it is a lot more real now than it has ever been, and we are in an excellent position to benefit. We feel we are well ahead of our competitors in making this technology a reality. We are already seeing some CPO revenue, but the amounts are relatively small at this point. We are working on a number of CPO programs with three different customers. The specific timing on each of them we do not want to speak to on their behalf, but we are working on three separate programs, and as with our customer programs, we expect to see the impact in line with or slightly ahead of our customers’ production schedules. The growth in CPO is in front of us. As you rightly point out, there are several opportunities for us in CPO, and we feel we can participate at a higher level up the food chain than we have historically. We are excited about CPO. Operator: Thank you. Our next question will come from Karl Ackerman from BNP Paribas. Your line is open. Karl Ackerman: Yes, thank you. I have two, if I may. Seamus, do you believe you will be at the full run rate of the current HPC program in June? I think the previous expectation was March and June time frame. How much visibility do you have with that follow-on program? And then maybe for Csaba: Building 10 was 2,000,000 square feet, adding a fifth floor. Is the 2,000,000 square feet still the case, or is it presumably maybe two and a half or so? And with respect to the two additional buildings of 1,000,000 square feet, given the high ROIC and relatively low upfront cost of building this new manufacturing fab, how quickly can you accelerate these manufacturing facility investments so you are not capacity constrained for these very large opportunities? Seamus Grady: Our current HPC program is ramping according to our customer’s expectations. It is not ramping in a perfect straight line—these things never do. We have been working closely with the customer to transition production to their latest-generation product, and that transition is making good progress. We have also been awarded some follow-on business for additional programs separate from the main programs with that customer, so we are helping to support their accelerated computing infrastructure in a broader way than we have in the past. We are installing additional capacity right now to support both the technology transition and also the additional products we will be manufacturing. Because of this technology transition, we now believe that the $150 million mark will be pushed out by maybe one quarter, but as a result, we expect our high-performance compute revenue to continue growing even after we reach the first $150 million quarterly revenue milestone. So, short term, this quarter we do not think we get to $150 million, but we think it is probably a quarter away. Longer term, because we are now making more than just one family of products, we think that opportunity is more than that. While timing has shifted slightly, the overall trajectory is stronger, and we expect continued growth beyond that $150 million level. We remain very optimistic about the long-term outlook for our high-performance compute business overall. On capacity, right now our current capacity supports about $4.8 billion in our current footprint. As we mentioned on the last call, we are converting about 120 thousand square feet at our Pinehurst campus into manufacturing space that will add an additional $200 million of capacity, taking capacity up to $5.0 billion before Building 10. Building 10 would add about $3.0 billion of capacity, and then the new factory we have purchased in Navanakorn, down the road from us, initially doubles that site’s capacity for about $250 million in the current factory that is on that land, with room to build another factory. Overall, that purchase will give us capacity for about another $500 million. So $4.8 billion in our current footprint plus the Pinehurst addition plus the Navanakorn factory plus Building 10 would take us to capacity of about $8.5 billion, if you add all that up. The timing on Building 10: the first floor will be coming on stream in June. We plan to have another floor ready, which will be mostly clean room space, by September or October, and the building would be finished by the end of the year, with the opening ceremony in January. Building 11, which we have not broken ground on yet, would give us capacity for about another $1.5 billion of revenue, and Building 12 the same. If we were to build out everything we have on the current land and space that we have, that would give us capacity of about $11.5 billion, there or thereabouts, probably a little bit more because as our growth accelerates, our revenue per square foot is also increasing. The timing of that is too early to talk about at this stage. We are focused on meeting our customers' needs and making sure we have capacity in place. We have ample capacity for the next few years, but we are seriously considering the timing for Building 11 and Building 12, and we are also looking for additional land in and around both the Pinehurst campus and Chonburi. High-quality problems. Operator: Thank you. Our next question comes from Samik Chatterjee from JPMorgan. Samik Chatterjee: Hi, thanks for taking my questions. Seamus, starting with the new datacom customer opportunities that you outlined with both the hyperscaler and some of the merchant opportunities, can you help us size that up in terms of what these customers are communicating to you in terms of their demand at full run rate? Just trying to compare it to your primary customer with whom you are doing about $250 million a quarter or so—how do these new opportunities size up relative to that? Is the supply chain different, where we should not expect some of the supply constraints you have with your primary customer to impact the ramp with the new customers? And then a follow-up on gross margins for Csaba. Seamus Grady: I think the supply chain is broadly similar across most of these primarily scale-out applications. Taking both of those in turn that you just mentioned, for the hyperscale relationship, we are excited about the new datacom opportunities we announced today. They are two separate products. We have already begun shipping, albeit in small, qualification-type quantities, but we have begun shipping those and expect that growth is already in front of us. We believe it will be significant. It is a significant piece of business for us. The demand we are seeing from the customer is very significant, and we are very focused on making sure we have the right capacity and capability in place to support the customer. In terms of merchant programs, for several quarters we have been working towards expanding our datacom business to encompass direct hyperscale and also deepening and broadening merchant relationships, and we have made sizable progress there. We have a couple of programs there as well that we are working on. Both hyperscale-direct and merchant are very significant and have the potential to be meaningful revenue contributors for us, but, as I said, all of these opportunities are essentially a very similar supply-chain ecosystem. Samik Chatterjee: Understood. Are you expecting that these programs, stand-alone, are like 10% of your revenue—are they that sizable? And then on gross margins, it sounds like you will be at the low 12% for the next quarter as well. How should we think about the recovery on the gross margin profile, particularly as ramp costs continue to feed through the P&L? Seamus Grady: We never predict which customer may or may not become a 10% customer. We only talk about that at the end of the year when we have to disclose which customers are 10% customers. We do not talk about it looking forward. They are significant opportunities; that is all I would say about that. On gross margin, I will let Csaba provide more color. Csaba Sverha: On gross margin, we are seeing a combination of external and internal factors. On the external side, exchange rates have been a headwind for a while, and that dynamic continues into this quarter. Margins from an exchange-rate perspective will be similar in Q4 as in Q3. We have some visibility with our hedging program in place, and Q3 panned out as anticipated in terms of headwinds, so Q4 we anticipate to be at that same level. At the same time, we are ramping a large number of new programs across multiple growth vectors, which sometimes creates short-term inefficiencies. This is a function of strong demand and the pace at which we are scaling the business. As these programs mature, we expect efficiencies to improve and to get back to our higher margin ranges. The good news is we are very disciplined on operating expenses. As you saw last quarter, we continue to generate operating leverage, and OpEx is trending down overall as a percentage of revenue; last quarter we were at 1.4%. While there are near-term pressures on gross margin—some of which we cannot control from an exchange-rate perspective—the overall model continues to deliver very strong, solid, and improving profitability as we scale. We feel very good about the underlying model and our ability to drive long-term profitability growth, and our ultimate focus is to drive strong return on capital and deliver consistent value to shareholders as we scale these programs. Operator: Thank you. Our next question comes from Christopher Rolland from Susquehanna. Your line is open. Christopher Rolland: Hi, this is Dylan Olivier on for Chris Rolland. Thanks for taking my question. For my first question, you spent some time talking about CPO and your role here. You mentioned that you are working with three customers or three programs and that you have begun getting revenue now. Are all these programs generating revenue today, and can you provide any color on whether these are all scale-out or if any of these engagements are related to scale-up? Seamus Grady: We are shipping to all three customers. They are both scale-up and scale-out. We are really putting the capacity in place and making sure we have the right technology in place. You can see with our investment in Raytec, it is to help us ensure we have the right capability. We are excited about CPO, but the revenue is largely in front of us at this point. Christopher Rolland: Thank you for that. For my second question, I wanted to ask about another opportunity that you did not discuss on this call, but OCS is seeing a nice explosion right now. Any color you can provide on how your engagements are going, when you think this could materialize, and if you can get a dominant share of the externally contracted OCS market? Seamus Grady: OCS remains a great opportunity for us as we look ahead. The technology is very similar to products that we already make for our customers, which gives us a head start versus our competition. There is no change in our optimism about OCS, but to be clear, the new merchant opportunities we talked about earlier are not OCS-related; they are separate. OCS opportunities are incremental to that and, similar to CPO, are largely in front of us. We are focused on one or two. It is too early to talk about them until we have something to talk about, but we are excited about OCS as a segment. Operator: Our next question will come from Ryan Koontz from Needham & Co. Your line is open. Ryan Koontz: Thanks for the question. Just wanted to ask more generically regarding your transceiver wins. Can you expand on where you would be in your milestone process before you would announce that you have a win? Is it when you have a contract, qualification, sampling? Not asking about a specific customer, but generically, at what point do you typically disclose, and might we consider these different programs somewhere between ramping to material revenue and maybe an MOU that is not contractually bound? Seamus Grady: Generally, we do not talk about wins until we have actually won the program. That means we have been awarded the business, we have contracts in place, we have purchase orders, and we have been qualified and approved. We are really at that milestone phase where we are getting ready to ramp at this point. We do not signal specifics on new programs until we have them won. Not all products that you think you have won early on turn into real products or real demand. In this case, we have a number of programs that we have won—contracts in place, product being shipped, subcontracts signed with customers—so we have actually won those. Ryan Koontz: That is helpful, Seamus. Thank you. As a follow-up on your strength in telecom—obviously DCI is a big star there—how would you characterize your customer mix within DCI? Is it changing? Can you share anything about the product mix there—400ZR to 800ZR? Are you seeing some industry shifts that are working in your favor within the telecom mix? Seamus Grady: Our position supplying the DCI market is very strong. We have all of the major players there as customers of ours. As we noted in the prepared remarks, our growth in DCI has been pretty staggering, and our telecom portfolio continues to go from strength to strength. We provide components, 400ZR and 800ZR modules, as well as telecom systems. We have evolved our business from being a niche optical component supplier several years ago into a diversified, strategic ecosystem partner for the leading OEMs for both optical components and systems across AI-driven growth in both datacom and telecom. The best example of that is our strength in DCI. Demand looks very strong. We continue to win business in that space and execute very well for our customers. There are a number of new programs that we are working on as well, in addition to ramping existing programs, with new products we are gearing up to ship. We feel very good about our momentum in DCI with the leading customers there. Ryan Koontz: Do you consider multihaul an opportunity in your wheelhouse within the telecom sector? Seamus Grady: Anything in the telecom space where we can have a high level of content is a good fit for us. Certainly, those types of products would be a good fit. Operator: Thank you. Our next question comes from Steven Fox from Fox Advisors LLC. Your line is open. Steven Fox: Hi, good afternoon, everyone. Seamus, on the supply constraints, it sounds like they got worse during the quarter, and at the same time, end markets are getting stronger. How do constraints not get worse going forward, and how do you manage through this and start catching up with demand? Is there any line of sight to improvements? And then I have a follow-up. Seamus Grady: We are not unduly concerned long term, but we do feel obliged to point it out in the short term because we guide one quarter at a time. It did impact our ability to ship last quarter—we could have shipped a lot more if we had those components—and the same this quarter. Overall, it is really a function of the growth we are seeing in the industries that we serve and in our business overall. We are proud of our track record of excellent execution built on dedication to customer service. That track record has allowed us to deliver the sales growth we have seen. Over a ten-year period up to FY 2025, we compounded revenue 16% annually and earnings 22%. In FY 2025, we grew 19% versus FY 2024, and for FY 2026, if you take the midpoint of our Q4 guidance, that would put us up 34% versus FY 2025. Growth is accelerating, and with that acceleration, it does expose certain supply constraints. The component supply ecosystem is doing everything it can to catch up with demand, but there is a lag right now. Our focus is on execution and ensuring we capitalize on this strong demand environment by having more than enough capacity in place to support the needs of our customers while we work on these challenges in the supply chain. It is nothing unusual; it is really a function of the explosive growth we are seeing. Steven Fox: Understood. On accelerating your own capacity additions, if we started today as another starting point, your ability to accelerate further—what else would you have to see? Would it be more new programs or loosening of the supply chain, and how long would that take? Seamus Grady: For us, these are quite straightforward capital allocation decisions because of the upside. We build a 2 million square foot factory that will give us capacity for an additional $3.0 billion of revenue. The CapEx is around $130–$132 million, depending on exchange rates. At full run rate in that factory, about six months’ worth of operating profit would pay for the entire 2 million square feet of manufacturing space. On the downside, if there is a downturn and we end up with no new business going into that factory—which we do not anticipate—the gross margin headwind would be about 50 basis points, a negligible headwind versus significant upside. The capacity is very fungible. Whether it is the 2 million square feet in Chonburi, the couple of hundred thousand square feet we just acquired in Navanakorn, or the 120 thousand–150 thousand square feet that we are converting in Pinehurst, customers are comfortable having their products built in either location. We have room to add two additional factories in Chonburi, and we can add another 200,000 square foot factory on the land we purchased in Navanakorn. We have ample land and capacity for the next several years and continue to look for more. As we see strong demand signals from our customers, making those capital investments is a relatively straightforward decision because we are not taking big risks; we are making sure we have capacity in place to support our customers’ needs. Operator: Thank you. Our next question comes from Mike Genovese from Rosenblatt Securities. Your line is open. Mike Genovese: Seamus, in talking about the direct hyperscale datacom business, I think you mentioned that there are two products. Does that imply an 800G and a 1.6T, or two 800G products? Can you comment on that? And then on DCI growth this quarter, did 800ZR in particular drive an outsized portion of the growth, or was it more broadly spread? I also noticed that you had some telecom growth above and beyond DCI. If you could call out those products that were not DCI that also grew in telecom, that would be helpful. Thank you. Seamus Grady: They are both 800G, but they are different applications, and they are both scale-out. On the mix between 800ZR and 400ZR, it is probably more appropriate for our customers to talk about that. 800ZR is ramping—it is getting going—and we have very big hopes for that. It looks to be a very strong product. A lot of those new programs are really in front of us and are just beginning to ramp, and I would put 800ZR in that category. On telecom growth outside of DCI, we continue to win business with our customers, both at the component level and at the system level, mostly share gain from some competitors. We are very fortunate to have what we believe are the best companies in the industry as customers, and demand for their products is very strong. Because of the very good job we do taking care of them and executing, they reward us by giving us more business. It is a self-reinforcing loop: the better we execute for customers, the more business they give us. It is a combination of growth in DCI and other telecom programs. Operator: Our next question will come from Timothy Savageaux from Northland Capital Markets. Timothy Savageaux: Seamus, I am going to take you back to OFC. You commented that you wished you could get farther out sometimes, and I am going to try to afford you that opportunity here with the following context. You mentioned maintaining momentum into ’27 and sustaining this growth trajectory. Looking at these datacom wins, it seems plausible that you could sustain, if not accelerate, this 34% growth rate that you are putting up in fiscal ’26. Any comments on that? And then, would you expect your two datacom direct wins to be at full run rate by ’27 or maybe even earlier? Lastly, on the merchant wins, how should we think about those opportunities, the rate they ramp, and whether that crosses over into the boundary of outsourcing from some of your historical one-time 10% customers? Seamus Grady: FY ’25 grew 19%. FY ’26, at the midpoint of our guidance, will grow 34% versus FY ’25. We have managed to do that with strong operating leverage. For example, in Q3, we grew revenue from $872 million to $1.214 billion—39% year-over-year growth—while operating expenses grew by 6.2% from $16 million to $16.99 million. Therefore, on revenue growth of 39%, our operating income grew 46% and our net income grew 48%. Growth without profits is not much fun for anyone, so we are focused on being cautious with the company’s resources while delivering operating leverage. The growth is accelerating. Demand signals we see from our customers look very promising for some time to come. We will continue to guide one quarter at a time, but that does not stop us from being optimistic about the future—certainly more optimistic than we have been in quite some time—with a very strong demand pipeline across telecom and datacom, and also industrial laser where we are seeing growth and new wins. On the two datacom direct wins, we would expect ramping throughout FY ’27, and likely earlier than late ’27—probably into the middle of ’27. On the merchant opportunities, some of these are very significant. The demand is very strong. We do not mind who we are making transceivers for, as long as we are making somebody else’s design. We are a services company. We will never have our own products, and we will never compete with our customers. That is very important for us and for our customers. Even a relatively modest percentage of any hyperscaler’s demand supplied directly would still be very significant. Any one of these could be a noteworthy opportunity, and the exciting part is we have several: two separate programs shipping to a hyperscaler, merchant business, and our main customer, plus strong telecom. Lots of growth vectors. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, everyone. Thank you for standing by. Welcome to Adeia Inc.’s first quarter 2026 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the call will be open for questions. I would now like to turn the call over to Chris Chaney, Vice President, Investor Relations for Adeia Inc. Chris, please go ahead. Chris Chaney: Good afternoon, everyone. Thank you for joining us as we share details of our quarterly financial results. With me on the call today are Paul Davis, our President and CEO, and Keith Jones, our CFO. Paul will share general observations regarding the quarter, then Keith will provide further details on our financial results and guidance. We will then conclude with a question-and-answer period. In addition to today’s earnings release, there is an earnings presentation which you can access along with the webcast on the Investor Relations portion of our website at adeia.com. Before turning the call over to Paul, I would like to provide a few reminders. First, today’s discussion contains forward-looking statements that are predictions, projections, or other statements about future events which are based on management’s current expectations and beliefs, and therefore are subject to risks, uncertainties, and changes in circumstances. For more information on the risks and uncertainties that could cause our actual results to differ materially from what we discuss today, please refer to the Risk Factors section in our SEC filings, including our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q. Please note that the company does not intend to update or alter these forward-looking statements to reflect events or circumstances arising after this call. To enhance investors’ understanding of our ongoing economic performance, we will discuss non-GAAP information during this call. We use non-GAAP financial measures internally to evaluate and manage our operations. We have therefore chosen to provide this information to enable you to perform comparisons of our operating results as we do internally. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the earnings release, the earnings presentation, and on the Investor Relations section of our website. A recording of this conference call will be made available on the Investor Relations website at adeia.com. Now I would like to turn the call over to our CEO, Paul Davis. Paul Davis: Thank you, Chris, and thank you, everyone, for joining us today. I am pleased to be here to share our results for 2026. After last year’s strong finish, including our license agreement with Disney, we entered 2026 with significant momentum which continued into the first quarter. We signed foundational agreements with both AMD and Microsoft, along with additional deal activity across multiple verticals. Our strong execution is demonstrated in our first quarter results. We delivered revenue of $105 million with an adjusted EBITDA margin of 60% and $58 million in operating cash flow. We also continue to execute on all four pillars of our balanced capital allocation strategy: paying down our debt, which is now less than $400 million; returning capital to shareholders through dividends and share repurchases; and investing in our portfolios through five strategic tuck-in acquisitions. The eight license agreements we closed during the first quarter were highlighted by AMD and Microsoft, which were among our three new customers. We closed five renewals with customers across a diverse set of verticals, including pay TV, consumer electronics, semiconductors, and OTT. I am very pleased that in early March, we resolved our dispute and signed a seminal multiyear license agreement with AMD for access to our semiconductor portfolio, which includes our hybrid bonding technology. The agreement was reached within four months of filing litigation, underscoring the strength of our semiconductor portfolio and the effectiveness of our approach. It also represents an important milestone for our semiconductor business and provides further momentum as we pursue additional semiconductor opportunities in both logic and memory that will be driven by continued adoption of hybrid bonding. The significance of our agreement with AMD cannot be overstated. AMD is a highly respected innovator and a leader in advanced semiconductor design. Their early adoption of chiplet architecture with hybrid bonding highlights the relevance of our technology in next-generation computing. While AMD was an early adopter, hybrid bonding is now becoming more broadly adopted across the semiconductor industry. We are seeing increased adoption in both logic and memory, supported by significant investment in next-generation architectures and increasing use in advanced semiconductors for high-volume consumer electronic devices. This adoption is being driven by AI and high-performance computing, which are fundamentally increasing power density and interconnect demands. As traditional Moore’s law scaling reaches its limits, our hybrid bonding and thermal management technologies have become essential to enabling continued performance gains. We believe our portfolio is well positioned to deliver value across both logic and memory markets as the industry pushes beyond the limits of traditional scaling. The AI-driven growth in semiconductors is remarkable, with the total semiconductor market anticipated to exceed $1 trillion annually by 2026. In addition to AMD, we also added Microsoft as a new customer in the first quarter with a multiyear license agreement for access to our media portfolio. Our media portfolio has broad applicability across Microsoft’s products and services, including its consumer electronics and social media businesses, such as Xbox and LinkedIn. In recent weeks, we also expanded our presence in e-commerce with a new license agreement with L’Oréal, adding another global brand to our expanding customer base in e-commerce. While e-commerce remains a relatively small portion of our revenue to date, our growing momentum and robust pipeline in this market give us confidence that it could be much more significant in the future. We continue to make steady progress toward reaching our long-term goal of $500 million in annual licensing revenue. Our strong start to 2026 reinforces our confidence in that trajectory. A key driver of this progress is our ability to add new high-value customers such as AMD and Microsoft—agreements that provide sustainable, recurring revenue streams. These new deals are contributing to the continued diversification of our business. In the first quarter, non–pay TV recurring revenue grew 28% year-over-year, reflecting further expansion into growth markets. Our most significant growth market is semiconductors. The rapid evolution of AI and high-performance computing is driving fundamental changes in chip design, including the broad adoption of chiplet architectures with hybrid bonding. Our agreement with AMD is an important validation of our position in this space. Other leading logic and memory companies are following similar paths, and we believe hybrid bonding will play an increasingly central role across both logic and memory applications for years to come. In addition, demand for high-performance memory continues to grow rapidly, particularly in NAND and high-bandwidth memory. We are already seeing contributions from earlier agreements with NAND manufacturers, and we expect further adoption as production volumes scale. We are also beginning to see early indications that these technologies are expanding beyond data centers into consumer devices, which represents an additional long-term, high-volume opportunity. Importantly, as AI and high-performance computing workloads continue to scale, thermal management becomes a critical constraint. Our RapidCool technology is designed to address these challenges, and we continue to make meaningful progress. Through further development, we have improved its cooling capability to approximately 5 watts per square millimeter, up from 3 watts less than a year ago, and interest from potential partners continues to grow. Our IP portfolio remains the foundation of our business. Since the beginning of 2023, we have grown our portfolio from approximately 10 thousand to over 13.75 thousand patent assets. While we have delivered strong double-digit growth in recent years, we expect portfolio growth to moderate over time. We believe our portfolio today is well positioned to support multiple licensing cycles in both our core and growth markets, and our innovation engine is primed to continue to refresh these licensing cycles well into the future. We continue to invest strategically in both organic R&D and targeted tuck-in acquisitions to ensure we maintain and enhance the value of our portfolio over time. In the first quarter, we increased our M&A activity, closing five tuck-in IP portfolio acquisitions across a wide spectrum of technologies focused on growth areas. We are very proud of these accomplishments. We continue to focus on expanding our customer base, which includes our history of developing long-term relationships. This has been a primary objective as we invest heavily in our portfolio development to support the ever-evolving technology solutions that help drive our customers’ products and services. Despite our tremendous track record of renewals, we occasionally find ourselves in customer disputes on the value of our portfolios. To that end, we are disappointed we could not reach acceptable terms for a renewal with DISH Network after their agreement expired at the end of March. DISH and their predecessor companies have been customers for decades, and throughout many renewals over the years, they have enjoyed the use of our IP. Since the last renewal, we have continued to innovate, add to our portfolio, and strengthen our relevance within the pay TV industry. In the past few years, we have successfully signed agreements with Hulu + Live TV, Optimum (formerly Altice), Verizon, and Frontier. Even through litigation, we keep the channels of communication open for the purpose of reaching terms on a license agreement, which is our ultimate goal. Leveraging our success with recent similar situations with Optimum, Disney, and AMD—each of which was resolved efficiently and relatively quickly—we are confident we will reach successful outcomes with DISH and DIRECTV. Our technologists remain at the forefront in their fields and are often panelists or speakers at industry conferences. We are recognized as market leaders and innovators and are actively engaged in the ecosystems in which we operate. I am proud we were named one of the Top 100 Global Innovators by LexisNexis Intellectual Property Solutions. We earned this recognition based on the quality and strength of our portfolios and the measurable improvements we have made in our innovation impact over the past two years. Unlike rankings based solely on patent volume, this award highlights companies driving meaningful advances in technology, and that is exactly what our teams do every day. We had a strong first quarter, and we have built meaningful momentum to start 2026. I am particularly pleased with the addition of AMD and Microsoft as new customers—both multiyear agreements that expand our presence in key growth markets and strengthen our recurring revenue base. Our strong financial performance supports continued investment in our portfolio and ongoing balance sheet improvement, and with a growing and diversified pipeline, we believe we have multiple paths to achieve our objectives for the year. Before I turn the call over to Keith, I would like to address the other news we announced today. As noted in the press release, after much consideration and consultation with my family, I have informed the Board of my intent to step down as CEO later this year to focus on my health and other personal pursuits. As I reflect on my last four years leading Adeia Inc., including through its separation from Xperi, I could not be more proud of what the company has accomplished. Our exceptional leadership team has transitioned the company from being primarily reliant on the pay TV market to one with robust and diversified revenue streams supported by our evolving and growing IP portfolios and technology leadership. Our balance sheet is strong, having cut our debt nearly in half since separation, and we are positioned well for continued growth. I have committed to the Board that I will continue in my current role until a successor has been identified and appointed, and through any necessary transition period. During this period, it will be business as usual, as I remain focused on driving the team toward achieving our goals for 2026 and setting us up for continued long-term success. Our goal is to find the next leader for Adeia Inc. by the fourth quarter. The Board has engaged a nationally recognized search firm, and I am confident we will find a leader that will continue the successes we have built and drive the next phase of growth for the company. I want to thank my family, the executive leadership team, and the Board for helping me through this difficult decision. I also want to thank the dedicated Adeia Inc. employees that are at the heart of all of our success. I will now turn the call over to my friend and our CFO, Keith, to cover our financial results. Keith Jones: Thank you, Paul. I am pleased to be speaking with you today to share details of our first quarter 2026 financial results. During the first quarter, we delivered strong financial results within our expectations. Revenue of $104.8 million was driven by the execution of eight deals across a diverse mix of customers, including semiconductors, consumer electronics, pay TV, and OTT. During the quarter, we signed three new license agreements, highlighted by AMD and Microsoft. Our recurring revenue during Q1 was $66.3 million as compared to $94.5 million in the prior quarter. The decrease in our recurring revenue was due to both subscriber declines and the timing of renewals with certain pay TV customers. Additionally, we were impacted by the timing of revenue as a result of the structure of our license agreements with both SanDisk and Kioxia, which contributed no revenue in Q1 but will contribute meaningful revenue in the following quarters. We expect our quarterly recurring revenue to grow over the course of the year, reaching approximately $90 million at the end of the year. Now I would like to discuss our operating expenses, for which I will be referring to non-GAAP numbers only. During the first quarter, operating expenses were $42.9 million, a decrease of $6.3 million, or 13%, from the prior quarter. The decrease was primarily due to lower variable compensation as a result of exceeding certain performance targets in last year’s fourth quarter. Research and development expenses decreased $1.2 million, or 7%, from the prior quarter. The decrease is primarily due to lower variable compensation and outside service costs, which was partially offset by seasonal personnel costs. Selling, general and administrative expenses decreased $4.6 million, or 18%, from the prior quarter, primarily due to lower variable compensation costs and lower spending on outside services, which was also partially offset by an increase in seasonal personnel costs. Litigation expense was $6 million, a decrease of $513 thousand, or 8%, compared to the prior quarter, primarily due to lower spending on Disney due to the resolution of the litigation in the prior quarter, partially offset by new litigation matters. Interest expense during the first quarter was $8.5 million, a decrease of $894 thousand, primarily attributable to our continued debt payments and to lower variable interest rates during the period. Our current effective interest rate, which includes amortization of debt issuance costs, is 7.3%. Other income was $1.7 million. It was primarily related to interest earned on our cash and investment portfolio and to interest income recognized on revenue agreements with long-term billing structures under ASC 606. Our adjusted EBITDA for the first quarter was $62.3 million, reflecting an adjusted EBITDA margin of 60%. Depreciation expense for the first quarter was $492 thousand. Our non-GAAP income tax rate was 21% for the quarter. Our income tax expense consists primarily of federal and state domestic taxes as well as Korean withholding taxes. Now for a few details on the balance sheet. We ended the first quarter with $115.8 million in cash, cash equivalents, and marketable securities, and we generated $58.5 million in cash from operations. As demonstrated by our results, the first quarter has historically been a very strong cash generation period for us. This strong financial performance allowed us to execute on all four pillars of our balanced capital allocation approach. This includes paying down our debt, repurchasing shares, paying our dividend, and making five tuck-in portfolio acquisitions. We made $28.1 million in principal payments on our debt in the first quarter and ended the quarter with a term loan balance of $398.6 million. I am also happy to announce that, based on our strong financial performance, Standard & Poor’s has upgraded our credit rating to BB from BB-. In the first quarter, we repurchased approximately 446 thousand shares of our common stock for $10 million, bringing the remaining amount available for future repurchases to $150 million under our current stock repurchase program. We paid a cash dividend of 5 cents per share of common stock. Our Board also approved a payment of another 5 cents per share dividend to be paid on June 15 to shareholders of record as of May 26. Now I will go over our guidance for the full year 2026. We are reiterating our prior guidance. Our 2026 revenue guidance range is $395 million to $435 million. As we mentioned in our previous call, our sales pipeline was, and continues to be, very strong. Overall, we continue to see the first half of the year and the second half of the year being relatively equal in terms of revenue contribution, with the second quarter being modestly lower than the first quarter. Operating expenses are expected to be in the range of $184 million to $192 million. We expect interest expense to be in the range of $34 million to $36 million. We expect other income to be in the range of $5.5 million to $6.5 million. We expect a resulting adjusted EBITDA margin of approximately 55%. We expect a non-GAAP tax rate to be 21% for the full year. We also expect capital expenditures to be approximately $2 million for the full year. As I conclude my remarks, I want to say this is obviously a challenging day full of emotions for me and the company. On a personal level, Paul is not only an incredible leader and boss, but also a dear friend that I cherish. Knowing Paul, this decision was very difficult for him and his family. Paul should take great pride in having helped to cultivate a legacy that will further propel Adeia Inc. to a great and promising future. As we look across the semiconductor and media landscapes, we continue to see broad adoption of our foundational technologies. We find ourselves at the right place at the right time. Speaking on behalf of all our employees, we take pride in this success. It is driven by the tireless and dedicated efforts of our entire team. The culture we have created will continue to thrive. Our future is bright, and I cannot be more excited about the opportunities that lie ahead of us in the coming years. We will now open the call for questions. Operator? Operator: We request that you limit yourself to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open. Kevin Cassidy: Thank you. Congratulations on the great results, and congratulations, Paul, on making this decision. I hope it is a gradual departure, and thank you for leading the company. My question is around the AMD license: how much of it was retroactive royalties—things that we would not see reoccurring in future years? Can you give a percentage of what the upside was? Keith Jones: Hey, Kevin. In terms of AMD, we are not in a position to get into the granular breakout of the revenue in detail. But the AMD agreement is not only significant for us in terms of being one of our first licensees in the logic space, it will also be a meaningful revenue contributor going forward. For some color, they will be, in this quarter, a greater-than-10% customer, and that does include a retroactive amount that we recognized. More importantly, as we look ahead, they will most likely find themselves in a position where they would be greater than 10% for us going forward. It is very meaningful for us. Paul Davis: Kevin, just to be clear, they will not be a 10% customer going forward. And thank you for the kind remarks; I appreciate it. Kevin Cassidy: Thanks. And my follow-up is around the tuck-in technology acquisitions. Were any scientists or employees included with those, or were they only patents? Paul Davis: Hey, Kevin. We are focused primarily on portfolios that can be really helpful to our growth areas, and that is what these were. We do evaluate opportunities that are broader than that, but for the most part, what we have been acquiring has been primarily patent portfolios. In this case, it is very consistent with what we have done over the last couple of years. We did five relatively small tuck-in acquisitions individually, but they start to add up, and they are in growth areas. For instance, e-commerce and automotive were focus areas this past quarter. We look across all of our growth areas, including semiconductors and OTT, as we have done before with a number of acquisitions over the last couple of years. We do explore other types of acquisitions as well. Kevin Cassidy: Great. I will get back in the queue. Paul Davis: Thanks, Kevin. Operator: Your next question comes from the line of Hamed Khorsand with BWS Financial. Your line is open. Hamed Khorsand: Hey, thanks for taking the question. Could you talk about the IP licensing funnel that balances out Q2 through Q4, and how you are looking at that given the big announcements you had in Q1? Paul Davis: Thanks, Hamed. When we look at our pipeline, as Keith mentioned, it is quite robust, and we have multiple paths to get to our guidance range. It really comes from a number of areas, including core markets—pay TV, where we still have opportunities—and then e-commerce opportunities, as well as electronics, social media, and OTT. And then semiconductors, of course. It will be a mix of both renewals and new deals, but new deals are still important for us to hit our goals for the year, and we are entirely focused on that, as we were last year as well. Those new deals are important because they continue to diversify our revenue and add new streams that offset some of the known declines we have. If you look at our growth in non–pay TV recurring revenue, it continues to be very robust—28% year-over-year this quarter—which continues a trend over the last four or five quarters. We are really proud of that. Hamed Khorsand: Okay. Thank you. Paul Davis: Thanks, Hamed. Operator: Your next question comes from the line of Matthew Galinko with Maxim Group. Your line is open. Matthew Galinko: Thanks for taking my questions. You touched on moderating the rate of growth of the portfolio, although five tuck-in acquisitions would be on the high end of what you have done to date. Can you help us balance whether this reflects a shift in strategy to be more focused on external portfolios at this point, or is it just how things fell? And as a follow-up on capital structure, given the continued reduction in debt balance and the upgrade to your credit rating, does anything change in your plans for cash levels you want to keep on hand or your leverage ratios? Paul Davis: I would say it continues to be a mix, but one that is heavily weighted toward internal innovation. That is where we see the most value, and that is what our customers focus on as well. We have had an 85/15 split—85% internal and 15% external—for quite some time. It is a metric we like to maintain. We are not religious about it, and it can vary from time to time. On the strategic acquisition side, we look for things that can round out our portfolio, so activity can swing in a given quarter and lead to that number being a little higher at any given time. Over a longer period, that 85/15 split is something we would like to maintain. We are still doing a ton of internal innovation and have been since separation. You are seeing that on both the semiconductor and the media side of our business. Keith Jones: Hey, Matt. Thanks for the question on capital structure. We find ourselves in a great spot, and I could not be more proud of how we have operated. We have talked before about a certain amount of debt we are comfortable carrying as a company—historically between $300 million to $400 million. Through hard work and disciplined efforts, we find ourselves in that threshold right now. A nice tailwind is the upgrade from Standard & Poor’s to a BB rating, which will be advantageous to us. That said, the timing in the market to refinance right now is not optimal. Since the war broke out, interest rates have been more on the rise, and we would like to see things settle before we refinance our debt. Our timing is to be active and to have new debt in place at least 12 months before our debt matures in June 2028. We are actively looking and thinking about fixed structures that can increase cash flow back into the business to do more tuck-in acquisitions and return more capital to shareholders. We have a very defined plan, which comes on the heels of tremendous execution deleveraging our balance sheet. We are right where we want to be. Operator: I will now turn the call back over to Paul Davis for closing remarks. Paul Davis: Thank you, operator. Once again, I would like to thank our employees for their hard work and dedication, and also our shareholders, partners, and customers for their ongoing support. Thanks to everyone for being with us today. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, greetings, and welcome to the Medifast, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference call, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Medifast, Inc. VP, Investor Relations, Steven Zenker. Please go ahead. Steven Zenker: Good afternoon, and welcome to Medifast, Inc.'s First Quarter 2026 Earnings Conference Call. On the call with me today are Daniel R. Chard, chairman and chief executive officer; Nicholas M. Johnson, president; and James P. Maloney, chief financial officer. By now, everyone should have access to the earnings release for the first quarter ended 03/31/2026 that went out this afternoon at approximately 4:05 PM Eastern Time. If you have not received the release, it is available on the Investor Relations portion of the Medifast, Inc. website at medifastinc.com. This call is being webcast, and a replay will also be available on the company's website. Before we begin, we would like to remind everyone that today's prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. The words believe, expect, anticipate, and other similar expressions generally identify forward-looking statements. These statements do not guarantee future performance and therefore undue reliance should not be placed on them. Actual results could differ materially from those projected in any forward-looking statements. All of the forward-looking statements contained herein speak only as of the date of this call. Medifast, Inc. assumes no obligation to update any forward-looking statements that may be made in today's release or call. Now I would like to turn the call over to Medifast, Inc. Chairman and Chief Executive Officer, Daniel R. Chard. Daniel R. Chard: Thanks, Steve, and good afternoon, everyone. We appreciate you joining us today as we share an update on the continued execution of our strategy to transition to serving the metabolic health market. When we spoke to you last quarter, we described the growing focus on metabolic health as a defining shift in our industry and the significant opportunity it presents for Medifast, Inc. We saw early signs that our strategy was beginning to translate into measurable progress and the potential to build on that as we moved into 2026. As we speak today, I am pleased to report that those early indicators have continued to strengthen. We are seeing further evidence that our business is at the beginning of a period of stabilization and that we are making meaningful progress in delivering tangible traction in the market. We will go into the numbers in more detail in a moment, but as you will have no doubt read in the release, although the number of active earning coaches continues to decline, the first quarter saw our first sequential quarterly revenue growth in three years, a second consecutive quarter of year-over-year coach productivity gains, strong coach leadership advancement, and improved performance in the percentage of coaches acquiring new clients. All of this is indicative of high field engagement and provides encouraging signs that have historically been signals of future growth. Our sector, including Medifast, Inc., has undergone a significant change due to the continuing high rate of adoption of GLP-1 medications, which has disrupted the traditional weight loss market. We have responded by fundamentally repositioning the company, not by abandoning weight loss, but by reframing it to address the metabolic health crisis that is impacting the vast majority of Americans today. That work is now largely complete, and our focus has shifted decisively from transformation to execution. Nicholas M. Johnson is going to walk you through the substance of what we are seeing across the business, the science that is driving our differentiation, the evidence from the field that our strategy is working, the tools and programs that are supporting our coach community, and the continued work we are doing to position the company for sustainable growth ahead. Over to you, Nick. Nicholas M. Johnson: Thank you, Dan, and good afternoon, everyone. As Dan mentioned, we are seeing exciting progress right now, and that is indicative of the focused work of both our coaches and our corporate team members. At the core of this work is our foundational 3.0 strategy, which represents the biggest shift in this company's approach since the introduction of OPTAVIA in 2017. We have strengthened our clinical and scientific foundation and enhanced our ability to link our underlying science to measurable health outcomes over time, and we have meaningfully realigned our cost structure to the realities of the market, which is anticipated to generate more than $30 million in future savings, helping us work towards reattaining profitability even as we tactically invest in long-term growth. We believe the market opportunity is massive. More than 90% of U.S. adults are metabolically unhealthy, or in other words, are affected by metabolic dysfunction. Our online survey conducted with KRC Research found that nearly 94% of Americans are concerned about at least one aspect of their metabolic health, 85% believe metabolic dysfunction can be reversed, and 84% view metabolic health as central to overall well-being. Yet despite that concern, 80% of Americans report limited understanding of what it truly means to be metabolically healthy. The combination of concern, belief in reversibility, and low understanding of how to achieve change represents a huge opportunity that our science-backed, coach-guided approach is designed to address. At the center of our approach is metabolic synchronization, our breakthrough science that reverses metabolic dysfunction. Our clinically proven plans create an important shift in the body's metabolism and activate strong and targeted fat burn, leading to improved body composition. Our most popular plan does this through three critical pillars: burning bad visceral fat, with a 14% reduction in visceral fat demonstrated in just 16 weeks; preserving lean mass, with 98% of lean mass retained over that same period; and protecting healthy muscle to help restore the body's natural metabolic function. These are not just weight loss outcomes. They represent body composition changes that support broader metabolic health benefits, helping differentiate us in a crowded market. Importantly, our clinical research demonstrates that these outcomes are materially enhanced by working with a coach, thanks to our highly personalized and customized approach. Clients on our most popular plan who work with a coach achieve better outcomes, including up to 10 times greater weight loss and 17 times greater fat loss than those who attempt to do it on their own. We are continuing to build on this scientific foundation and are planning to launch a new comprehensive metabolic system at our next coach convention in July, featuring products that incorporate clinically studied ingredients designed to further advance metabolic health. This represents our first effort to fully leverage our metabolic synchronization science. We have developed a proprietary ingredient technology for the new product line, which will build on the success of previous products while reinforcing our commitment to improving metabolic health. We recently initiated a pilot with a small group of clients and coaches utilizing the new product line, and I am pleased to say early feedback has been highly encouraging. As a result, we plan to roll out the new system to all our clients and coaches later in the year. Simplifying how we support clients across every phase of their metabolic health journey is an essential component of our efforts, and we will be making a number of key announcements in this space at our upcoming Coach Convention in July. Our new metabolic system is built around three phases—reset, refine, and renew—giving coaches a clear roadmap to guide clients from a targeted metabolic reset toward optimal metabolic health. Our highly personalized system gives clients the ability to jumpstart their progress with both foundational and targeted nutrition, a coach, and the introduction of new habits, which are then reinforced and mastered in subsequent phases to support long-term health span and vitality. Our program is eligible for HSA and FSA reimbursement on select insurance plans, reflects the importance of metabolic health in today's healthcare landscape, and makes our solution more accessible and affordable for a wider range of clients. For many, weight loss is the fundamental starting point for improving metabolic health, which in turn contributes to meaningful health outcomes in areas such as cardiovascular health, joint health, sleep quality, energy levels, liver health, and mental well-being. These metabolic improvements can also support better outcomes in type 2 diabetes and insulin sensitivity. Empowering our coaches to tell their own stories and those of their clients who have had success losing weight on our program is a key aspect of our value proposition. As clients experience improvements in metabolic functions, these stories become powerful proof points for our metabolic synchronization science. They give coaches a sharper, more compelling story to tell, and we are beginning to see the impact of that in the core metrics that we closely measure. Historically, coach productivity has been a leading indicator of future growth. The first quarter marked our second consecutive quarter of year-over-year coach productivity gains, with an increase of 19% year over year and up 16% on a sequential basis. This is markedly higher than last quarter's 6% gain, with coach productivity at its highest level in many years. We expect the positive trend to continue throughout the year, and a sustained positive trajectory gives us confidence in the direction of the business. Our EDGE program continues to strengthen the coach leadership foundation of our field. We are seeing consistent year-over-year improvements in the percentage of active earning coaches reaching the executive director rank, a historically significant indicator of success. This metric has recently hit levels previously linked to periods of robust growth. Retention at this level remains encouraging. Moving forward, we aim to maintain and build upon this momentum, as the duplication of this core leadership rank is the primary driver of coach business growth. Field engagement continues to build across the board, with a focused effort on establishing a repeatable cadence of coach-led product and business opportunity meetings targeting prospective clients and coaches. We have seen significant acceleration in these field meetings, with activity levels remaining well above the year-ago period. We also recently completed our coach incentive trip and Go Global event, both of which were well attended and reinforced the energy and excitement around our immediate opportunity. Coaches are leaning in right now with confidence and conviction. We are also seeing our referral engine gain strength. March closed with a record-high percentage of new clients coming from referrals, outperforming expectations. Coaches who participate in our referral program are achieving two times higher client acquisition rates compared to nonparticipating coaches, which tells us that when coaches lean into referral activity, the initiative works. Combined with improving sponsoring activity and a younger tenured coach mix, these dynamics can create a flywheel of momentum that we have seen in prior growth cycles. With that, I will turn it back to Dan. Daniel R. Chard: Thanks, Nick. It is exciting to see this energy in the field and the delivery against the progress we previously said that we expected to see in 2026. Before I hand it over to Jim, I want to reinforce a few points. We remain focused on executing against a clearly defined long-term strategic plan centered on offering our clients optimal metabolic health. That plan is backed by breakthrough science and delivered through a coach-led model that provides a genuine structural advantage in the market. We are seeing progress already, and that is ahead of a number of key market launch initiatives that we will kick off later in the year. We are encouraged by the metrics showing increased coach productivity and by the energy and enthusiasm we see from the coach base, which is showing up in the percent of coaches reaching executive director and above. We believe these are early indicators of an expected turn in the business, and we expect these and other metrics to improve as we move through the year and into next year. And we are managing this business with financial discipline. Our balance sheet remains strong, with substantial cash and investments of approximately $169 million, marginally higher than in Q4, and no debt. This positions us well as the business stabilizes and we reestablish revenue growth. We continue to review our cost base for further opportunities that do not compromise our ability to drive growth. We are reconfirming our full-year 2026 guidance today. As we communicated last quarter, we believe improvements toward reattaining profitability will begin in 2026, and we are targeting those improvements to continue into 2027 and beyond. Now I will turn it over to Jim to review the financials and our outlook. James P. Maloney: Thank you, Dan. Good afternoon, everyone. First quarter 2026 results for both revenue and EPS were within our guidance ranges, supported by a second consecutive quarter of year-over-year coach productivity growth. Revenue for the first quarter was $76 million, a decrease of 34.3% versus the year-earlier period, primarily due to a decrease in the number of active earning coaches. We ended the quarter with approximately 14,000 active earning coaches, a decrease of 44.9% from 2025. This decline was driven in part by the rapid adoption of GLP-1 medications, which continues to impact the traditional weight loss category. It is also reflective of our continued work to build a new coach leadership structure comprised of the most productive executive director organizations. This work resulted in average revenue per active earning coach for the first quarter of $5,432, a year-over-year increase of 19.2%. This growth reaffirms the green shoot we saw during Q4 2025, with coach productivity continuing to increase both year over year and sequentially. The 19% year-over-year gain is the largest increase for any quarter in five years, and the sequential quarterly increase of 16% is the highest in eight years. We continue to believe that increases in revenue per active earning coach are an early indicator for future coach growth, which we believe will in turn lead to revenue growth. As a reminder, revenue growth has historically lagged coach productivity by several quarters, and productivity gains need to continue in order for revenue growth to occur. Gross profit for Q1 2026 decreased 38.6% year over year to $51.8 million, driven by lower sales volumes. Gross profit margin for the current quarter was 68.1%, compared to 72.8% for 2025, primarily driven by the loss of leverage on fixed costs. SG&A expense was down 35.6% year over year to $55.1 million, primarily due to a $16.2 million decrease in coach compensation on lower volume, a $5.6 million decrease in company-led marketing-related expenses, a one-time $2.2 million gain on the sale of our Maryland distribution center, and a $2.0 million decrease in employee compensation resulting from the realignment of the employee base to lower revenue. SG&A as a percentage of revenue decreased 150 basis points, primarily due to approximately 470 basis points of decreased company-led marketing-related expenses and 240 basis points of one-time gain on the sale of our Maryland distribution center building and land, partially offset by 620 basis points of loss of leverage on fixed costs due to lower sales volume. Loss from operations was $3.3 million in 2026, an increase in losses of $2.0 million versus the year-earlier period as the decline in gross profit was largely offset by lower SG&A. As a percentage of revenue, loss from operations was 4.3% in the first quarter, 320 basis points below the year-earlier level. Other income decreased 24.3% year over year to $1.4 million, primarily due to unrealized gains on our investment in LifeMD common stock in the year-earlier period. As a reminder, we sold our common stock investment in LifeMD during 2025. Income tax expense for the period was $200,000, an effective rate of negative 9.3%, as compared to $1.3 million for 2025, an effective rate of 246.8%. Due to the existence of a full valuation allowance against its deferred tax assets recorded as of 12/31/2025, the company calculated income tax expense for the current period based on actual results for the quarter. As a result, the company's income tax provision for the quarter reflects discrete items, primarily state income taxes. The decrease in the effective tax rate was primarily driven by the increased loss incurred in the 03/31/2026 period and the valuation allowance on the net deferred tax assets. Net loss in 2026 was $2.1 million, or $0.19 per share, compared to a net loss of $800,000, or $0.07 per diluted share, in the year-earlier period. With respect to our balance sheet, we ended the quarter with $168.9 million in cash, cash equivalents, and investments, and no debt as of 03/31/2026. Additionally, our working capital, defined as current assets less current liabilities, was $160.4 million as of 03/31/2026. Now I will turn to guidance. We are expecting second quarter revenue to range from $60 million to $80 million and loss per share for the quarter to range from $0.50 to $1.00. We expect to see continued coach productivity growth during the quarter, up both year over year and sequentially. For the full year 2026, we expect revenue to range from $270 million to $300 million and loss per share between $1.05 and $2.75. Also included in our guidance is that we believe improvements to get back to profitability will start in Q4 2026 following the launch of our new product line, and we will be targeting improvements in earnings to continue into 2027 and beyond. Finally, we believe that our working capital will be more than $140 million at 12/31/2026. With that, let me turn the call back to the operator for questions. Operator: Thank you. We will now open the call for questions. Please press star and 1. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to lift your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. The first question comes from the line of James Ronald Salera from Stephens Inc. Please go ahead. James Ronald Salera: Wanted to start off with the $30 million in cost savings. I know you have made a lot of progress over the last several years as the business has changed in both the structure of the company and some of the product lineups. Can you just give us a sense for where that is going to come from, COGS and SG&A? And then maybe a steady state—how we should think about gross margin once we start to pivot back towards earnings growth in 4Q and moving forward? Daniel R. Chard: Jim, this is Dan. I am going to have Jim answer that question. But as we move into the more technical aspect of the financial questions that come in, I just wanted to highlight that what you have heard in our prepared remarks is reflective not only of our progress in the financial cost structure, but also we are very encouraged by the trajectory of some of these key underlying metrics, and not just the metrics, but the consistency, particularly around coach productivity—second consecutive quarter—and now that is actually the seventh month where we have seen that improvement. We see that also translating into top-line improvement. This is the first time in quite some time that we have seen sequential revenue growth, and that is being driven by improved coach effectiveness in acquiring new clients. That has been one of the key challenges we have had in a GLP-1 environment. We are starting to see our coaches break through. The other thing we want everyone to understand from an investment standpoint is the transition to a model where weight management was the primary benefit to one where optimal metabolic health is the primary benefit, with weight management as a key component, is beginning to take hold. We certainly have more work to do, but our focus remains on execution, particularly around the critical initiatives in the back half of the year as we continue to move in that direction. One of them is what you are referencing, which is the changes in the cost structure to help us get back on that path to profitability. I will let Jim comment specifically on that question around the cost improvement. James P. Maloney: Thanks for the question. When you think about our prepared remarks regarding the path to profitability—and that starting in Q4—we believe we are going to start seeing improvement in the second half of the year, but more towards the last quarter, in gross margin, and then you will start seeing the same thing within SG&A. We took action last year in December, so it is starting to come through in certain budget line items as we look at our full P&L to make certain that we can get back to profitability starting in Q4 2026 and then go into 2027. That is what we are focusing on. When you think of our margins—you mentioned gross margin or the breakout of it—I cannot really give you specific guidance on that, but I would say that we are expecting in the back half of this year for our gross margin to get better, and within the SG&A line items, we are expecting to start overcoming some of the loss of leverage as we go into Q4. James Ronald Salera: That is great. Maybe shifting more to Dan's point on the coach productivity improvement, are you able to share any details with some of the new or newest members that have come into the program given this greater focus on metabolic health? Do you see their tenure with the program being more consistent or longer while they are on the program relative to people in the past who may have been on and off? Any early results that you could share on that? Daniel R. Chard: Nick is here, and he has the closest connection with coaches, and I think he will be able to give you the answer you need. Go ahead, Nick. Nicholas M. Johnson: Thanks, Jim, for the question. The good thing about the new coach draft classes is that there is no pre–GLP-1 world for them. They are very steeped in what is going on in the marketplace, so they only know this GLP-1 world that we live in. The reason why that tenure mix is important is because newer coaches tend to drive a lot of productivity. With respect to the client metrics, we did mention this in the prepared remarks—a note around the referral program—and we do see a lot of encouraging activity coming out of that program. Coaches who are engaged in that program are experiencing higher acquisition rates, and I can say that the other metrics that support a client's journey are seeing improvement. We are encouraged by what we are seeing so far in the client referral program. James Ronald Salera: Historically, you have talked about that coach productivity improvement as being the first step to indicate a new growth cycle, and then subsequent to that, you will start to see the actual number of coaches return to growth. As we size up the back half of the year, do you have any sense for if it is possible that maybe in conjunction with some of the improving profitability in 4Q, we would see the absolute number of coaches start to improve? Nicholas M. Johnson: I will start off with that one, Jim, and then I will pass it over to Jim to talk about the back half of the year. Productivity tends to be that leading indicator in our business. The growth of the business comes predominantly through two metrics: one is growing productivity or volume per coach, and then expanding the channel—number of coaches who are active and participating in the business. We do tend to see that sequence of events: coach productivity first, leading to the expansion of the channel. While we said in the prepared remarks that the continuation of growing coach productivity is essential for revenue growth, it is because we tend to create those future draft classes of higher-producing coaches coming from those client draft classes. We are anticipating good things coming from the productivity numbers. It tends to be a leading indicator, and then we can expect the channel to extend—at least that is what historically has happened. Jim, if you want to make any comments on the back half. James P. Maloney: We are not going to give exact guidance on when we anticipate coach growth to come back. What we can tell you, Jim, is when you think about our financials, Q4 2025 we were basically at $75 million of revenue. Q1 2026 we were at $76 million in revenue—so sequential growth, even though small. We have not seen that in three years. Any sequential growth—and if you look at our guidance, the midpoint is at $70 million of revenue—means three quarters of relative flatness, so stabilization. With the coach productivity increase of 19% and sequentially growing at 16% for the quarter, that gives us comfort that coach growth will be coming. We are not going to predict exactly which quarter, but based on history, we believe that is going to happen in a short period of time. James Ronald Salera: I appreciate the thoughts. I will hop back in the queue. Operator: Thank you. We will take the next question from the line of Doug Lane from Water Tower Research. Please go ahead. Doug Lane: Hi. Good afternoon, everybody, and thanks for taking the questions. The 19% growth in coach productivity is impressive, and I just wanted to drill down on what is really driving that. Are there coaches selling more products per customer, or do they have more customers per coach? What is really driving the increase in productivity of that magnitude? Nicholas M. Johnson: Great question. To answer specifically, it is not being driven by spikes in average order sizes. We are seeing average order sizes remain more or less consistent with historical averages. Coach productivity then comes down to an increasing number of clients per coach. That is driving that productivity—and also their length of stay. Doug Lane: That is an important inflection point. Hopefully, if that momentum keeps building, that is what you are looking for to drive the return to coach growth, and then, of course, the timing of that is unpredictable, which I guess is what your message has been on this call. One thing I wanted to ask you about on this transition to metabolic health is messaging. Weight loss is easy—the scale goes down, the clothes fit better. How do you message metabolic health in a GLP-1 environment? Nicholas M. Johnson: I think it is critical that we call out that distinction because, to your point, generic weight loss is pretty much commoditized at this point with GLP-1s, and even before that. It is the quality of the weight that is being lost that is a differentiation for our offer. Our value proposition is that we are not focused just on the number on the scale. There are many other numbers and indicators that are important. When we talk about the science of metabolic synchronization, we specifically address the quality of the weight loss that one is experiencing: a 14% reduction in bad visceral fat in 16 weeks—that is bad fat in the wrong places. We are being specific about the type of weight that we are losing—we want to lose the bad fat in the wrong places. We also want to preserve lean mass—98% preservation of lean mass in 16 weeks is critical in protecting lean muscle. We believe that the focus on metabolic health and the focus on the quality of the weight being lost will be a defining point in the future because, to your point, losing weight is easy. Once you get specific in terms of the quality of the weight that you are losing, you really want to focus on that, because if you are losing too much lean muscle in particular, you would say that the quality of that weight loss was not there, and it leads to other problems down the road metabolically. Doug Lane: We have read a lot about GLP-1 weight loss being unhealthy. It is such a new phenomenon, and it is so widespread. Has there been any additional science towards that end? I just wondered if that science is still evolving on the unhealthiness of the rapid weight loss with the antagonists. Nicholas M. Johnson: I think that the GLP-1-only solution—a pharmacological approach that suppresses appetite—is one-dimensional in terms of a problem that is very complex to resolve. We believe that what we see going forward is a need for a comprehensive solution to installing a healthy lifestyle. That comprehensive approach is what we are talking about with the evolution of our program. We view our program as a comprehensive metabolic health system that is comprised of three distinct phases: reset, refine, and renew. The goal of the reset phase, which we are going to be talking more about at our convention in October, comes down to resetting one's metabolic set point, reduction of bad visceral fat, improving body composition, focusing on lean mass preservation, and protecting healthy muscle. That sets someone up for the refine stage, which is all about improving your body composition. There is a lot of room, and it is a big, big market. Doug Lane: Thanks, Nick. That is very helpful. Thank you. Operator: Ladies and gentlemen, as there are no further questions from the participants, I would now hand the conference over to Daniel R. Chard for any closing comments. Daniel R. Chard: Thanks. Before we close, I want to take a few minutes to share a few final thoughts. As I mentioned on last quarter's call, I informed the board earlier this year that I plan to step down as chief executive officer effective June 1. I have led this company now for close to ten years, and it has been one of the great privileges of my career. This is not the end of my relationship with Medifast, Inc. I am engaged as CEO through May and will continue to serve as chairman of the board following the transition. I am looking forward to continuing to help this great company as we drive this exciting new path forward in metabolic health. I want to extend my thanks and my best wishes to all of the Medifast, Inc. team, but especially to Nicholas M. Johnson. Nick has been instrumental in shaping and executing the strategy that we talked about today, and I have every confidence in his ability to lead this company into the next chapter. All of the team at Medifast, Inc., past, present, and at all levels, have been incredible to work with over the years. I am grateful for their partnership and expertise. Finally, thank you to everyone on this call for your time today and for your interest in Medifast, Inc. during my tenure here. This is a company that is building something meaningful, and I am excited to see that continue over the months and the years to come. Thanks, and have a good evening. Operator: Thank you. Ladies and gentlemen, the conference of Medifast, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the OSI Systems, Inc. Third Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I will now turn the conference over to Alan Edrick, Chief Financial Officer. You may begin. Thank you. Alan Edrick: Good afternoon, and thank you for joining us. I am Alan Edrick, Executive Vice President and CFO of OSI Systems, Inc. And I am here today with Ajay Mehra, OSI Systems, Inc.'s President and CEO. Welcome to the OSI Systems, Inc. fiscal 2026 Third Quarter Conference Call. We are pleased that you can join us as we review our financial and operational results. Before we discuss these results, I would like to remind everyone that today's discussion will include forward-looking statements and the company wishes to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to such forward-looking statements. All forward-looking statements made in this call are based on currently available information, and the company undertakes no obligation to update any forward-looking statement based upon subsequent events, new information, or otherwise. We will also reference both GAAP and non-GAAP financial measures. Applicable reconciliations are available in today's earnings release. We delivered solid third quarter financial results, setting fiscal Q3 records across multiple metrics, despite facing the most challenging year-over-year comparison of fiscal 2026, primarily driven by our Mexico contracts. The company's revenues reached a fiscal Q3 record of $453 million, and non-GAAP earnings per diluted share set a fiscal Q3 record of $2.60. Importantly, excluding revenues generated by the large security contracts in both periods, Security revenues grew 25% year over year. Our Optoelectronics and Manufacturing division also performed well, posting 10% growth and a Q3 record for that division. Bookings were strong, with a 1.3 book-to-bill ratio driven by both Security and Opto, resulting in a record backlog, highlighted by the previously announced Homeland Defense award, about which Ajay will provide more information shortly. On the cash side, we generated $14 million in fiscal Q3 operating cash flow despite limited collections in the quarter on the receivables in Mexico. Shortly after quarter end, we collected approximately $74 million of the largest Mexico receivable, a strong start to Q4 cash flow. Before diving more deeply into our financial results and discussing our outlook for fiscal 2026, I will now turn the call over to Ajay for our business and operational discussion. Ajay Mehra: Thanks, Alan, and thank you everyone for joining us today. I am pleased to be here to discuss our third quarter results for fiscal 2026. We delivered another quarter of solid execution and ended the quarter with a backlog of approximately $1.9 billion, the highest in the company's history. We remain focused on execution, leveraging our strengths in key markets and utilizing our global operating model as we finish Q4 and head into fiscal 2027. Let us turn to our businesses to discuss Q3 performance in more detail, starting with Security. As expected, Q3 performance was up against difficult year-over-year comparisons, primarily due to our Mexico programs transitioning from significant product sales to long-term related service and support revenues. Despite that, Security performed well with solid bookings, top-line growth, and operating margin expansion. Furthermore, we continue to be very active with customers across aviation, ports and borders, and defense-related applications. Bookings were highlighted by a sizable award from Homeland Defense of an undefinitized contract action, or UCA, with a not-to-exceed value of approximately $235 million for the production and integration of Homeland Defense over-the-horizon radar transmit subsystems. We continue to build strong traction with our RF engineered solutions, and are hopeful that there may be additional opportunities in this area of future business. In addition, these capabilities position us well to further support Golden Dome, the U.S. initiative to create an integrated missile defense system. As you know, we are a participant in the $151 billion Shield IDIQ, which we announced last quarter, and we look forward to the opportunities that may arise from this initiative. During Q3, we also received several international awards for cargo and vehicle inspection systems and airport screening solutions. In addition, we were an integral part of the security at the Milan Winter Olympic Games, providing our products to screen participants, officials, fans, as well as their baggage and cargo. Towards the latter half of Q3, we began to see initial impacts from conflict in the Middle East. Certain programs and activities have been delayed by factors such as logistics constraints, travel restrictions, and heightened security protocols. Certain customers in the region are facing pressure from disruptions tied to the conflict. If the situation persists, we could see further impact on the timing of order intake and project completion timelines. That said, once the region stabilizes, we could potentially see even stronger demand for our security solutions. In the U.S., the order activity for security products was impacted during the quarter by the shutdown at DHS, which delayed the procurement of our products and services to support U.S. border initiatives. Now that the shutdown has ended, we are hopeful for order patterns to normalize over the coming weeks and months, and I want to emphasize here that these are timing-related dynamics rather than changes in the underlying demand. In the U.S., we are also excited about the potential of our security solutions for high-profile upcoming events, such as the FIFA World Cup 2026 soccer tournament and the 2028 Olympics. Furthermore, in the U.S., the roughly $1 billion outlined in the One Big Beautiful Bill for NII equipment remains a significant growth opportunity, and of course, during the shutdown, the spending resulting from this bill was delayed in Q3. Turning to Opto—our Optoelectronics and Manufacturing division—Q3 performance was again strong as revenues increased 10% year over year, with the book-to-bill ratio well exceeding one. In March, Opto received a $40 million award for electronic subassemblies from a medical OEM, a significant award in a division where most orders are under $5 million. Customers continue to value our vertically integrated model and global manufacturing footprint as they diversify supply chains and launch new products. Our global manufacturing footprint across Malaysia, Indonesia, India, Canada, Mexico, the UK, and the U.S. allows us to offer customers attractive combinations of value and scalability. Opto's backlog remains at record levels, providing great long-term visibility across aerospace, defense, medical, industrial, and other end markets. And finally, our Healthcare division continues its path of improving operations and focusing on new product development. In Q3, Healthcare was adversely impacted by order timing, most notably in the U.S., resulting in lower sales and profitability. On the flip side, we did see growth in the EMEA region during the quarter. As you may know, Healthcare's products generally carry the highest contribution margins at OSI Systems, Inc., so even modest revenue growth has an outsized impact on profitability. Looking at OSI Systems, Inc. overall, our financial position remains strong. The robust and growing backlog, year-to-date cash flow generation, and a healthy balance sheet give us continued confidence in the company's prospects. In addition to large program opportunities highlighted earlier, we remain focused on increasing our mix of recurring revenues through expanded service and support agreements. As always, I would like to thank our employees, customers, and stockholders for their continued support and dedication. With that, I will turn the call over to Alan to discuss our financial results in more detail before we open the call for questions. Alan Edrick: Thank you, Ajay. Now let us review in greater detail the financial results for Q3. Let us begin with a look into our revenues by division. Security division revenues in Q3 came in at $319 million, driven by higher service revenues and increased contribution from the RF business, which has been effectively integrated into our overall operations, and increased aviation product revenues. As expected, revenues from our large Mexico Security contracts decreased to $11 million in Q3 fiscal 2026 from $69 million in Q3 of the prior year. Excluding the Mexico contracts, Security revenues surged 25% year over year, reflecting healthy growth across the broader Security portfolio. Fiscal Q4 is expected to experience a reduced revenue impact from Mexico in comparison to Q3, with the magnitude of this headwind expected to largely roll off as the company enters fiscal 2027. Our Optoelectronics and Manufacturing division had another excellent quarter. Opto sales, including intercompany, increased 10% year over year to $111 million, a new Q3 record for this division. This was driven by sales growth across our diversified product and customer portfolios. And as described earlier, Healthcare division sales were soft. Our Q3 fiscal 2026 gross margin was 33%, slightly down from the same quarter in the prior year, as a less favorable revenue mix on product sales outweighed an increase in gross margin from higher service revenues. Our margins can fluctuate based on product and service mix and volume, supply chain cost, FX, tariffs, among other factors. Moving on to operating expenses, SG&A expenses in the 2026 third fiscal quarter were $71.5 million, down 2% from the prior year fiscal Q3 and representing 15.8% of sales compared to 16.5% of sales in Q3 last fiscal year. We continue to work diligently across all divisions to manage our SG&A cost structure efficiently. R&D expenses in Q3 were $19.5 million, or 4.3% of revenues, up from $18.6 million, or 4.2% of revenues, in the same quarter last year. This increase stems from our commitment to investing in innovation, resulting in market-leading offerings in Security and positioning OSI Systems, Inc. well for the future. We expect to continue our heightened R&D efforts to advance key initiatives. Even with these R&D investments, our combined SG&A and R&D expenses as a percentage of sales have decreased annually for each of the past eight years, underscoring our ability to drive operating efficiencies while still funding growth initiatives. Now moving below the operating line, interest and other expenses, net, in fiscal Q3 was $4 million, down from $8.2 million in the same quarter in the prior year, primarily due to reduced borrowing costs. Our effective tax rate under GAAP was 18.3% in this Q3 versus 14.3% in Q3 last year. Excluding discrete tax items, our normalized effective tax rate, which is the rate used in calculating non-GAAP EPS, was 23.6% in Q3 this year compared to 23.7% in the same prior-year quarter. On a non-GAAP basis, our Q3 2026 adjusted operating margin of 14% was comparable on a sequential basis from Q2 and slightly below the prior-year third fiscal quarter. The Security division's adjusted operating margin expanded from 18.1% in Q3 last year to 18.3% in 2026, driven by growth in higher-margin Security service revenues combined with reduced operating expenses. This, though, was offset by the other two divisions. The Opto adjusted operating margin decreased to 13.5% in Q3 this fiscal year from 14% in last year's fiscal Q3 on a less favorable mix of revenues. The adjusted operating margin of our Healthcare division was negligible due to the sales level. As Ajay mentioned, we expect margin recovery as Healthcare performance