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Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Healthcare Realty First Quarter 2026 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Ron Hubbard, Vice President of Investor Relations. You may begin. Ronald Hubbard: Thank you for joining us today for Healthcare Realty's first quarter 2026 earnings conference call. A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. This company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC. Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended March 31, 2026. The company's earnings press release and earnings supplemental information are available on the company's website. I'd now like to turn the call over to our President and CEO, Pete Scott. Peter Scott: Thanks, Ron. Joining me on the call today are Rob Hull, our COO; and Dan Gabbay, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO. It has been just over a year since I assumed the CEO role, and we have made significant progress in that short period of time. In many ways, we entered 2026 as an entirely new company. We added industry expertise to our revamped and more financially rigorous operating platform, we refined our portfolio, and we rightsized our balance sheet. All of this was in preparation to meet or exceed our 3-year earnings forecast. I am pleased to report the hard work and immense preparation is manifesting into better results. While 1 quarter does not guarantee a 3-year earnings forecast, it does create a solid foundation for outperformance while sustaining the winning mentality we have worked hard to instill at Healthcare Realty 2.0. Now let's turn to our results for the first quarter. Every day we are executing with purpose and intensity. We signed over 2 million square feet of leases an all-time high. We reported same-store NOI growth of nearly 7%, also an all-time high. We accretively bought back more stock. We completed our first joint venture acquisition. We continue to stabilize our redevelopment portfolio. And our capital markets plan is beginning to take shape. The net impact of all this, our first quarter results were far better than expectations. We are raising both FFO and same-store guidance early in the year. And there is more to come on the horizon with a strong leasing pipeline. I wanted to elaborate more on the earnings growth framework for Healthcare Realty 2.0. Earnings growth has unequivocally become the dominant metric that determines a premium multiple in the REIT industry. If you go into any AI platform and search medical office characteristics, you will note the typical catchphrases that have become synonymous with sector: stable cash flow, recession-resistant, Steady Eddie, and 2% to 3% growth. In a low interest rate environment, like we experienced from 2010 to 2020 when the 10-year treasury averaged low 2%, this all sounded great. Investors were able to generate alpha in medical office with very little risk. However, with the 10-year treasury at 4.3% today and our stock trading at an 11x FFO multiple, this simply won't cut it anymore. We see 2 challenges in front of us: put up better numbers, which we are doing, and break down these historical stereotypes. As the only public REIT focused exclusively on outpatient medical, we will be the trailblazer and redefine what success means in our sector. So let me walk you through the main pillars of organic growth. First, occupancy. Sector-wide occupancy is approaching 93% because of strong demand and limited supply growth. We see multiple years of sustained tailwinds in front of us driven by the rapid growth of the 65-plus population and the unabated shift in care to outpatient settings. At HR 2.0, our same-store occupancy improved this quarter to 92.3%, a year-over-year increase of 110 basis points. Total occupancy has improved to 90.5% and is a significant near-term earnings growth driver as we stabilize our lease-up and redevelopment portfolio. Second, annual escalators. Under the new asset management platform, our average annual escalator on signed leases is 3% plus. I cannot overemphasize the importance of the annual escalator on earnings growth. With our portfolio NOI at approximately $650 million, escalators will be the primary driver of core earnings growth going forward. Third, retention rate. Often overlooked, retention rate is a critical driver of earnings growth. Downtime and capital expenditures, which are the silent killer of earnings growth, are significantly lower for renewal lease deals compared to new lease deals. Therefore, the higher the retention rate, the less capital we have to commit, the higher the lease IRR, the more profitable the deal is to us. During the first quarter, our retention rate was 93.5%. Fourth, cash leasing spreads. With our portfolio optimization complete and our concentration of assets in higher growth markets, including the Sunbelt market, I would anticipate our cash leasing spreads improving. In the first quarter, our cash leasing spread was 4.2%. Importantly, 1 out of every 4 leases we signed had a cash leasing spread greater than 5%. When you add all this up, occupancy growth, annual escalators, higher retention and improved cash leasing spreads, we expect to generate materially higher earnings growth going forward. Our same-store results this quarter are a good indicator that we are heading in the right direction. And as a reminder, our core earnings growth in 2026 is tracking above 5% excluding the impact from the necessary portfolio optimization and deleveraging. I wanted to spend a moment on external growth and capital allocation, which are incremental to our organic pillars of growth. As we recently disclosed, our capital allocation approach will remain incredibly disciplined. During the first quarter, we did exactly what we said we would do. We bought back $100 million of stock, we completed in excess of $20 million of acquisitions and we invested $25 million in our redevelopment portfolio. Let me provide a little more context behind our priorities. First, stock buybacks. If we experience dislocation in our stock price, we will not hesitate to acquire shares. This provides us with significant and immediate accretion. We have $400 million of stock buyback capacity remaining under our current authorization. Second, acquisition. All external acquisitions will be done in joint ventures. Joint ventures currently encompass 5% of our total NOI, so there is ample room for this to grow. We would expect initial cash yields of greater than 7%, which exceeds our implied cap rate. In terms of magnitude, I could see us accretively allocating $50 million to $100 million of capital into our KKR joint venture in 2026. Third, redevelopment, which currently consists of 23 properties that are 64% pre-leased. Redevelopments are the primary source of the $50 million of NOI upside in our 3-year forecast, and we continue to track ahead of schedule. I would expect the number of assets in redevelopment to modestly tick up in the coming quarters as we front-load our spend into the earlier part of our 3-year plan. This will allow us to maximize the NOI upside opportunity sooner. As a reminder, our average cash-on-cash yield for the redevelopment portfolio is 10% and comes through a combination of increased occupancy and/or increased rental rate. Importantly, none of these priorities, buybacks, joint venture acquisitions and redevelopments, are mutually exclusive. In addition, while not part of our guidance, we are open to selling more assets, including core assets, and accretively recycling the proceeds into any one of our priorities to further improve earnings growth. Finishing now with a quick note on our Board. As part of our ongoing Board refreshment initiatives, longtime Director, Jay Leupp announced he will retire after our upcoming annual meeting. I would like to provide a sincere thanks to Jay for his contributions to the organization over the years. Upon Jay's departure, the average tenure of our remaining directors is less than 2 years. We plan to add a new director later this year, to more prioritize that person's experience and diversity. With that, let me turn the call over to Rob. Robert Hull: Thanks, Pete. The first quarter was the company's strongest ever for leasing. Our team executed over 290 leases, representing more than 2 million square feet. Lease economics across both new and renewal leases continued to improve. Annual escalators averaged 3.1% and the weighted average lease term was nearly 8 years, bolstering the portfolio's long-term growth profile. Tenant retention was 93.5%, driven by a number of early renewals across the portfolio. Included are 8 single tenant renewals totaling nearly 740,000 square feet, for an average extension of approximately 10 years. This meaningfully reduces our lease maturities through the end of 2027. And cash leasing spreads were strong, averaging 4.2%. Demand for medical outpatient buildings remains robust. We continue to see favorable sector fundamentals as absorption outstripped completions during the quarter and rental rates continued to climb. Health systems are seeing steady operating trends and investing in higher-margin outpatient services. These favorable industry fundamentals are translating into better performance for our portfolio. Health system relationships remain a key area of focus as their demand for space continues to grow, improving the credit profile of our portfolio. This quarter, we saw a substantial health system activity, including, in Atlanta, 176,000 square feet of new and renewal leases with Wellstar across 6 on-campus buildings, including a 59,000 square foot cancer center. The renewals carry an average term of 5 years with a blended cash leasing spread of approximately 4%. Wellstar is a leading health system in the Atlanta MSA with an A+ credit rating. In Charlotte, 6 renewal leases totaling 154,000 square feet with Advocate Health. The average term was more than 7 years with a blended cash leasing spread over 5%. Advocate Health is the leading health system in Charlotte with well over 50% market share and carries a AA credit rating. In Upstate New York, we leased 64,000 square feet of clinical and surgery center space to Trinity Health St. Peter's Hospital. The leases have an average term of nearly 6.5 years and annual escalators of 3%. Trinity Health is a top 10 health system nationally with a AA- credit rating. And in Charleston, 3 lease renewals for 55,000 square feet with MUSC Health, maintaining 100% occupancy across 2 buildings. The leases have an average term of 9 years with an average cash leasing spread of nearly 14%. MUSC is South Carolina's only comprehensive academic health system with 16 hospitals and regional medical centers. Looking ahead, occupancy gains over the remainder of the year will be driven by a robust new leasing pipeline of approximately 1.4 million square feet, strong tenant retention and our 490,000 square foot Signed Not Occupied or SNO pipeline. Turning to redevelopment. We saw a gain of 900 basis points sequentially in the lease percentage of our redevelopment portfolio. This quarter, we added 2 new projects, including a $25 million redevelopment of a 155,000 square foot MOB connected to Tufts Medical Center in Boston. The building is 100% pre-leased with a 10-year term and 3% annual escalators. We also completed a $35 million 2 MOB project located in Charlotte, adjacent to Novant Health Huntersville Medical Center. The redevelopment is 98% leased with a stabilized yield within our targeted range of 9% to 12%. The 2 buildings will move into same store once a full calendar year has passed since completion. Our results this quarter demonstrate the team's ability to drive accretive lease economics and strengthen our health system relationships. We are well positioned to build on this momentum through the balance of the year and deliver strong NOI growth to our shareholders. Now I will turn it over to Dan to discuss our financial results. Daniel Gabbay: Thanks, Rob. 2026 is off to a great start. We reported normalized FFO per share of $0.41, up sequentially from $0.40, and we achieved same-store cash NOI growth of 6.9%. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 75%. Our outperformance this quarter was driven by 110 basis points of year-over-year same-store occupancy gains, 4.2% cash leasing spreads and our improved balance sheet. Q1 same-store occupancy finished at 92.3% and same-store margins expanded 60 basis points year-over-year. Notably, 95% of our total NOI is included in our same-store pool. Turning to capital allocation. As Pete mentioned, Q1 was active across all our strategic priorities. In March, we opportunistically repurchased an additional $50 million of shares as global conflicts pushed the stock market into correction territory. This brings our total repurchases year-to-date to $100 million or 5.7 million shares at a weighted average price of $17.38. And at quarter-end, we closed on a JV acquisition for $18 million at our pro rata share, and commenced 2 new redevelopments with an expected cost of $31 million. We remain confident in our ability to continue allocating capital towards accretive redevelopments and selective external growth while maintaining our year-end leverage target in the mid-5x area. I would like to call out a couple of items related to our balance sheet. First, we are putting in place a new $400 million unsecured delayed draw term loan. Our strong bank partnerships allowed us to move quickly during a period of heightened volatility. The facility is fully committed and expected to close in May. Drawn pricing is at SOFR plus 90 basis points and all-in pricing inclusive of transaction costs is approximately 4.8%. This is inside our 5% cost of debt assumption for 2026. We plan to draw the term loan in late July to repay our $600 million bond maturity, with the balance funded on our line of credit. Factoring in this transaction, we would still have $1 billion of remaining liquidity on our line which provides meaningful flexibility as we consider all of our future capital markets alternatives. As discussed last quarter, we also launched our commercial paper program. We currently have roughly $250 million outstanding, which is fully backstopped by our line of credit. Borrowing costs today are approximately 40 to 50 basis points lower than our line. Finally, during the quarter, we also extended the maturities on $400 million of swaps associated with our existing unsecured term loans, locking in SOFR at 3.3% through debt maturity in 2029. These levels remain attractive as expectations for Fed cuts diminished during the quarter. Turning to 2026 guidance, which you can find on Page 11 of our Q1 supplemental report, we increased full year normalized FFO per share guidance by $0.01 to $1.59 to $1.65 per share or $1.62 at the midpoint. And we increased same-store cash NOI growth by 25 basis points to a revised range of 3.75% to 4.75%. These results are driven by strong leasing outcomes and 4% plus cash re-leasing spreads in our same-store portfolio. Uses of capital increased $75 million for the year to reflect the incremental share repurchases and acquisitions in Q1 that we discussed earlier. Our guidance does not include any additional acquisitions, redevelopments or incremental share repurchases for the remainder of the year. Funding sources increased by $75 million to match the capital allocation activity in the quarter. One last item before we go to Q&A. You probably noticed that we published a revised supplemental reporting package and updated investor presentation last night. We are pleased to provide cleaner, simpler disclosure going forward in our supp on the total portfolio while also maintaining key information and performance metrics that we have previously provided. The materials commence with our portfolio-level information across top markets and tenants followed by our same-store redevelopment and ancillary financial information. To recap, we are very excited about our Q1 results and upside for the year. Our core earnings growth model that Pete described is working across the board, and absent the dilution from our 2025 dispositions, we are already delivering mid-single-digit growth. We, therefore, remain confident and laser-focused as we target the upper end of our revised FFO per share and same-store NOI guidance. With that, operator, let's open up the call for Q&A. Operator: Our first question comes from the line of John Kilichowski with Wells Fargo. William John Kilichowski: Maybe first, if we could just start with the same-store guide we appreciate the bump here, but the 6.9% certainly stands out in 1Q. How do we think about that conservatism there? What drove the 6.9%? Was it comps? Was it just a great quarter? And is there an ability to repeat something a little bit closer to that going forward? Peter Scott: John, it's Pete here. I think as you pointed out, we had a great first quarter, posting same-store of nearly 7%. And the main pieces of that were we did see a pretty significant ramp-up in occupancy year-over-year and also some margin improvements. And that's something, if you go all the way back to our strategic deck, we said those were 2 important metrics that we wanted to improve, and we have. And we also had some strong leasing in the first quarter. I think to your comments about deceleration implied in our same-store guidance, and I think you touched on this just a bit in your note last night, I don't really think about it necessarily as deceleration. I mean I think about it as an opportunity to raise guidance a few more times as the year progresses. So I like to look at it as the glass is half-full, not necessarily the glass is half-empty. I will say we had an easier comp in the first quarter. I think that was pretty well known. If you looked at our results last quarter -- or excuse me, last year, we had a tough first quarter and it ramped up significantly in quarters 2 through 4. I still expect our growth to be quite strong and much longer than historical norms for the balance of the year. But we might not see something all the way at that like near 7% level, but I would expect it to continue to be strong. William John Kilichowski: Got it. That's very helpful. And then the second one, Pete, you gave some very helpful color in the opening remarks on the capital allocation opportunities and the buyback and doing what's best. I'm curious how you feel about the push and pull of doing what's most accretive but also managing leverage. You put a ton of effort into getting the balance sheet into a good place. And now you've kind of done that, you take up leverage ever so slightly, like it's still in a good spot. But what's that point at which you're like, okay, the buyback is now off the table, we can't lever up past this and the incremental proceeds need to go towards, like you said, the JVs or the redev versus that? Peter Scott: Yes. It's a good question and I'm glad you brought it up because I did want to spend a lot of time on it in the prepared remarks and on this call. In the first quarter, we did all 3. I think it was a nice mix of buyback, we did a JV acquisition, and we allocated capital to redevelopments. All 3 are accretive to our earnings growth. So we're pleased about that, especially since we can utilize balance sheet capacity for it. So I think it's the right mix to continue to focus on all 3. I will highlight the word disciplined, right? I have seen, and I'll again repeat the O word pop up from time to time, and I would not characterize it as that. I would characterize this as a very, very disciplined capital allocation approach. And to your point about leverage, I would also point out that we will not shy away from selling more assets, including core assets, right? So not selling lower quality. That was a lot of what we did last year to get the portfolio to where we wanted it to be today. Our focus could be on selling more core assets and accretively recycling that back into the 3 priorities. We just think it's good to have a good mix of different options available to us, and we think it's the right mix right now. Operator: Your next question comes from the line of Nick Yulico with Scotiabank. Nicholas Yulico: I wanted to first ask on total occupancy. I know you have that 92% to 93% target. You said you're at 90.5% in the first quarter. I think sort of twofold here, one is just latest thoughts on sort of the time frame for achieving that target. And then I think a component of that is leasing up development, redevelopment, where there is just some pure vacancy today. And I think, Rob, you gave some stats on like a Sign Not Occupied pipeline, but I'm wondering if you had any of that time Signed Not Occupied specifically you could cite for that development/redevelopment pool? Peter Scott: Yes. Nick, it's Pete here. I'll start and maybe I'll have Rob jump in on the backside. We do see redevelopments as a great way to invest capital and get a nice cash-on-cash return. It's the 10% cash-on-cash return that we are targeting on average. And as we think about that portfolio, we did improve our disclosures a couple of quarters ago to track the percent pre-leased within that bucket. That's actually where a lot of our SNO sits right now. So our 90.5% of occupancy today does not get the benefit of a lot of that pre-leasing that we've been able to do in the redevelopments. But we will continue to disclose that. And as you saw, there's 900 basis points effectively of sequential occupancy gains within that -- or I'd say leased gains within that portfolio. It hasn't turned into occupancy yet. So I don't know, Rob, if you want to give any more color behind that. Robert Hull: Yes, I'll just add to that, this is a substantial -- in our SNO pipeline, 90,000 square feet, nearly half of that in that kind of lease-up redevelopment bucket. So a substantial amount, which is where we see a lot of the opportunity to drive occupancy over the course of this year. I would also say that our pipeline remains strong at the 1.4 million square feet. That's a good leading indicator of where we're headed. Tenant retention is still a major source of occupancy gains. And we expect all 3 of those to contribute meaningfully this year. Nicholas Yulico: Okay. Great. That's really helpful, guys. Second question. Pete, I want to go back to the commentary about you're open to selling core assets. And I guess -- and then also going back to your point about earnings growth and that being a focus. Is this an opportunity -- is this more than just a sort of opportunity to sell at a strong cap rate and sort of arbitrage that on the investing side, which is maybe like a onetime earnings benefit? Or are you also open to selling core assets because in some ways you're going to get a low cap rate and they're also structurally slower growth assets for every reason, maybe they're safer profile of the lease, whatever it is, that if you're actually selling core assets, you could be improving sort of a long-term growth profile? Peter Scott: Yes. I would go back to my comment in the prepared remarks about 5% of our portfolio, the NOI being in joint ventures right now. And we get some pretty nice advantageous fees. So any going-in cap rate for like a core-plus asset is an enhanced yield to us with regards to our initial cash yield. I think that's one of the beauties of JVs and that's why a lot of REITs employ JVs as an important part of their business model. I think 5% is low. I think 5% could grow. I won't give a number as to where it could grow, but I think it could grow well beyond 5%. And I think I'll look at selling core assets and recycling that capital back into potentially JVs as a use of proceeds could be done accretively and I think would be a good thing for our portfolio as well as for shareholders. Operator: Your next question comes from the line of Seth Bergey with Citi. Seth Bergey: Just want to kind of go back to the JV comments. How are partners thinking about how many partners are you kind of in discussions with that are interested in investing in outpatient medical? And can you just talk about kind of the overall depth of the transaction market and interest in the outpatient medical space? Peter Scott: Yes. Maybe I'll start with that and Ryan can talk briefly about the transaction market. As you think about our JV exposures, we do have a few different JVs, but there's really just one at the moment that is what I would call more a growth JV. And that's with our partner at KKR that was set up a couple of years ago. There was a pool of assets that was contributed by the company into that joint venture. But the hope was that, that joint venture would grow over time by acquiring third-party assets or, I'd say, external growth. It's another good way to characterize that. Nothing happened over the last couple of years, really because there was no capital or balance sheet capacity here for any desire at Healthcare Realty to grow, even though our partner had a desire to grow. So I would say what we're focused on right now is growing with that 1 partner. I don't know that I want to get into any additional JVs that we could potentially look to set up over time. The other JVs that we do have, they're more discrete assets. Those were set up many years ago prior to that KKR joint venture, and I would not look at those necessarily as growth ventures. Our growth is really going to be focused with that 1 partner right now. And then Ryan, do you want to talk about the transaction market briefly? Ryan Crowley: Sure, Pete. I'll say that the momentum that built from the transaction market last year has certainly carried into 2026. If anything, the strength of that private bid has only increased and financing remains really available. There's plenty of demand and liquidity out there. If you want me to talk about cap rates, I'd say that core assets are pricing today in the 5.5% to 6% range. And frankly, core-plus isn't much above those levels. Seth Bergey: Great. And then just coming back to some of the -- your opening comments about retention and escalators. Just given that occupancy for outpatient medical is kind of in that low 90s places, where do you think those metrics could ultimately go in terms of just new lease economics? Peter Scott: Yes. Good question, Seth. I mean what I would say is we completely revamped our approach to leasing about the middle of last year and we've become just much more financially rigorous as we underwrite deals. And I think what you're starting to see is the benefits of that change is starting to work its way into both the amount of leases we're getting done as well as the output of those. So retention, as you point out, at 93.5% is really strong. We did get the benefit of doing a couple of very, very large leases in our single tenant bucket that were pushed out quite a way. So if you look at our weighted average lease term, it actually almost went up about a year this quarter, which is a pretty big change in 1 quarter. I would say from a retention perspective, I don't know that I would model 93.5% going forward. But if it used to be 75% to 80%, I'd like to think that it could be more like 80% to 85% going forward. And then on the cash leasing spreads, we did put up a good quarter this quarter. It was over 4%. I'll point out 1 out of every 4 lease deals that we did was greater than 5%. And we are focusing heavily on that, to try and push as much as we can on that metric. I'd like to think it can even improve upon 4%, but this will take perhaps a little bit of time to continue to work into the system. But we are optimistic and we'll continue pushing. Operator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: Pete, I wanted to circle back on those early renewals that you're able to execute during the quarter. I mean what drove those decisions? Is that something that you approached the tenant about? Or did they approach you about it? And given that those assets now have much longer term, is that something that you sell now or could potentially sell just given that you have about 10 years on some of those leases? Peter Scott: Yes. I mean we certainly could. I don't know that I can go into each one of those. It would take too long on this call to go through all the different assets within that bucket. But certainly, if it's a single tenant expiration and it's got less term on it, I mean you guys can go talk to the folks in the triple-net world, but when there's not a lot of term on a single-tenant asset, it's really not worth anything. So we've certainly unlocked some value in extending those. But I won't really comment at the moment on what our lands are for those in particular. I will say extending the weighted average lease term was actually quite important. We got a question on that a couple of quarters ago. And I felt confident we were going to do it. I would say many of these discussions on those lease deals took multiple quarters to get done. So I think you're seeing multiple quarters of work in our results that we put out in the first quarter. Robert Hull: I would just add to that, Pete, that, to your question about the systems approach us, in some cases, they did. And I would say that it's kind of an indication of the environment that we're in. Vacancy is getting lower. It's more expensive to build new products. And so we're seeing an uptick in discussions with health systems, and I think that's where you're seeing us able to drive lease economics. Michael Carroll: That's helpful. And then on the investment side, I know [ like in prior calls ], I mean there's been a lot of discussions on how attractive some of those opportunities are, it does look like, given the stuff that you've done year-to-date, you're kind of approaching the top end of the guidance range provided. I mean how do we kind of compare those 2? So you're seeing good opportunities, but it's not reflected in guidance. Is that just you trying to be cautious, not wanting to over-extend yourself without having some type of source of funds coming in? Or how do we explain those 2 differences? Peter Scott: Yes. I mean one thing and then I'll turn it to Dan. I mean, look, Mike, it is early in the year. Obviously, we put up some good results and we're able to raise guidance in the first quarter. So I feel quite pleased with that. But there's more quarters to go, more for us to do, and I think there's more upside for us to go capture as well as we execute with purpose. But maybe I'll have Dan talk about balance sheet capacity. Daniel Gabbay: Yes. And Mike, as we started talking about at the beginning of the year, we have balance sheet capacity. We've always talked about having upwards of $100 million to $200 million, sort of in that range, of balance sheet capacity as we entered the year. We've used some of that. We continue to have capacity. And as Pete mentioned, we have the ability, if there's the right assets to sell and harvest at great valuations, we can recycle more capital into external growth. As it relates to our guidance specifically, we're taking the approach with guidance that what you see in sources and uses is what we've announced to date and we don't include any future acquisitions or share repurchases in our guidance going forward. And we've given folks our outlook on -- for the year of dispositions as well, which is tracking nicely. And we're already including this $45 million loan repayment we talked about in our press release being repaid, actually it's this week. And so we are halfway on our dispositions already towards the midpoint of our target. So feeling good about those sources and uses. And as we have more activity, we'll continue to update those ranges and update you and the market as those transpire. Operator: Your next question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: I'm here with Justin Haasbeek. Maybe first, your same-store occupancy was up 110 basis points to 92.3% in the quarter. So really the question is how high can occupancy go in the same-store portfolio? Or maybe asked another way, how should we think about frictional vacancy for your portfolio in outpatient medical? Peter Scott: Yes. Michael, it's Pete. And thanks for picking up coverage. We appreciate it. I mean, look, we're in the low 92% area. If you go back to our strategy deck, we said we'd like to get to 92% to 93%. I think as we've improved our portfolio, I'd like to think we can get closer to the 93%. We've said actually that we believe there is some absorption as the year progresses as well, which is a positive for us, and that certainly will help our same-store. As to your question around just like frictional vacancy, I mean, I think that's probably about right, like mid to high single digits. I mean we just don't have a very, very large triple-net, single-tenant portfolio, which typically when you see other REITs that own assets like we do, will have higher occupancy levels because of that. We have a big multi-tenant portfolio, which is actually, we think, a positive in an environment where you've got more demand and less supply right now. So I think you'll always have a little bit of vacancy as doctors retire and things like that. But I feel like we're getting close to it. We're very focused on getting the total occupancy in the portfolio, the 90.5%, I mean getting that up to 92% to 93%, I mean that's going to be the big opportunity for us as we think about exceeding our 3-year forecast over the next few years. Michael Goldsmith: Got it. And then just as a follow-up, when you annualize your first quarter normalized FFO, you get pretty close to the high end of the guidance range. So just wondering if there's some