improves. Moving to cash flow and the balance sheet, we generated $14 million in Q3 operating cash flow despite limited collections in the quarter on our largest receivable in Mexico. However, as mentioned earlier, not long after quarter end, we received a payment of approximately $74 million from our largest Mexico customer, providing a strong start to our Q4 cash flow. Operating cash flow for the first nine months of fiscal 2026 was just shy of the amount for all of fiscal 2025. DSO increased 7% from fiscal Q2. Current expectations are that DSO will decrease by fiscal year end. We expect substantial cash inflows in Q4 and into fiscal 2027 as we continue to collect on the Mexico receivables, which should lead to sizable operating cash flow and strong free cash flow conversion. CapEx in Q3 was $8 million, while depreciation and amortization expense was $9.5 million. Our balance sheet remains solid. We ended the quarter with $345 million in cash. Our net leverage at the end of Q3 fiscal 2026 was approximately 2.2, as calculated under our credit agreement. Now turning to our guidance, we are maintaining our fiscal 2026 guidance for revenues and non-GAAP earnings per share. The recent shutdown of the Department of Homeland Security and the conflicts in the Middle East have impacted short-term bookings and could impact near-term Q4 revenues, but looking out further, resolution of each of these matters—one of which has just been done—could potentially represent future opportunities for the company. We note that our fiscal 2026 non-GAAP diluted EPS guidance excludes any impact of potential impairment, restructuring and other costs, amortization of acquired intangible assets and their associated tax effects, and discrete tax and other non-recurring items. We currently believe this guidance reflects reasonable estimates. The actual impact on the company's financial results of timing changes on the expected conversion of backlog to revenues, new bookings, timing of cash collections, tariffs, the recent DHS shutdown, the conflicts in the Middle East, and supply chain disruptions, among other factors, is difficult to predict and could vary significantly from the anticipated impact currently reflected in our guidance. Actual revenues and non-GAAP EPS per diluted share could also vary from the guidance indicated above due to other risks and uncertainties discussed in our SEC filings. In summary, we delivered a record fiscal Q3 driven by our two largest divisions, a record backlog providing multi-period visibility, and we also made a meaningful cash collection in the beginning of Q4 that further enhances our balance sheet. We remain committed to operational excellence as we grow our businesses and deliver innovative products and solutions to our customers. We aim to invest in key strategic areas with the goal of driving long-term value for our shareholders. Once again, we thank the entire global OSI team for their dedication to supporting our customers and partners. Their efforts are what make our results possible. We will now open the call for questions. Operator: Thank you. As a reminder, to ask a question, you will need to press star then the number one on your telephone keypad. And if you would like to withdraw your question, press star one again. Your first question comes from the line of Larry Solow with CJS Securities. Your line is open. Lawrence Scott Solow: Good afternoon. I guess first question, we know Mexico is going to be pretty slow, so the 25% growth you have seen outside Mexico—where is that coming from, and just on the product mix? Is most of that still ports and borders, vehicle inspection, or where? I am just trying to figure out if you could parse out, give us a little color on the origin of the growth. Alan Edrick: Larry, this is Alan. Good question. We are seeing growth in a bunch of different areas. First off, geographically, we are seeing most of the growth internationally. As we look forward, with the ending of the DHS shutdown, we foresee the U.S. picking up steam significantly as we enter fiscal 2027. But to date, most of the growth has been driven internationally. And we are seeing it across a wide variety of our areas. We are seeing our service revenues increase nicely. We are seeing our aviation revenues increase nicely. We are seeing our RF revenues increase nicely. And that is predominantly what has driven most of the growth that we are seeing outside of Mexico, as you mentioned. Lawrence Scott Solow: And the RF contract that you got, the Golden Dome contract that you announced—you announced it in April—but was it actually obtained before the end of the quarter? Because that sounds like that order is clearly in the backlog and the book-to-bill for the quarter, correct? Ajay Mehra: Yes. It came in at March. Lawrence Scott Solow: Got it. And I guess you were just delayed because of the government shutdown, or any reason why that release was not put out? Ajay Mehra: Larry, it just takes a little bit of time to go through the various sequences in order to get a press release out and get the appropriate approvals to do so. Lawrence Scott Solow: And just on the government shutdown or delays and whatnot, it sounds like it certainly has impacted your bookings a little bit to date, maybe a little bit more Q4. Has it impacted revenue at all to date? It sounds like maybe no, but there is potential in Q4. Is that what I hear? Ajay Mehra: What I pointed out earlier was yes, it has impacted some bookings, but really it is a timing issue. We think that those bookings—and, like I said, the $1 billion big, beautiful bill—is still sitting there. In Q4, we are hoping things start loosening up over the next few weeks to a few months, and it may have a slight impact, but we will wait and see. Operator: Your next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open. Christopher Glynn: Hey, thanks. Good afternoon. Just wanted to ask about the services revenue. I know it was not going to be totally linear, but it was above 5% growth after having been consistently strong double digits. My understanding, following significant sustained backlog growth for a few years, was that this would probably be a double-digit grower compounding pretty consistently. Is that still an appropriate view, or should we view it as maybe stepping down to a single-digit profile for services going forward? Alan Edrick: Good question. What we saw throughout calendar 2025 for four straight quarters was very strong double-digit growth in service revenues as our installed base increased significantly. In this particular quarter, we had mid-single-digit growth in our service revenue coming off of a more difficult comp, and it also has to do with some of the timing of installations that were done in prior quarters versus this quarter. As we look forward, we continue to expect to see very strong service revenues. There will be certain periods where we will see good double-digit growth; there will be other periods where it is single digit. But overall, we expect to see nice growth in service revenues, which is nice because it inherently carries a higher margin associated with it. Christopher Glynn: Okay. So, Alan, it sounds like you expect, generally over the next year or two, to be outgrowing equipment. Is that right? Alan Edrick: It can be; it all depends. It will vary with the mix and with the strong product revenues we are expected to have as well. Christopher Glynn: On Security margins, you have effectively run down the Mexico revenues you described as very efficient production runs. Should Security be on a pretty consistent margin expansion trajectory from here? Alan Edrick: Our goal in Security is always to couple top-line growth with operating margin expansion, and that is what we look to do over the long term. There will be certain quarters or periods where, based upon the mix of the revenues—particularly the mix of the product revenues—it may not necessarily lead to that end result. But over a longer-term basis, that is absolutely the goal and the intent of the company. Operator: Your next question comes from the line of Josh Nichols with B. Riley. Your line is open. Michael Joshua Nichols: Thanks for taking my question. Great to see the record backlog and book-to-bill yet again. Despite the DHS shutdown, now that that is back open again, are there any specific mechanisms by which the CBP procurement resumes post-shutdown, or do you expect there would be a relatively quick uptick in order activity between now and your fiscal year end in June? Ajay Mehra: I think it is going to be relatively quick—over the next few weeks, maybe some months. But there is really no restriction that we can see that they cannot resume. It is just people coming back in; it takes some time to get everybody working and concentrating on letting out orders instead of where the funding is going to come from. We feel good about it. Over the next few weeks, time will tell, but we are very encouraged that the shutdown is over. Michael Joshua Nichols: I just wanted to touch on two things for my last two-part question. One, this $235 million Homeland Defense contract—I think that is much larger than anyone was anticipating. You touched on Shield. Do you see any other large opportunities within that piece of potential business that you think the company is in a good position to secure? And lastly, Alan, on the $74 million Mexico accounts receivable that you got—how would you characterize the related AR levels today? Ajay Mehra: I will take the first part. We are very happy and proud of this contract we got. It demonstrates our technical expertise. Some of the products we have were well considered by the government and other customers. There are opportunities out there. I am not going to try to quantify them. It is a very new market; we are all looking at it. But by the size of the order and what the future holds, we will wait and see over the next few quarters. It is a great start, and we feel very good about it. Alan Edrick: And on the Mexico receivable, with the recent receipt of the $74 million, it certainly reduces the Mexico receivable balance. That being said, there are ample opportunities for significant cash flow as we collect on this receivable over the coming months and quarters. We would expect the free cash flow conversion to be quite outstanding over the foreseeable future. Michael Joshua Nichols: Appreciate the detail. Thanks, guys. Operator: Your next question comes from the line of Citi. Analyst: Hi. This is Bradley Eister for John. Thanks for taking my question. I just want to take a step back and look bigger picture on the opportunities we are seeing, particularly around airport security demand. I appreciate that you touched upon the potential supply chain challenges given the dynamic macro environment. But in that same school of thought, with reduction of flight capacity to various degrees and concerns over jet fuel cost and availability, I know it is still early days, but have you seen any impact to the demand for these services, or any timing impacts creeping up from this? Ajay Mehra: It is a great question. Overall, after a conflict ends—unfortunately, being in the security business—things tend to pick up. There are some temporary disruptions in the Middle East because of aviation, yes. But we have to look at it from an overall standpoint. As and when this gets put behind us, we think we will see—not just in aviation, but overall—an uptick potential in our business. Analyst: Got it. Appreciate the color. I just want to touch upon the opportunities on Golden Dome and Shield that you are pursuing, more medium to longer term. How would you measure out the competitive landscape here for the RF protection side specifically? Any update you can provide on traction or customer interest would be helpful. Ajay Mehra: We have been talking about it for several quarters. This initial contract has been very good for us. We announced smaller contracts last quarter. We think there is a lot of momentum going forward. There is a limited amount we can talk about because of the type of contracts these are, but we think the future looks good. The timing—we will just have to wait and see. Operator: Your next question comes from the line of Seth Seifman with JPMorgan. Your line is open. Analyst: Hi. Good afternoon. This is Rocco on for Seth. Should we think about the Homeland award and possible similar awards in the future as supporting the longer-term growth in the Opto segment? Should we be thinking about the top-line growth in 2027, following the low double-digit pace this year? Could it be one of the faster growers next year? Ajay Mehra: First of all, this is in the Security segment—the Golden Dome—that is where it falls. On the Opto side, we think that yes, there is room for potential growth as we go forward. There is definitely a movement away from China, and with our capabilities all over the world—not just in Asia, but in Europe and the U.S.—from a manufacturing basis, we provide a lot of flexibility to our customers. We feel good as we move forward. There are always a little bit of ups and downs, but overall, I think Opto is in a good position. Seth Seifman: Great. Thank you. Operator: Once again, everyone, if you would like to ask a question, press star one. Your next question comes from the line of Jeff Martin with ROTH Capital. Your line is open. Jeffrey Michael Martin: Thanks. Good afternoon, Ajay and Alan. Wanted to dive into the RF business a bit more. Are you able to give us the revenue number from that business for the quarter? And then I believe you were ramping up additional production facilities there. Curious where you are today in production capacity relative to the Homeland Defense contract? Ajay Mehra: I will not go through the actual numbers, but we started ramping up the production capabilities and moved into new facilities over the last several months—we made that decision a while ago—and frankly, it looks like a very good decision. We have ramped up that capacity. We keep on ramping it up. We are in a new facility, and we feel good about what we can do and offer the government in terms of being able to turn around product a lot faster than we were able to maybe a year or two ago. Alan Edrick: We were pleased with the revenues in the RF business. I believe it was a new record for us. We did about $38 million in the quarter. So the run rate of that business has significantly increased since the time of acquisition, about eighteen months or so ago. We are very pleased with the trajectory. Jeffrey Michael Martin: That is helpful. Thank you. I know you are not in a position to give any guidance beyond this year, but just curious, qualitatively, how you are thinking about growth and your growth prospects in fiscal 2027 and 2028. Alan Edrick: Good question, and you are right—we will be giving our guidance for fiscal 2027 on our next call in August. That being said, we are optimistic for growth as we move into our new fiscal year just two months from now. We are excited to close out Q4 and fiscal 2026. With the strong backlog and robust opportunity pipeline that we have out there, fiscal 2027 could be a very, very exciting year for us. Jeffrey Michael Martin: Last one for me: you have been a very value-oriented buyer on the M&A front. A lot of those have produced very good returns—the RF business is case in point. Are you seeing other opportunities out there that are similarly interesting? And are there areas from either a market expansion standpoint or a technology expansion standpoint that you are looking at that could move the needle the next couple of years? Ajay Mehra: We are always looking at opportunities. As Alan has pointed out before, we have a lot of dry powder available to us. From a technology standpoint, we want to make sure that one plus one is greater than two—maybe more. There are opportunities, but I do not want to get into specifics. We are always actively looking, but we are not going to do anything unless we feel it really makes a difference from a strategic as well as from a business perspective as we move forward. Jeffrey Michael Martin: Thank you. Operator: There are no further questions at this time. That concludes the Q&A session. Ajay Mehra: Once again, thank you all for attending our conference call. We look forward to speaking with you during our next earnings call following the completion of our fiscal year. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good afternoon and welcome everyone to the BioMarin Pharmaceutical Inc. First Quarter 2026 Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. At this time, I would like to turn the conference over to Traci McCarty, Head of Investor Relations. Please go ahead. Traci McCarty: Thank you, operator. To remind you, this non-confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical Inc., including expectations regarding BioMarin Pharmaceutical Inc.'s financial performance, commercial products, and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin Pharmaceutical Inc.'s product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market, and developments by competitors, and those factors detailed in BioMarin Pharmaceutical Inc.'s filings with the Securities and Exchange Commission, such as 10-Q, 10-Ks, and 8-Ks reports. In addition, we will use non-GAAP financial measures as defined in Regulation G during the call today. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. You can find the related reconciliations to U.S. GAAP in the earnings release and earnings presentation, both of which are now available in the Investor Relations section of our website. Please note that our commentary on today's call will focus on non-GAAP financial measures unless otherwise indicated. Beginning on slide three and introducing BioMarin Pharmaceutical Inc.'s management team, joining today's call are Alexander Hardy, chief executive officer; Brian Mueller, chief financial officer; Cristin Hubbard, chief commercial officer; and Gregory Friberg, chief R&D officer. I will now turn the call over to BioMarin Pharmaceutical Inc.'s President and CEO, Alexander Hardy. Alexander Hardy: Thank you, Traci, and thank you all for joining us today. I am so pleased that we completed the Amicus acquisition last week, starting a new and exciting chapter for BioMarin Pharmaceutical Inc. with the addition of two innovative therapies, Galafold for Fabry disease and Pombility and Opfolda for Pompe disease. The acquisition accelerates our anticipated year-over-year 2026 revenue growth to 20% at the midpoint of today's updated guidance. The strengthening trajectory is just the beginning of BioMarin Pharmaceutical Inc.'s enhanced longer-term financial outlook, supported by our larger, more diversified commercial portfolio. Since announcing our plans to acquire Amicus late last year, we have been preparing for rapid integration beginning on day one, with the goal of increasing the peak potential of these newly added products. Following the recent close of the transaction, we initiated our targeted integration plan focused on leveraging BioMarin Pharmaceutical Inc.'s operating scale and capabilities to drive diagnosis and treatment rates for patients with Fabry disease and late-onset Pompe disease. Next quarter, we plan to share this road map as well as more detail on BioMarin Pharmaceutical Inc.'s growth acceleration with the addition of Galafold and Pombility and Opfolda to our commercial portfolio, DMX-200 for FSGS in phase three to our late-stage pipeline. Turning briefly to first quarter results and outlook for the remainder of this year and starting with Enzyme Therapies, I am pleased with the strong interest we are seeing from the PKU community following the recent Palynziq adolescent label expansion in the United States. With Cristin, who will discuss in more detail, we expect Enzyme Therapies will deliver robust growth in 2026, further supported by the addition of Galafold and Pombility and Opfolda to the portfolio. Moving to our skeletal conditions business unit, we saw strong patient demand for Voxzogo, with new patient starts increasing across all regions in the first quarter. In the U.S., the majority of new patient starts were from the under age two cohort. These results reflect our focused investments in increasing adoption of Voxzogo, particularly among younger patients. Building on our leadership in achondroplasia, we are pleased to have submitted the sNDA for full approval of Voxzogo. We expect to hear the timing of our review in the coming months. I want to congratulate our regulatory team for the outstanding work that went into this comprehensive submission package. We also look forward to pivotal results for Voxzogo in hypochondroplasia and BMN-401 for ENPP1 deficiency, those later in Q2. In summary, we expect 2026 to be a momentous year for BioMarin Pharmaceutical Inc. Our immediate focus remains on the seamless and rapid integration of Amicus to accelerate our growth trajectory this year and beyond, and pursuing regulatory next steps following the two upcoming pivotal data readouts. The addition of Galafold and Pombility and Opfolda to BioMarin Pharmaceutical Inc.'s portfolio of innovative medicines provides an opportunity to reach more patients around the world, creating significant value for all of our stakeholders in the near and longer term. As we enter this next chapter, I would like to express my appreciation to the employees of both BioMarin Pharmaceutical Inc. and Amicus whose dedication forms the foundation of our shared mission to serve patients. Thank you for your attention, and I will now turn the call over to Brian to provide additional financial updates. Brian? Brian Mueller: Thank you, Alexander. Please refer to today's press release for detailed first quarter 2026 results, including reconciliations of GAAP to non-GAAP financial measures. All first quarter results will be available in our upcoming Form 10-Q, which we expect to file in the coming days. Now moving to slide seven. Total revenues in the first quarter were $766 million and increased year over year, supported by increased patient demand across both Enzyme Therapies and Voxzogo. As expected, those organic growth drivers were partly offset by order timing dynamics as well as lower revenue from Roctavian, Kuvan, and royalties. Enzyme Therapies revenue increased 6% year over year, led by growth in Vimizim, Naglazyme, and Brineura. Palynziq's first quarter revenues were impacted by U.S. order timing, which resulted in elevated stocking levels in 2025 as discussed last quarter. We expect this stocking dynamic to normalize and anticipate year-over-year revenue growth for Palynziq in full year 2026 as growth in new patient starts in the 12 to 18-year-old population gains momentum and patients continue to titrate to their maintenance dose. Voxzogo revenue was supported by new patient starts across all regions and in line with the expectations that we shared on our prior quarter earnings call. Looking ahead, due to anticipated order timing and consistent with 2025, we expect Voxzogo revenue to be higher in the second half of 2026 compared to the first half. Cristin will provide more color on commercial dynamics in a moment. Turning now to slide eight. Cost of sales increased year over year in the first quarter primarily due to a $31 million charge associated with an unsuccessful process qualification campaign to extend Naglazyme manufacturing capability. Importantly, this did not impact commercial supply. While this event decreased margins and earnings per share in the first quarter, we expect this charge to be offset in full year 2026 non-GAAP diluted earnings per share guidance. Q1 non-GAAP R&D expense increased year over year primarily due to spend to support BMN-401, our phase three clinical program acquired in the Enzyme Therapies transaction. The 2025 development activities for Voxzogo for hypochondroplasia, BMN-333 for achondroplasia, and BMN-351 for Duchenne muscular dystrophy also contributed to higher year-over-year R&D expense. Non-GAAP SG&A expense also increased, partially driven by investments to support commercial expansion across Enzyme Therapies and Voxzogo, and partially driven by pre-close costs associated with the Amicus acquisition. First quarter non-GAAP diluted earnings per share was $0.76 and was significantly impacted by the drivers of increased operating expense that I just mentioned, as well as the impact of Q1 revenue which we believe will be our lowest quarter of the year. The impact of the cost of sales charge and pre-close costs associated with the Amicus acquisition resulted in a $0.20 earnings per share impact to our non-GAAP earnings per share result. Looking past those elements helps to measure BioMarin Pharmaceutical Inc.'s underlying business performance as well as how this Q1 result fits into our full year earnings per share guidance, which remains unchanged for the historical BioMarin Pharmaceutical Inc. business before layering on the Amicus business. Now moving to slide nine, our updated full year 2026 guidance, which now includes the Amicus financial outlook starting last week. We are raising Enzyme Therapies revenue guidance to a range of $2.725 billion to $2.775 billion for the full year 2026 inclusive of meaningful contributions from Galafold and Pombility and Opfolda, resulting in approximately 30% growth at the midpoint. Adding these high-growth products to our Enzyme Therapies portfolio increases our full year total revenue guidance to a range of $3.825 billion to $3.925 billion, with the midpoint representing approximately 20% year-over-year growth in 2026. For Voxzogo, we are maintaining our revenue guidance of $975 million to $1.025 billion, which continues to reflect high single-digit growth at the midpoint. For non-GAAP diluted earnings per share guidance, we are updating the guidance range to $4.85 to $5.05. As previously communicated, the acquisition of Amicus will be slightly dilutive for the full year 2026. We continue to expect the acquisition to be accretive to non-GAAP diluted earnings per share in the first twelve months after close and substantially accretive beginning in 2027. The Amicus P&L will be incorporated into BioMarin Pharmaceutical Inc.'s financial results as of last week's closing of the transaction. In 2026, we expect to include the base Amicus operating expenses less initial cost synergies anticipated in 2026. As Alexander touched on, now that the transaction is closed, we have engaged more deeply with the Amicus business and plan to share our outlook on both commercial revenues and cost synergies on our next quarterly earnings call. To give some perspective on timing of the updated guidance, we expect order timing for the historical BioMarin Pharmaceutical Inc. products and two full quarters of Galafold and Pombility and Opfolda revenues in the second half of the year to drive significantly higher revenues as compared to the first half of 2026. To provide context, we expect more than 55% of total 2026 revenues to be recognized in the second half of the year. Likewise, on the expected timing of our profitability, we expect Q2 non-GAAP diluted earnings per share to be just modestly higher than Q1, partially due to pre-close Amicus costs incurred in April plus a higher amount of the 2026 Amicus dilution being weighted to the second quarter. Further, the revenue timing weighted to the second half of the year results in most of our expected profitability occurring in Q3 and Q4. These earnings timing dynamics drive approximately two-thirds of our 2026 earnings per share expected in the second half of the year. Briefly on evolving geopolitical uncertainties, we are watching the situation in the Middle East very closely and note that today's guidance reflects an allowance for a modest amount of disruption in that region in 2026. Looking ahead, we look forward to sharing with you our expanded financial outlook, enhanced by the addition of Galafold and Pombility and Opfolda, and setting the stage for accelerated near- and mid-term growth. Thank you for your attention. I will now turn it over to Cristin for a commercial update. Cristin? Cristin Hubbard: Thank you, Brian. We were encouraged by the commercial execution across our portfolio so far this year, with strong patient demand across Enzyme Therapies and Voxzogo. We look forward to providing a more detailed commercial update on our plans to maximize the potential of both Galafold and Pombility and Opfolda next quarter. Our initial priorities therein are focused on driving diagnosis in Fabry and switch in Pompe. This will support increased penetration in countries where Galafold and Pombility and Opfolda are marketed, while we concurrently work on geographic expansion plans for both products. We look forward to updating you on our Q2 call. Now moving to slide 11. I will begin with an update on first quarter 2026 performance starting with Enzyme Therapies. As Brian outlined, Enzyme Therapies delivered 6% year-over-year growth in Q1 led by Vimizim, Naglazyme, and Brineura. Across the Enzyme Therapies portfolio, we continue to see strong patient demand and adherence. Turning to Palynziq, in the first quarter we continued to expand the underlying patient base, and physician engagement remained strong. Importantly, following the FDA approval of Palynziq's age label expansion to those 12 years and older in February, we have successfully launched in this age group and are seeing encouraging early momentum. We have observed broad interest and engagement from caregivers and health care providers treating adolescents during this critical stage of their development. Since approval, we have observed meaningful enrollments and new patient starts in people under 18. From a prescribing standpoint, adolescent uptake is being driven by both physicians with significant experience prescribing Palynziq as well as by clinicians who are newer to the therapy. Recall that it can take a patient many months to titrate up to their maintenance dose of Palynziq, so we would expect to see the results of positive early prescribing over the coming quarters. Palynziq continues to stand alone in its ability to enable people with PKU to reach physiologic Phe levels while reducing dietary restrictions, regardless of severity. With the U.S. adolescent launch underway and European approval expected later this year, we are excited about the impact Palynziq can have for additional families over time. Turning now to Voxzogo on slide 12. As discussed, first quarter results reflected expected order timing dynamics following a strong Q4, particularly in international markets. Importantly, we have observed strong growth in patient additions globally, with the number of children being treated with Voxzogo increasing by more than 20% year over year. With a competitor having recently entered the U.S. market, our focus has remained on executing our strategy, and we continue to see strong momentum. During the first quarter, solid progress continued, supported by ongoing patient additions across all regions and ages, strong adherence and persistence globally, and continued expansion of the prescriber base. Our teams are focused on driving new patient starts across all ages, with an emphasis on children under two years of age, where international consensus guidelines for achondroplasia recommend early diagnosis and treatment with Voxzogo as soon as possible. In the United States, we are encouraged to see that our efforts educating and engaging with caregivers and HCPs are having an impact in the under two-year-old segment. In Q1, over half of new patient starts were from children under age two, a greater proportion compared to last quarter. Additionally, we have seen an approximate 10% decrease in the average age of children initiating Voxzogo treatment in the under two segment, narrowing the window between diagnosis and treatment starts. Internationally, building on our global expansion into 55 countries to date, our strategy remains focused on reaching more patients in regions that have further opportunity and treating infants in countries that already have high penetration rates. With our sNDA for full approval now submitted, we believe the depth and durability of Voxzogo's clinical evidence can be further reinforced, strengthening its role in treatment decisions for infants and children with achondroplasia. At the same time, we are making progress in preparations for potential expansion of Voxzogo into hypochondroplasia. As we get closer to the phase three data and potential launch, our pre-commercialization activities continue to accelerate. Our initiatives in the U.S. are making a difference. More people are being diagnosed at a younger age, diagnosis rates are rising, and more doctors are requesting diagnostic tests. We look forward to the phase three top-line results in the second quarter of 2026 and submitting to global health authorities in the second half of this year, with potential approval in 2027. In summary, we are pleased with the strong patient demand observed across the portfolio with continued momentum in our core business units and a compelling set of near-term opportunities to accelerate growth. With that, I will turn it over to Greg for an R&D update. Greg? Gregory Friberg: Thank you, Cristin. As expected, 2026 is shaping up to be an active year for R&D, and we are looking forward to delivering multiple meaningful milestones. Moving to slide 14, we have built a comprehensive Voxzogo evidence pack that goes well beyond describing annualized growth velocity, highlighting long-term durability and clinically meaningful health outcomes for children with achondroplasia. Recently, at the Pediatric Endocrine Society Annual Meeting, we shared data from three ongoing long-term extension studies that illustrate the sustained benefits of Voxzogo over time. Consistent and cumulative improvements in arm span Z-scores were observed across all age groups over the six to eight years of follow-up as depicted on the left of slide 14. On the right side, you again see consistent and cumulative gains in height and height Z-scores with durable results out to eight years of follow-up. In addition to anatomic measures of benefit, we also presented data demonstrating Voxzogo's favorable impacts on quality-of-life measures. Importantly, these sustained efficacy findings are supported by a robust safety database now comprising more than 10,000 patient-years of exposure, reinforcing Voxzogo's well-established long-term safety profile. Taken together, this extensive body of evidence reinforces Voxzogo's differentiated profile, with no other achondroplasia therapy supported by this level of long-term data with regard to safety, efficacy, and functional outcomes. Importantly, these data span the full pediatric age population, and Voxzogo remains the only therapy approved for use immediately from infancy. This allows for early treatment initiation and enables a long window to positively influence endochondral bone formation and all the potential downstream benefits to health outcomes. Together, these data formed a strong foundation for our full approval submission intended to fulfill our post-marketing requirements, which was submitted to the FDA in April and will afford us the opportunity to share direct evidence of Voxzogo's long-term value with the community via peer-reviewed publications and presentations later this year. Now moving to slide 15. The remainder of 2026 includes several anticipated pipeline updates, including two particularly important pivotal data readouts expected in the second quarter. Starting with hypochondroplasia, we believe the health care provider community is looking forward to a targeted therapy that addresses this skeletal condition, and we are confident in the scientific rationale for Voxzogo in this indication. That confidence is grounded in the strong proof of concept and durability demonstrated in Dr. Dauber's investigator-sponsored study and in the rapid enrollment we observed in our own phase three pivotal trial. We look forward to sharing these phase three top-line results in the second quarter. In parallel, enrollment is progressing very well in our phase two study in children under the age of three, highlighting early interest in Voxzogo as a potential option from infancy in hypochondroplasia. We also expect phase three top-line data for BMN-401 in the second quarter of this year. As a reminder, ENPP1 deficiency is a rare, serious, and progressive genetic condition affecting vascular, skeletal, and soft tissue systems. BMN-401 has the potential to be the first disease-targeted therapy for ENPP1 deficiency. The ENERGY-3 study in children aged one to 12 includes two co-primary endpoints. The first is change from baseline in plasma measured inorganic pyrophosphate through week 52. The second is change in the RGIC, or Rickets Global Impression of Change, after 52 weeks of treatment, assessing improvement in skeletal health. Clinical experience with BMN-401 in older patients has shown that normalization of pyrophosphate is accompanied by improvements in bone mineral biomarkers, functional performance, and patient- and physician-reported outcomes. In addition to these pivotal readouts, I would also like to highlight progress with BMN-333, our long-acting CNP therapy. We are pleased to share that enrollment is underway in our global registrational-enabling phase 2/3 study. We are rapidly progressing this program with the goal of establishing BMN-333 as a potential next-generation standard of care for achondroplasia and potentially for other skeletal conditions. Before closing, I would also like to touch on BMN-351 for Duchenne muscular dystrophy. At the Muscular Dystrophy Association Congress in March, we presented initial data demonstrating dose-dependent increases in dystrophin at week 25 in both the 6 and 9 mg/kg dose cohorts. These findings were accompanied by notable decreases in creatine kinase, a biomarker of muscle injury, and the prevention of functional decline as measured by the North Star assessment and the six-minute walk test when compared to historically matched controls. So far, we are encouraged by both the dystrophin expression levels and the functional improvements observed in our development program. Enrollment in the 12 mg/kg cohort is ongoing, and we look forward to providing an additional update by year end as the program continues to advance. Finally, we would like to thank the patients, families, and caregivers whose commitment continues to make this progress possible. Thank you for your attention today. We will now open the call to your questions. Operator? Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. We will go first to Sean Laaman at Morgan Stanley. Analyst: Hi. This is Mike on for Sean. Thank you for taking our questions. I guess I wanted to touch on two things. First, looking at the recent data at the Pediatric Endocrine Society, can you help to contextualize the benefits you saw on bone mineral content in hypochondroplasia? And how does that maybe inform or influence your expectations heading into the top line? And then just maybe circling back onto the intro comments regarding the integration of Amicus, you alluded to a road map for future growth acceleration. We were just wondering if you could help to comment, specifically for Pombility and Opfolda, what levers you see for driving increased switch rates in that market? Gregory Friberg: Yep. Thanks for the question, Mike. In addition to measuring growth velocity across both achondroplasia historically and hypochondroplasia, we are measuring a variety of factors of health and well-being, bone biology, and bone health. The DEXA scans that were presented in that cumulative data suggest that, in addition to growing bone length and stimulating endochondral bone formation, that bone shows the strength and health we would like to see and reiterates what we have seen in the other FGFR3-related mutation conditions of achondroplasia as well. Going into the card flip for the phase three study, we are certainly excited to see that data. The event is going to occur before the midway point of this year. As we mentioned, it is in the second quarter. We are eager to see those results. The data at PES highlights the fact that hypochondroplasia, while a unique and individual indication as compared to achondroplasia, has related biology that suggests the hypothesis is a strong one. We have seen in Dr. Dauber's data from Children's National that the kind of growth observed would meet the criteria for a statistically significant improvement that our study is developed to measure. With regard to the safety profile, we are not anticipating any unexpected events there as well. So fingers crossed, and we will be updating you all when that data is available. Cristin Hubbard: Thank you so much. This is Cristin Hubbard here. Just having closed last week, I can say we are really excited about the commercial potential of both of these products, both being high-growth products to add to our portfolio. As we have mentioned before, for Galafold specifically, we really think that the biggest growth lever is in and around diagnosis. We know that a large proportion of the amenable patient population remains undiagnosed, and driving diagnosis is exactly where Amicus has really started to build momentum. We feel that, using BioMarin Pharmaceutical Inc.'s capability in this regard, we can really continue to drive that forward. On the Pombility and Opfolda side, that is more about a switching opportunity, and we really think that there is going to be a sizable opportunity here to build over the next few years as patients on their existing therapies begin to progress. We are working on initiatives that Amicus has started, including starting new therapy, looking at patients who have identified their own progression and understanding what progression looks like. That is an area that we are really focused on, not to mention the continued generation of evidence to show the benefits of a switch. These are areas that we feel confident in our capability at BioMarin Pharmaceutical Inc. and are very excited about the future trajectory. We will share more on that on our Q2 call. Tommie Reerink: This is Tommie on for Salveen. Just a quick one on Voxzogo, wondering if you have seen any early signals of different behavior from competitor entry, whether it be switching or in new patients. Thank you. Cristin Hubbard: Thank you for the question. As you heard in our prepared comments, our demand in the first quarter remains strong. Our enrollments in Q1 exceeded the average of the second half last year, and that trend continued into April. We are very much focused on the zero to two population based on the consensus guidelines. We are seeing real momentum there. Not only were more than half of new patient starts in that zero to two population in the first quarter, but we are also seeing a reduction in the time from diagnosis to treatment in that population, reduced by 10% already. We know that focus is working. In addition, we are focused on the patients who are already on treatment and making sure that those patients who are doing well on treatment understand the totality of the evidence that exists for Voxzogo and continue to have a positive experience in terms of benefit. We are very pleased with how Q1 went and look forward to continuing on that trajectory. Paul Andrew Matteis: Great. Thanks so much for taking my question. Just kind of previewing your update next quarter as it relates to the Amicus integration. Was wondering if you could set the stage for us on what you might be providing as it relates to the duration of the revenue outlook. Would you talk about peak sales at all or update those views or anything else? And then secondarily, anything you can do on setting the stage on our expectations related to accretion, synergies, and again, the duration of profitability outlook as well? Thank you. Brian Mueller: Hi, Paul. Thanks. We wanted to highlight today, having just closed the transaction a week ago, a brief update on the integration to date, which is going well, and you saw the update of our revenue guidance today adding our expected range of the eight months of Amicus revenues resulting in a $500 million midpoint and the updated guidance, which is 20% year over year. We also wanted to set the stage for the Q2 update. At transaction announcement, we discussed how the strategic fit between these two businesses was very strong and that, because of the global commercial and medical capabilities BioMarin Pharmaceutical Inc. built over time in our existing portfolio, these two medicines should truly have more potential within BioMarin Pharmaceutical Inc. That was a key rationale underlying the transaction, and we have been making plans up to this point of closing. Now that we have closed, we are digging in and engaging more deeply with the Amicus business. That is why we are going to wait until Q2 to give this additional update, but it will include a number of details and metrics about the long-term potential, including our views on peak revenue. Just a reminder, based on our due diligence at the time of announcement of the transaction, we reiterated what Amicus had shared with respect to peak revenue potential of roughly $1 billion each for Galafold and Pombility and Opfolda. As we develop the long-term business