conservatism baked in or another drag outside of the August debt maturity that we should be aware of? Or just how we should think about it? Peter Scott: I think you're thinking about it the right way. The only drag, I would point out is what's going to happen with that bond that does come due in August. But we did put out that delayed draw term loan, the announcement on that. So I feel like we've been able to significantly derisk that. And frankly, we've got plenty of runway now with that term loan where -- I'm a big believer in the capital markets. You can never time them perfectly, but you can certainly access those markets at times when you can become a price maker and not a price taker. I felt like we were in the price taker bucket without putting that term loan in place. And with that bullet maturity coming up in August, and with the dislocation in the markets the last couple of weeks, we pivoted very, very quickly. And I credit Dan and his team for putting that together and I thank our banking partners for that. Because I think the all-in cost on that is in the mid-4s. When you compare that to bond pricing today, we'd probably be 50 to 75 basis points wider. So that's a really good financing for us to put in place. Operator: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Pete, I appreciate you highlighting some of the various items that you're targeting to improve the growth profile and just returns associated with medical office. If 2% to 3% internal growth doesn't cut it for the reasons you highlighted, I guess, what's the right growth level you think is achievable? And just the time line it takes to reset that internal growth based on the lease maturity schedule. Peter Scott: Yes. Good question. I mean yes, I agree, 2% to 3% NOI growth just, as much as I'd like to say it works, it just won't work anymore. So I don't know that 7% is the right number for us to anchor ourselves to right now, for the reasons I mentioned in a question before. But probably something right in between. And then I will go back and focus you on a comment I said in my prepared remarks. And I get this is us working around some magic numbers behind the scenes. But if you back out the dilution from the portfolio optimization and the deleveraging from last year and you look at our actual organic growth this year, it's actually above 5%. So I'd probably start anchoring around a number like that. I mean obviously, we have other things we have to factor in as well with regards to our balance sheet and our refinancings over the next couple of years. But I think from a pure organic growth perspective, that's probably the best number I can anchor you to. Austin Wurschmidt: That's helpful. And then switching gears, Ryan or Pete, as a follow-up to some comments earlier, you flagged the cap rates are in the 5.5%, 6% range for core assets, core-plus isn't much above that. I mean is that what we should be thinking about on future dispositions? And what gives you the confidence then that you can source deals at going-in yields in excess of 7%? And I think you said in the prepared remarks, especially if these are lease-up opportunities with higher growth potential. Peter Scott: Yes. Well, I'd point you to the deal we just did in Birmingham. It's a $90 million deal, a core asset, 100% occupied, newly developed, 12-year weighted average lease term. The going-in cap rate on that was a 6% and our going-in yield was in the low 7s from a cash perspective. I'd say from a GAAP perspective, which we don't really talk about a lot, you're actually north of an 8% on that. So as we think about stock buybacks and the FFO yield versus putting capital to work in investments, we do have to look at GAAP yields from time to time. So that's a core-plus asset that we feel quite good about the accretion on that because the going-in yield is actually wider than or above our implied cap rate, and that's an important metric that we would look at. I'd say if we were looking to sell core assets, I would expect to be getting pricing even inside of that. That would be our take. Not every asset we're going to sell is going to be core. I think we will look to do just some typical core-plus pruning as well. But to the extent we looked at selling core assets, and we've got a lot of them, I would expect us to do quite well if we decided to transact. Operator: Your next question comes from the line of Rich Anderson with Cantor Fitzgerald. Richard Anderson: So perhaps a cynical question first. You said at the top, and you just kind of got -- went through the growth number, Steady Eddie growth isn't going to cut it in this market, and you're saying maybe somewhere between 3% and 7% will cut it. I recognize you can't be very precise there. I wonder if that will sway the conversation around the growth profile of MOBs, we'll see. But I guess the question I have is if you're solving for a growth level and then sort of work backwards to achieve it, there have been dangers in the past of people doing unnatural things to sort of break the status quo. So how do you avoid sort of the complications around that? How do you avoid sort of losing reputational capital if the rest of the MOB market isn't sort of buying into this new paradigm shift? I'm just curious how do you manage all of those sort of moving parts as you reassess the growth of the business. Peter Scott: Rich, good question, and thanks for your cynicism. But let me just spend a second on the value creation opportunity and maybe expand on my premium multiple comments that were in the prepared remarks. If you think about our current valuation, in my opinion, that implies basically minimal to no growth going forward, right? I mean I'm biased, I think it's way too low. But I think it implies very, very, very little growth when you look at how we stack up within the entire REIT industry. And I think it's very much backwards-looking. But I respect that, that's where we are right now, and we're still only a year into putting out our -- less than a year to putting out our strategic plan. So as I said, we have a challenge in front of us. One, we have to put up better numbers. I think this quarter, and actually if you look at the last couple of quarters, they've been much better than they've been historically. And we obviously have to redefine what we think success is in our sector. I would say success for us is not going from an 11x FFO multiple to a 30x FFO multiple. I mean I tip my cap to those companies that trade at those stratospheric levels, and then they're doing a fantastic job keeping the market excited and it's great for them. Success for us is not going all the way to those stratospheric levels. It is taking our multiple from 11x to something commensurate with where I think other similar growth characteristics or other REIT sectors that grow at a similar level to where we can grow are. And they're not at 11x. They are better than 11x. I think they are about 3 to 4 turns better than where we trade right now. I'll let you guys do the math, but that's pretty significant value creation from where we trade today. So I'm not looking to all of a sudden persuade everybody and say, oh my God, these guys are now going to grow at such an amazing level that they deserve this stratospheric level type multiple. We're very, very much rooted in realism here and what we think the right total return profile is. But it's a lot better, we think, from an earnings growth perspective than the old Steady Eddie model. Richard Anderson: Okay. Perfectly fair. And second question, on selling core assets, I know it's a little bit of a conversation piece today. What governors do you have on yourself to limit how much of that you're willing to do? Because you don't want to be guilty of throwing the baby out with the bath water. I recognize that there is sort of an accretive transfer of capital. But you -- someone just brought up core numbers -- core cap rates for core assets, I should say, are 5.5% to 6%, and not so core are just a little bit above that. So I just wonder what the real risk-reward benefit is of being overly aggressive with the core to asset sales. Peter Scott: Yes. I will go back to the word disciplined, Rich, like we're going to be disciplined, and I said we are open to selling core assets and recycling that capital accretively. And if you go back and take a look at all the numbers I've been discussing in here, they are all very modest type figures. So I would not look at this as we're just going and liquidating the highest-quality stuff. And you know this even better than we do, there's a limit from a tax gain capacity from how much we can do as well. But I think in moderation, we will certainly look to dispose of or potentially contribute some core assets into ventures as well where we still retain a stake in those. So like I said, we're looking at all options. I know we get questions on balance sheet capacity and our ability to recycle capital into our capital allocation priorities. And I felt like just pointing out we're not just going to utilize the balance sheet for this and lever up. We will certainly look at taking advantage of our portfolio to allow us to continue to further that. Operator: Our next question comes from the line of Daniella de Armas Rosales from JPMorgan. Daniella de Armas Rosales: Your spreads in the quarter were strong with 4% average. But can you give us some color on the 13% of renewals that had negative spreads? And do you think those roll-downs are largely behind you? Peter Scott: Yes. We tend to focus on the blended number of over 4% and actually achieving a lot higher on the upside. I would say that selectively, if we feel like, and I would go back to my comment earlier, if we feel like the better play for us is to retain a tenant as opposed to seeing them walk from a building, we will add time selectively look at modest roll-downs because we will look at the whole financial package as we look at this. What's it going to cost to re-lease that? What's the downtime? What's the CapEx? So I don't know that I would say, going forward, we're always going to have every lease 5% or above. We'll certainly strive to do something like that. But at times, we may selectively make a decision to allow a tenant to stay for a variety of reasons. But at the end of the day, we would make that decision because the IRR for that lease is much better than the alternative. Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Michael Stroyeck: Maybe going back to same-store NOI growth, are there any known tenant move-outs or any other moving pieces that you expect to weigh on NOI growth during the rest of the year outside of just tougher year-over-year comps? Peter Scott: No. I mean if I look at the remaining lease expiration for 2026, I mean, that number, if you go back and look last quarter versus this quarter, has come down significantly. I gave you some thoughts on retention before in the 80% to 85% area. I'd expect the remaining lease expirations for this year to kind of track within that range. We'll retain the vast, vast majority of those tenants. So there's nothing that jumps out to me. I would just point out that we had a bit of an easier comp this quarter that we won't have in the next couple of quarters. But I would still look at the blended midpoint of 4.25% today. And as we've said, we think there is probably a little bit of upside as the year progresses on that, or at least that's what we would hope if we execute. And that's still really strong growth. So I would focus -- while we are focusing on the strong number this quarter, 1 quarter you got to average out over the entire year. But I think for the year, it's still quite strong growth relative to historical norms. Michael Stroyeck: Got it. That's helpful. And then maybe following up on an earlier acquisition yield discussion. You outlined the 6% yield going to 7% on that recent Alabama deal. So just clarifying, is that 7%-plus yields that you're underwriting, is that more of a stabilized yield or is that actually expected year 1 you expect to see? Peter Scott: That's year 1. That's not a stabilized yield. That's what we're going in at. Robert Hull: Mike, I'd just point out that when we talk about the JVs, that's inclusive of the advantageous fee arrangements that we have with our partners, that we've talked about so far this year. Operator: Your final question comes from the line of Juan Sanabria with BMO Capital Markets. Robin Haneland: This is Robin Haneland sitting in for Juan. Just curious on the strategic 3-year plan, if there's any updates compared to initial expectations, and whether you could share with us the next low-hanging fruits? Peter Scott: Yes. Look, I think what I would say on that is that we're tracking ahead of schedule at this point in time. And frankly, we're 1 quarter into a 12-quarter forecast. And to be tracking ahead of schedule, I think, is a testament to the hard work that the entire organization has put into preparing for kicking off this 3-year forecast, and also for the financial rigor that we're improving in this organization. I hate to continue to repeat that word, but I think if you guys were in here every day, you would see it and be quite impressed. The other thing I would just point out with regards to this year, I mean, this year was expected to be a flat year from an FFO perspective. And I think 1 quarter into the year and we're already exceeding from that perspective, and we'd like to continue to have an opportunity if we execute to increase guidance for the balance of the year as we go along. Obviously, we have to continue to execute with the intensity that we have been. So as I would say, I feel like we're tracking ahead of schedule. Not ready to say much more than that at this point in time being 1 quarter in, but it's good to be saying that at least that early on. Robin Haneland: And I was just also curious on if there are any signs of supply picking up and I'd be curious to know how far rents are off from being able to pencil. Peter Scott: I want to talk about supply, Ryan, because it really hasn't picked up? Ryan Crowley: We've seen new completions drop in recent quarters and new starts have remained fairly flat. They're actually tracking well below historical industry average of, call it, 1.5% to 2%, in what is a 1% of inventory range. So no, not much on that front. . Operator: And with no further questions in queue, I will now turn the call back over to the company for closing remarks. Peter Scott: Great. Well, thanks, everyone, for joining the call. We have a couple of industry conferences coming up later this month. We look forward to seeing you there. And then if we don't see you there, we'll see you at NAREIT. Thanks very much. Operator: Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Nutex Health 2026 First Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Rodriguez, Investor Relations Manager. Thank you. You may begin. Jennifer Rodriguez: Good morning, everyone, and welcome to Nutex Health Inc First Quarter 2026 Earnings Call. My name is Jennifer Rodriguez, and I'm happy to serve as your moderator today. We're truly grateful for your participation and your continued interest in our company as we share the highlights of another exceptional quarter. Please note that this call is being recorded for future reference. Joining me this morning are some of the key leaders driving Nutex Health forward. Our Chairman and CEO, Dr. Tom Vo, our Chief Financial Officer, Jon Bates; our President, Dr. Warren Hosseinion; and our Chief Operating Officer, Wes Bamburg. Together, it will provide prepared remarks to give you a comprehensive view of our performance, strategies and vision, after which we'll open the floor for your questions. Before I turn things over to Dr. Vo, I'd like to take a moment to address a few important points. Today's discussion may include forward-looking statements, which reflect management's current expectations about our future performance. These statements are based on what we know today, but they're subject to risks, uncertainties and other factors that could cause our actual results to differ from what we'll share. For a deeper dive into these forward-looking statements and the factors that might influence them, I encourage you to review the press release and Form 10-Q filed earlier this week as well as our various SEC filings. You'll find all the details there. Additionally, we may reference non-GAAP financial measures such as adjusted EBITDA during the call. For those interested in how these metrics reconcile to GAAP standards, please refer to the press release and Form 10-Q where we've included that information. With those housekeeping items out of the way, it's my pleasure to hand the call over to Dr. Tom Vo, our Founder and Chief Executive Officer. Dr. Vo, the floor is yours. Thomas Vo: Thank you, Jen, and good morning, everyone. It's a pleasure to be with you as to review Nutex Health's First quarter 2026 results. This first quarter has been 1 of renewed energy and vigor as we continue our mission of delivering high-quality concierge level accessible health care to the communities we serve. Let's first discuss the first quarter 2026 financial and operational performance. Total revenue reached $216.5 million, a 2% increase from $211.8 million in Q1 2025. Net income increased to $46.8 million compared to $21.2 million in Q1 2025. Adjusted EBITDA dropped to $57.6 million, down 21% from $72.8 million in the prior period. John can discuss more but this has to do with the timing of recognition for IDR expenses in the first quarter of 2025 compared to the same period in 2026. On the volume side, our hospital recorded 49,700 total patient visits, up 3.1% from 48,300 patients in Q1 2025. 6% of that growth came from same hospitals, demonstrating their resilience and continued relevance in their markets. Please note that this year's flu season was much milder compared to 2025 flu season. On the balance sheet, net long-term debt decreased from $29.2 million at December 31, 2025, to $24.3 million at the end of Q1 2026. The very low relative to our revenue and expansion pace. Net cash from operating activities was $75.5 million for Q1 2026 compared to $51 million in 2025, a 48% increase. Cash on hand grew to $207.3 million as of March 31, 2026, up from $185.6 million at year-end 2025. In the first quarter of 2026, we completed our inaugural $25 million share repurchase program, retiring approximately 119,000 shares. We also initiated a second $25 million share repurchase program during the quarter, reflecting our continued confidence in the intrinsic value of Nutex Health. Our share repurchase activity underscores management's strong conviction and the long-term intrinsic value of Nutex Health and our disciplined approach to capital allocation. Operationally, we continue to invest in infrastructure that will support sustained growth in both emergency room and inpatient volumes. These investments are focused on scalability, efficiency and long-term operating leverage. We are also strengthening our leadership team with targeted additions in business development, IT, AI to support our next phase of growth. On the business development side, our focus is increasing community awareness and engagement, ensuring patients and physicians clearly understand the differentiated and unique care delivered at Nutex hospitals. From a technology standpoint, we are investing in both AI and IT to enhance patient care, streamlined clinical workflows and enable innovation within our micro hospital model, while preserving the personalized concierge level experience that defines Nutex. Technology is advancing at an unprecedented pace, and we believe Nutex is exceptionally well positioned to harness these innovations to meaningfully improve patient outcomes while driving sustainable patient volume growth across our platform. As a smaller, more agile organization, we are able to adapt quickly and deploy new technologies far more efficiently than larger, more bureaucratic health care systems. In parallel, we continue to develop and grow new service lines, including medical detach programs, behavior health sciences, outpatient imaging, outpatient procedures, personal injury services, worse will add more on his operational report. With respect to our de novo pipeline, a significant development this quarter was the Board's approval for Nutex to begin directly investing in the development and construction of new hospital facilities. Historically, Real estate development was undertaken by third-party developers alongside local physician partners. By internalizing this capability, Nutex can build a more secure, cost-efficient and scalable development pipeline. -- while reducing reliance on external credit markets and alleviating the financial historically placed at physician partners. Nutex does not intend to hold these real estate assets on a longer-term basis. Our strategy is to invest capital upfront to develop and construct the facilities. And once a hospital is completed or has reached operational stabilization we expect to monetize the asset through a sale-leaseback transaction with a third-party owner such as a real estate investment trust or a REIT. And while a specific REIT partner has not yet been identified, Proceeds from these transactions are expected to be recycled into future developments, allowing us to efficiently redeploy capital and continue to expand our footprint in a disciplined and capital-efficient manner. On the IPA front, we are expanding internal resources to bring additional management functions in-house, further reducing our dependence on third-party service providers and improving operational control and efficiency. Warren will discuss more on this later. From a payer strategy perspective, we continue to carefully evaluate all in-network contract opportunities. Each proposal is assessed against our existing reimbursement outcome under the IDR process. Our objective remains consistent. We are not seeking to collect more than pure hospitals offering similar services. We simply aim to receive comparable reimbursement for comparable care. Our goal is not to increase cost to insurers, but to ensure fair and equitable payments. On the legislative front, we continue to closely monitor development related to the Murphy Bill, formerly known as the -- no Surprises Act Enforcement Act and we will adjust our strategy as appropriate as that process evolves. More broadly, we are actively monitoring legislative and legal developments nationwide that could impact our business. We have seen several recent core decisions in states such as California, Florida and Pennsylvania, but may be constructive for providers like Nutex. While these matters remain fluid, we believe these developments reinforce the importance of stay engaged in the regulatory and legal escape, and we will continue to evaluate their potential implications for the company. Today, Nutex Health operate 27 hospital facilities across 12 states. In 2026, we remain on track to open 3 additional hospitals in the third and fourth quarter located in San Antonio, Texas, Jacksonville, Florida and West Little Rock, Arkansas. Demand for the Nutex's health model remains strong. Physicians and community leaders across the country continue to approach us weekly, with request to bring new, new tax facilities to their markets. So with that, I'll turn it over to Jon Bates, our CFO, to walk through the financials in more detail. Jon? Jon Bates: Thanks, Tom, and good morning, everyone. I'm going to provide a little more color on the financials for Nutex Health's first quarter of 2026, another strong quarter where we are continuing to grow the business and improve our micro hospital model while we build the infrastructure to handle that growth each year-over-year. Tom's given you a little bit of the big picture, and I'm going to attempt to provide a little more detail. Going forward, when we do talk about comparisons between periods for metrics like visits and revenue, I wanted to bring your attention, we're going to begin using the term same hospital and our analytics, which basically means that the hospital data being compared period-to-period will have been fully opened in both periods presented. So in this case, hospitals in each period being compared under the same hospital definition were fully opened by December 31, 2024. Starting with revenues. Total revenue for Q1 of 2026 increased by 2.2% or $4.7 million to $216.5 million versus $211.8 million for the first quarter of 2025 with the Hospital division revenue being $207.6 million in 2026. Of the total revenue increase, Hospital division revenue grew 1.8% to $207.6 million from $203.9 million while same hospitals increase their revenue by 0.2% for the first quarter of 2026 compared to the same period in '25. Hospital division visits increased by 3.1% and 1,473 visits to 49,742 visits in the quarter 1 of '26 versus 48,269 visits in the same period in '25, with same hospital visits growing at 0.6% over the same period. With regard to the Population Health division, it had revenue growth of approximately 14% to $8.9 million for the quarter 1 of 2026 versus $7.8 million for the same period in 2025. Now in addition to the revenue and visit growth noted above, facility and operating level costs also showed an improvement for the first quarter of 26% compared to the same period in '25. Total facility level operating costs and expenses increased $31.3 million during the period, representing 57.6% or $124.8 million of the total revenue for Q1 of 2026 versus 44.1% or $93.5 million for the same period in 2025. Now of the $31.3 million increase for the period, 19.8 of it related to arbitration costs for the arbitration -- additional arbitration revenue recorded during the period. An increase in these costs is primarily due to less settlement in open negotiations in the prior period as the company was increasing its IDR submissions beginning in the first quarter of 2025. And regarding arbitration level revenue, we've continued to submit between 50% to 60% of our claims through the IDR process. And when an award determination is made, we currently prevail in over 85% of those determinations and we currently have an average collection rate of over 80% of those determination wins. Now regarding arbitration costs, we do anticipate we ultimately will finalize around 24% to 26% of the overall revenue realized. But as a reminder, we currently are reporting 100% of the anticipated cost of the arbitration effort but only recording revenue based upon our current 80-plus percent collection rate. But during the current period, these costs approximated a higher percentage of 35% of the arbitration-related revenue, which we anticipate moving back to our lower averages in future periods. Total stock compensation expense for the 3 months ended March of 2026 was a $3.9 million gain compared to a $27.6 million expense for the same period in 2025, which was a $31.6 million increase in Q1 of 2026. We did finalize 1 hospital earnout at March 31, 2026, and have 2 more facilities currently in their measurement periods with both of them completing their measurement period in the fourth quarter of 2026. Gross profit for the 3 months ended March 31, 2026 was $91.7 million or 42.4% of total revenue as compared to $118.3 million or 55.9% of total revenue in the same period in 2025 a 13.5% increase -- decrease for the 3 months ended March of '26 versus 2025. From a corporate and other cost perspective, the general and administrative expenses as a percentage of total revenue for the 3 months ended March of 2026, increased to 6.6% or $14.4 million from 4.7% or $10 million for the same period in 2025. Operating income for the 3 months ended March of 2026 was $81.3 million compared to $80.7 million for the same period in 2025, an increase of $0.6 million. Net income attributable to Nutex, Inc. was $46.8 million for 2026 compared to net income of $21.2 million for the period in 2025, which was an increase of $25.6 million. Adjusted EBITDA attributable to Nutex increased -- decreased $15.3 million or 21% from $72.8 million in Q1 of 2025 to $57.6 million in Q1 of '26. Looking at our balance sheet, it remains very strong with cash and cash equivalents at March 31, '26 of $207.3 million, up $21.8 million or 11.7% from the $185.6 million we had at the end of December of 2025. Additionally, accounts receivable increased by $20.2 million to $339.6 million at March 31, 2026 from $319.4 million at December 31, 2025. We had another strong collection quarter, which provides us continued confidence in this increase. Regarding cash flow. Net cash from operating activities increased by $24.6 million for the 3 months ended March 31, '26 to $75.5 million as compared to $51 million for the same period in 2025. And as Tom had mentioned earlier on the liability side, our total bank equity type debt decreased by $2.1 million to $41.3 million at March 31, '26 from $43.5 million at December 31 of 2025. But the majority of that debt, as we've talked about before, relating to equipment loans at our hospitals for [indiscernible] as our MRIs, x-rays, ultrasound and CT machines. With all that said, our balance sheet remains very solid, and we have provided our company the flexibility to execute on our growth plan in 2026 and beyond. Now with that, on to Warren Hosseinion, our President for population health update. Warren? Warren Hosseinion: Thank you, Jon, and good morning, everyone. It's great to be with you today to discuss how Nutex Health is advancing population health management. In the first quarter of 2026, we continue to make strides in this area. This morning, I would like to again focus on our strategy and our upcoming goals. Let's start with where we are today. Our population health management division now oversees a diverse group of almost 40,000 patients across our platform including a mix of Medicare Advantage, commercial and Medicaid managed care members. Revenue for the division was $8.9 million in Q1, up from $7.8 million in Q1 2025. Our strategy revolves around physician networks, our IPAs or independent practice associations are comprised of networks of contracted and credentialed primary care physicians and specialists located around our facilities, building strong partnerships with local doctors is critical. By forming these IPAs, we are building awareness of our hospitals among the local community doctors and their patients. Why do physicians join our IPA. We offer these physicians ownership in our IPA entities they can also participate in the Board and committees of the IPA. We offer them to get on the staff of our hospitals so they can admit and follow their own patients if they choose to. We also incentivize the physicians to achieve high-quality metrics. We believe that over time, these relationships will not only increase the volume of both IPA and non-IPA patients to our hospitals, but also create a web of care that's seamless for patients. Our vision is that our hospitals and IPAs will work hand-in-hand to amplify our reach and effectiveness. We are fostering collaboration, sharing best practices and ensuring every provider is aligned with our patient-first culture. We're growing our IPA strategically focusing on areas near our hospitals to leverage existing relationships and infrastructure. Going forward, our growth strategy focuses on 3 areas: One provider network expansion by partnering with primary care physicians and specialists. Second, value-based contract growth by increasing the number of covered lives under management; and three, technology scaling by enhancing our analytics and care management platform. With that, I'll turn it over to Wes Bamburg, our Chief Operating Officer. Wesley Bamburg: Thank you, Warren. I'll focus my remarks on the operational drivers behind our first quarter performance and how we continue to balance growth, efficiency and execution as we scale the platform. Operationally, overall hospital visits increased year-over-year, reflected continued demand across our markets and steady contributions from both newer and more established facilities. More importantly, we continue to improve patient acuity and drive a higher mix of observation in inpatient patients. On the care delivery side, we continue to strengthen coordination across clinical and care management teams. These actions are improving patient retention, supporting stronger clinical outcomes and reinforcing the operating leverage built into our model. From a cost management perspective, operating expenses increased during the quarter, driven primarily by higher patient volumes, increasing acuity and intentional staffing investments. Labor cost increased to $41.4 million for the quarter, representing approximately 19.1% of net revenue. This reflects deliberate staffing decisions tied directly to demand, including expanded clinical coverage and support resources required to manage higher acuity observation and inpatient services. As in prior periods, our focus remains on aligning staffing models with real-time volume rather than fixed assumptions, supported by centralized analytics, scheduling discipline and cross-training. Medical supply costs increased modestly to approximately $4 million or 5% during the quarter, reflecting higher utilization rather than pricing pressure. Over the past year, we have continued to benefit from vendor standardization and group purchasing initiatives, which have created a more stable and controlled supply cost foundation. As facilities continue to develop and utilization patterns normalize, we expect these efforts to continue supporting operating leverage and margin stability. In parallel, we remain focused on targeted technology investments that enhance operational efficiency and scalability. These include tools designed to improve patient access, documentation efficiency, coding accuracy and workforce productivity. So what does this all mean for the patient. During the quarter, we received over 2,400 patient reviews, delivering an average Google rating of 4.8 out of 5. This feedback underscores the distinct experience we deliver, 1 defined by minimal to no emergency room wait times, high-touch service and personalized care. These patient-centric principles remain core to our mission and a key differentiator for Nutex. In summary, the first quarter reflects continued progress in executing on our operating strategy and reinforcing the scalability of the micro hospital model. We remain focused on reliability, standardization and consistent execution, ensuring that every new text facility delivers high-quality patient-centered care that supports long-term value creation. Thank you for your time. Back to you, Jen. Jennifer Rodriguez: Thank you, Wes and team for those updates. I will now turn it over to our operator, who will begin the Q&A portion of the call. Operator: [Operator Instructions] Our first question comes from the line of Bill Sutherland with the Benchmark Company. William Sutherland: Exciting news, Tom, about taking on the hospital development internally. When will that probably initiate? And what -- how should we think about the balance sheet impact as you get into that? Thomas Vo: Bill, thanks for asking, and great to have you on the call. So yes, the process has already started with 3 new projects in Florida. And typically, these project takes roughly 18 to 24 months to develop and open. So in other words, even if we start today, we may not open these for another 2 years. So once the facility opens at that time, we will then flip it to a REIT like I mentioned or some kind of a long-term real estate vehicle. Now as far as the balance sheet change, John could probably chime in, but each of these projects cost roughly $20 million to $30 million to build. Our thought is to have Nutex invest the down payments, get a financing vehicle of some type. And then once we flip it, get all that reimbursed [indiscernible] Jon, any further thoughts on the balance sheet question? Jon Bates: Yes. I mean I think -- it's a great question, Bill. The -- I mean, obviously, when you have the asset on the books at the point you have it on the books, you're going to have the land and the building, and you'll have a mortgage of some kind or whatever cost to potentially finance it. So outside of that, then we'll decide to move on to the REIT concept, and there will be some slight changes there, but the main point at the start is going to be your asset and, of course, the mortgage. William Sutherland: So Tom thanks for that. And so the current state of development, obviously, there can and externally. The ones for planned for '27, would that include Florida. No. That would be too soon, right? Thomas Vo: Yes. For the ones that are opening this year in '26, those all have been financed externally. You're correct. In 2027, we have roughly 4 to 5 new projects, and I would say half of those were financed externally, and we're still working on 1 or 2 that will be financed by Nutex. Okay. And some of the 2027 projects have been in development for roughly 6 to 12 months now. And so we're getting to a point of starting construction. And so the project in 2027 is essentially started construction now, and we have a pure window so that Nutex could start investing in those. William Sutherland: Got it. The court cases, et cetera, I'm not sure what the status is of the Murphy bill is. But it seems like insurance -- the payer side is not getting any wins basically. And I'm just curious if there's a change in -- as you guys approach negotiating process prior to arbitration or even just discussions outside of that. Any change in you feel like how they want to approach this whole process and maybe even being more realistic about what [ network ] should look like for you? Thomas Vo: Yes. The answer is that we are constantly and always looking at new contracts that are submitted by payers. And we are always trying to get in their work, if possible. And you are correct that recently, we've had 3 very positive court cases that are Pro providers in California, Florida, and Pennsylvania. So those are all fantastic news for us. However, it is a long war, so to speak. So we just won a few battles -- but this will be a continuing process as insurance company are always going to fight back. And this is consistent with our experience with the insurance company for the past 15 years. That's always been the case. So that will not change anytime soon. Having said that, however, the good news is that we are looking -- we are seeing more and, I would say, better offer from the insurance company, and we are looking at all of them. William Sutherland: Okay. One housekeeping question, if I might, on the stock-based comp. Just trying to understand how that -- what's in that number? You probably discussed it in the Q, but I just haven't gotten there yet. Bill, so your question is what -- how is the makeup of that number for the quarter? Yes, it's a negative number. And 4Q was as well. I'm trying to... Thomas Vo: Yes. Yes. So if you recall, yes, the details in the queue were happy to talk more about it. But effectively, what we do is remember, we do the math on along the way. what the earnings in the last 12 months is of each of those facilities that are in an earn-out. And then we multiplier on that based on the share price at the time and the value of their business. And so it can go up or down based on whether EBITDA is and/or the price at the time. And then -- so that -- we accrue that along the way. And then like in this case in March, we actually had one that finalized. So it actually then gets resolved to exactly what the number is. And then whatever that changes could be up or down. runs through the stock-based comp and ultimately through equity. And so that's what that is just so happens, it just went down slightly cumulatively based on those factors and push through in the current period. So does that answer your question? Operator: 9 Yes, yes, it does. And then how should we think about the effective tax rate for the rest of the year, investment. Thomas Vo: Yes. Actually, it's a great question. I think as you look at the first quarter, -- to me, it's probably more in line with what I would expect. There's some ups and downs in that. But generally, I think this first quarter is probably more representative of what we would see. So somewhere in that high teens to 20% from an effective rate, and then we'll watch it as we go. But some of the variables that sort of swung it from previous year's higher numbers. There were some permanent differences not getting too much detail, but the way it works in taxing. But primary difference is that we're making that a little bit higher. And now those have resolved themselves a lot -- a big piece of that was actually impacting the stock comp expense kind of now finalizing and and becoming much less of an impact as we move forward. So I think where we're at is not a bad way to start somewhere in that high teens to 20%. Operator: Our next question comes from the line of Thomas McGovern with Maxim. Thomas McGovern: So first, on the arbitration costs, right, increased to 35%. And historically, it's been that mid-20% range. Jon, you indicated that you expected to return to that 24% to 26% range. Just curious what gives you confidence in that returning back down to lower levels? Do you have an internal time line on when you expect these figures to return back to stable levels? And also, if you could talk about what drove the increase in the quarter, that would be appreciated. Thomas Vo: Yes, sure. No problem. I mean, so it's just one slice and time on that piece. And as we talk about in my earlier discussions, and we talked about before, revenues on accrual base based on collection basis, our costs because of the way we're laid out are we record 100%. So technically, when that calculation comes out at being slightly higher in our financials. When the realization happens, cash ultimately goes out, will only be going out at the point at which there's a win. But right now, we're anticipating 100% of every single win on the cost side, but only whatever our average collection rate is on the revenue side. So that inherently brings that percentage up. So I think if you look back over the last 4 or 5 quarters, -- it actually -- it's averaging in that mid- to high 20%, which is where I think it will ultimately land when the dust settles on realization. So that's -- that's kind of the technical as the answer. And I do think over the second, third and fourth quarter, you'll see it will start probably working its way back into that area we were talking about, but I think just for this 1 period, just with the math on where the costs are just getting everything kind of in line and reported in the quarter relative to revenue is slightly higher, but that's not the -- I don't anticipate that being the case as we move forward. But another quarter or 2, and we'll look at it over the last 3, 4 quarters, I think you're going to see that it's going to resolve itself back into that lower number, but great question, Thomas. Thomas McGovern: Understood. Appreciate that. I also want to take a look at revenue for business declined again this quarter slightly, but just still notable -- is that just a function of the IDR award dynamics? Or are we seeing something payer mix, patient acuity. And just if we look forward to 2026, how do you expect this metric to trend over time? I know you guys had some initiatives to hopefully drive this, but just kind of curious if you could get an update on that front. Will the new service offerings play a role? Or are you mostly just looking to increase the inpatient visit rate. Thomas Vo: Yes. No, good question, [indiscernible] and we talked about this before. Remember, 2025 had more of an aggregation of the beginning of the IDR process end of '24 was kind of the first piece. And as you know, collection percentages increased throughout each period, which is what we're using to accrue revenue in 2025. It's gotten to a pretty solid rate. Now -- but so there was a lot more if you look at just pure revenue per visit in 2025, which makes that piece look a little bit higher when probably some of that, if you look back and say, okay, if you were to collect it -- if you would add the higher percentage collection rate at the end of 2024, which ultimately resolved itself, then we would have had more revenue back then, which would have shifted some of the kind of net revenue per visit in those periods. And even this out a little bit more. So I think we talked about at year-end that if you looked at the rate per visit from when we really started the arbitration process back in July of '24, it it was averaging right around in that -- between 4,000, 4,200 range. And so that's -- I think that's where the normalization really is on a steady state. I know we're working in a lot of areas on acuity and improving in those areas and the [indiscernible] mentioned earlier about the observation and inpatient piece. That's happening. So I think the rate that we're seeing even look back the 6 quarters prior to December of '25 and then add this 1 in another seventh quarter, I think you're looking at kind of where we're at on the steady state assuming the same types of visits walk in the door day yesterday, they did do tomorrow. So I think the rate is probably in a pretty good spot there, and we're going to continue to work in the efforts that were mentioned earlier on finding ways to get some higher acuity and improving also on the realization side as we work hard with the payers, whether it's through the IDR process or just in normal negotiations, so making sure we're getting paid fairly, which I think things are improving in that area. And as we move through this year, I do think some positive things will happen and reimbursement should continue to stay pretty strong. Thomas McGovern: Got it. Appreciate that response. Final question for me. It's going to be on the selective self-development of some of these de novo facilities. Just curious, do you guys have an internal target for the mix of how many of these facilities will be invested in by new tech versus having the real estate partner and does this impact how you guys look at long-term expansion strategies? This opened the door for more rapid expansion, more selective expansion in particular markets or anything on that front? Thomas Vo: Yes, Thomas a great question. By the way, thank you for joining the call. But the answer is that, yes, we are looking at each location selectively on a one-by-one case-by-case basis. And so we're going to essentially develop based on what we think will bring the most value to our shareholders. Having said that, there will be an option for all the developers to come in and invest with us. And so all that is still open at this point. But the whole reason we're doing this, once again, is to, number one, ensure a steady pipeline as well as decreased costs and ensure that the pipeline remains robust, so that we consistently could still do 3 to 5 per year. Operator: Our next question comes from the line of Gene Mannheimer with Freedom Capital Markets. Eugene Mannheimer: Congrats on a good start to the quarter and year. I wanted to ask a little bit about patient volumes. The 3% growth year-on-year seems a little modest to me considering that you opened 3 hospitals last year. And I'm just wondering was it that the openings were skewed toward year-end, which is why we didn't see more throughput there on the volume side? Thomas Vo: Yes. Gene, thanks for joining us. So the answer is multifold, but yes, you're correct in the sense that the 3 openings were earlier this year, and in fact, 2 of them open, I would say, in late December of 2025, and the last 1 opened in January. So they are [indiscernible] development. They are growing. They are in essence, growing as projected, but they are fairly new. And so I think that was one of the reasons why [indiscernible] has been a little bit flattish. The second reason is last year, we had a very robust and I would say, a very heavy flu season compared to this year. And so the flu season isn't just didn't hit as hard as we thought it would be. And so hence, leading to a slightly flatter volume. But having said that, it's still growing. We're still developing internal processes. So that we could accommodate more patients. So it's a never-ending job to increase volume and increase security. Eugene Mannheimer: Yes. No, that makes a lot of sense, Tom. And I wanted to ask, I guess, the prior question a different way on the IDR process, do you -- or can you still quantify the revenue from IDR in the quarter? And how about that pivot towards higher acuity is that manifesting in the numbers today. Jon, do you want to add? Jon Bates: Yes. I can talk to some of that. I mean, so we talk about we're submitting 50% to 60% of our claims going through there. So I think that's a general -- a pretty good idea of of the piece of it. I mean, we look at this as part of our overall business now. So we don't break it out as much as we used to because of the day-to-day. And to your point of, yes, it's certainly in the acuity certainly in our numbers when it comes to the revenue side of it. And as you can see in the reimbursement rate, it stayed relatively consistent with kind of where we looked at from almost inception of July of '24 all the way through even December '25 kind of reimbursement rate pretty close to what it is now when you go into the first quarter of this year. So I think that will continue. And I think there's opportunity for that to improve based on some of the initiatives that we have. Eugene Mannheimer: Great. Great. And I have 1 last one, if I could. I don't want to exclude Warren from the discussion. So growth in the Population Health segment, I mean, Q1 was strong at 14% and year-on-year, but revenues have been very lumpy there. And it seems like that your most profitable IPA, like L.A. does not even have a hospital around it. So I'm just wondering how do we think about this population segment longer term in terms of growth of both lives and contracted physicians. Warren Hosseinion: Gene, thanks for that question. So actually, in 2025, each of our IPA so in Southern California, in Houston and in Southern Florida, they generated cash on a stand-alone basis. So I just want to start with that. Our goal, again, is to build these networks of physicians around our facilities. And it's not just bring IPA volume. But once these doctors join our IPAs, they're aware of our facilities, our services -- some of them become owners in the IPA medical entities. The -- we have seen anecdotally that they send their non-IT PPO/commercial patients to our ERs. So the goal is not to build the largest IPA. It's to just build these networks, build awareness and take really good care of our patients, bring volumes, both IPA non-IT volume to our facilities. So really, that's the goal. Thomas Vo: Yes. And Bill, I want to add that the LA IPA is our most mature and are most established. And so that's one reason why they're more profitable than the others. But Houston and Phoenix are coming along nicely, like warrants said they are profitable. And we do have hospitals around both of those. The Miami location is also slightly profitable, but we do have a hospital opening in the Hallandale area in 2027 that would complement that nicely as well as with Palm Beach hospital that will also complement the South Miami. And so we're also expanding to both Dallas and San Antonio, where we have planned hospitals opening. So strategy is to surround the hospital with a network of primary care and specialist physicians. Operator: We have reached the end of the question-and-answer session. Mr. Rodrigues, I'd like to turn the floor back over to you for closing comments. Jennifer Rodriguez: Thank you all for those valuable questions and answers. For all those joining us today, if you have more questions, please e-mail us at investors@nutexhealth.com, and we'll get back to you promptly. On behalf of the Nutex management team, thank you all for joining us for our first quarter 2026 earnings call. We've covered a lot, growth, strategy, challenges and our vision, and we appreciate your time and interest. A recording of this call will be available on our website for a limited time. So feel free to revisit it there. Take care, everyone, and we look forward to keeping you updated on our journey. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good afternoon, and welcome to Alignment Healthcare's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] Please note that this event is being recorded. Leading today's call are John Kao, Founder and CEO; and Jim Head, Chief Financial Officer. Before we begin, we would like to remind you that certain statements made during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Descriptions of some of the factors that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC, including the Risk Factors section on our annual report on Form 10-K for the fiscal year ended December 31, 2025. Although we believe our expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. In addition, please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation of historical non-GAAP financial measures can be found in the press release that is posted on the company's website and our Form 10-Q for the fiscal quarter ended March 31, 2026. I would now like to hand the conference over to CEO, John Kao. Please go ahead, sir. John Kao: Hello, and thank you for joining us on our first quarter earnings conference call. For first quarter 2026, health plan membership of 284,800 represented year-over-year membership growth of approximately 31% -- this supported total revenue of $1.2 billion, which increased 33% year-over-year. Adjusted gross profit of $146 million represented an adjusted MBR of 88.2%, which improved by 20 basis points year-over-year. Meanwhile, adjusted SG&A of $108 million improved as a percentage of revenue by 60 basis points year-over-year to 8.7%. Our adjusted EBITDA was $38 million, which grew by 88% compared to the prior year. This result exceeded the high end of our guidance range and implies an adjusted EBITDA margin of 3.1%. Our results this quarter reflect strong execution across sales and member retention as well as our clinical operations. Our performance in our SG&A ratio also reflects the early outcomes of investments we've made to scale our infrastructure. Progress we are making across each of these areas is giving us even more confidence today that we are on the right path towards our goal of 1 million members. Growing and scaling a business as rapidly as we are in an industry as complex as Medicare Advantage is not a straight line. That being said, we are progressing very nicely as we continue to scale the company and achieve our near-term growth and margin expansion objectives. Importantly, our operational discipline and unique model gives us swift visibility across the organization. This enables us to identify issues quickly and take actions to manage their near-term impact. We focus deeply on continuously identifying opportunities to improve and deploy solutions to create even greater durability across our company. For example, the CMS rule change impacted our observation determination process and drove inpatient admissions per 1,000 towards the higher end of our expectations in Q1. This process change was resolved by the end of February, but impacted our first quarter inpatient admissions per 1,000, which was in the high 150s this quarter. We absorbed this headwind within our Q1 adjusted EBITDA beat and are well positioned as we enter the second quarter. As we build upon our culture of continuous improvement, this year, we are scrutinizing and revalidating every aspect of our people, process, technology and clinical culture to ensure they are positioned to scale. Through this process, we focused on opportunities to deliver more cost efficiencies through claims automation, improvements to our contract management infrastructure and scalability of our provider data management. For example, just 12 months ago, our claims auto adjudication rate was less than 15%. Now our year-to-date auto adjudication rate is over 60%, and we expect to drive even higher claims automation as we progress throughout this year. Meanwhile, we are also deploying contract management solutions that leverage AI to create a more dynamic contract management platform and taking the next leap forward in our AVA AI risk stratification models to create even greater precision in our clinical engagement efforts. We are also investing in our talent by adding team members who will drive greater scalability within our technology infrastructure. These are just a few of the actions we are taking to support our near-term results and accelerate progress to our long-term growth and margin objectives. Finally, before I turn the floor over to Jim, I'd like to spend a few minutes discussing the 2027 final rate notice, which was announced earlier this month. At a high level, we are encouraged by the administration's continued pursuit of actions that drive sustainability within the MA program. In a continuation of meaningful policy changes like the Wiser pilot program that tackle overspending in traditional Medicare, we also applaud the administration's actions to address overutilization of skin substitute products in fee-for-service. By taking action to create more accountability across every stakeholder in the health care ecosystem, we believe the program will increasingly reward those who deliver true, measurable value to members over the long term. Importantly, these dynamics continue to reinforce a core point, Medicare Advantage is a durable program that is here to stay. In that context, we also believe Alignment is particularly well positioned to succeed regardless of the rate environment. Our clinical-first approach enables us to deliver high-quality outcomes at a low cost and forms the sustainable competitive moat that sets us apart from our competitors. In closing, our first quarter results reinforce the strength and durability of our model. We are executing with discipline, scaling thoughtfully and continuing to translate our clinical approach into consistent financial performance. We're continuing to invest in the scalability of our platform, including automation, AI-enabled workflows and enhancements to our clinical infrastructure, all of which position us to drive further efficiency and growth over time. With a path toward 1 million members and unique opportunity to take share and grow profitably across all of our markets, we believe we are well positioned for the years ahead. With that, I'll turn the call over to Jim to further discuss our financial results and outlook. Jim? James Head: Thanks, John. I'll dive straight into our first quarter results. For the quarter ended March 2026, health plan membership of 284,800 increased 31% year-over-year, driven by strong execution on sales and retention. Increase in membership supported revenue of $1.2 billion in the quarter, representing 33% growth year-over-year. First quarter adjusted gross profit of $146 million represented an MBR of 88.2%, which reflects an improvement of approximately 20 basis points year-over-year. Our adjusted gross profit performance this quarter was underpinned by strong engagement from our clinical teams. Their disciplined execution held inpatient admissions per 1,000 within our range of expectations despite the temporary disruption to our utilization management process that John previously discussed. Meanwhile, the remainder of our medical costs were in line with supplemental benefit costs and Part D running modestly favorable through the first 3 months of the year. Moving on to operating expenses. Our SG&A discipline and scalability initiatives such as back-office automation supported outperformance in our operating cost ratio. For the first quarter, GAAP SG&A was $121 million. Our adjusted SG&A was $108 million, an increase of 24% year-over-year. Adjusted SG&A as a percentage of revenue declined from 9.4% in the first quarter of '25 to 8.7% in the first quarter of 2026. This represents approximately 60 basis points of improvement year-over-year and outperformed the midpoint of our implied guidance range by 50 basis points even as we continue to make focused investments. Taken together, first quarter adjusted EBITDA of $38 million produced an adjusted EBITDA margin of 3.1%, which represents 90 basis points of margin expansion year-over-year. Turning to our balance sheet. We generated strong operating cash flow in the quarter and concluded with $726 million in cash, cash equivalents and short-term investments. Our liquidity profile remains strong with ample cash available to the parent company. The funded leverage ratio at the end of Q1 improved to 2.6x trailing 12-month EBITDA. Turning to our guidance. For the full year 2026, we expect health plan membership to be between 294,000 and 299,000 members. Revenue to be in the range of $5.16 billion to $5.21 billion. Adjusted gross profit to be between $620 million and $650 million and adjusted EBITDA to be in the range of $138 million to $163 million. For the second quarter, we expect health plan membership to be between 288,000 and 290,000 members, revenue to be in the range of $1.30 billion to $1.32 billion, adjusted gross profit to be between $167 million and $177 million and adjusted EBITDA to be in the range of $50 million to $60 million. As it pertains to our full year guidance, we are increasing our membership growth expectation given continued strength within our sales operations and outperformance in member retention through the open enrollment period. We believe our disciplined approach to sales growth and focus on retention is serving us well this year, particularly as we absorb the impact of the third and final phase-in of V28. In conjunction with the increase in our membership outlook, we are also raising our full year revenue guidance to approximately $5.2 billion at the midpoint, which reflects 31% growth year-over-year. With respect to our profitability metrics, we are raising the low end of each of our adjusted gross profit and adjusted EBITDA guidance ranges by $5 million to reflect confidence in our full year objectives following the strong start to the year. Within our outlook expectations, we continue to assume that inpatient admissions per 1,000 will run higher year-over-year. As a reminder, this is primarily due to changes in our mix of membership. In 2026, we intentionally focused on growth amongst high acuity populations, whom we believe will benefit most from our clinical model. Consistent with past years, we also do not incorporate any assumption for final suite pickup from new members into our outlook assumptions. Taken together, our implied first half guidance reflects confidence that the strong performance we delivered in Q1 will continue into Q2. The midpoint of our guidance implies that approximately 60% of our full year EBITDA will be generated in the first half of 2026. This compares to approximately 55% of the full year EBITDA in the first half of 2025, excluding new member final suites. Further, on that same basis, this represents nearly 100 basis points of first half adjusted EBITDA margin expansion year-over-year. In closing, we continue to deliver upon our promises each quarter as we assess, refine and scale our core workflows and processes. Each of the transformational projects we are investing in and deploying today are establishing the foundation upon which we can scale to achieve our ultimate potential. Our meticulous and disciplined execution to date leaves us even more encouraged about the opportunities ahead. With that, let's open the call to questions. Operator? Operator: [Operator Instructions] Our first question will come from the line of Matthew Gillmor with KeyBanc. Matthew Gillmor: Maybe following up on the hospital observation issue. It sounds like this was temporary, but can you just walk us through what changed, how it was resolved and give us some sense for how hospital utilization trended now that it's been resolved? John Kao: Yes. Matt, it's John. Yes, basically, we paid authorizations at full acute rates when we should have paid them at observation rates. It was a workflow problem, and we, of course, corrected it, but it impacted our January numbers, a couple of million dollars, I think it was. And [ 80, 000-wise ], we were a little bit higher by a couple of days. And we wanted to share that with everybody. And it's really part of really how we are kind of looking at every part of our company to just continuously get better. And we'll talk about that a little bit more, I think. But I don't think it's a systemic problem. I think it was a 1-month blip, and we'll have that course correct. We have it course corrected. Matthew Gillmor: Got it. And just to confirm, John, this is an internal thing that you all caught... John Kao: Yes, yes, exactly. It's an internal workflow issue. It's not a utilization issue. Yes, utilization I think decline. And Jim's got the insights. Matthew Gillmor: Yes, okay. James Head: Matt, I'll jump in on the utilization because I think that's important, and there's lots of points of reference out there. But utilization was notwithstanding what John described, which I kind of call a onetime course correction, utilization is tracking very closely to what we expected. And as you're aware, we had admits in the high 150s. Absent that issue that John described, we probably in the mid-150s, and that is pretty much what we thought was going to happen. The flu is one thing that everybody is talking about. It wasn't a big driver, positive or negative in our numbers. We track admits with respiratory problems. We look at our Part D costs, et cetera, and it was pretty much in line. So we've got our eyes on all those categories, and it felt like things were tracking pretty nicely to what we expected, and we see that in April as well. Operator: Our next question comes from the line of John Stansel with JPMorgan Securities. John Stansel: I just want to talk a little bit about 2Q MBR. I mean stripping out sweeps, it seems like it improves by a pretty decent amount and that's even after adjusting for a couple of million of incremental pressure that's not going to recur in 1Q. Can you just talk about what's assumed for year-over-year improvement in the second quarter that is maybe different from the first quarter? John Kao: Yes. John, second quarter is usually our seasonal better quarter. And so there's just a natural decline in the MBR. So that's a good thing and it was expected. But I do want to step back and kind of describe -- we're laying out the actuals for first quarter. We're guiding on second quarter. And it's a pretty strong first half that we're positing. We set a reasonably high bar this year, by the way. But through the first half, we're expecting improvements across all our margins, MBR, SG&A, EBITDA, MBR first half, 40 basis points. SG&A, 40 basis points. EBITDA is 90 basis points to 100 basis points. So really strong first half. And that's apples-to-apples on a pre-suite basis. We mentioned on the call, 60% of our profits are