plans and strategies to expand both of these medicines, we think that has some potential to be higher. We will share key metrics and tactics in terms of how we expect to achieve that potential. Stay tuned, and we will look forward to sharing more in Q2. That will include other financial elements as well, such as synergies, long-term profitability, and accretion. For today, we are reaffirming our previous expectation that, while as you saw in the EPS guide today, the Amicus acquisition is slightly dilutive to calendar 2026, it will be accretive for the first twelve months following closing and then substantially accretive beginning full year 2027. We are off to a strong start. Jasmine Fels: Hi. This is Jasmine on for Ellie. Thank you so much for taking our question. For Voxzogo in hypochondroplasia, what is the latest on what you are thinking will be good data and what you are looking to see on AGV? Also, how are you thinking about the contribution to Voxzogo revenues from hypochondroplasia next year? What do you think the cadence of uptake will be in this population? And can you talk a little bit about your commercial preparations? Gregory Friberg: Thanks, Jasmine. With regard to the VOX-HCH study, we will be looking at the data in the second quarter of this year and absolutely look forward to that. Success is a statistically significant improvement in growth as compared to the control arm. We are measuring a variety of other measures, including other anthropometric measures, as well as the safety profile. Any statistically positive improvement in growth is a win for these patients. We have seen pretty dramatic accelerations of recruitment both for the older children and, as mentioned in the prepared remarks, the infants on our hypochondroplasia study, suggesting that this is a market that is hungry for a disease-targeted therapy. The biology is significantly similar to that of achondroplasia with regard to the mutation that drives this condition, and built upon the data that Dr. Dauber has seen, we are excited to see the end results. I think there was a question also about the marketplace, and I will hand that one off to Cristin. Cristin Hubbard: Thank you. Overall, our goal is to continue the growth of Voxzogo, and hypochondroplasia provides an important component of that. Our pre-launch activities are focused on diagnosis. We have shared before that the total addressable patient population globally is at 14,000, and that assumes that we can continue to drive diagnosis and awareness of this condition. Our goal prior to launch is increasing the number of hypochondroplasia patients that have been identified, getting physicians to understand the genetic testing, and making sure they are ordering it, with the aim of diagnosing patients at a much earlier age so they are identified at the time of a potential launch. Gregory Friberg: From the medical affairs standpoint, we are actively working in the community, even prior to seeing our data, to accelerate the number of patients diagnosed with this condition. There are three prongs: getting patients referred sooner to be evaluated; enabling testing; and doing work on the genetic side to reclassify so-called VUSs, variants of uncertain significance. We anticipate there will be patients available and ready for this therapy should it become available. Cristin Hubbard: On the success we have had already with the diagnosis program and non–pre-launch activities, we are seeing a 90% increase in the number of hypochondroplasia patients identified, as well as a 70% reduction in the age at diagnosis. Those are precisely the types of numbers that we are driving for and want to continue throughout our launch period. Cory William Kasimov: This is Adi on for Cory. I had a question on the guidance increase. The $500 million midpoint increase in guidance—can you frame the contribution from Galafold and Opfolda? Is that conservative relative to the $600 million revenue they generated in fiscal year 2025? What are the key assumptions for adding these two assets into the guidance? Brian Mueller: Hi, Adi. Thanks for the question. The $500 million represents a midpoint of a range that fits within the range of our existing Enzyme Therapies guide for 2026, and, from a timing standpoint, represents mostly the eight months remaining from May to December for this year. On conservatism, I would say it is neither conservative nor aggressive—realistic. We analyzed the unreported period of Amicus product revenue from January through April, and when we looked at that versus consensus, January through April performance, while not reported, was ahead of consensus. Both Galafold and Pombility together are off to a strong start in 2026. We will come back next quarter with additional color, including the long-term potential. Since you commented on the $600 million reported for 2025, the range underlying today's update from an Amicus organic year-over-year growth rate standpoint ranges from the high teens to the low 20s. It is really healthy growth, and we are excited these assets are now part of our portfolio. You see the 30% increase year over year in Enzyme Therapies as a result of layering this onto BioMarin Pharmaceutical Inc., and total revenue growth of 20% at the midpoint. We will share more going forward. Analyst: This is Jose on for Jess. Thanks for taking our questions. How should we think about the adoption of Voxzogo in hypochondroplasia relative to achondroplasia? What do you see as the similarities and differences between these markets? And second, can you help us bridge the disconnect between the 20% year-over-year patient growth in Q1 versus a 3% revenue growth? Is it entirely explained by larger orders in the fourth quarter last year? Thank you. Cristin Hubbard: I think we can consider adoption to be similar to that of achondroplasia, but, as mentioned earlier, what is most important is ensuring disease awareness, urgency to treat, and diagnosis. We believe this is what accelerates the adoption curve. Our intention has been to drive as much of that so that we have patients identified at the time of a potential launch in the beginning of 2027 and importantly to continue that momentum, because that ultimately will drive the shape of the adoption curve. Gregory Friberg: From a medical standpoint, hypochondroplasia children are not born with the same growth deficit that achondroplasia patients may be born with. As a result, they often are referred and diagnosed a bit later. Shrinking the age at diagnosis is a real positive sign that the work we are doing to get these children in the hands of the right physicians is effective. We are looking forward to continuing to help shape that community and make these therapies, should they become available, actually in the hands of the physicians who treat the patients. Brian Mueller: Thanks for the revenue timing question. It is important to emphasize that the disconnect between the underlying patient demand growth and reported revenues is entirely order timing. There are a couple of layers to that, both of which we discussed last quarter. One was large international orders that were processed in Q4 that did not recur in Q1. The second was a modest amount of U.S. stocking impact from Q4 to Q1. This affected both Palynziq and Voxzogo. It was enough to show up as variance in the quarter-over-quarter revenue. This is why we emphasized the underlying patient demand growth. There are no significant price drivers—this is entirely an order timing dynamic. Philip Nadeau: Good afternoon. Thanks for taking our questions. Two from us. First, could you give an update on the ITC hearing and, in particular, your thoughts on the ITC pretrial brief that was recently posted online? Second, in the press release, there is a note that there will be some data from BMN-333's phase 2/3 trial in 2027. Could you provide a bit more detail around what data will be released at that time? Alexander Hardy: Thanks very much, Phil. Overall, we believe that seeking an exclusion order at the ITC and enforcing our IP is the most expeditious way to protect our IP in the United States. We recently completed the ITC evidentiary hearing, and post-hearing briefs are now being submitted to the presiding Chief Administrative Law Judge. We expect to receive a decision on whether Ascendis' product infringes our patent on or about August 21. If the full Commission decides to review the decision, then the final decision is expected on or about December 21. On completion of the ITC process, we would expect to also enforce our patent in the federal district court, where monetary damages are available. Gregory Friberg: Thanks for the question about BMN-333. As a reminder, this is our long-acting CNP analog to release continuous, potentially higher AUC exposures of CNP when administered on a weekly basis. In our phase one, we saw over 10x increases in the AUC levels achieved safely in healthy volunteers. We have recently initiated our phase 2/3 study in children with achondroplasia. This is a multiregional clinical trial currently open in a variety of countries around the world, and we are enrolling as we speak. Our goal is to run the phase two portion where one of three doses of BMN-333 will be administered to children, and there will be one arm that has Voxzogo as well. There is no placebo in this study. In 2027, we will report annualized growth velocity at the six-month time point and use that data, along with other anthropometric measures and safety and well-being, to make a decision—based on a Bayesian analysis—of which dose to bring forward into a phase three to run head-to-head against Voxzogo, looking for a superiority profile in AGV, with the presumption that more AGV will drive more improvements in the measurements of health and wellness that we all are familiar with. Christopher Raymond: Thanks. Just a question on the pivotal trial for BMN-333. I know this has come up before, but I want to ask in a more pointed way about the decision to go with a superiority trial versus noninferiority. I think I have heard what you have said around BMN-333 providing two to three times free CNP and that should translate into higher efficacy, but maybe just strategically, if a noninferiority trial could show that data, why take the risk and run a superiority study? Thanks. Gregory Friberg: Thanks for the question. Our goal with BMN-333 is to evolve this space, not just make a more convenient version of Voxzogo. That 3x target was an at least 3x. We are actually testing approximately 3x, 5x, and greater than 7x AUC exposure. We believe strongly that BMN-333 is the right reagent to test this hypothesis. From a noninferiority standpoint, it is a natural question to ask if it would be easier, but from a mathematical standpoint, it is actually much harder, and the study would be upwards of 10 times the size in order to show noninferiority versus a drug like Voxzogo. There is a practicality of designing the study. We will have an opportunity to look at the data after our phase two portion, and if there need to be adjustments, the Bayesian model gives us an update that could prompt reevaluation. That said, we are very clear with what we want out of this molecule: a superior CNP product that can be the cornerstone for future therapies for achondroplasia. Alexander Hardy: I would just add, as Greg said, we think the opportunity and the need here is around superiority in efficacy—AGV and benefits beyond linear growth. Also, by this study design, we have an active control with Voxzogo. So the size of the study is smaller than it would be if it were a noninferiority design, as Greg has covered. We also think the proposition to both caregivers and physicians makes this a study that is very attractive to potential patients to enroll in, which supports speed of recruitment—extremely important for achieving milestones. Gregory Friberg: Placebo-controlled studies, when there are active, safe, and effective therapies, are no longer really possible to run, nor is it the right thing to do. Analyst: Great. This is Chen Shui for Mohit. Thank you for taking our question. We just want to double-click on the competitive landscape a bit. Competitors are advancing their weekly CNP analog together with growth hormone, potentially reporting a higher AGV. How should we think about BioMarin Pharmaceutical Inc.'s view of the evolving treatment landscape and the role that BMN-333 could potentially play over time? Thank you. Gregory Friberg: Thanks for the question. The data in combination with growth hormone, of which we have seen about 12 months, does show in early studies that there is potentially additional growth by adding a second agent. But it is early days for the combination. Growth hormone has been around for quite a while, and in achondroplasia, it is only approved in one market that I am aware of—that is Japan. The reason is that growth stimulated with growth hormone ultimately has not historically resulted in increases in final adult height. It is growth that gets uncorked but at the expense of potentially closing the growth plates earlier, and that remains an open question. We need to see data at two to three years or more, not only to see safety—growth hormone, while it has a manageable safety profile, has its own set of challenges that need to be monitored by a physician—but also to see whether those gains are long-standing. We are watching this closely. If there are opportunities and levers that can help CNP do its job better, we will evaluate those at the right time and place. We do not feel that is the correct time right now, and we are interested in seeing additional data before the paradigm shifts. This is consistent with what we have heard from many of our stakeholders as well. Joseph Schwartz: Great. Thanks very much. I was wondering if we could get more perspective on your guidance raise for the Enzyme Therapies business. We see it increase by $500 million, and we estimate that Amicus generated around $450 million in revenue for Galafold and Pombility in the comparable eight months last year. That implies low double-digit growth around 11%, I think. But I heard you reference high double-digit percent growth, Brian. Can you help us reconcile that difference? Thanks. Brian Mueller: Thanks, Joe. I would attribute the reconciliation difference to two elements. One, by doing a pro rata eight months of 2025, there are missing variables and a lack of precision—you cannot do a strict apples-to-apples comparison. Secondly, on a full-year basis, I pointed to the strong performance for the first four months of the year for both Galafold and Pombility and Opfolda. While not reported—this is internal management data—we thought it was important to add color to the full year. It is more important to compare the full-year annual cycle year over year. When we piece together the range implied today over the full-year $634 million that Amicus reported for 2025, we have a range of high teens to low 20s. I encourage you to anchor to that rather than trying to calculate intra-quarter math. Jason Matthew Gerberry: Alex, just to follow up on the ITC question. Do you have any knowledge of Ascendis' ability to do a manufacturing workaround, and can you help us think through scenarios if you get a positive ruling? Could a decision be stayed pending any appeals? And then, as a follow-up on Pombility, I believe you have inherited the asset basically launched into 15 country markets, and the goal is to get it into 80 country markets. How should we think about the phasing of that now that you have the asset, either 2026 or 2027? Thanks. Alexander Hardy: Thanks very much for the questions. Unfortunately, I am not going to share any details of the ITC potential scenarios around it. I hope you can understand that we do not want to get into specifics, especially while the case is pending. I will hand it over now to Cristin for the second part. Cristin Hubbard: Thank you for the question around Pombility. You are correct that currently we are reimbursed in 15 countries. Before the transaction was closed, we were doing deep-dive discovery sessions, looking at the business in each market for both Galafold and Pombility, understanding the dynamics therein, and then looking at our 80-country footprint to identify where the potential and opportunity would be. We are identifying opportunities for both Galafold and Pombility. Given that Pombility is much earlier in its launch trajectory, you can imagine that there will be a larger number of countries to look at there. It is important to note that we are not necessarily going to put it into our entire 80-country footprint, but will look at where we believe the potential opportunities are and then have a cadence to that which we will share more of on the Q2 call. Operator: And that concludes the Q&A session. I will now turn the conference back over to BioMarin Pharmaceutical Inc.'s CEO, Alexander Hardy, for closing remarks. Alexander Hardy: Thank you, operator, and thank you all for joining us today. This quarter marks an important inflection point for BioMarin Pharmaceutical Inc., with the recent close of the Amicus acquisition expanding our commercial reach, strengthening our 2026 revenue growth outlook to 20%, and enhancing our ability to serve more patients globally. We are encouraged by the robust patient demand observed across our portfolio. In Enzyme Therapies, we anticipate that the momentum from the Palynziq launch in adolescents will continue to build. With Voxzogo, a consistent rise in new patient initiations—more than 20% year over year in Q1—especially among younger children, demonstrates confidence in its long-term safety and efficacy and highlights the importance of starting treatment as early as possible. With the integration of Amicus now well underway and several near-term catalysts ahead, including pipeline readouts, we are focused on translating this momentum into accelerated growth, broader patient impact, and meaningful value creation. We appreciate your continued support and look forward to updating you next quarter. Thank you. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. Welcome to Matson, Inc.’s First Quarter 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode with a question-and-answer session to follow. To ask a question during this session, you will need to press 1 1 on your telephone. If your question has been answered and you would like to remove yourself from the queue, simply press 1 1 again. As a reminder, today’s program is being recorded. I would now like to introduce your host for today’s program, Justin Schoenberg, Director of Investor Relations and Corporate Development. Please go ahead, sir. Justin Schoenberg: Thank you. Joining me on the call today are Matthew J. Cox, Chairman and Chief Executive Officer, and Joel M. Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at matson.com under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections, or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, presentation slides, and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption “Risk Factors” on pages 12 to 23 of Form 10-Ks filed on 02/27/2026, and in our subsequent filings with the SEC. Please also note that the date of this conference call is 05/04/2026, and any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. I will now turn the call over to Matthew J. Cox. Matthew J. Cox: Thanks, Justin, and thanks to those on the call. Starting on slide three, in the first quarter 2026, Ocean Transportation operating income exceeded our expectations primarily due to higher freight demand post-Lunar New Year in our China service. In our domestic trade lanes, we saw lower year-over-year volume in Hawaii and Alaska. In Logistics, operating income was lower year over year primarily due to a lower contribution from supply chain management. To date, the Iran conflict has not impacted our operating performance or service levels; however, it has impacted fuel prices in all our markets. While we have effective mechanisms to recover the cost of fuel by the end of the year, for the second quarter, we expect a negative impact from the lag in the recovery of fuel costs. I will go into more detail later in the presentation on the effects of fuel prices and our recovery mechanisms. Lastly, we are raising our full-year outlook for consolidated operating income and now expect to modestly exceed the level achieved in 2025. The primary driver behind raising outlook for consolidated operating income is the strengthening of freight demand in our China service post-Lunar New Year that we expect now to continue through peak season. Joel will go into more detail on the outlook later in the presentation. I will now go through the first quarter performance in our trade lanes, SSAT, and Logistics, so please turn to the next slide. In our Hawaii service, container volume for the first quarter decreased 5.6% year over year primarily due to lower general demand and the drydocking of a competitor’s vessel in the year-ago period. For the full year 2026, we expect volume to be comparable to the level achieved in 2025 reflecting similar economic conditions in Hawaii and stable market share. Please turn to slide five. According to UHERO’s February economic report, Hawaii’s economy is expected to experience modest growth supported by construction activity, while tourism remains soft and inflationary pressures persist. Construction continues to be a bright spot for the labor market with a high level of public and private building activity, including the rebuilding of Maui. Regarding tourism, the outlook for international visitors remains weak, offsetting modest growth in domestic tourist arrivals. Lastly, inflation remains elevated and may continue to weigh on discretionary spending and overall demand. Moving on to our China service on slide six. Matson, Inc.’s volume in the first quarter 2026 was 9.5% lower year over year primarily due to lower general demand. As we noted on the fourth quarter earnings call, we expected volume in the first quarter to be lower than the prior year as we return to a more traditional Lunar New Year freight cycle. Please turn to slide seven for additional commentary on current business trends. In the first quarter, we did not see a traditional bump in demand prior to Lunar New Year. Post-holiday, the freight demand exceeded our expectation and was driven by higher demand across several of our key market segments such as e-commerce, e-goods, and garments. We saw continued air-to-ocean freight conversions, and further growth and penetration into Southeast Asia ports. E-commerce from South China continues to be a solid recurring contributor to volume demand. E-goods volume