in the first half versus 55%. But all the while, we're making investments in the business to scale. So we're really doing this balancing act of trying to make sure that we're executing very, very well, investing in the future. We're bringing on talented folks across the enterprise. We're making investments in systems and processes. But we have our eyes on continuing to improve our execution clinically and get our margins up. And so this is really a continuation of what we were doing in 2025 and we march into 2026. First half feels very good. John Stansel: Great. And then maybe just taking a step back and thinking about some of the changes in the final rate notice, I'll call it, deferral of a new risk model. How are you thinking about maybe reasons why that didn't make it in? And then as we think about potentially a new risk model in, say, '28 or '29, what we can take away from what was proposed versus what might actually be implemented? John Kao: Yes. John, Yes, I personally think there is going to be some changes. I think there's going to be more normalization, if you will. I don't think there's enough outcomes, feedback that CMS has yet to have initiated it in this past final notice. I think I actually don't know, but I believe that they're going to be working on this as a focus -- a topic of focus in the preliminary notice, the advanced notice coming up, and then we'll see something in the '27 to maybe be implemented by '29, something like that. But I think CMS has been pretty consistent with their message of ensuring that coding is not some form of a gamified competitive advantage for people. And obviously, I think that's a good thing for the industry, and I think it serves us really, really well. And it really puts the purest form of who's got the highest quality at the lowest price point in those organizations should be rewarded to succeed. Does that answer your question, John? Operator: Our next question comes from the line of Scott Fidel with Goldman Sachs. Scott Fidel: Just was hoping to just get a little bit more detail, if you don't mind, just on the inpatient issue that -- just so we can fully understand this. And so what I'm hearing from the call was, I think Jim had talked about there was a CMS rule change. It sounds like internally, you may have needed to make some adjustments to some of your systems as a result of that, and that is where maybe some of this disruption occurred. So I just want to sort of confirm that or if there's another sort of backdrop to that? And then sort of two questions just sort of around that would be in terms of your markets, is this something that -- like it's an internal system that sort of covers all of your markets or just California. So that was one. And then two, if it led to you guys paying full acute as compared to observation, is there an opportunity for you to claw back some of those additional reimbursements that you should not have paid? Or is that not something that you're going to have a resolution to? John Kao: That was my first question, Scott, but the answer is unfortunately no. Yes. No, it's a rule change that requires us to basically make authorizations a little bit more timely basis. And the backdrop of it is we've shared this with you guys in the past, which is we've kind of moved from this world of kind of capitation and delegation. And even in our shared risk businesses, we've had the certain administrative functions that were delegated to the IPAs. And one of the things we've shared with you in the past is we have started dedelegating certain IPAs. That strategy has been phenomenal for us and the IPA. We just have a good process. But there's more and more of the dedelegation of the acute authorization process or we would call that concurrent review process. And it's a competency that we are getting better and better and better at. And it's a competency that we need to make sure that we have the more we scale outside of California. Because I think a lot of the networks that are being constructed are really going to be with the direct providers, practices, et cetera, without having an IPA or an MSO like we have in California. And so I think that's the context. James Head: Yes. And Scott, given -- we put this as an example of corrective action and how we get on stuff fast. So by the end of January, we saw a little bit of an anomaly in our numbers. And then we went and found the root cause. And we knew that we were kind of going through a changeover at the beginning of the year, and we had staffed up and things like that. But by February, we had identified it and already corrected it. But it was a little bit of a drag on our adjusted gross profit. We want to call it out. But this is the kind of maniacal attention to detail that John talks about. And what you have to do to successfully execute. But we've corrected it. 80,000 is back exactly where we thought it was going to be by the time we got to February and March. And we kind of perfected that workflow and now we're ready to move ahead. John Kao: Yes. Last point really is we shared that with you all because we want to signal with you that a lot of the performance we are being able to achieve now was made 2 years ago on operational decisions. The most obvious one is the SG&A percentage being below 9% -- and so we're always continually refining all of our workflows. And it's a lot of focus of our time everywhere in the company. And the message is we are preparing ourselves to really grow and to support that growth in the same way that we have thus far. And that was the one line that I mentioned. It's not going to be a straight line. But I feel really good about this year, guys. I really do. And even for '27, '28 is a little bit far out, but -- and I think if anything, we've proven to you all we've kind of do what we say we're going to do. Scott Fidel: Got it. Got it. And if I could just follow up. And certainly, we appreciate you calling it out certainly as compared to us being in the dark about it. So. And then just to clarify sort of one. So John, it sounds like maybe the skew might have been to some of the outside of California markets in terms of just how this flows through to some of the delegation. And then the other follow-up would be, Jim, I know you mentioned sort of there was a separate dynamic around it sounds more like a mix impact on inpatient from sort of product mix change. Is that sort of D-SNP -- or maybe if you could just sort of clarify or is that sort of the new markets? Just maybe clarify what specific mix change there was that impacted that? John Kao: It's not just an ex California issue. It really was just a corporate function that we're really scaling and growing putting new systems in, putting in new workflows, all of that. It's really limits to that. And it's not just a function of the ex California and then Jim. James Head: Go ahead, Jim. Yes. And as it pertains to 80,000 being slightly higher, that is a mix issue. And it's a growth and a mix issue, Scott. In that instance, there's a lot of growth outside of California, and there's a lot of growth in more acute populations. And so we had planned for that as we came in. If you remember on our fourth quarter call, we talked about 80,000 is going to be inpatient admissions per 1,000 or 80,000 is going to be a little bit higher this year. It's going to tick up a little bit because we were making an investment in that population that we know has a lot of embedded gross margin. We're willing to make that investment. All of that is baked into our guidance at the beginning of the year and our outlook in the first half. So this is -- we're kind of tracking as to what we thought was going to happen. Scott Fidel: Okay. So it's new member sort of mix and then it's sort of some of the new markets and then sort of both of the product sets in terms of sort of traditional HMO and then DFI or sort of skewed just towards one of those? James Head: No, it's the -- we talked about a lot of our AEP growth being in the C-SNP, [indiscernible] population, like about 50% growth. That's what we're talking about in terms of... Scott Fidel: Yes, that's what I was trying to clarify. James Head: All of that is exactly tracking is how we expected. So that's -- the good news is we knew this -- we absolutely embraced going after that population because we think we can be very successful. Scott Fidel: Yes. So when you were saying more acute population, you were referring to the SNP not that the traditional HMOs new members were more acute. It was more the... That's what I was just trying to confirm. Operator: [Operator Instructions] Our next question will come from the line of Whit Mayo with Leerink. Benjamin Mayo: Maybe just a follow-up on that. How you're feeling about risk adjustment versus expectations given this focus on the more medically complex members this year? James Head: I think we're -- I'll break it into two pieces, our loyal population, which we really have a good line of sight. We're very good at predicting that and tracking it. And as it pertains to risk adjustment on the new members, we call them the newbies, that's where we're very cautious. So we book to the paid MMR, which means what CMS pays us will record as revenues. Now what that does is provides opportunity for upside in the second quarter when we get the final suites. So I think that you'll get more information when we get more information in the second quarter on that. But we are probably a little bit different than others in that we take a cautious stance on our new vision until CMS is giving us paid files that recognize that upside. Benjamin Mayo: Okay. And maybe just my follow-up. I don't think we've talked about RADV in a while. I just wanted to give your take, John, on the 2020 audit methodology that was issued a few weeks ago. Just what's different you see about the 2020 audits versus maybe the 2018 and '19? John Kao: Well, the big one is the kind of the ongoing litigation around the extrapolation methodology, which is a huge deal with respect to potential financial exposure. And for those of you that don't know, that part of the extrapolation methodology is no longer in the 2020 audits. Not to say that they won't come back down sometime in the future. And we feel very good about that entire process. We've scrubbed that area very tightly, and I'm not worried about that. Operator: [Operator Instructions] And our next question is going to come from the line of Michael Ha with Baird. Michael Ha: So it sounds like this inpatient admit issue is fully resolved, but it sounds like you realized anomalies in end of January. So would you say you knew about it by the time you reported earnings? And then secondly, I just wanted to ask about the LIS SNP members, it sounds like they were in line this quarter. But I was wondering if you could actually talk more about like higher mix of these members, how it might impact your cohort maturation into '27? Because if I'm thinking about it correctly, right, year 1 year to year 2 generally larger step-up in MLR improvement. Is it more pronounced next year given higher LIS SNP member mix, meaning if you're getting, say, like a 30 bps, 40 bps headwind in MLR this year, does that turn around into a larger tailwind next year? John Kao: Yes. I can take this, and Jim can provide color commentary. I think we have to wait a little bit in terms of getting the sweep data in. It's kind of linked to the prior question. We got to get the sweep data in on the newbies. I think from an MLR point of view, it's kind of consistent depending upon market, it's kind of in the high 80s, low 90s on the newbies that we got, inclusive of the numbers. So I don't think it's like ramping. But your point on the opportunity for we to improve embedded earnings once we have more time with these newbie members, particularly the SNP members, I think, is a good call out. And the way I'm looking at this is when you look at the overall consolidated MLR, we are then kind of looking at, well, how much of the MLR is supplemental benefits. And we've kind of shared in the past, it's in that 5% to 6% range. And so your medical MLR is kind of 82%, 83% that's the way we think about it. And then you say, okay, of that, how much is newbie versus how much is loyal? And to your point, the bigger proportion of our membership that becomes bigger and bigger that becomes loyal, that embedded earnings is going to get stronger and stronger. And then when you add on top of that, some of these people, process and technology changes that we're making that impact both MLR and SG&A, that's kind of where we're striving to get to, where we just are so good at all this, there's nobody that can compete with us with respect to bids. And then we start taking this thing out and expanding aggressively. That's kind of how I'm thinking about it. James Head: Michael, you asked about kind of were we aware of when we -- I guess, when we did earnings at the end of the fourth quarter earnings call in February, were we aware of what was going on? The answer is yes. When you turn the page every year, there's always a little bit of ambiguity in January in terms of how you're predicting the rest of the year. And so when we did our guidance, et cetera, we understood the issue and incorporated that into our guidance. And I think corrective action is the right way to describe it. We fixed it fast. It didn't take months. It took 30 days to fix it. And I think you're seeing in our first half guide that we feel pretty good that we've got line of sight on the first 6 months of the year, and things are performing quite well. Michael Ha: Great. And just a quick clarification. A -- what would MLR have been if you did not have that issue in January? And then on DCPs... James Head: Yes, I would say it's probably maybe 30 basis points higher or something like -- 30 basis points lower, something like that. Michael Ha: Got it. And if I could ask just one on DCPs. They're up a lot again this quarter. I think like 10 days year-to-year. Last quarter it was up 6 days, which I love to see that. Also noticing [indiscernible] is tracking well, down year-to-year. But I know last quarter, there were some, I think, timing dynamics around claims payment. So I was just wondering, were there any unique dynamics this quarter that might explain the large increase? And just would love to get your thoughts on the level of conservatism in your reserve methodology recently because it feels like there's a nice cushion. James Head: Yes. And Michael, I think I'm tracking DCPs, reserve build, stuff like that. I'll just say, generally speaking, our reserve methodology is exactly the same. We're conservative and consistent. We haven't really changed our processes or our stance. It's not like we were conservative last year, we're less conservative this year. We're growing fast. But that's all part of it. The DCP did pick up a little bit. There is some Part D components in there, call it CMS Part D type stuff, which makes it a little bit anomalous. But generally speaking, the classic IBNR days claims payable has been moving upwards. Over the last three or four quarters, we're just 3 quarters. We've just -- there's been a little bit of volatility in the pace, but we're working through that. But I wouldn't read into building conservatism, but I would certainly not say that we're -- that we've changed anything and we're less conservative at this point. So it feels like it's a good quality of earnings, so to speak, this quarter on that. Operator: [Operator Instructions] Our next question will come from the line of Jessica Tassan with Piper Sandler. Jessica Tassan: I'm curious to know how you're thinking about supporting the bridge model for GLP-1s that launches this summer. I know the economics are separate from Part D, but just in terms of getting people who can benefit on the drug and adherent, retaining them into '27 and possibly capturing some trend benefit. Just interested to know how you're thinking about that launch this summer? John Kao: The kind of voluntary pilot is what you're asking about? Jessica Tassan: Yes. John Kao: Yes. We actually said we would participate with certain conditions. I think you guys know that they didn't get the 80% that they wanted. And so they're kind of extending that time period. And that kind of gets into a little bit of our product strategy for the '27 bids, which I'd like to not discuss at this point. is kind of how I'm thinking about it. I'm not sure. Jessica Tassan: It's all right. I can come back in a few months. Maybe then just on '27, to the extent that you guys are willing to comment, it sounds like the message for '26 is we're really happy with the growth for '27 sustained growth. So can you just update us on new market plans for '27 post rate announcement? Are you still planning to add at market? And then just whether you guys consider the '27 rates adequate? And if not, should we just expect kind of marginal benefit cuts to offset whatever the delta might be? John Kao: Yes. The other kinds of questions we're getting are, gee, with only 2.48% net, are you guys going to just like grow like crazy again like you did in '25, basically? And again, I don't want to comment on any bid tactics I will say -- just for competitive reasons. I will say that we will be expanding into new markets, some large markets next year. I'm not going to comment yet where and/or if we're getting new states. But I think -- again, we think about all of this as a portfolio of assets. And I think it's fair to say for we to expand where we have risk-based capital in a capital-efficient way is probably still the best way for we to grow, whether that be California, Texas, North Carolina, Vegas, it's doing great, et cetera. I think the other part of what's driving our decisioning is, again, this discussion around the operational framework and can it support the level of growth in the new markets? And I think the answer is yes, given our performance. But I probably want to see another year of outcomes. And I think we can continue getting the growth. I think you'll see us getting good margin expansion. And I think you'll start seeing that in some of the discussions around '27. And we'll talk about that in the fall. So after the bids are in. Operator: [Operator Instructions] Our next question will come from the line of Ryan Langston with TD Cowen. Ryan Langston: Just on the G&A, I appreciate the comments on the benefits from investments and some automation. But was there any impact from timing in the first quarter that might sort of reverse out in the rest of the year? Should we maybe expect that level of performance to kind of carry through the back half of the year? James Head: I think there is always a little bit of timing in the first quarter where you want to make sure that you've got cushion -- for hiring spending, things like that. But I think it was -- there's just a lot of good performance across all the categories even beyond labor, for instance. Now as it pertains to whether we're going to pass that along, it's early in the year. And this -- as John and I have been talking about, we're really making investments in the business. So I suspect that we're not going to just turn that into a beat on the year just yet. But on the other hand, it gives us a little bit of comfort that we can continue to make investments in the business. And obviously, we're monitoring this holistically from a margin perspective, percentage of revenues and whether we're going to meet our commitments. So obviously, it's nice to have an early good start, but that doesn't mean we're ready to give it all back and put it into the margin. Ryan Langston: Okay. And then can you just maybe talk a little bit about capital expenditures for 2026 and beyond? I mean, is there sort of an opportunity or maybe even a desire to push that up a little bit just given where the free cash flow generation is now? James Head: Yes. Our capital expenditures are largely software development. And we do have a little bit of hardware. And we've got kind of a road map set up where we -- this year, we're probably in the $40 million spend range. It's a little bit -- we're coming out of the block a little bit softer than that, but that will accelerate. And it's well within our means. Now on the other hand, the ability to -- if we have the dollars, we also need to make sure that we're -- we've got the right project, the right bandwidth, and we're getting the right returns out of it. So that is a little bit more of the constraint versus the quality and returns versus whether we have the capital for it. So we feel pretty good about 40%. My guess is that could tick up a little bit, but it's going to -- as we accelerate our revenues, it's certainly going to come down as a percentage of revenues over time. John Kao: Yes. And just to add to that, I mean, we have not shared with you all, and we won't on this call, we will likely have more transparency on the next call around how we're deploying AI. And just -- I think the opportunities for us in terms of our clinical operations, our provider data, our stars, our MR, like every part of the company can benefit from that and we will continue to drive down the SG&A in particular and the MLR, I think. And so what we've had to do to maximize the benefit of AI and the tools that are available to us, which I think are just amazing is make sure we understand and validate all of the data. I think we have the best data in the industry, and we're going to get that even better. And I think our workflows, our end-to-end provider workflows, our end-to-end member workflows, our end-to-end Stars workflows, all of that is getting documented molecularly now so that we can apply the AI tools on top of that. And that's where the CapEx is going towards. Operator: [Operator Instructions] And our next question will come from the line of Justin Lake with Wolfe Research. Unknown Analyst: This is Dylan on for Justin. From a trend perspective, some of your peers have talked about a moderation beyond weather and flu. Have you seen any early signs there? And then also curious on the churn rate you're seeing early in 2026 compared to 2025? James Head: This is Jim. I'll take the second question first. Churn meaning retention, we're actually tracking really nicely on retention. That's been one of the helpful components of our membership growth year-to-date, OEP, et cetera. So we feel pretty good about that. As it pertains to trends, I mentioned earlier on the -- in the Q&A, flu and other trends are -- we track them, and they're not jumping out as anything anomalous per se. Now that's our book of business and how we think about things. But I will say that we look across the major categories of medical spend and the trends seem very consistent for us. And obviously, the rate environment, as you guys know pretty well, it's low single digits. What we haven't talked about on the call here is Part D, which is tracking very nicely this year. We had a little bit of outperformance in Q1 in the margins. That was a good thing. We're not ready to kind of turn that into a full year expectation increase. But Part D is doing really, really nice. And that's -- over the last couple of years, that's been a big watch out. So we feel pretty good about that. But trend-wise, we just have a different kind of rhythm than some of the other commercially focused or some of the other MCOs. And I don't think it's just because it's our footprint. I think it's because we are -- it's the way we set up our utilization management. I think the way we work with our providers. And there's some capitation in there that cushions us along the way, not necessarily full, but some of the capitation is absorbing some of those flu season trends, et cetera. Operator: [Operator Instructions] Our next question will come from the line of Andrew Mok with Barclays. Andrew Mok: Alignment is predominantly an HMO business, but you leaned a little bit more into the PPO product this year. Can you walk us through the rationale behind that decision? And how are you thinking about the relative attractiveness of the PPO product given some of the recent plan exits across the market? And do you expect PPO to become a larger driver of your growth over time? James Head: Andrew, John. Part of the reason we were willing and able to do it last year and for this year is over half of the business is globally capitated. And so that factored into the way we think about things. I think that the logic around stratifying members, caring for the members through our Care Anywhere program, kind of positioning that part of the, call it, the clinical part of the business is something that should and could work for us as we think about extending the product, particularly outside of California. I don't think we have figured out the secret sauce yet, frankly. And I think that I think the only way to deal with that is probably going to be with higher member premiums going in the future. We are not going to be, I don't think, talking about, again, 27 bids. But I think long term from an industry perspective, that whole part of the world was supported by high RAS scores. And I just don't think that's going to happen going forward. And I think the unit economics are going to be pretty tough for people. If anybody can do it, it should be us. But candidly, I don't think we've cracked that code quite yet. Operator: [Operator Instructions] Our next question comes from the line of Jonathan Yong with UBS. Jonathan Yong: I recall last quarter, we talked about you still had some provider engagement negotiations outstanding in some states that you were thinking about entering. Has that progressed any further? And does the final rate update make any difference in terms of those negotiations? So you were negotiating when the advance came out and then obviously, the fines out. Does that change that negotiation process? John Kao: No, Yes. I know exactly what you're talking about. I wouldn't characterize it as negotiation. I think the negotiations part was fine. It was more around the engagement, the provider engagement model. And in some markets, the answer is yes. And we'll share with you where we're expanding to. In some markets, the answer is no. And I think that will also have -- would kind of dictate where we expand into certain markets or new states. I think the negotiations part is really interesting is -- the delivery system, and I can get on a whole thing on delivery systems, if you guys want. But they really need an alternative. They want an alternative to a payer that's willing to move market share to them without the kind of high denial rates some of the larger folks have. And that's not to say that we're not good at it. It's just we're actually -- the model is very different. And so that though requires a high degree of engagement with the clinically integrated networks that are typically owned by these integrated delivery networks, these large monoliths now they are becoming somewhat monopolistic, but that's a whole different topic. And so it's really important that we find the right doctors and practices we can work with. And we're leaning into that significantly as we think about more scale outside of California. Jonathan Yong: Great. And just a follow-up just on the denial portion of it. Given the MCOs, broadly speaking, are reducing the amount of prior auths, et cetera, and presumably denials, does this make it harder to contract within that context? John Kao: No, it's going to be really interesting. I think it's where is the emphasis. And I think a lot of the AHIP discussions and what CMS is pushing the large plans is really around commercial. I think there's a little bit also that the exchanges in [ Caid ] and care are dragged into that as well. But our denial rates are like less than 2% -- and I won't name names, but some of the larger ones are 13% to 15%. And some of the data we pulled that Harrison pulled and shared with us just a few weeks ago was really interesting, and I'd encourage you all to get that. It's all publicly available. I do think we need to, as an industry, talk about, and I think you guys need to understand this part is when I get every single health system CEO and CFO say that Medicare Advantage pays them 85% or 86% of traditional Medicare. The inference is the plans are denying care or kind of playing insurance games. When in fact, I would pause it that we think about that statement differently, meaning from our experience, we are paying the health systems 100% of what they deserve to be paid. And so when we talk about the same degree of program integrity that was applied to MA as it relates to coding for the insurers, we got to start looking at program integrity on hospital billing practices in the context of this affordability discussion. And if 100% of the claims and authorizations we get from hospitals and systems is acute as opposed to observations, because ask the question, how are we going to make sure that everybody is aligned on the accuracy of those billings that are submitted to the plans. And so you got to look at the denominator also. The denominator is traditional Medicare. Well, traditional Medicare isn't editing any of their submissions, I would pause it. And so we got to just kind of deal with that issue. And that is -- that's going to be a policy issue. And if you heard the hospital CEOs in front of Congress the other -- I think it was earlier this week, it's all the plans. Everything is bad about the plans. And I would just reject that. We're paying -- we are paying hospitals 100% contractually what they show, and our denial rates are very, very low. So that's kind of my soapbox on that. Operator: [Operator Instructions] Our next question will come from the line of Craig Jones with Bank of America. Craig Jones: So I want to follow up on the final rate notice. Chris Klump was out with some comments after the final rate notice is published that you happy with that 2.5% number as it is roughly in line with where general inflation comes in and thought that, that should be a target for just health care spend increases going forward. So do you think that 2% to 3% is where we will continue to see these rate notices going forward? And if that's the case, what kind of -- what level of unmanaged trend, I guess, could you manage without having to cut benefits if that's where the rate notice comes in? John Kao: It's a pretty insightful question there. I think overall trend nationally as an industry is way higher than 2.48%. And I think the default scenario for a lot of the plans is going to modulate the delta through kind of either tougher unit economics with the providers or, to your point, benefit reductions. I think for us, you got to look at the specific geographic impact of some of this information. And so I think it's public out there that when you look at the data region by region, for example, L.A. County's rate increases are closer to 6% okay? So obviously, that stands to benefit us significantly. And so those are the kind of factors we're considering now, and I've shared this with you in the past that we're doing our business plans now market by market in preparation for the bids. So I feel pretty good about where we're positioned for '27 bids. But no way trend is going to be at 2.48%. There's just no way. I mean that's -- I love Chris. I have a lot of respect for him, but the trend is a lot higher, which gets to and speaks to affordability, which gets back to hospital billing. Operator: [Operator Instructions] Our last question will come from the line of Ryan Daniels with William Blair. Ryan Daniels: John, you talked a little bit about ancillary benefits and the impact on MLR. And Jim, you've talked about capital deployment. Let's tie those two together and get your latest thoughts on maybe deploying some capital to bring some of that in-house, especially as you approach that 300,000 member number and think about going into new markets. Is that another strategy along with AI to kind of help the cost profile of the organization? John Kao: Yes, absolutely, Ryan. The supplemental benefits, if you kind of look at the larger we get and a lot of our larger competitors have those captives, we could call them, whether it be a behavioral health HMO, dental PPO vision PPO, transportation, all that stuff right now, we pay external vendors. And so it's an opportunity for us to lower MLR by bringing some of that in-house. And I've kind of alluded to that in the past where if we focus kind of M&A dollars, it could be in those areas, which are relatively low risk, low capital, high return. And so whether it's a dental PPO or a dental HMO even, those are some of the decisions we're weighing right now, you'd see that company. If we bought something or if we started something, you'd see it with 300,000 customers. That's a pretty good win for everybody. Obviously, that is not something we're embedding into any of our thinking for the first half guidance, that would be an additional upside for us in the future. Operator: Thank you. This will conclude today's question-and-answer session. Ladies and gentlemen, this will also conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day. John Kao: Thank you.
Operator: Hello, everyone. Thank you for joining us, and welcome to CNO Financial Group, Inc.'s First Quarter 2026 Earnings Results. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I will now hand the call over to Adam Auvil, VP of Investor Relations. Opening remarks. Please go ahead. Adam Auvil: Good morning, and thank you for joining us on CNO Financial Group, Inc.'s First Quarter 2026 Earnings Conference Call. Today's presentation will include remarks from Gary Bhojwani, Chief Executive Officer, and Paul McDonough, Chief Financial Officer. Following the presentation, we will also have other business leaders available for the question and answer period. During this conference call, we will be referring to information contained in yesterday's press release. You can obtain the release by visiting the Media section of our website at cnoinc.com. This morning's presentation is also available in the Investors section of the website and was filed in a Form 8-K yesterday. Let me remind you that any forward-looking statements we make today are subject to a number of factors, which may cause actual results to be materially different than those contemplated by the forward-looking statements. Today's presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures. You will find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentation, we will be making performance comparisons and unless otherwise specified, any comparisons made will refer to changes between first quarter 2026 and first quarter 2025. And with that, I will turn the call over to Gary. Gary Bhojwani: Thanks, Adam. Good morning, everyone, and thank you for joining us. CNO Financial Group, Inc. is off to a strong start to the year, building on our excellent 2025 performance. First quarter operating earnings per diluted share were up 33% to $1.05 and up 42% excluding significant items. We also delivered our fifteenth consecutive quarter of sales growth and our thirteenth consecutive quarter of producing agent count growth. We remain pleased with the consistent results we are generating, and we remain focused on growing earnings, improving profitability, and reinvesting in the business. Our performance in the quarter once again illustrates the strength and resilience of our business model. We continue to perform well through economic uncertainty as we help middle income households achieve greater financial security and protection. Sales results in the quarter were strong across both divisions, with total new annualized premiums up 11%. Our exclusive middle market focus and our last-mile captive agent distribution model create our durable competitive moat. This difficult to replicate model is a clear advantage and a catalyst for profitable growth. Earnings continue to benefit from strong insurance product margin and investment results reflecting growth in the business and expansion of the portfolio book yield. We maintained a robust capital position while returning $77 million to shareholders. Book value per diluted share, excluding AOCI, was $38.98, up 5%. Turning to slide five and our growth scorecard. Nearly all of our growth scorecard metrics were up for the quarter with strong performance across production, distribution, and investments and capital. Turning to slide six on our Consumer division. The Consumer business delivered a strong start to the year. This marks our fourteenth consecutive quarter of sustained sales growth and includes a 9% three-year compound annual growth rate for Life and Health NAP. Consistent execution and our focus on the middle income market continue to drive our results. Life and Health NAP was up 9% for the quarter. Total Health NAP was up 20%, marking fifteen consecutive quarters of growth. Supplemental health was up 10%. Our Medicare business continues to perform well, building on the strong results our field leaders delivered during the 2025 annual enrollment period. Total Medicare policies sold were up 24% with Medicare supplement NAP up 53%. Our results continue to reflect the shift in consumer preferences away from Medicare Advantage and towards Medicare Supplement. During the 2025 AEP, industrywide MA enrollment growth slowed to about 3%, the weakest pace in twenty years. The broader MA market also continued to experience significant disruption as many leading carriers pared back plans and benefits over the last eighteen months. Approximately 3 million MA members had their plans terminated for the 2026 plan year, requiring them to find new coverage. About one in five people with Medicare switched plans or carriers, the highest rate ever recorded for an annual enrollment period. This environment underscores the value of offering both Med Sup and Medicare Advantage through our national agent distribution model. Medicare remains a flagship door-opening product for CNO Financial Group, Inc., supporting our ability to expand the total number of households we serve. Life NAP was up 1% for the quarter with more than half of our life production being generated from direct sales. Our approach to the D2C life channel continued to benefit from technology-driven productivity enhancement and diversifying our marketing away from television to include more web, digital, and third-party channels. These nontelevision lead sources generated nearly 65% of all D2C life sales for the quarter. Annuity collected premiums of $434 million were down 2% on a strong comparable. Account values were up 7% over the prior year. We delivered our twelfth consecutive quarter of brokerage growth. Client assets were up 27% to a new record, and total accounts were up 13%. When combined with our annuity account values, our clients now entrust us with more than $18 billion of their assets, up 12%. Strong agent productivity and retention fuel our sustained sales momentum. Agent recruiting is also up as our career path continues to resonate with applicants seeking financial stability and a career of purpose. Producing agent count was up 3%, our thirteenth consecutive quarter of growth. Registered agent count grew 7%. Investments in technology, data, and artificial intelligence are woven into our strategy to drive greater efficiency and agent productivity and to enhance our customer experience. One example is our Colonial Penn call center, where we are using AI to help answer and intelligently route customer calls to live agents. The early results are very encouraging. We are seeing shorter customer wait times and higher quality sales conversions. We have multiple initiatives underway across the company to advance our technology and AI roadmap. As these programs move from pilot to execution, we will continue to share examples of the value they deliver. Next, slide seven and our Worksite division performance. The Worksite business also started the year strong, with Life and Health NAP up 22%. This represents our sixteenth consecutive quarter of sales growth with a 20% four-year compound annual growth. Highlights from the quarter included life insurance up 56%, hospital indemnity insurance up 121%, and accident insurance up 18%. Our focus on small to mid-sized businesses and associations combined with our career agent model continues to drive meaningful sales growth. NAP from new clients increased 65%, largely driven by geographic expansion and further penetration into existing markets. Live sales, in particular, experienced a significant uptick from these new client relationships. Our sales performance in the quarter was driven by strong agent productivity. Producing agent count was up for the fifteenth quarter, and agent recruiting was up 8%. Across both divisions, we are pleased with the solid start to 2026. We are executing well, and expect that momentum to carry through the remainder of the year. And with that, I will turn it over to Paul. Paul McDonough: Thank you, Gary, and good morning, everyone. Turning to the financial highlights on slide eight. Operating earnings per share were $1.05 for the quarter, up 33% and up 42% excluding significant items in the prior period. The increase reflects continued profitable sales growth, strength in underwriting results, growth in net investment income driven by growth in assets, together with higher yields, and ongoing discipline in expense and capital management. Fee income was in line with expectations in the quarter. The expense ratio was 18.9%, reflecting lower than planned spending in the quarter, which we expect to normalize over the balance of the year. During the quarter, we deployed $60 million of excess capital on share repurchases, contributing to a 7% reduction in weighted average diluted shares outstanding. We continue to take a measured, disciplined approach to expense and capital management, reinvesting in the business to support growth, while also generating a healthy level of free cash flow which we return to shareholders through dividends and share repurchases. On a trailing twelve-month basis, operating return on equity was 13.1%, and 12.2% excluding significant items. Turning to slide nine. Outstanding sales performance over the last several years continues to drive growth in insurance product margins across each major product category. As a reminder, the first quarter is typically the lowest insurance product margin quarter of the year, reflecting seasonality across several of our products. Against that backdrop, our first quarter 2026 results were solid, reflecting the strength of the underlying business. Fixed indexed annuities benefited from growth in the block. Supplemental health and long-term care both also benefited from growth in the block, with long-term care margin also reflecting favorable morbidity. Medicare supplement faced modestly adverse claims experience, partially offset by the favorable impact of continued growth. We expect rate increases over the course of 2026 to help address the recent claims experience. Our traditional life margins benefited from growth in the block, favorable mortality, and lower nondeferrable advertising expense. Overall, these results again demonstrate the value of our diversified product portfolio where individual puts and takes across product lines typically net to stable and growing total margin over time. Turning to slide 10. Net investment income increased 6% year-over-year, marking the tenth consecutive quarter of growth in total net investment income. The growth was driven by two key factors: growth in net insurance liabilities and related assets, which increased 4.8% in the quarter, and continued improvement in book yields, supported by thirteen consecutive quarters of new money rates above 6%. Net investment income not allocated to products increased year-over-year, reflecting growth in the FHLB and FABN programs, while alternative investment income improved over the prior year but was slightly below expectations. Importantly, our portfolio continues to remain high quality and liquid. The average book value of invested assets increased 4.2% year-over-year, reflecting growth in the business. Our investment posture remains disciplined, supporting durable income generation while maintaining flexibility in a volatile market. Our new investments in the quarter comprised approximately $1.3 billion of assets with an average duration of five years. Our new investments are summarized in more detail on slide 20 of the presentation. Turning to slide 11. Our total capital position remains robust. The consolidated risk-based capital ratio remains well within our target range, which we manage between 360–390%, recognizing that some variability is expected quarter to quarter. Holding company liquidity ended the quarter at $280 million, well above our $150 million minimum target. Debt to capital was 26.4%, remaining comfortably within our 25–28% target range. Overall, our capital and liquidity position provides flexibility to support growth, manage risk, and deploy capital thoughtfully over time. Turning to our 2026 guidance on slide 12. We are pleased with our first quarter results and the momentum we are carrying into the balance of the year. We feel good about the variables within our control, and the underlying performance of the business. However, given the volatile macroeconomic environment, and the simple fact that we have three quarters yet to go in 2026, we are affirming our original guidance at this time, and consistent with our historical practice, we will refine our projections later in the year. Regarding our three-year operating return on equity target, we have been clear that 12% ROE was not a destination but rather a waypoint in the journey of our continued improvement. Our recent ROE results make it likely that we will increase our 2027 ROE ambitions. However, just as with our annual guidance, we do not believe it would be appropriate to update our 2027 ROE target less than halfway through the three-year cycle. We believe credibility is built through delivery, not through frequent recasting of long-term targets. And we intend to update our ROE objectives for 2027 and beyond no later than early next year. And with that, I will turn it back to Gary. Gary Bhojwani: Thanks, Paul. Turning to slide 13. Consistent, repeatable results continue to drive our momentum as we grow earnings, improve profitability, and reinvest in the business. Our results reflect the resilience of our business model and the strength of our diversified products and distribution. Disciplined execution will continue to drive our growth and create meaningful value for customers, associates, and shareholders in 2026 and beyond. Thank you for your support of and interest in CNO Financial Group, Inc. We will now open the call for questions. Operator? Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, please press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Suneet Kamath with Jefferies. Please go ahead. Suneet Kamath: Thanks. Good morning. I wanted to start with the MedSup business. Paul, I think you talked about in your prepared remarks some pricing plans. Can you flesh that out a little bit and give a sense of the timing of when you would expect those premiums to sort of kick in? Paul McDonough: Sure. Hi, Suneet. So we started seeing some increase in our MedSup claims last year, translating to higher benefit ratios. As you mentioned, we have the opportunity to file rate increases annually, allowing us to address emerging experience and maintain profitability of the book over time with a bit of a lag. So in 2025, we filed for rate increases in two buckets. The closed block with a 01/01/2026 effective date, asking for an increase of 10.5%, and we received approvals for 10.2%. And then the open block with 07/01/2026 effective dates, we filed for 16.8% and we are expecting approvals for around 14.5%. These rate increases earn in over time, with the full quarterly impact over these two blocks evident by fourth quarter of this year, which should translate to improved benefit ratios depending a little bit on claims experience in 2026, which we would then address with 2027 rate filings. In the long run, over time, MedSup is a good product for us, meeting our target returns. The good news is that MedSup is not our only product, and I think this illustrates the strength and the resiliency of our business model, including its product diversity, which typically translates to puts and takes in product margin across our product portfolio, but relatively stable and growing margin in total, and you certainly see that in our first quarter results. Suneet Kamath: And are those two buckets that you mentioned similarly sized, or is one bigger than the other? Paul McDonough: The closed block, I would say, is maybe two-thirds, and the open block about a third. Roughly. Suneet Kamath: Okay. And then maybe for Gary, just focusing on the Consumer segment. At the product level, it looked like Health NAP was quite strong. But life D2C and annuities, less so. And I think you had mentioned in annuities some tough comps. So maybe just give us some color in terms of what you expect there. Are we getting to the point where the comps are getting just too difficult to grow, or was there something anomalous in the first quarter? Thanks. Gary Bhojwani: Suneet, thanks for the question, and thanks for the continued interest in CNO Financial Group, Inc. I did not see any particular anomalies in the first quarter. And if anything, I would argue that all of the forces that have continued to allow us to grow are still there. You still have the population—about 11 thousand folks turning 65 every day. You still have the absence of alternatives. You have longer lifespans. You still have the fact that the government cannot solve this problem. We expect demand for these products to continue to be very robust. You are right in citing the fact that we had tough comparables—or strong comparables, I should say. Frankly, I would be happy to have that problem every quarter. And even the 2% that we cited, I regard that as nothing more than just quarter-to-quarter fluctuation. Remember, if the selling season in one quarter is one or two days shorter than another quarter, you are going to see variance. There are all kinds of things that go on every quarter. To be really blunt, I do not pay that much attention to volume from quarter to quarter. I am much more focused on the one- and three-year trends, and everything I see points me to strong demand and, more importantly—or at least as importantly—a really strong ability in our product portfolio and distribution network to be able to execute and meet those demands. So I am extremely bullish, and I would not pay any attention to minor fluctuations of 1% or 2% here or there. It is, in my mind, irrelevant. Suneet Kamath: Okay. Thanks. Operator: Your next question is from Ryan Krueger with KBW. Please go ahead. Ryan Krueger: Hey. Thanks. Good morning. First question is just on expenses. I know you mentioned normalization during the rest of the year. But would you consider this all timing related in terms of the abnormally favorable expenses this quarter, or do you think we are actually seeing some favorability maybe to what you had originally expected? Paul McDonough: Hey, Ryan. I am not sure I am totally following the question. But just to offer some thoughts, and please give me a follow-up if I am not answering the question. There is always some variability across quarters. It is somewhat difficult to plan each quarter exactly. Typically, in the first quarter of the year, we have higher expenses, which translates to a higher expense ratio, and that grades down over time. That has been pretty consistent over the last several years. Honestly, that was our expectation this year. It has not played out that way. But we expect that the expenses for the full year will still come in around where we had originally planned, and that should translate to the expense ratio when you do the math. Having said that, the growth we are seeing in the business will likely drive some favorability in the denominator of the ratio. And I think that points to the continued leverage that we are getting in the business from the growth that we are seeing. So, Ryan, let me know if that did not answer your question. Ryan Krueger: No, that was exactly what I was getting at. Thank you. And then I just have one for Eric Johnson. There has certainly been a lot of volatility and, I guess, concern or fluctuation in the credit markets these days. Just curious about your perspective on what you are seeing in the credit markets and also where you are seeing good opportunities to deploy new money right now. Eric Johnson: Good morning, and thank you. We have always taken the point of view that we wanted to have a stable and consistent investment performance at CNO Financial Group, Inc. And so our asset allocation model over the last couple of years has really been predicated on being capital efficient and storing up dry powder for a more favorable environment where you could really make some money at lower levels of risk versus making very little bits of money at maybe higher levels of risk. As we got into this year and you had some volatility in the first quarter, you saw a lot of rates volatility. The Treasury curve moved up 30–40 basis points, but credit spreads were actually pretty flat—traveled in, in IG, maybe a 5–7 basis point channel; high yield maybe a 30–40 basis point channel. So you did not really get dislocation. The market was pretty well behaved largely because there was a lot of demand for product at higher rate levels. Investors were willing to buy, and you saw that in oversubscriptions and continued good executions on new issues. Through the quarter, we pretty much stuck to our knitting, and you can see it in the earnings deck. We worked shorter on the curve, largely because that was our ALM need, and we want to keep that in check. And then, secondly, there was not any opportunity to make big money. So that is reflected in the new money rate, which is a little higher than 6%, consistent with prior quarters. We did not lunge at the market. We are going to let it come to us. I do not think this story is in the ninth inning. As the economy evolves and the impact of higher energy costs and other things happen, there will be better entry points for a real change in strategy. We are not there yet. Ryan Krueger: Great. Thanks a lot. Appreciate it. Gary Bhojwani: You are welcome. Operator: Your next question is from Joel Hurwitz with Dowling and Partners. Please go ahead. Joel Hurwitz: Hey. Good morning. Wanted to start on the ROE targeting. Good to hear that it will likely increase. What do you think are the biggest drivers of the recent outperformance that you think is moving forward? Is it growth, expenses, experience? Paul McDonough: Good morning, Joel. I think it is all of the above. As we have been saying for a couple of years, there are not really any silver bullets here. It is really a combination of actions taken across the value chain of the business that is driving earnings growth. Some of it is earnings, of course, but we are also taking actions in the denominator of the calculation—being as efficient as possible in capital. We continue to focus on that. Again, I feel like a bit of a broken record on this, but the answer has not changed, and that is that we are focusing on the entire business, and there are things that we are doing to improve effectiveness and efficiency, to drive growth, to drive risk-adjusted returns in the investment portfolio, and to optimize capital. You add all that up, and on a compounding basis, it has been driving ROE improvement, and we expect it will continue to do so. Joel Hurwitz: Got it. That is helpful. And then shifting to long-term care. Can you just sort of unpack the experience and maybe expectations moving forward? Results have been favorable, and they look to improve further this quarter. Is the margin around 50% sort of the new normal for that business? Paul McDonough: Long-term care continues to perform exceptionally well. It continues to surprise us a bit to the upside, including in this quarter. We revised assumptions a bit last third quarter. We will do that again this year in the third quarter, and we will see how things evolve. But the claims experience has been reasonably stable and favorable. It continues to be a great business for us. It is a product that our customers need, and it is designed and priced in a way that generates good returns and stable results. Joel Hurwitz: Okay. Thank you. Operator: Your next question is from Jack Matten with BMO Capital Markets. Please go ahead. Jack Matten: Hey, good morning. Just one follow-up on the ROE target. Given that CNO Financial Group, Inc. is currently at 12.2%, there are still, I think, some meaningful benefits to emerge from actions you have taken in recent quarters. Are there any partial offsets or places where there could be some normalization as we think about that overall trajectory? It just seems that there could be some meaningful upside versus the original 12% target based on where things are currently running. Paul McDonough: Yeah, Jack. I can provide some initial thoughts, and Gary may want to jump in. Two points. Number one, operating earnings continue to drive, and within a reasonable range, we expect to be able to continue to drive growth in operating earnings. We will continue to focus on capital to drive improvement on that side of the equation. The other comment I would make is that the denominator is shareholders' equity, and so it is impacted by nonoperating income, which, as you know, is volatile. So that can create some noise, plus or minus, in the ratio over time. But over long periods of time, that tends to even out. I will leave it there. Gary, if you want to offer some higher-level comments. Gary Bhojwani: Thanks, Paul. Jack, thanks for the question, and thanks for the interest. I think an important perspective to remember: in 2024 we said we wanted to improve our ROE by 200 basis points in three years. But we have, from the outset, been clear externally and internally that that 12% number is not the destination. Not even close. We have to continue to improve. We will continue to improve. You should absolutely count on the fact that we are going to do everything we can to drive that above 12%. Really, the only questions are by when and by how much. Whether we get to 12% in 2026 or 2027 or whatever it is, our aim is to continue to improve upon that. That is not good enough. We can get better, and that is within our reach. The only thing we are stopping short of doing is communicating by how much and by when. But you should absolutely take certainty in the fact that we are driven to improve that beyond 12%. Twelve percent is nothing more than a waypoint. Jack Matten: That is helpful. Thank you. And my other question is just on the RBC ratio and, given it is right in the middle of your target range right now, sequentially this quarter was there any kind of movement or impact from lower equity markets on hedges like what you had last year? And if that is the case, would it be fair to think there has been a likely recovery on a mark-to-market basis given what has happened in April? Just curious if any sensitivity you can provide around those movements. Paul McDonough: Sure. The answer to those questions is yes and yes. We did have an impact from the S&P being down about 5% in the quarter. As you know from your question, that drives the reserves for FIAs and interest-sensitive life down. Economically, it drives the call option assets down by roughly the same amount. But because there is a prescribed flooring in the statutory reserves of the FIAs and the ISLs, you end up with some noise—meaning lower surplus, lower RBC, lower dividend capacity. But as the equity markets recover, as they have done already quarter-to-date, that unwinds. From a planning perspective, we assume that this is a neutral impact in the year and over time. Jack Matten: Thank you. Operator: Your next question is from Wilma Burdis with Raymond James. Please go ahead. Wilma Burdis: Hey. Good morning. Can you talk a little bit about the FABN market this year? Our understanding is that the spread environment is a little bit less favorable. Just interested to hear what you are seeing there. Thanks. Paul McDonough: Thanks, Wilma. I would invite Eric to take that. Eric Johnson: If you look at what spreads in the market did during the first quarter of the year, financials actually widened out relative to, let us say, industrials—financials including insurance and banks widened out relative to industrials. So if you want to think about it as kind of on an arbitrage basis, that is negative to the basic arb of a funding agreement transaction, which is to be a financial—an insurance company—that issues, and then you take the money and invest it, hopefully in high-quality industrials and utilities and things like that. Because of that negative arb during the quarter, we run our program on a pretty strict high-quality basis and have a pretty high target return on equity. I think had we tried to do an offering during the quarter, it would perhaps have produced a marginal contribution and not the one that we try to run the program around. That circumstance is moderating a bit since quarter-end. Financials have come in a little bit more, rates a little bit higher. So we have had some relief in that tension. We will continue to reassess as we get into our next window, which will probably be in June. We had a meeting about it this morning, actually, and we are keeping a close eye on it. I would also say that we do not have to issue unless the time is right for us and we can achieve our targets without doing violence to our sense of risk and quality. We are under no pressure to do anything. We would like to because it is a good way to make money. We have a nice program, we are good at it, and all that stuff, but we are not going to break the bank. Wilma Burdis: Makes sense. Sounds like a thoughtful approach. And can you talk a little bit more about your mortality expectations for the year? Seems like there was some favorability in the quarter. But is that just kind of a one-off? What are you seeing there? Any color you can give for the rest of the year would be helpful. Thanks. Paul McDonough: Hey, Wilma. So, yes, we saw a bit of favorable mortality in our traditional life business. I would say it is within a normal range of expectations. We will continue to monitor that and, again, revisit our assumptions in the third quarter. Operator: There are no further questions at this time. I will now turn the call back to Adam Auvil, VP of Investor Relations, for closing remarks. Please go ahead. Adam Auvil: Thank you, operator, and thank you all for participating in today's call. Please reach out to the Investor Relations team if you have any further questions. Have a great rest of your day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, everyone, and welcome to today's conference call with Portland General Electric Company. Today is Friday, 05/01/2026. This call is being recorded, and all lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this period, press star then the numbers 11 on your telephone keypad. To withdraw your question, please press star 11 again. If you do intend to ask a question, please avoid the use of speakerphones. For opening remarks, I will turn the conference over to Portland General Electric Company’s Senior Manager of Investor Relations. Investor Relations Executive, you may begin. Investor Relations Executive: Thank you, Towanda. Good morning, everyone, and thank you for joining us today. Before we begin, I would like to remind you that we issued a press release this morning and have prepared a presentation to supplement our discussion, which we will be referencing throughout the call. The press release and slides are available on our website at investors.portlandgeneral.com. Referring to Slide 2, some of our remarks this morning will constitute forward-looking statements. We caution you that such statements involve inherent risks and uncertainties, and actual results may differ materially from our expectations. For a description of some of the factors that could cause actual results to differ materially, please refer to our press release and our most recent periodic reports on Forms 10-K and 10-Q, which are available on our website. Turning to Slide 3, leading our discussion today are Maria MacGregor Pope, President and CEO, and Joseph R. Trpik, Senior Vice President of Finance and CFO. Following their prepared remarks, we will open the line for your questions. Now I will turn things over to Maria. Maria MacGregor Pope: Good morning. Thank you, Erin. Thank you all for joining us today. The first quarter delivered another stretch of warm winter weather, 10% year-over-year industrial customer demand growth, and continued maturity of our cost management initiatives. Beginning with Slide 4, I will speak to our financial results and key drivers. For the first quarter, we reported GAAP net income of $45 million, or $0.38 per diluted share, and non-GAAP net income of $68 million, or $0.58 per diluted share. Our non-GAAP results exclude the previously disclosed deferral adjustments related to the January 2024 storm restoration and reliability contingency event, and business transformation, optimization, and acquisition expenses. Our results reflect extremely mild weather, particularly in February and March, and lower seasonal usage from residential and small commercial customers, which Joseph R. Trpik will cover in more detail. We will be engaging with our regulator to explore frameworks to help mitigate weather and other volatility impacting both revenue and power costs. Greater predictability is good for both customers and shareholders, and we recognize that this will be multiyear work. Despite weather and usage impacts, our team delivered a quarter of strong operational execution, including overcoming inflationary pressure and advancing our management program, adapting to power market conditions, positioning our portfolio and generation fleet to deliver optimal value, and executing on our robust capital investment plan to support customer growth, clean energy, and long-term reliability. On recent calls, you have heard us highlight the company-wide work to optimize our cost structure. We are using our operational strength, which we have built over multiple years, to mitigate the impact of recent weather challenges by accelerating our cost management work. Our teams are squarely undertaking the challenge, and we are committed to delivering strong results. As such, we are reiterating our full-year earnings guidance of $3.33 to $3.53 per diluted share and our long-term earnings and dividend growth guidance of 5% to 7%. Turning to Slide 5 for updates on our five key strategic priorities. First, our teams made progress on the Washington acquisition and other key regulatory filings. In late March and early April, we filed applications with the Washington Utilities and Transportation Commission and the Oregon Public Utility Commission for approval of the Washington