picked up post-holiday due to strong demand for data center servers and racks and has continued into the second quarter. With respect to air-to-ocean freight conversions, we have benefited from elevated freight costs and reduced air cargo capacity in select markets. In the first quarter 2026, we saw strong volume from our feeder network in North and South Vietnam and Thailand. Our Thailand feeder service, commenced operations in late December 2025, has received positive feedback and has exceeded our expectations to date on volume. Overall, the uptick in freight demand we saw post-Lunar New Year has continued to build in the second quarter as demand strengthens and volumes return to a more traditional seasonal pattern. With increasing demand, we remain focused on maximizing the yield on every sailing out of Shanghai and our freight rates remain at healthy levels. As a result, we expect second quarter 2026 container volume to be higher compared to the prior-year period, which included a market decline in transpacific demand due to the tariffs imposed in April 2025. As a reminder, our container volume declined 30% last April before recovering in May and June. Encouragingly, conditions are more stable today. For the full year 2026, we expect container volume to be moderately higher than the level achieved in 2025 as we expect the demand strength in the second quarter to continue through peak season. Please turn to the next slide. In our Guam service, Matson, Inc.’s container volume in the first quarter 2026 was flat year over year. In the near term, we expect Guam’s economy to remain stable. As such, for the full year 2026, we expect container volume to be comparable to the level achieved last year. Please turn to the next slide. In our Alaska service, Matson, Inc.’s container volume in the first quarter 2026 decreased 2% year over year. The decrease was primarily due to lower general demand partially offset by an additional northbound sailing and an additional AAX sailing compared to the year-ago period. In the near term, we expect continued economic growth in Alaska, supported by a low unemployment rate, job growth, and continued oil and gas exploration and production activity. As such, for full year 2026, we expect container volume to be comparable to the level achieved last year. Please turn to slide 10. In the first quarter, our SSAT terminal joint venture contributed $5 million, representing a year-over-year decrease of $1.6 million. The decrease was primarily due to lower lift volume. For the full year 2026, we expect the contribution from SSAT to be lower than the $32.5 million achieved in full year 2025. Turning now to Logistics on slide 11. Operating income in the first quarter came in at $6.8 million, or $1.7 million lower than the result in the year-ago period. The decrease was primarily due to lower contribution from supply chain management. For full year 2026, we expect operating income to approach the level achieved in full year 2025. Please turn to the next slide. Before I turn the call over to Joel for a review of our financial performance, I would like to share a few thoughts on the recent volatility in fuel attributed to the Iran conflict. We expect fuel price volatility to impact our near-term earnings due to a timing lag between when we incur fuel costs and when we can fully recover these costs through our fuel surcharge. These mechanisms are very effective at recovering the cost of fuel over time. Historically, in our maritime business, we have been successful in recouping the cost of fuel within any calendar year, although fluctuations can occur between quarters. In the first quarter of this year, the impact was not material as we experienced escalating fuel prices only during the last few weeks of the quarter. For the second quarter, we expect a lag in the recovery of fuel costs, but we expect to fully recover our fuel costs by the end of the year with most of that occurring in the third quarter. These expectations regarding the impact of fuel costs and the recoverability of these costs have been factored into our outlook. And with that, I will now turn the call over to my partner, Joel. Joel M. Wine: Okay. Thanks, Matt. Please turn to slide 13 for a review of our financial results. For the first quarter, consolidated operating income decreased $20.7 million year over year to $61.4 million, with Ocean Transportation decreasing $19 million and Logistics declining $1.7 million. The decrease in Ocean Transportation operating income in the first quarter was primarily due to a lower contribution from our China service. The decrease in Logistics operating income was primarily due to a lower contribution from supply chain management. We had interest income of $6.1 million in the quarter compared to $9.4 million in the same period last year. The effective tax rate in the quarter was 16.6% compared to 21.6% in the year-ago period. Our tax rate was lower year over year due to a discrete tax item that reduced taxable income. Given the lower income level in the quarter relative to the other quarterly periods in the year, discrete tax items can have a more pronounced impact on our effective tax rate in the quarter. In the first quarter 2026, net income and diluted earnings per share were $56.6 million and $[inaudible], respectively. Diluted weighted shares outstanding decreased 7.8% year over year. Please turn to the next slide. We continue to generate strong cash flows. For the trailing twelve months, we generated cash flow from operations of $552.1 million. We returned capital in the form of dividends and share repurchases of $333.8 million, and we had maintenance CapEx of $150.9 million. Our cash flow from operations exceeded the aggregate spend on maintenance CapEx, dividends, and share repurchases by $61.4 million. Please turn to slide 15 for a summary of our share repurchase program and balance sheet. During the first quarter, we repurchased approximately 400 thousand shares for a total of $54.4 million. Since we initiated our share repurchase program in August 2021, through March, we have repurchased approximately 14.2 million shares, or 32.7% of our stock, for a total cost of approximately $1.3 billion. On 04/23/2026, we announced the addition of 3 million shares to our existing share repurchase authorization. As we have said before, share repurchases are an important component of our capital allocation strategy, and this increase allows us to continue to be steady buyers of our shares in the absence of any large organic or inorganic growth investment opportunities. Turning to our debt levels, our total debt at the end of the first quarter was $351.1 million, a reduction of $10.1 million from the end of 2025. With that, let me now turn to slide 16 and walk through our outlook for 2026 at the top of the page. Based on the outlook trends Matt mentioned earlier, we expect Ocean Transportation operating income to be approximately $20 million higher than the $98.6 million achieved in 2025. We also expect Logistics operating income to approach the $14.4 million achieved in 2025. As such, we expect consolidated operating income in the second quarter to be approximately $20 million higher than the prior year, which includes the negative impact we expect from the lag in the recovery of fuel costs that Matt mentioned earlier. On the bottom half of the slide, we have our expectations for full year 2026. Starting with Ocean Transportation, we now expect year-over-year operating income to modestly exceed the level achieved in the prior year. The strengthening of freight demand in our China service post-Lunar New Year and our expectation that this demand strength continues through peak season is the primary driver behind our raise in outlook. For Logistics, we expect operating income to approach the level achieved in the prior year. As a result, we now expect consolidated operating income to modestly exceed the level achieved in the prior year. Our full-year outlook includes the expectation that we are able to recover fuel costs by the end of the year with most of the recovery occurring in the third quarter. We also expect a more normal operating seasonality pattern with consolidated operating income in the second and third quarters being the strongest relative to the first and fourth quarters. In addition to this full-year operating income outlook, we expect the following for the full year: depreciation and amortization to approximate $210 million inclusive of approximately $35 million for drydocking amortization; interest income to be approximately $16 million; interest expense to be approximately $6 million; other income to be approximately $7 million; an effective tax rate of approximately 21%; and drydocking payments of approximately $45 million. Moving to slide 17, the table on the slide shows our CapEx projections for the full year 2026. Our range for maintenance and other capital expenditures is unchanged at $150 million to $170 million for full year 2026. Our estimate for expected new vessel construction milestone payments and related costs for full year 2026 is $400 million. As of March 31, we had cash and cash equivalents of approximately $100 million and had approximately $522 million in our capital construction fund. Our CCF covers approximately 93% of our remaining milestone payment obligations, and when combined with our balance sheet cash, exceeds our remaining financial obligations. We continue to be in a great funding position on the new build program. Lastly, our targeted build schedule remains unchanged. In the first quarter, we made a milestone payment of approximately $16 million from the CCF. Looking ahead, we expect to make approximately $213 million of milestone payments in the second quarter. And then in the third and fourth quarters, we expect to make milestone payments of approximately $34 million and $110 million, respectively. With that, let me turn the call back over to Matt for closing remarks. Matthew J. Cox: Thanks, Joel. Please turn to slide 18 where I will go through some closing thoughts. We continue to navigate a period of geopolitical tension and uncertainty. While we have experienced higher fuel prices, we are confident in our ability to fully recover our increased fuel costs. Our focus remains on what we can control, which is to put our customers first, maintain operational excellence, and uphold our high standard of service. We remain confident in the demand consistency of our businesses because of our focus on serving niche markets where we are an integral part of the supply chain. In our domestic trade lanes, we provide a vital lifeline to the communities we serve. And in our China service, our value proposition is differentiated based on speed, reliability, and schedule integrity. Building on these strengths, we have successfully moved with our customers into Southeast Asia markets to extend our geographic reach and diversify our origination ports. Our China service has also become an important means for our e-commerce customers to meet the increasing consumer demand in the U.S., and we continue to expect e-commerce to be a long-term driver of growth for our CLX and MAX services. Lastly, we remain disciplined in our return of capital to shareholders. In the absence of sizable growth projects or acquisitions, we expect to continue to return excess cash to shareholders. As Joel mentioned and we recently announced, we added 3 million shares to our authorization to repurchase stock. We will now open the call for questions. I will turn the call back to the operator. Operator: Certainly. Our first question for today comes from the line of Jacob Gregory Lacks from Wolfe Research. Your question, please. Jacob Gregory Lacks: Hey, Matt. Hey, Joel. Thanks for your time. You mentioned that you expect demand strength to continue through peak season. Last year was a little bit unique with the MAX service below 100% utilization during peak. Do you think you can get back toward more full ships this year as we move into the third quarter? And as I look at air freight versus ocean freight, air tends to be a lot more fuel intensive. Are you seeing more shippers look to convert freight to your service the longer this high fuel price environment persists? To the extent we start seeing some jet fuel shortages in Asia, could that accelerate volume growth from some of the non-China geographies? And lastly, can you give us a sense of how much the fuel lag headwind you are expecting in the second quarter is? I know it is volatile, but any quantitative color would be helpful. As you get into the third quarter, could you even over-recover given the investments you have made in scrubbers and LNG, or is this really a true pass-through? Matthew J. Cox: Yes, I do, Jake. I think we said at the beginning of the year, and we continue to see it as it is unfolding in front of us, a more traditional cycle in the China trades—meaning a post-Lunar New Year slow build to the second and third quarter with full or nearly full ships as we have traditionally seen. We have vessels that are slightly different sizes, but we expect to be full or nearly full in the second and third quarters as we build into the traditional peak season. We expect it to remain busy until the traditional October pattern into the Lunar New Year. Overall, we expect to end up above where we did last year, and we are at a point where we feel like we are going to exceed last year’s marks. On the air-to-ocean conversion, you are right. Although we have been mentioning air freight conversion for the last couple of years given this expedited space that we created, there has been a long-term trend with periods where that growth would go up or go down. We think we are entering a period where we are going to see more air freight conversions, some of which will be temporary and some of which will continue to convert. The longer that energy prices and availability are issues, the more the air freight markets are dislocated, especially in places where they primarily import their jet fuel. While we have not seen significant impacts yet, we are seeing, both from a price standpoint and a potential availability standpoint, a lot of passenger airlines cancel flights or cancel marginally profitable flights. That is happening all over the world, including in the U.S., although that is not our core market. Just a reminder that 50% of air freight flies in the bellies of passenger planes. So we see it as a tailwind rather than a huge catalyst. Our ships are likely to be in a more traditional peak cycle—nearly full—so I think it will be helpful as a tailwind. Regarding the near-term fuel lag, we are not exactly sure where we will end up given the volatility, and it is not central to our story. We remain highly confident in our ability to recover fuel for the year. The first quarter had very little impact because prices escalated late in the quarter and we consume fuel over longer voyages. We think the impact will primarily be felt in the second quarter, and we are highly confident that we will be able to recover that in the second half of the year. There is not a margin erosion story. Our second quarter guide is inclusive of the amounts we are contemplating, but we would rather stay away from point-specific items. I will let Joel address the recovery mechanics. Joel M. Wine: If it is fuel-related items, we will put them in the recovery basket, Jake. For instance, for a scrubber—which we have not done recently, but we did many years ago—that is a fuel-related item that allows us to purchase fuel at lower cost. It is part of the overall equation. So if something is very specific to fuel, then yes, that goes into our overall recovery basket. Operator: Thank you. Our next question comes from the line of Analyst from Stephens Inc. Your question, please. Analyst: Hey, thanks for taking the question. You previously disclosed transshipment mix around 20% of CLX and MAX. Was there any change in that figure in the first quarter? And then any regions in particular that made you more optimistic on near-term growth? As a follow-up, on the China service, last year was really volatile with a lot of changes in trade. How would you describe overall hesitancy on China trade as we move through the year among customers? And then on the competitive backdrop within expedited ocean, have you seen any increase in blank sailings or capacity losses as competitors had less confidence on the trade backdrop with China? Matthew J. Cox: I think the 20% we previously cited—we are in the 20% to 25% range—and we expect to continue to be in that range as we grow both our China origins and our Southeast Asia origins as we look toward filling our ships into the more traditional peak season. We do expect our customers to continue to move some of their manufacturing base out of China, although we continue to believe that China will remain an important element of our story and remain an important part of the world’s productive capability for manufacturing products. Could we go up from the 20% to 25%? Sure, it is possible. Importantly, it allows us to move with our customers as they relocate their plants. We are a trusted supply chain partner, and they have confidence in us, so we will continue to move as our customers move. On hesitancy, customers are looking at producing their products from an all-in standpoint—including tariffs and transportation charges—to meet their retailing needs. There are a lot of factors, but our view, embedded in our commentary, is that while there will be moments where tariff issues pop up, in our world we think that tariff uncertainties are largely behind us. President Xi and President Trump will be meeting in a few weeks. We are optimistic that we are past the period like last fall where there was significant uncertainty. Regarding the expedited ocean competitive backdrop, on the broader generic ocean side we are seeing relatively good utilization. There are small roll pools. The ocean carriers are trying to get ocean freight rates up. Many of them have significant increases in fuel and other costs and are seeking to raise rates in part to recover those costs. I would call the broader generic ocean market orderly. For the second-tier expedited carriers, we have not seen dramatic changes in capabilities. We have not seen significant cancellations of sailings. The market for that secondary carrier set—there are three or four of them that vie for that space—has been relatively similar. Our belief was and continues to be that if we remain the fastest and second fastest—CLX and MAX—we will get the lion’s share of the expedited market, and that continues to be true now. Operator: Thank you. Our next question comes from the line of Analyst from JPMorgan. Your question, please. Analyst: Hello everyone. Your second quarter Ocean Transportation operating income guidance is $20 million up year over year. Which services or customer segments are driving this growth, and what are the key risks to achieving it? And if you could share some more color on Hawaii and Alaska demand and economic conditions, especially regarding tourism and construction and energy—and again, what risks do you see for 2026? Lastly, the Logistics segment operating income declined in the first quarter. What specific actions are you taking to drive recovery in the second quarter and beyond, and what is your outlook for the rest of the year? Joel M. Wine: Thanks. The primary driver to that increase is the continued strength in our China trade post-Lunar New Year that we talked about. Our domestic businesses we expect to hang in there on a relatively similar basis year over year. So the primary uptick is really the China trade and the demand drivers in some of our core segments that Matt talked about earlier—e-commerce, e-goods, garments—returning to a more normal traditional demand in the second quarter compared to last year’s second quarter, which had a lot of tariff impacts on it. The risks would be a dislocation—tariffs reenacted or other shocks to the system. Absent a shock that would impact consumer demand or direct trade relationships, we expect it to be a relatively orderly, demand-driven second quarter, which is how we expect it to be up year over year. On Hawaii, the bright spot is construction. There has been more construction activity, fairly consistent for a year to a year and a half, and we see that driving some demand in 2026. It has not been enough to really buoy the economy in a meaningful way because tourism has been sluggish. U.S. tourism to Hawaii has been okay, although dollar spend has not dramatically grown. International tourism remains quite a bit off where it was four to five years ago, which has been the biggest overhang on GDP growth in Hawaii. Overall, it is a sluggish environment. In Alaska, there continues to be significant oil and gas and infrastructure investment around energy. That has been very positive. Our volumes have hung in well. We sometimes have year-over-year differentiation based on competitors’ drydocking and timing of voyages, but overall Alaska continues to be steady with an upward trajectory due to energy investment and more disposable income for residents as a result. On Guam, which is a really important domestic market for us, conditions continue to be steady as well. Tourism is hanging in okay, but again, international is not fully back; government spending in Guam and the Western Pacific region is helping volumes. For Logistics, our outlook for the rest of the year is that we will be approaching last year’s results. The actions we are taking focus on two pieces. Our Span Alaska business is a little over half of Logistics, and there we are focusing on disciplined pricing and delivery for our customers, providing the best transit times and customer service in that market. On the brokerage business—where margins have been compressed and under pressure in highway truckload and intermodal—we are focusing on stickier customer relationships, small and medium customers, pricing discipline, and good execution in what is still a generally soft freight environment. On the buy side for truck procurement, we continue to work with our trucking partners to buy capacity at the right price, while maintaining our pricing and margin discipline. We expect to approach last year’s results for the full year. Operator: Thank you. This does conclude the question-and-answer session of today’s program. I would like to hand the program back to Matthew J. Cox for any further remarks. Matthew J. Cox: Thanks for listening in today. We look forward to catching up with everyone on our second quarter call. Thanks very much. Unknown Speaker: Aloha. Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.