transaction. We anticipate the regulatory approval process to take about a year and continue to target a mid-2027 close. Portland General Electric Company’s holding company proposal continues to advance. The docket’s procedural schedule has been modestly extended. To prioritize timely resolution of the holding company, we have paused the transmission company. That said, formation of a transmission company remains part of our long-term strategy. We appreciate the ongoing collaboration and expect to engage with parties in the near future. Having just received reply testimony late yesterday, many issues have been resolved with a few key items remaining. The process is on course, with a target final order date probably in August. Second, building upon our 2025 O&M cost management work, we continued driving efficiencies and improving productivity. We are accelerating this work given the very warm winter weather and first quarter results. Importantly, our large load tariff proposal, UM 2377, is in the final stages of review with the OPUC, and we expect an order in the next several weeks. A transparent, predictable tariff for new and existing data centers strengthens protections for existing customers while supporting economic development in our region. Our proposed rate structure under consideration, enabled by Oregon’s recent legislation, includes a 26% increase in data center prices, which will help reduce the costs borne by residential and small business customers. Third, as I noted, industrial demand growth is accelerating in our service area. We foresee robust energy usage from data centers and high-tech customers, with large customer capacity growing by about 10% compounded annually through 2030. This growth forecast is driven by existing customers and contracts already executed with new customers—companies that own property and have civil work underway. Compared to Q1 last year, our data center customer load grew by 10%. Fourth, progress continues toward additional clean energy resource procurement. We filed our 2025 RFP shortlist with the OPUC in February, as we aim to procure approximately 2,500 megawatts. The shortlist is composed of a diverse mix of projects and technologies to support our existing portfolio and growing customer demand. We look forward to working collaboratively with stakeholders to achieve commission acknowledgment in the coming months. And fifth, our year-round, risk-based wildfire mitigation work remains on track as we prepare for the summer months. In parallel, regulators and policymakers are engaged in this critical topic. The OPUC, in coordination with the Oregon Department of Energy, has hired experts on wildfire liability policy options that balance customer needs for essential services, support for wildfire victims, and financial health of utility companies. We expect the study’s findings will help inform policymakers in advance of the 2027 legislative session. In December, we filed our 2026 through 2028 wildfire mitigation plan, which represents a significant evolution, moving from an annual update to a forward-looking, three-year strategic framework. As we progress through 2026, our focus continues to be on executing on our core priorities: solid operational performance, meeting growing energy demands, expanding into Washington State, and advancing customer-driven clean energy investments. With the first quarter behind us, opportunities are significant. We are focused on achieving solid financial results and delivering value for customers, communities, and shareholders. With that, I will turn it over to Joseph R. Trpik. Joseph R. Trpik: Thank you, Maria, and good morning, everyone. Turning to Slide 6, our Q1 results reflect strong energy demand from our industrial customers and ongoing system investments. Total Q1 2026 loads were flat as compared to Q1 2025, and changes in demand between our customer classes were largely offsetting. Industrial demand increased 10% on a nominal and weather-adjusted basis. The industrial customer class is expected to continue growing at a strong pace, highlighting the strength of our large customer pipeline and the attractiveness of our service area to data centers and high-tech customers. Commercial load decreased 2.9%, or 2.3% weather-adjusted, and residential load decreased 6.2%, or 4.6% weather-adjusted. Portland General Electric Company has seen seasonal shifts in residential and small commercial average usage in recent years with rooftop solar adoption and energy efficiency growth. While not considered in our 2026 plan, deviations of this magnitude are not unprecedented, and we are adapting to manage through this. Historically, demand has been winter peaking, but our region has been transitioning to a dual peaking profile with customers increasing their cooling demand as air conditioning becomes more widespread in our region. After considering the recent trends in customer usage, we now anticipate weather-adjusted load growth of 1.5% to 2.5% this year. In the last twelve months, our organization has evolved tremendously in the ability to adapt through cost management. We have a well-defined plan in place for the balance of the year to solve for the load impacts experienced this quarter, which I will discuss shortly. Now I will cover our quarter-over-quarter earnings drivers. We experienced a $0.07 increase in retail revenues, including a $0.09 increase from additional cost recovery, largely from the inclusion of our Seaside battery asset in customer rates beginning in November 2025; a $0.09 increase driven by higher industrial demand, offset by $0.11 due to lower residential demand; a decrease from power costs of $0.15 driven by $0.09 from power cost performance in 2025 that reverses for this comparison, and $0.06 from current-year power cost performance driven by less favorable wholesale and environmental credit market conditions; a $0.16 decrease from capital and financing costs in support of our ongoing rate base investments, made up of $0.10 of higher depreciation and amortization, $0.05 of dilution, and $0.01 of additional interest cost; a $0.09 decrease from other items, primarily the timing of tax credits and O&M costs; $0.10 from deferral reductions related to the January 2024 storm and reliability contingency event reflecting the outcome of the final OPUC order received in March; and a $0.10 decrease from business transformation, optimization expenses, and acquisition costs. This brings us to our GAAP EPS of $0.38 per diluted share. After adjusting for the 2024 regulatory disallowance and our business transformation expense, we reach our Q1 2026 non-GAAP EPS of $0.58 per diluted share. On to Slide 7 for our five-year capital forecast, which includes 2026 and 2027 spend for the incoming 2023 RFP projects. I will note this view does not contemplate CapEx from the ongoing 2025 RFP. For the Washington utility business, given our ongoing investment in critical systems and assets serving our customers and other policy priorities, we remain engaged with stakeholders as we consider our next regulatory steps. We will keep you informed as this progresses in line with our usual practice. On to Slide 8 for liquidity and financing summary. Total liquidity at the end of the quarter was $954 million. Our investment-grade credit ratings remain unchanged. We will continue to maintain strong cash flow metrics with an estimated 2026 CFO-to-debt metric above 19%. In the first quarter, we executed a $550 million equity forward to address our 2026 base equity needs and fund the 2023 RFP projects. This quarter, we also entered into two unsecured credit agreements: a $350 million term loan facility maturing in March 2028 to fund capital expenditures, including those related to our 2023 RFP, and general corporate needs; and a $680 million delayed-draw term loan intended to finance the Washington acquisition-related cost. The loan is available until specific milestones tied to the acquisition are achieved and matures 364 days after funding. Lastly, in April, the board of directors declared a quarterly common stock dividend of $0.55125 per share, representing an increase of 5% on an annualized basis. We remain committed to paying a competitive dividend in line with our 60% to 70% payout target while balancing overall financing needs. Our plan focuses on maintaining strong operating cash flows while supporting continued investments in customer-focused capital projects, all while advancing us towards our authorized capital structure. As Maria and I have mentioned, our teams remain focused on advancing key priorities for the balance of the year. Most notable is our deployment of incremental cost management measures to offset load impacts on 2026 earnings to date. Relative to our plan, Q1 was $0.25 below our expectations. While $0.09 is driven by timing, we will address the remainder through refining our capital and maintenance work streams, optimizing our team, equipment, and facilities management, and positioning our power portfolio and generation fleet to deliver optimal value. We are confident that these cost savings measures are achievable, especially when considering the $25 million we saved last year, our existing momentum built into our 2026 plan, and the opportunity to accelerate what was planned for 2027 into this year. As such, we are reaffirming our long-term earnings and dividend growth guidance of 5% to 7% and our full-year adjusted earnings guidance of $3.33 to $3.53 per diluted share. We remain focused on safe, reliable, and efficient operations, advancing our strategic priorities, and achieving our commitments to deliver value to our customers, communities, and shareholders. And now, Operator, we are ready for questions. Operator: We will now open the call for questions. As a reminder, to ask a question, press star then 11, then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Julien Dumoulin-Smith with Jefferies. Good morning, Julien. Julien Dumoulin-Smith: Hey, good morning, Maria. Thanks, Operator. Thanks, everyone. It is nice to chat. If we can start off here a little bit more on the negotiations and conversations on the holdco side. What are the key areas of contention that prevented a settlement here? And particularly now that you have removed the transco from the filing, how do you think about prospects from here given how perhaps the two became at times a little overly intertwined? Maria MacGregor Pope: Sure. Well, first of all, thanks, Julien. With regards to the holding company, we are really encouraged that parties have been meeting together to align thinking to further the process. We just received testimony yesterday, and we have agreed upon some funds and general provisions around ring-fencing, including commission oversight and access to books and records, and other things. Obviously, we still remain pretty far apart with regards to credit, the use of leverage, and other such things, and we look forward to engaging with stakeholders as well as commission staff. This is all part of the process, and as you can see, there are a lot of different concepts and history brought up in the filing that was just published yesterday. Julien Dumoulin-Smith: And then if I can follow up real quickly here just around the year itself. Obviously there have been some gyrations here, especially with starting the year. Can you talk about the levers a little bit more—in the context of the remainder of the year and the offsets, if you will, against the full-year number? I know the load number was moving to start the year with Q1. You reaffirmed 2026, but can you speak a little bit to the levers going into that? Joseph R. Trpik: Sure. Good morning as well. Our cost management program has always been designed as a multiyear plan. We achieved and slightly exceeded our goals last year, which gave us a foundation to build off to have levers, tools, and items in place to react to situations like this. Part of the plan overall was to mature the organization to give us flexibility when situations like this occur. One of the things we are doing is taking advantage of the fact this is a multiyear plan. This plan was intended to extend beyond 2026, so we had already been working and identifying levers and benefits for this year, but also items for next year. We have had the ability to look into our toolkit of actions. In addition, we are realigning based on what we are now seeing as the pattern of performance to set the portfolio up to really optimize itself. We have the ability on both sides—how we plan and adapt our energy portfolio, and how we plan and adapt our costs, working throughout the whole management team and organization. This process has already been in place. We have already been working this because the goal has always been transformation. We feel confident that, as we look to our toolkit and identify the gap, we have the ability to execute things well within our control since this work had already been underway; it is really just steering it a little differently and giving it a little more momentum. Julien Dumoulin-Smith: And, Maria, just to clarify the earlier comment you made—at this point, do you expect any further settlement conversations on either the holdco or transco? I heard your comment about remaining pretty far apart on some of these key issues. Maria MacGregor Pope: No, the process still allows for settlement conversations, and we are engaging with parties and working through the issues. Operator: Thank you. Our next question comes from the line of Shahriar Pourreza with Wells Fargo Securities. Analyst: Hi, Shah. Good morning, team. This is Whitney Motilema on for Shah. Thinking broadly on recovery tools, with the RCE mechanism no longer available, how are you thinking about the path to future reliability-related costs in a way that remains timely and investable? Should we assume the fallback is simply broader GRC treatment, or are there other tools you think Oregon could still support for event-driven cost recovery? Maria MacGregor Pope: First of all, an excellent question. Over time, you are absolutely right—we are engaging with regulators to work on removing the volatility and generating more predictability both on the impact to energy usage from weather, as well as other issues. Obviously, the RCE was around significant events, and of course we have more volatility to power costs and exposure. Clearly something that is going to take some time, and it is really important. Analyst: Thank you. And then just as a follow-up, as it relates to multiyear rate planning, obviously Portland General Electric Company is supportive of Oregon’s transition. But staff has been arguing for just the transition framework, and the company finds it restrictive. As Oregon moves into multiyear rate plans, what is the main principle Portland General Electric Company is trying to protect—is it the ability to retain the existing statutory tools during this transition, or the ability to continue using narrower mechanisms for high-priority capital without needing a full rate case? Maria MacGregor Pope: It is a good question. There is no question that we need to work on a common understanding of what is needed for all stakeholders, particularly investors, and tools that will provide for adequate capital recovery and other interim items as we move to the multiyear framework. I think, as we saw from the testimony that was just issued yesterday, we have a lot of work to do around common understanding of how we will attract and retain capital and continue to grow the utility to invest for customers in clean energy, reliability, and customer growth. Joseph R. Trpik: And just to add, there is a collection of new tools that are needed both in the transition and also in the multiyear plan. We have already been adapting to those. You saw those new tools, in all honesty, with the Seaside tracker as well as the DSP that have taken some time to work through. We are all working to evolve from what was a very traditional process to both a multiyear process and how to find your way to that multiyear process. The dialogue with the Commission is really about what type of tools we need, understanding that they are new, which is why this takes a bit of time—to make sure they work well for all parties involved. Operator: Our next question comes from the line of Christopher Ronald Ellinghaus with Siebert Williams Shank. Your line is open. Christopher Ronald Ellinghaus: Good morning, everybody. Maria, can you talk about what you are seeing in the Oregon economy? It has been struggling a little bit—are you seeing some recovery? And as an adjunct to that, customer growth year over year was a little lighter than the first quarter of last year. Is that part of that issue, or are there some other factors at play? Maria MacGregor Pope: Sure. First, we consider customer growth to be quite strong, particularly in the non-downtown areas—slightly under 1%. We continue to see good business formation and new entrants, particularly on the data center side, but also in high-tech and semiconductor manufacturing. We are very encouraged. Our customers are focused, and they continue to invest in many parts of Oregon. Joseph R. Trpik: If I could add on load patterns, we saw a combination of warm months and some unusual flows of weather even within the month. We asked ourselves—similar to you—whether other economic conditions were at play, but what we are really seeing are items reacting to an unusual set of weather patterns. We had one of the warmest winters and it was a little sunnier, so you got a little more solar penetration than you normally would have seen in the winter months. To Maria’s comment, the broad economic factors that guide our view of longer-term load continue to hold and be consistent. Christopher Ronald Ellinghaus: In the reduction to the 2026 load expectations, is that merely a Q1 adjustment, or are there other factors incorporated? Joseph R. Trpik: On an overall basis, we believe we largely realized the main heating-driven part of the load reduction in Q1. We have reshaped the remainder of the year, but the reshaping is movements between the other quarters. From a loads experience, we think we have worked through the unusual part of the year on a cumulative basis and then expect some slightly different flows as we see differing customer reactions to heat and cold. But overall, net should be relatively close to zero rest-of-year. Christopher Ronald Ellinghaus: Maria, you were talking about pursuing a mechanism for volatility. The region is supposed to be on the warmer side for spring and into the summer. Do you think that effect on consumers will inspire intervenors to pursue that mechanism discussion a little more? Maria MacGregor Pope: It is a good question. Last year, we began to see the impacts of significantly higher AC penetration, and we saw higher load growth without as much high temperature as one would have historically needed. So there is definitely more correlation to high temperatures in terms of energy usage, which is a positive going forward for us. We have not factored that into our forecast—we are relying on those things that are actionable. Regarding the Commission and how they might think of this, affordability is a priority and predictability for customers is important. I have had conversations with the Chair regarding these unique patterns we are seeing, and those conversations with the commissioners and staff will be ongoing. Christopher Ronald Ellinghaus: A couple of related questions on the holdco. One, can we infer from the transco retreat that while you did not come up with an official settlement, you have resolved some issues unofficially through that process? And second, references to historical events are not surprising—they were very sensitive about ring-fencing and credit back in the day. The holdco is a different animal than some of those events—does the Commission staff appreciate the significant differences despite bringing them up again? Maria MacGregor Pope: First, with regard to the transmission company, our goal was to prioritize at the request of staff and commissioners. We are trying to be mindful of their workload and make sure we are focused on the highest-priority items. The transmission company remains a topic that we will continue to discuss in the future, but not at this time. The testimony shows we have common ground on a number of items. I would agree with you that some of the written words in the testimony show we have more work to do—collaborate and establish common understanding and the “why” and drivers, as well as utility practices across the country that are pretty standard. The next step is to engage directly and continue the conversation. Operator: Our next question comes from the line of Analyst with JPMorgan. Good morning. Analyst: Good morning. Thanks for the time today. With the applications in Oregon and Washington now underway, could you speak to the initial feedback from stakeholders on the pending acquisition, the upcoming milestones we should watch for, and any sense of what customer benefits you are highlighting for the commissions at this time? Maria MacGregor Pope: We have engaged with a wide variety of stakeholders. We have spoken with all of the commissioners and staff in Oregon and multiple times with the commissioners in Washington, as well as staff and the respective governor’s offices. Importantly, we have spent time in the service territory and are encouraged by the receptivity, the focus on economic development, and the interest in our ability to serve current and new businesses in the Walla Walla, Wallula, and Yakima regions. In terms of discussions on benefits, we are at the very early stages, but I would say, in particular for Washington, it is a constructive, business-focused environment. We look forward to engaging with all stakeholders as we move forward. Analyst: Thanks. On the regulatory front, could you speak to the timing of your next GRC as we get closer to your stay-out expiring this summer? What are the factors that would cause you to file earlier or later? Maria MacGregor Pope: We are spending a lot of time talking about that issue and focusing on our timing. We know that energy bills are incredibly important to all businesses and families, and we are working to keep customer bills as low as possible by delivering reliable services that customers can count on. We have not decided on the next timing of our rate case, but it will probably be sometime in the second half of the year. We are still evaluating the major components. Operator: Our next question comes from the line of Gregg Gillander Orrill with UBS. Your line is open. Gregg Gillander Orrill: When would you be in a position to include the 2025 RFP into the CapEx plan? Joseph R. Trpik: Morning, Greg. As a reminder, we include RFPs in the plan once we have them under contract. We think the earliest we will start to see contracts is the beginning of 2027 if things proceed in the normal course as we work through these projects. We would like to have it aligned with our fourth-quarter update, but as you know, we are working with a collection of counterparties and a series of negotiations that can vary. Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Paul Fremont with Ladenburg Thalmann & Company. Your line is open. Morning, Paul. Paul Fremont: Good morning. Thank you very much. First, should we think about the prospects for settlement being best between now and when hearings are scheduled in early June? Maria MacGregor Pope: I hope so—the sooner we can settle, the better. But I want to make sure we give all parties adequate time to establish good understanding and be able to move forward constructively. Paul Fremont: In most states, if it is going to settle, it usually settles before hearings. Is that the case in Oregon, or would you expect prospects to be just as good after hearings? Maria MacGregor Pope: I would not hedge either side. We are going to continue the process just as we have in the past. Hopefully we can come to settlements, and if not, we will go to the hearings and then work towards settlements afterwards. We have plenty of runway to engage ahead of hearings, and we are always hopeful of settling sooner rather than later. Paul Fremont: In the past, you have expressed a high level of confidence in your ability to settle this particular case. Is that unchanged, given your comments earlier that the parties still remain pretty far apart? Maria MacGregor Pope: We still have good expectations of being able to settle, and I would reiterate that we have put a number of issues behind us as we work through the process. Paul Fremont: Have you received the counterproposal referenced in your regulatory filing from intervener parties? It sounds like even if you did receive one, there are still major issues to be resolved. Maria MacGregor Pope: We have not. The parties are working on that, and we are continuing the discussions. Paul Fremont: It looks as if the Washington utility subsidiary of Berkshire may not be earning at levels close to their authorized return levels. Is there something you plan on doing to narrow the gap between what they are earning and what they are authorized to earn? Maria MacGregor Pope: As we move into Washington and look at the opportunities in the state, first, it is a strong operational fit with operations that we know well. We have noted that we expect the transaction to be accretive in the first year and to enhance our long-term EPS growth and dividend growth. Much of that is driven by new investment, particularly clean energy investments supporting CETA compliance obligations. The commissioners have continued to reiterate that. We would expect to drive to a similar return profile in Washington as we have in Oregon—or better. Joseph R. Trpik: The historical gap we have seen has been mainly related to power costs. One attribute of this transaction is much more specific and transparent direction of costs for Washington customers. Having a clearer Washington utility with a more specific, instead of allocated, set of assets and costs will drive to more effective recovery over time. Paul Fremont: So it is not through merger synergies that you would expect improvement? Joseph R. Trpik: Today, when we speak to the accretive nature of this transaction on the front end and getting better recovery, this is about execution of the plan, execution of costs, and operation of the utility. We have not layered in any type of cost synergy. We have layered in effective operations and financing and other benefits. Synergies we will work to, but we are not counting on those to make this accretive. Maria MacGregor Pope: There absolutely will be synergies on the O&M side and on the procurement side. Operator: Our next question comes from the line of Travis Miller with Morningstar. Your line is open. Travis Miller: Good morning. Thank you. Two quick ones and then a follow-up. First, the 26% increase in the data center prices you talked about through the tariff—are those for all existing and prospective customers, or just for prospective data centers? Maria MacGregor Pope: Those are for existing and new customers—all data center customers. We worked very collaboratively with each of those customers, and there are no surprises. Travis Miller: Second quick one, the generation mix—Q1 last year to Q1 this year—some changes there in terms of your own generation versus purchased. Was this weather-driven, or is there something fundamental going on? Joseph R. Trpik: There is no strategic change. It is a combination of events: weather, energy pricing related to running assets, and certain contracts that roll on and off. You will see a contract rolled on under the contracted section. Overall, our strategy on how we manage the portfolio and the mix of owned versus contracted stays the same—these are normal ebbs and flows. Travis Miller: Higher-level question: the E3 report that came out in the last couple of days talked about a 9 gigawatt shortfall by 2030 and a 14 to 18 gigawatt shortfall by 2035, particularly along the Western edge of the region. Were you involved in the report, and are these numbers consistent with what you are seeing and reporting to regulators? Maria MacGregor Pope: The report was commissioned on behalf of industry groups that we participate in and know well across the Pacific Northwest. As you can see through our 2025 RFP and our IRP, we are working to procure more energy than we have in the past, and others in the region are doing the same. The report focused on resource adequacy and how we better manage it as a region. It includes additional focus on transmission. Entering the day-ahead market and building upon our energy imbalance market will improve outcomes for Portland General Electric Company, as well as PacifiCorp, which just went live with the day-ahead market today. We appreciate the information—it has created constructive regional discussions. Operator: Our next question comes from the line of Analyst with Mizuho. Your line is open. Analyst: Hi. Good morning. This is Rugia from Mizuho for Anthony Christopher Crowdell. You have talked about the Washington acquisition as an opportunity to bring a growth-oriented philosophy to a service territory that has historically been more maintenance-focused. Can you walk us through what that looks like in the first 12 to 18 months after you take over? Specifically, what areas would you bring this growth initiative to, and what would be early signs that the shift is taking hold? Joseph R. Trpik: Good morning, Rugia. In the shorter term, this is about supporting and giving the right investment mainly on the distribution side, and a little bit on transmission, to continue building infrastructure at the rate needed to support growth. The longer-term growth will come from RFPs we will be involved in and supporting economic growth and development in a region we believe is primed for it. That is why, if you look to the charts we show related to inclusion of the Washington utility, you will see the growth is a little more back-end focused as we support some industrial growth and RFP needs in the area. Maria MacGregor Pope: We are really encouraged by regional leaders’ interest in accelerating growth in Eastern Washington, and I have had terrific conversations with our existing customers as well as new potential customers. Operator: Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Maria for closing remarks. Maria MacGregor Pope: Thank you very much for joining us today. We appreciate your interest in Portland General Electric Company, and we look forward to seeing you at upcoming conferences. Have a great day. Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Rimini Street Q1 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 30, 2026. I'll now turn the call over to Dean Pohl, Vice President, Treasurer and Head of Investor Relations. Please go ahead. Dean Pohl: Thank you, operator. I'd like to welcome everyone to Rimini Street's Fiscal First Quarter 2026 Earnings Conference Call. On the call with me today is Seth Ravin, our CEO and President; and Michael Perica, our CFO. Today, we issued our earnings press release for the first quarter ending March 31, 2026, a copy of which can be found on our website under the Investor Relations section. A reconciliation of GAAP to non-GAAP financial measures has been provided in the tables following the financial statements in the press release. An explanation of these measures and why we believe they are meaningful is also included in the press release and our website under the heading About Non-GAAP Financial Measures and Certain Key Metrics. As a reminder, today's discussion will include forward-looking statements about our operations that reflect our current outlook. These forward-looking statements are subject to risks and uncertainties that may cause results to differ materially from statements made today. We encourage you to review our most recent SEC filings, including our Form 10-Q filed today for a discussion of risks that may affect our future results or stock price. Now before taking questions, we will begin with prepared remarks. With that, I'd like to turn the call over to Seth. Seth Ravin: Thank you, Dean, and thank you, everyone, for joining us. First quarter results. Our first quarter results reflect continued growth and accelerating momentum. A growing number of organizations are leveraging Rimini support and our proven Rimini Smart Path to execute their global ERP and operational transaction processes faster, better and cheaper with more agility and speed to value, all within existing budgets. Rimini Street can help just about any organization lower its total operating costs and improve competitive advantage or improve return for government constituents using technology. We delivered strong growth in adjusted calculated billings and adjusted ARR and expanded remaining performance obligations year-over-year, adjusted for the Oracle PeopleSoft support and services wind down and which includes new logo and renewal subscription sales. We also continue to make additional strategic investments in our next-generation Rimini Agentic AI ERP solutions that can be quickly deployed over existing ERP software without the cost and risk of unnecessary upgrades, migrations or re-platforming. During the quarter, we closed 11 new client transactions with over $1 million in TCV and totaling $33 million compared to 5 transactions totaling $5.6 million during the same period last year. We added 50 new logos that included household global and regional brand wins. The combined strength of the second half of 2025 and first quarter 2026 results give us continued confidence in delivering growth in fiscal 2026, positioning the company for increased growth and profitability. We are continuing our evolution beyond our position as the premier third-party enterprise software support provider to a leader in also helping clients modernize their existing business transaction systems in the AI era. We are now the software support and Agentic AI ERP company. Today, more than 1,900 Rimini Street employees in 22 countries are helping organizations avoid unnecessary, costly and risky ERP and other enterprise software upgrades, migrations and re-platformings that often deliver low ROI and offer little competitive advantage. Instead, Organizations can invest in modernization of their existing systems, leveraging next-generation Rimini Agentic AI ERP solutions that can be quickly and economically deployed over their current ERP and other enterprise software and deliver real competitive advantage. We believe we can help organizations achieve significant IT operating cost savings, improve profitability, enhance competitive advantage and accelerate growth. Our clients have already realized over $10 billion in operational savings. Rimini Street leads an Agentic AI ERP. We are helping clients set a new vision, technical and functional path forward from their current vendor ERP software release. A path does not require any return to the vendor for a future upgrade or migration to their current ERP software release in order to achieve innovation and modernization. The client can innovate and modernize their existing ERP software and other enterprise software using Agentic AI ERP solutions deployed easily, economically right over the top of their existing software releases. The Rimini Smart Path is our proprietary proven 3-step methodology that clients can use to self-fund and accelerate innovation, especially AI and automation without undergoing costly, risky or unnecessary ERP upgrades or rip and replace migrations by leveraging and modernizing existing IT environments, all without operational disruption. Rimini Agentic UX is our AI-driven experience and automation layer that is deployed right over existing client ERP software and turns their ERP software from a static system of record into an autonomous system of action, delivering innovation and modernization in weeks, not years, and at a fraction of the cost of a major upgrade migration or re-platforming project. Client success stories. Rimini Street is helping clients across many industries, geographies and software, protect and optimize their core ERP systems while funding innovation and modernization, including fixing broken processes, automating workflows and functions and using AI to solve specific business challenges without disruptive, costly or risky ERP software upgrade migrations or re-platforming. Here are a few examples of how Rimini Street solutions for SAP, Oracle and VMware software are enabling innovation, transforming an improved competitive advantage for clients. Cubic Corporation, a U.S. defense and transportation technology company, so that partnering with Rimini Street allowed them to gain full control of their SAP road map, avoid a costly S/4HANA upgrade and reallocate savings and internal capacity towards automation, AI and broader modernization initiatives. Flexitech, a French automotive products company, said that they chose Rimini Support to help reduce risk and operational disruption in its SAP environment, strengthening cybersecurity posture and accelerating compliance readiness while enabling the reallocation of savings towards R&D and modernization programs. Cleanera, a South Korean paper and hygiene products company, said they were able to cut SAP and Oracle vendor maintenance costs by approximately 50% with Rimini Street, stabilizing their core ERP environment and freeing budget and talent to accelerate AI, analytics, cloud expansion and IoT-driven operational improvements. Elmort, a Brazilian industrial company, said that unifying support across VMware and SAP with Rimini Street created the opportunity to increase operational stability and security while redirecting budget internal resources from maintenance to sustainability and growth initiatives. Partners, alliances and channels. We continued strengthening and maturing our indirect sales ecosystem, including adding new partner managers for strategic technology, services and channel relationships. During the quarter, we closed accretive sales transactions globally that we do not believe we would have otherwise closed without partners. These partnerships extend our reach, bring complementary expertise and help clients execute modernization strategies that combine Rimini Street support with world-class platforms, cloud services and AI tooling. The ecosystem is becoming a strategic multiplier for us, accelerating adoption, expanding influence and enabling shared go-to-market opportunities. Summary. We are focused on accelerating growth, improving profitability and delivering shareholder return. We plan to leverage Rimini Street's proprietary unique and proven Smart Path methodology, service portfolio and capabilities to help a growing list of clients take back control of their technology road map and spending and successfully navigate business and technical complexity in the age of AI. Now over to you, Michael. Michael Perica: Thank you, Seth, and thank you for joining us, everyone. Q1 results. Our first quarter results reflect solid execution and continued sign of momentum, highlighted by remaining performance obligations, RPO, and billings growth, along with a return to top line growth despite the headwinds from the wind-down of support and services for Oracle's PeopleSoft software. Our strong operating cash flow and cash position enabled us to comfortably make $10 million of additional voluntary principal prepayments that reduced our debt balance to $58.4 million and increased our net cash position to $73.8 million at the end of the quarter. Revenue for the first quarter was $105.5 million, a year-over-year increase of 1.2%. Excluding support services for PeopleSoft products, revenue increased by 5.2% year-over-year. FX movements impacted first quarter revenue negatively by 0.5%. Annualized recurring revenue was $400.8 million for the first quarter, a year-over-year increase of 1.2%. Our revenue retention rate for service subscriptions, which makes up 95% of our revenue, was 88%, with approximately 81% of subscription revenue noncancelable for at least 12 months. Billings for the first quarter were $95.3 million, an increase of 19.9% year-over-year. When excluding billings associated with support services for PeopleSoft products, the year-over-year increase was 22.9%. Gross margin was 59.0% of revenue for the first quarter compared to 61.0% of revenue for the prior year first quarter. On a non-GAAP basis, which excludes stock-based compensation expense, gross margin was 59.5% of revenue for the first quarter compared to 61.5% of revenue for the prior year first quarter. Our gross margin in the period was negatively impacted by investments pulled forward in the year to take advantage of market opportunities and select non-subscription engagements that had large, front-loaded start-up costs. Nonetheless, as noted during our Investor Day presentation last December, our use of innovation and other analytics deployed on top of our existing systems of record provides us with confidence in our ability to build from this current gross margin level and achieve the targets we outlined. Operating expenses. Reorganization charges associated with optimization costs for the first quarter were $407,000. Also, we have carved out our R&D expenditures of $571,000 in the quarter in a separate line item that reflects our ongoing and increasing research and development activity for our proprietary historical offerings as well as our burgeoning Agentic AI ERP and UX solutions. Sales and marketing expense as a percentage of revenue was 36.6% for the first quarter compared to 32.9% of revenue for the prior year first quarter. On a non-GAAP basis, which excludes stock-based compensation expense, sales and marketing expense as a percentage of revenue was 35.8% for the first quarter compared to 32% of revenue for the prior year first quarter. Our sales and marketing costs in the period was negatively impacted by investments pulled forward in the year to take advantage of market opportunities. General and administrative expenses as a percentage of revenue was 16.9% of revenue for the first quarter compared to 16.8% of revenue for the prior year first quarter. On a non-GAAP basis, which excludes stock-based compensation expense, G&A was 15.7% of revenue for the first quarter compared to 15.6% of revenue for the prior year first quarter. As we stated in our most recent earnings call, we do not expect litigation expenses to be material on a going-forward basis and are now including any residual legal costs in the G&A line item in our income statement. Net income attributable to shareholders for the first quarter was $1.4 million or $0.01 per diluted share compared to the prior year first quarter of $0.04 per diluted share. On a non-GAAP basis, net income for the first quarter was $4 million or $0.04 per diluted share compared to the first quarter of the prior year of $0.10 per diluted share. Adjusted EBITDA, as defined in our earnings release and now excludes unrealized FX translation adjustments was $8.9 million for the first quarter or 8.4% of revenue compared to the prior year's first quarter of $15.7 million or 15.1% of revenue. Balance sheet. We ended the first quarter of 2026 with a cash balance of $132.2 million compared to $122.6 million of cash for the prior year first quarter. On a cash flow basis, first quarter operating cash flow increased $24.5 million compared to the prior year's first quarter increase of $33.7 million. Deferred revenue as of March 31, 2026, was $277.3 million compared to deferred revenue of $256.4 million for the prior year first quarter. Remaining performance obligations, RPO, which includes the sum of billed deferred revenue, contract assets and noncancelable future revenue was $643.6 million as of March 31, 2026, compared to $553.1 million for the prior year first quarter, an increase of 16.4%. When excluding RPO relating to support services for PeopleSoft products, the year-end balance increased 18.2%, reflecting our building momentum with both new bookings growth and longer duration commitments. PeopleSoft support wind-down update. As we discussed during previous quarter's earnings conference calls, our July 2025 settlement agreement with Oracle provides amongst other obligations and terms between the parties that the company will complete its previously announced wind-down of its support and services for Oracle's PeopleSoft software no later than July 31, 2028. We have made progress in reducing both the number of PeopleSoft's software support clients and related revenues since announcing the wind down. Revenue from PeopleSoft software support services was 3% of revenue for the first quarter compared to approximately 7% for the previous year first quarter and down from 8% of revenue when we began the wind-down process during the second half of 2024. Business outlook. The company is providing second quarter 2026 revenue guidance to be in the range of $106 million to $108 million and reiterating the full year 2026 guidance provided at our Investor Day in December 2025 of revenue growth in the 4% to 6% range and adjusted EBITDA margins in the 12.5% to 15.5% range, combined to achieve Rule of 20. For additional information, please see the disclosures in our Form 10-Q filed today, April 30, 2026, with the U.S. Securities and Exchange Commission. This concludes our prepared remarks. Operator, we'll now take questions. Operator: [Operator Instructions] Our first question comes from the line of Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: You talked about stronger bookings trends that have started since the second half of '25. Can you provide any quantifiable context maybe year-over-year comparisons? Are there booking totals you can provide or a book-to-bill? And then lastly, maybe from a qualitative standpoint, discuss domestic versus international. Seth Ravin: Sure, Brian. Seth here. As we said starting mid-last year, we started to see an uptick, and we've shown it, of course, in the billings and bookings numbers. The compares, I think, have already been in each of the releases. So, the team will be happy to get you those at a later date. But I think we're seeing continued growing demand. We're seeing continued growing pipelines. And those are now converting as you're seeing into larger contracts. We're seeing longer-term contracts. Just look at the number of deals with TCV over $1 million, even in North America, where we had 0 of those deals in Q1 of last year, 60% of those deals were in North America this year. So, we're seeing all different indicators of continued growing demand and our ability to execute continues to get better and better. So, we're pleased with what we saw happening in Q1 and how it sets us up even for the full year. Brian Kinstlinger: And then a follow-up on that. You mentioned in your prepared remarks and just now as well about the longer duration. I think traditionally, you've had 1-year contracts, correct me if I'm wrong, whereas the renewable for every year. What's happening now? What are you seeing in terms of duration? Or maybe dig a little deeper into what you're describing as longer duration? Seth Ravin: Well, I think our average contract length before used to be something short of 3 years, about 2.5, 2.6 years for a new contract. And we're seeing longer-term contracts being signed. And I think the indication of that is we're watching customers think about a much longer term for this next phase of technology transition. And they're looking at their existing systems. They're looking at the amount of change that's coming their way or being pushed their way, realizing a lot of it isn't going to generate the kind of return on investment or the competitive advantage they need. And they're looking to us for longer-term solutions. And I think that's what you're seeing play out in the contracts. Brian Kinstlinger: Okay. My last question is, last quarter, you highlighted 26 customers that were testing their Argentic AI solutions. Maybe you can update us on that number, share what feedback you're getting from them and timelines to production? And then lastly, how would you want to be measured over the next 18 months on your progress of that new solution? Is it improving organic growth rates? Are you going to discuss the revenue contribution? Just how should investors think about that? Seth Ravin: Well, I think how we should think about it is exactly based on the guidance. It's about growth. The fact that we're returning to growth against the headwinds of the PeopleSoft wind down is certainly a nice indicator. And I think the fact that we would return to growth with a mid-single digit this year, as we said, a Rule of 20 is what we're aiming for between the top line and a bottom line, want to give ourselves a little range and flexibility between the top line and bottom line. And then look to us to get to that Rule of 40 that we want to get to, which, of course, requires us to see a double-digit growth on the top line and a double-digit return on the bottom. So, I think those are very, very key. The other part is, obviously, we have investors who want to see shareholder return. We believe that we sit on surplus cash. We believe that, that should be returned to shareholders in one way or another. Whether that's through stock buybacks, whether that's through paying down debt, but increasing shareholder value is a key component. So, I think those are the measures that we're looking at in terms of growing the business. Now when it comes to the world of Agentic AI and Agentic AI ERP, there's 2 things you need to remember. There's one, there's the fact that we create a path and we create a vision that customers can follow that doesn't require any future return to the vendor. That's very, very key. That is a big change from prior years where customers often thought of us as more of a temporary detour for some number of years and then a return to the vendor to get their next level of innovation. That's no longer the case. And that's why you're watching us win bigger and bigger contracts because customers are liking what we put on the table as a path and a strategy that does not lead them back to the software vendor in a future year. And that is changing the game dramatically for us on the ground. Operator: Your next question comes from the line of Jeff Van Rhee from Craig-Hallum. Jeff Van Rhee: Some great underlying metrics here. It looks like some good momentum and good to see some ARR growth year-over-year. Seth, you were just touching on leverage, and I want to revisit that. Gross margins, this is on the lower end of anything I've seen in quite a while. And Michael, I think you referenced there were some pull forwards for some, I guess, what I would characterize as sounds like unexpected business opportunities. I think you -- S&M is up from 34% to 37% year-over-year, but revenue is generally flat. And so, given that, I'm just trying to understand around the -- number one, what is this near-term opportunity that you're seeing that you've got to invest in right now, given that you're not raising the overall outlook? Maybe we could just start there and understand those. Seth Ravin: Sure, Jeff. So, first, yes, we made a decision to pull forward some expense from future quarters. But we, of course, reiterated guidance being on target with what we provided in the Investor Day in December. And the things we're seeing, for example, we're investing in our U.S. federal team, brand-new team. We see a lot of opportunity in the federal government space with our new GSA contract, our partners that we're putting in place. And so, there's a lot going on in that part of the world. But there's also a significant amount of work for us to do with PE firms. And we've got our first Vice President of PE sales on board because today, we service accounts that have over 20 different major PE firms represented, and we're going to go in and try and work with these firms to work on their bigger portfolios in general. So that, again, is another expansion area for us to build on. And so those investments were being made. We also, of course, are investing in our Agentic AI ERP solutions. And you saw the first time we have an R&D line item because we're making some investments at the product level. So those are also taking place. We also expanded our sales team. We're over 80 sellers now. And so, we've moved our numbers back up from the mid-70s when we last had our last call for end of year. And so, we're continuing to expand and invest in sales and marketing as well. So, you saw temporarily the expenses went up as a percent of revenue, but we expect those will normalize throughout the year. Jeff Van Rhee: And so then just to follow on to that, given all of those incremental revenue opportunities and in light of the revenue outperformance in the quarter relative to the guide, you didn't flow it through to the annual guide. So just help me understand what was in play there. Seth Ravin: Well, I think we want to just take it very carefully. As you know, we didn't grow for a while there, and we're back and feeling very positive and very confident in our growth for the year and hence, the mid-single-digit growth targets that we set out there. But we want to just get another quarter under the belt and think about that before we talk about any kind of raise in the guidance. Jeff Van Rhee: Okay. And then maybe just last, Seth, on customer retention. I know it's a focus and the Agentic UX and some other things probably have some opportunities to help there. But how should we think about churn over the next several quarters? This retention number has been at 88% here for at least a few quarters. Just any big churn events coming up here? And how do you think about retention next several quarters? Seth Ravin: Well, the 88%, remember, is a TTM, rearview view of the total number. We feel very good. And as I noted in the prepared remarks, we beat our internal numbers on the retention number. It's just going to take a while to show up in the TTM number. I think when you look at the RPO, some of those are even related to renewals. So, we're seeing good, strong renewals out of the first quarter and feeling good about where we're looking to the year. Our goal is, of course, to see that TTM return to over a 90% number. And we feel that we should start to see it show up in the metrics starting in the next quarter or so. Operator: Your next question comes from the line of Alex Fuhrman from Lucid Capital Markets. Alex Fuhrman: Congratulations on the return to growth here in Q1. It looks like here in the first quarter, you added about 30 active clients relative to where you ended 2025. The last 3 years, give or take, Q1 has been about flat in terms of customer acquisition. Is this just more of the same what we've been kind of talking about, increased demand for your AI solutions? Or are we maybe starting to see more of a year-round sales and adoption process as your clients are starting to implement more AI? Seth Ravin: Sure. And thanks. We absolutely are seeing improvements in everything from the number of leads coming in to lead conversion to opportunity, opportunity to closes. So higher quality pipeline, higher quality execution, but the demand environment is absolutely growing as well. There is no doubt that the world of AI has changed the dynamics from a technological standpoint. You're also watching, as Rimini Street had predicted many years ago, the breakup of these big ERP monolithic systems into smaller pieces, we call it composable ERP, those pieces are breaking down further. And what this means is that businesses and government organizations are now able to buy pieces, a la carte, let's say, versus having to buy them all in one big package. And we're well positioned, maybe the best position to help customers through all these technological transitions, including the thoughtful implementation of AI where it's appropriate. And because our #1 objective is driving down the total cost of operations and improving profitability or improving share return for government organizations, we think we are well-positioned to help customers for the long term, and we're talking 5, 10, 15, 20 years through this next phase of transition. So, I think all of that coming together is what we're watching it showing up in the numbers. Alex Fuhrman: Okay. That's really helpful. Thanks for all that color. And then I see you have a new line item here, research and development. It sounds like that's going to be more of a focus for the company going forward. How much should we expect to see there -- going forward there this year and in the future? Michael Perica: Well, I think this -- I'm sorry. No, go ahead. Seth Ravin: I was just going to say that we expect to continue to make investments in this space because we've been a services company. We've always had products, but the opportunity for us to develop more in the product and the licensing arena for subscription licenses has increased. And so, we're going to make those investments. But keep in mind, we're staying within our guidance limits. We're not talking about changing guidance even with the R&D line item. And I'm sorry, Michael, you want to add there? Michael Perica: Yes. I just want to augment the point that Seth made, Alex, at the end that this was incorporated overall in our guidance. We do expect it to creep up throughout the year and can exit the year about 1% or so. That's how we're looking at it to augment these key technological investments, both with what we have existing and these new offerings that we're talking about. Operator: Your next question comes from the line of Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: I just wanted to confirm that today, the revenue from the Agentic AI solution is quite modest, but that we'll begin to see that contribution pick up maybe in the second half of the year into next year? And then my second part of my question is, will there eventually be a report or some kind of metric that helps investors frame how much revenue is coming from that new solution? Seth Ravin: Sure, Brian. Of course, it's not what we call a material amount yet from the Agentic AI ERP solutions themselves. But 2 ways to think about this, there is the actual revenue that's accretive that comes from solutions and sales and licensing and subscriptions in the Agentic bucket. That's a new set of products and services. There's a second more important one, which is already at work here. And that is the fact that we have created a vision and we have a path and we have a solution going forward for customers that leads them away from having to do vendor upgrades and migrations in the future and allows them to drive their existing systems with modernization on that platform, that alone is what's driving, we believe, underneath a lot of the extra demand we're seeing because that is creating new demand that we did not have before, and it's bringing customers back to the table who have now come back to us to join Rimini Street who before had turned us down, proposals that they didn't move forward with. We're now able to show them a path forward with an Agentic capability that says, okay, we'll go ahead and move forward at this time. So don't underestimate the very fact that we have this path and this vision and technology, that alone is driving increased sales. Operator: There are no further questions at this time. I will now turn the call over to Seth Ravin, CEO. Please continue. Seth Ravin: Great. Well, thank you very much, and thanks, everyone, for joining us, and we will see you on the next earnings call. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the Proto Labs First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Johnsrud, Investor Relations. Thank you. You may begin. Ryan Johnsrud: Thank you. Good morning, everyone, and welcome to Proto Labs' First Quarter 2026 Earnings Conference Call. I'm joined today by Suresh Krishna, President and Chief Executive Officer; and Dan Schumacher, Chief Financial Officer. This morning, Porto Labs issued a press release announcing its financial results for the first quarter ended March 31, 2026. The release is available on the company's website. In addition, a prepared slide presentation is available online at the web address provided in our press release. Our discussion today will include statements relating to future performance and expectations that are or may be considered forward-looking statements and subject to many risks and uncertainties that could cause actual results to differ materially from expectations. Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. The results and guidance we will discuss today include non-GAAP financial measures consistent with our past practice. Please refer to our press release and the accompanying slide presentation at the Investor Relations section of our company website for a complete reconciliation of GAAP to non-GAAP results. Now I will turn the call over to Suresh Krishna. Suresh? Suresh Krishna: Thanks, Ryan. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. We are off to a strong start in 2026. First quarter revenue grew 10% year-over-year as we delivered another record revenue quarter. I am very pleased with the balanced execution reflected in our financial results. We achieved double-digit revenue growth significant gross margin expansion and improved operating leverage. Importantly, this reflects not only continued momentum but measurable improvements in customer engagement, growth and operating performance. These financial results are a credit to the hard work and dedication of our employees as they continue to execute with discipline across the business. I'd like to thank all Proto Labs team members for their outstanding quarter. So far, in 2026, we continue to see strong traction with larger strategic customers contributing to our higher revenue per customer and reinforcing this as a key long-term growth driver. During the quarter, revenue per customer grew 20% year-over-year, providing evidence of the momentum we have with enterprise customers. In U.S. we grew 12%, marking the fourth quarter in a row of double-digit revenue growth in the region. I want to acknowledge the leadership of Sean Farrell, and the regional sales and customer success teams for driving that performance. Double-digit growth and significant margin expansion in the first quarter led to strong cash flows and earnings, reflecting in the strength of our business model. In the first quarter, we achieved Proto Lab's highest non-GAAP earnings per share in over 5 years. Our strong results were fueled by exceptional demand for our CNC machining service, which grew over 20% year-over-year in the U.S. driven by continued strength in aerospace and defense including space, exploration, satellites and drones as well as strong growth in robotics. As we saw in the last quarter, well-funded and innovation-driven markets where speed, precision and digital manufacturing are critical, continue to rely on Proto Labs as we deepen relationships and strengthen our position as a strategic partner. In April, we joined the Space Foundation, a global space community supporting collaboration and education. This move strengthens our presence in this fast-growing ecosystem as aerospace innovation accelerates rapidly in the new space age. With organizations like NASA, Lockheed Martin and Northrop Grumman as long-standing customers, we continue to support leading-edge programs where speed, precision and reliability are critical. This is especially apparent following ARTEMIS 2 and its successful Lunar mission. Overall, our first quarter performance reflects continued progress on executing our strategy, which remains centered around serving customers across the product life cycle while building on the core strengths that differentiate us. As a reminder, our long-term strategy is anchored in four pillars: Elevating the customer experience, accelerating innovation, expanding production and driving operational efficiency. While these pillars will guide our business in the next few years, we are encouraged by the early traction we are seeing across each area. As we focus our investments and prioritize work around these pillars we drove higher revenue per customer, strong growth in CNC machining and operating margin expansion. We continue to see expanding engagement with larger strategic customers in aerospace and defense and medical, reinforcing our conviction that production will become a meaningful long-term growth driver. We achieved AS9100 certification in our European operations during the first quarter, which expands our ability to support aerospace and defense customers globally. We are now better positioned to deliver high-quality aerospace grade parts while helping customers regionalize their supply chains and reduce disruption. This milestone strengthens our global capability and credibility in aerospace and defense and expands our ability to capture production programs globally. Moving to our 2026 operational changes. As we've said in our last earnings call, 2026 will be a year of transformation and acceleration focused on improving the customer experience and building systems that will scale Proto Labs over the long term. On our fourth quarter call, we discussed several organizational and operational changes that position Proto Labs for faster growth and improved profitability. The first change we discussed is ensuring we have the right leadership, structure and operating mechanisms in place. Our product and technology teams are now combined under our CT AIO, Marc Kermisch, ensuring product and technology are aligned and is essential as we accelerate our organic innovation road map to improve our offer and the customer experience. The second operational change in 2026 is enhanced focus on continuous improvement and quality. In April, Jonathan Blaisdell, joined Proto Labs as Head of our Proto Labs Business Excellence Systems. Jonathan has over 30 years of continuous leadership at Danaher and most recently at Polaris, where he helped embed a lean management system, driving operational and financial improvements. At Proto Labs, he will focus on strengthening our management system, operating rhythms and problem-solving capabilities, so our regions and service lines can execute more effectively at scale and drive productivity. We are already seeing tangible quality improvements in our injection molding operations during the quarter, we made investments to drastically improve quality with our largest, most strategic injection molding customers. This will improve customer friction and help us expand our production offer. Importantly, the work we are doing is already driving operational benefits and will continue to unlock speed and leverage throughout 2026. Next, we have established our global capability center or GCC, in India, which will serve as a critical enabler of our long-term strategy. We are in the process of building out our team and presence in the region. We look forward to providing additional updates on our progress in the future. Lastly, the fourth change we called out is a strategic reset in Europe. We have taken deliberate actions to reset the business in Europe, including targeted reductions in the first quarter to align cost structure with current revenue levels and improvements in go-to-market operations. We started some of Europe go-to-market work in late 2025, including alignment to core industries and simplify and increased customer engagement. I'm proud to say that these efforts are beginning to yield early results. with the region delivering 11% sequential growth in the first quarter, a sign that our teams are executing with discipline and focus. These early improvements are an important step towards stabilizing performance and positioning Europe to contribute to both growth and margin expansion going forward. I want to thank our European colleagues for their continued dedication as we reset this important part of our business. In closing, as we continue to progress through 2026, our priorities remain clear: elevate customer experience, accelerate innovation, expand our production capabilities and continue operating with discipline. Execution across these areas is already translating into improved growth and engagement, and we believe it positions Proto Labs to deliver accelerating revenue growth and expanding profitability over time. I am encouraged by our strong start to 2026 and confident in our ability to execute our strategy and deliver durable long-term value to customers and shareholders. With that, I'll turn the call over to Dan to walk through our financial performance and outlook in more detail. Dan Schumacher: Thanks, Suresh, and good morning. I'll start with a brief overview of our first quarter results. followed by our outlook for the second quarter of 2026. First quarter revenue was a company record $139.3 million, up 10.4% year-over-year. In constant currencies, revenue grew 8.7%. U.S. revenue grew 11.8% year-over-year, while Europe declined 3.4% in constant currencies. . First quarter CNC machining revenue grew 17.6% year-over-year in constant currencies. As Suresh stated, we continue to see very strong demand for our machining services across several key end markets, most notably, space exploration, satellites, drones and robotics. U.S. CNC machining revenue grew 23% year-over-year. During the quarter, we executed targeted pricing actions in line with machining market dynamics. Injection molding grew 3.5% in constant currencies as we drove strong performance in large orders with strategic customers. 3D printing revenue was flat year-over-year in constant currencies as growth in the U.S. was offset by weak demand in Europe. We are still seeing strong demand for metal 3D parts in the U.S. And year-over-year, DMLS revenue growth was nearly 30%. Sheet metal grew 2.3% year-over-year in constant currencies, driven by solid growth in aerospace and defense and industrial tech. Shifting to margins. Non-GAAP gross margin was 46.2% in the first quarter, an expansion of 140 basis points, both sequentially and year-over-year. Higher factory gross margins drove the increase via both volume improvements and pricing increase. Also, mix was a tailwind in the quarter as higher margin factory revenue grew faster than network revenue. First quarter non-GAAP operating expenses were $48.9 million, up $1.8 million compared to the prior year due to higher contractor, license and demand generation spend. On a percent of revenue basis, adjusted operating expenses were 35.1% of revenue, down 220 basis points year-over-year. This decrease was driven by a combination of 3 factors: First, we made targeted cost reductions in the first quarter, mostly in Europe as part of our strategic reset. There were also some reductions in the U.S. as we look to fund our strategic projects. Second, employee costs were lower than anticipated as we ramp hiring for our strategic pillar projects. We expect to increase SG&A spend throughout 2026 as we invest to execute our long-term strategy. And third, as part of our drive operational efficiency pillar, we are in the early innings of finding savings and efficiencies that will allow us to invest in growth areas. Adjusted EBITDA was $22.8 million or 16.3% of revenue up from $17.4 million or 13.8% of revenue in the first quarter of 2025. First quarter non-GAAP earnings per share were $0.54, up $0.21 year-over-year driven by volume, factory gross margin expansion and leverage on our operating expenses. $0.54 is the high adjusted EPS figure we've reported since the third quarter of 2020. We generated $17.5 million in cash from operations during the first quarter. Proto Labs continues to lead the digital manufacturing industry and cash generation, reflecting the strength of our business model. On March 31, 2026, we had $158 million of cash and investments on our balance sheet and 0 debt. Our outlook for the full year and second quarter of 2026 is outlined on Slide 14. We still expect full year 2026 revenue growth of 6% to 8%. For the second quarter, we expect revenue between $140 million and $148 million. At the midpoint, this implies 7% revenue growth year-over-year. We expect foreign currency to have a $500,000 favorable impact on revenue compared to the second quarter of 2025. Our earnings guidance incorporates the following assumptions for the second quarter of 2026. Non-GAAP add-backs will include stock-based compensation expense of approximately $4 million, amortization expense of $900,000 and restructuring and transformation costs of $600,000. We also expect a non-GAAP effective tax rate between 25% and 26%. In summary, we expect second quarter 2026 non-GAAP earnings per share between $0.50 and $0.58. That concludes our prepared remarks. Sashi open -- please open the floor for questions. Operator: [Operator Instructions] The first question is from Greg Palm from Craig-Hallum. Greg Palm: Congrats on the solid results. Can you maybe give us a little bit more color on cadence of the quarter. I think you had mentioned that January had started off slow if I recall correctly. So what did you see February, March? What are you seeing so far in April? And just from like an upside standpoint, I think you called out A&D space, but any other end markets that maybe surprised you a little bit to the upside. Dan Schumacher: Yes. One thing for the quarter, although Europe was down 3% year-over-year, they were up 11% sequentially. So we're seeing some good traction within Europe. Suresh talked about the Europe reset, and we're seeing some benefits and some stronger performance in Europe as we're moving quarter-over-quarter. In terms of what we're seeing, seasonality like in April, that's reflected in the guide. So we have a really decent start to April, and that's reflected in the number that you see, which implies sequential growth quarter-over-quarter, Q1 into Q2. It continues to be the same. We're seeing strong growth from our large customers. We're seeing strong growth from aerospace and defense end markets. I would also say computer and electronics and industrial commercial machinery performed well as well. And we're seeing that strength continue into the second quarter. Greg Palm: We shift gears to the network. So that was down sequentially barely up on a year-over-year basis on a constant currency basis. What -- any reason for the decel? What are you specifically seeing in that business? Suresh Krishna: Greg, we are -- overall, we are very happy with our double-digit growth, and this is the second quarter we've delivered that. We will see fluctuations between our fulfilled methods between factory and network. We did see some weakness in network demand in 3D printing. And we are making some changes in our go-to-market areas so that we can work to accelerate network revenue growth in the future, much as we work to drive growth in our factory business. Greg Palm: And I might have missed it, but did you give a network gross margin. Dan Schumacher: We did not. Suresh Krishna: We did not. We can get it for you. Dan Schumacher: Greg. Network gross margin was 31%. Operator: The next question is from Brian Drab from William Blair. Brian Drab: One thing that stood out to me this quarter was the injection holding business and the growth sequentially. I know you called out that the primary growth came from CNC machining year-over-year, but this injection molding result is the best result you've had, I think, in 8 quarters, are you seeing some traction from the new initiatives that you talked about last quarter? What is the main thing driving that growth? And do you think that this kind of $51 million revenue level could be the base like baseline revenue level for the year and we're going up from there or something unusual in the first quarter? Dan Schumacher: Yes. Brian, we're seeing traction really with some of our larger customers in terms of getting larger orders through injection molding. It's all the things we've talked about in terms of what we're working on from an injection molding perspective. Injection molding is a service that over time, there's less prototype that we're doing, and there's more production that we're doing. And we're just getting better and better at that with our customers. And you can see that in the sequential growth that you talked about. It's about meeting customer specifications as it relates to injection molding, especially on the larger orders. And they're really using us because we do have -- we can both schedule out over time, orders that they need or if they need them quickly, we can turn them faster than anybody else. So we're getting good traction on some of these initiatives that we've talked about on injection molding, and you can see that in the results. Brian Drab: And then you outperformed in terms of revenue growth in the first quarter. You maintained the full year guidance, can you just talk about your thinking and what you're seeing maybe in the macro or in your business that prevented you right at the moment from raising the guidance for the full year for growth? Dan Schumacher: We had a great Q1, Brian. And we're always trying to be appropriately conservative when we provide the outlook to the market. The business is performing well. But I looked at that and balance that with macro uncertainty over the long term and the visibility that we have kind of moving into the future. If you take a look at that 6% to 8%. It would be normal seasonality as you go through the year. where we gave you the midpoint of the guide for the second quarter, which is up sequentially Q1 to Q2. Normal seasonality is you're up -- you're either flat to slightly up Q3 and then you're going to be down due to the holidays in Q4. That's really what's built into the full year guide. We're 1 quarter in. We held it to where it is, but there is a certain amount of conservatism in there just based on the macro environment. Operator: The next question is from Troy Jensen from Cantor Fitzgerald. Troy Jensen: Congrats on really nice results here. Quick question for us, rasher. I guess I'd be curious to know your thoughts on how much of Proto Labs has production exposure. I've always thought of injection molding is primarily all production because you produce some out of parts, but I don't know if you've tried to figure out what percentage you have exposed to prototyping versus production and how that's changed over the past year or so. Suresh Krishna: Again, I think we said it in our strategic plan. We are early in our journey to build the capabilities needed for production. I don't know if you've given out in terms of percent what it is, but we are building it and more customers in our interactions with our bigger strategic accounts, they want us to get into production, and that's what we're building out as part of our strategic pillars is to be able to do more production for them. Absolutely, we see more interest in injection molding and in 3D printing as well. And we continue to gain some of these orders that gives us longer runs. We are still further away from getting to give you guys an ARR kind of number because they're still early in this production journey. Troy Jensen: How about just capacity levels right now in the factory? Any needs for investments given the accelerated growth here? . Dan Schumacher: Yes, Troy. We don't -- capacity, yes, from the perspective of mills. And DMLS, we're adding DMLS metal 3D printers. We have enough space. But as you know, in our digital manufacturing model we can scale very quickly. What we're running into capacity issues is just on the number of machines and certain services. Specifically, CNC machining, obviously, you can see because of the growth, and I also mentioned in the U.S., we have around 30% growth in metal 3D print. So we're adding DMLS printers as well. . Troy Jensen: And then just 1 more for you, Dan. Can you just touch on gross margin thoughts going forward and can we keep them above 46% here? Dan Schumacher: Yes. So the guide has gross margin flat to slightly down quarter-over-quarter. With that being said, I expect full year gross margins to be slightly up. on the year just based on what we saw in the first quarter and what we're seeing -- what I'm projecting for the second quarter. Gross margin is highly dependent on what our mix is and what we're seeing from a pricing perspective, we're going to continue to monitor market dynamics around pricing, and we'll adjust pricing as necessary. But I'm really pleased with the execution we've had as it relates to that, and you can see that in our margins. . Operator: The next question is from James Ricchiuti from Needham & Company. James Ricchiuti: First congrats on the quarter. Dan, maybe first question for you. You gave some context in terms of how to think about gross margins as we go through the year. It appears that you're also thinking more about adding some additional sales and marketing expense as you go through the year to pursue some of the growth initiatives that you're targeting. How do we think about maybe OpEx as we look out beyond the June quarter? . Dan Schumacher: Yes. I would expect OpEx to increase quarter-to-quarter. I described it on the call, we made some actions both in Europe -- and in the U.S., the Europe actions were part of the Europe reset, and the U.S. actions were to fund that strategic investments. And I expect us to invest as we go through the year. A lot of that investment is going to go into R&D. You're going to see some capital investment as well as it relates to software development as we go through the year. And these are to fund those strategic pillars, which should provide us both innovation for top line growth over the long term as well as efficiencies as we reduce the friction both with our customers and with our employees internally. So yes, there's going to be further investment as we go through the year, but that's to build traction and a strong return on the long term by funding the strategic buyers. James Ricchiuti: I also wanted to ask a follow-up. Just on what you're seeing in Europe. I know it was nice sequential growth that you're you registered in Q1. Where are you seeing the most traction? Is this from the changes you're implementing? Is it -- are these perhaps coming from any one vertical or are they coming from new customers, different business lines. I wonder what -- if you can just elaborate on the early progress you're seeing there? . Suresh Krishna: Yes. Thank you. We -- as we said, we took deliberate actions to reset the business in Europe. We made targeted reductions in the first quarter. In terms of our go-to-market changes, we started to align our sales and marketing resources around core industries, aerospace and defense and medical. And we are increasing focus on targeted customer engagement. And that is working for us. It's, again, very early what we are doing in Europe. And we are seeing the benefits of that come through in the first quarter. But again, as I said, we are very early in this effort so far. James Ricchiuti: And lastly, if I could just slip 1 in, some very nice growth in revenue per customer for contact. Again, similar type question, are you getting more traction? You called out a couple of verticals, but I'm just wondering where are you seeing the most progress in terms of driving revenue per customer? . Suresh Krishna: Yes. We are definitely -- we are very pleased with the engagement we are getting from our largest customers, most strategic customers. We spend a lot of time talking to them. And we are seeing most response in aerospace and defense and drone companies our specialty, which is speed, reliability and quality resonates a lot with these industries right now. They are high innovation. They like our speed with innovation and our ability to take them all the way through the life cycle of the part all the way into production. And that's what is resonating and giving us more share of wallet. Dan Schumacher: What I would tell you as well is as we do customer surveys, one of the things they do like about us is as we have more human interaction with them, with our experience in manufacturing and our experience in actually making the part, helping them through the process so that they're -- we're delivering what they need, and that makes that customer stickier and order from us more often. As we do more of that, that leads to really that expansion and how many orders, how many parts those customers end up buying for us in a given period. . Suresh Krishna: Yes. And these industries, as you know, are early in the innovation cycle. These are long investments, early in the innovation cycle, and we will benefit a lot as these industries continue to scale, and we get in early in the innovation cycle. Operator: This concludes the question-and-answer session as well as today's teleconference. You may all disconnect your lines at this time. Thank you for your participation.
Operator: Hello, everyone. Thank you for joining us, and welcome to iRhythm Holdings Q1 2026 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Lisa Pecora, Senior Vice President of Finance and Investor Relations, for opening remarks. Lisa Pecora: Thank you, operator, and thank you all for joining iRhythm's First Quarter 2026 Earnings Call. With me today are Quentin Blackford, iRhythm's President and Chief Executive Officer; and Dan Wilson, our Chief Financial Officer. Before we begin, please note that management will make forward-looking statements within the meaning of federal securities laws under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements regarding our intentions, beliefs and expectations about future events, strategy, competition, products, operating plans and performance. Forward-looking statements on this call are based on current estimates and assumptions involve risks and uncertainties, and actual results may differ materially. These statements are made as of today, April 30, 2026, and are time sensitive. We undertake no obligation to update or revise them, except as required by law. Accordingly, you should not place undue reliance on these statements. For a discussion of risks and uncertainties, please refer to our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the SEC. Additionally, during the call, we will discuss certain financial measures that have not been prepared in accordance with GAAP. Unless otherwise noted, all references to financial measures on this call are presented on a non-GAAP basis. These non-GAAP measures should not be considered in isolation or as a substitute for or superior to GAAP results. Reconciliations to the most directly comparable GAAP measures can be found in our earnings release and the slides accompanying today's call. With that, I'll turn the call over to Quentin. Quentin Blackford: Good afternoon, everyone, and thank you for joining us. I'm pleased to be here to discuss our first quarter 2026 performance and outlook for the balance of the year. I will begin with an overview of the quarter, our strategic progress and our outlook for 2026 and beyond. Dan will then talk about our financial performance and guidance in more detail. We delivered a strong first quarter, exceeding expectations on both the top and bottom line. Revenue grew 26% year-over-year, driven by volume, and we continue to execute on our profitability improvement commitments as we expanded margins. Importantly, our performance was broad-based across Zio Monitor and Zio AT and across each of our key growth pillars, including cardiology, primary care, innovative channels and international. Our results reflect both strong execution in the core business and continued progress against the strategic priorities we believe will support durable growth over time. At the center of that strategy is our effort to expand the long-term continuous monitoring market by redefining arrhythmias are diagnosed once patients enter the diagnostic pathway. A growing body of clinical evidence now spanning more than 140 publications consistently shows that nearly 2/3 of arrhythmias are often detected only after 48 hours of monitoring, reinforcing the limitations of short duration monitoring. Yet nearly 2 million short-duration Holter and event monitors are still prescribed annually in the U.S., representing a significant opportunity to upgrade care. By continuing to shift clinical practice towards longer duration monitoring, we believe iRhythm is not only gaining share, but actively growing the market by increasing diagnostic yield and improving patient outcomes. Zio Monitor remains the foundation of our platform, supported by consistent prescribing trends, broad clinical adoption and continued growth across new channels and international markets. Zio AT also continued to advance this quarter, taking share with new account wins and expanding utilization within existing accounts. That progress came despite a challenging prior year comparison and reinforces our view of the MCT category as a durable and increasingly important contributor to the platform. One of the most important drivers of our long-term opportunity is our continued move upstream in the patient pathway. We estimate that more than 27 million people in the U.S. are at risk for arrhythmias, many of whom are first evaluated in primary care settings. As a result, primary care is becoming an increasingly important entry point for earlier detection and more proactive management. We continue to expand our reach and engagement within primary care, helping clinicians rule arrhythmias in or out while enabling cardiology to focus more efficiently on the highest acuity patients. This is not a shift away from cardiology. Rather, it expands the overall market and improves patient flow, diagnostic efficiency and care coordination across settings. A key enabler of this strategy is workflow integration. Approximately 53% of our volume now flows through EHR integrated accounts and more than 3/4 of our top 100 customers are now integrated. This level of integration is particularly valuable in primary care, where once embedded, we partner closely with our customers to help them develop best-in-class clinical pathways rather than just a transactional tool. We continue to see traction across innovative care channels with growth supported by a broad and expanding set of value-based primary care and population health partners. Activity remains consistent and repeatable, driven by both new account wins and expanding utilization within existing relationships. Importantly, as certain programs mature, we're seeing adoption broaden across both symptomatic and asymptomatic populations, reinforcing the relevance and durability of the Zio platform as care delivery continues to shift upstream and toward value-based models. International remains another emerging source of opportunity. In the U.K., we had our best quarter in company history, reflecting growing traction and validation of our model in a cost-constrained health system. In Japan, we recently received an update to the reimbursement framework that introduces a modest supplemental payment for longer duration monitoring. While the economics remain early and are not a meaningful contributor today, we view this as a positive signal that reflects growing recognition of the long-term continuous monitoring and reinforces the pathway to more favorable reimbursement as we generate local head-to-head clinical evidence. We are also making progress in adjacent markets. In sleep, our pilots continue to produce encouraging early feedback and reinforce the meaningful opportunity ahead in a U.S. market of nearly 40 million sleep apnea patients, of which there is significant overlap with arrhythmia populations. Sleep is another good example of why workflow integration matters. Sleep diagnostics today remain highly fragmented across primary care, cardiology, sleep specialists, sleep labs, home testing, interpretation and follow-up and often across disconnected systems. Our focus is not simply on introducing a new device or algorithm, but on building a streamlined end-to-end clinical workflow that simplifies how sleep diagnostics are ordered, interpreted and acted upon. As we have done in cardiac monitoring, we believe workflow simplification can create meaningful value for both providers and the healthcare system, particularly as care continues to shift upstream. From a clinical perspective, recent evidence continues to support our position and reinforces the significant opportunity ahead of us. At ACC, we shared new real-world evidence showing Zio's high diagnostic yield for clinically actionable arrhythmias across cardiometabolic risk populations, including increased risk in chronic kidney disease and rising atrial fibrillation detection with obesity. We also launched iRhythm Academy, which scales high-quality on-demand education to help clinicians adopt best practices and new advances more efficiently. At HRS, we presented new data reinforcing the superiority of Zio after AF ablation and in pregnancy. In addition, we published 2 peer-reviewed studies highlighting the clinical and utilization advantages of long-term continuous monitoring using Zio. The data show that traditional short-term monitoring often misses actionable arrhythmias and that Zio enables earlier diagnosis with fewer repeat tests across both Medicare and commercially insured patients. Taken together, these efforts reinforce 3 points. Zio long-term monitoring improves diagnostic yield. It expands relevance across broader patient populations, and it can reduce inefficiency and downstream cost, all of which are critical as we continue to expand beyond traditional symptomatic populations and move further upstream into earlier detection with the potential to lower downstream costs for the healthcare system. Consistent with that clinical expansion, recent CMS policy developments continue to emphasize objective diagnosis, quality and measurable outcomes over documentation-driven strategies. The final 2027 Medicare Advantage rate announcement reflects funding stability alongside continued tightening around risk adjustment and coding practices. This policy trajectory reinforces the importance of confirmatory diagnostics that drive accurate diagnosis and appropriate care and positions Zio well as healthcare continues to shift towards value-based models. With our vision to scale beyond traditional arhythmia monitoring, our ability to execute is supported by an integrated AI-enabled platform. We now have more than 3 billion hours of curated ECG data, and we continue to build on that foundation by combining internal and external data sets, including claims and EHR data to improve detection, identify at-risk patients earlier and enhance clinical workflows. As we continue to advance our AI predictive capabilities, we are now in our first health system deployment of predictive identification workflows integrated with iRhythm monitoring solutions, and we have an active pipeline for additional health systems to follow. Early pilots show more than 85% accuracy in pre-identifying patients with clinically relevant arrhythmias, reinforcing our conviction that iRhythm is positioned not just to detect disease, but also help predict risk earlier and ultimately prevent it. Our initial programs focus on high-risk populations, including patients with diabetes, CKD, CAD, COPD, sleep disorders and heart failure, where arrhythmias are both common and costly. These initiatives are designed to improve efficiency, quality and reduce cost of care delivery, and we look forward to real-world data being published later this year. More broadly, iRhythm's durability in an AI-driven environment is grounded in the fact that healthcare value is not created by algorithms alone. It is created by operating an end-to-end AI-embedded FDA-regulated, clinically integrated and reimbursed service at scale. Our platform is deeply embedded across leading health systems and supported by deep workflow integration, broad reimbursement, extensive clinical evidence and a proprietary ECG data set that continues to grow significantly. Coupled with the operational complexity of device programs, specialized clinical support and high regulatory scrutiny, our platform will continue to compound in value over time, particularly as we expand beyond cardiovascular into a multi-specialty intelligence platform. I'm pleased to share that same foundation is helping drive progress as we expand our AI capabilities with our new next-generation AI algorithm. Leveraging our large proprietary multibillion-hour data set, we believe this next-generation algorithm, which will be used across our entire platform of Zio Monitor, Zio AT and our future Zio MCT can reduce clinical technician review time by as much as half over time, which would improve efficiency, support future margin expansion and further strengthen our competitive position as we increase the clinical value to our patients and physicians. We submitted the 510(k) for this next-generation AI algorithm to the FDA last year alongside, albeit separate from our Zio MCT 510(k) submission. Next, I'd like to provide an update on our regulatory progress. As you know, we remain subject to an FDA warning letter. As part of our remediation efforts, we committed to address all of the agency's concerns. We also elected to go beyond the specific actions requested by the FDA, which included conducting a comprehensive review of our entire quality management system to identify and implement further improvements, which we have now completed. Consistent with our commitments to the agency, we also engaged an independent third-party to conduct a comprehensive review of our quality management system. That review was completed in the first quarter and did not identify any material observations. We believe this outcome reflects both the seriousness with which we have approached this work and the substantial progress we have made. While the timing of any action by the FDA remains with the agency, we believe the work completed to-date positions us well as the agency continues its review. With respect to our next-generation MCT program, we've made a lot of progress over the past few months and are happy to reaffirm our first half 2027 release time line. As we noted on our last earnings call, we identified a clear path to our next-generation MCT clearance, including the determination that it was in our best long-term interest to move to a new mobile gateway sooner, which would require some additional work and data to be submitted to the FDA. As we continue to work collaboratively with the FDA, they have clarified that rather than submit additional data on a rolling basis, the preferred path is to provide a complete package once all elements are finalized later this year. We had anticipated this might be one outcome for how we might update our submission, so it falls within our previously communicated clearance and launch time frame. We believe this collaborative approach, enabling us to stay on track with our approval and launch time lines while also advancing an enhanced next-generation AI algorithm for clearance at a potentially earlier time point is a clear sign that all of our hard work over the past few years to improve our relationship with the FDA has been paying off. Looking ahead, our priorities remain clear: to drive durable volume-led growth across cardiology, primary care and innovative channels, continue expanding margins through operating discipline, efficiency and scale, advance our innovation road map, including next-generation MCT and predictive AI build international and adjacent markets with discipline and maintain high standards of operational excellence and compliance in a rapidly evolving healthcare environment. With that, I'll turn the call over to Dan. Daniel Wilson: Thank you, Quentin. iRhythm delivered continued strong financial performance in the first quarter of 2026, reflecting durable demand for iRhythm's ambulatory cardiac monitoring services and disciplined execution across the organization. Our results demonstrate once again our focus on profitable growth as we recorded another quarter of strong year-over-year revenue growth, while driving 880 basis points of improvement to adjusted EBITDA margin. We are encouraged to see the continued growth in the business while driving strong operating leverage. We delivered revenue of $199.4 million, representing 25.7% year-over-year growth. Performance was driven primarily by sustained volume demand across our customer base, reflecting continued strength in our core business and contributions from newer growth channels. Volume remained the primary driver of year-over-year revenue growth, while we also benefited from improvements with our estimated collections reserves related to our market access, contracting and collection efforts. These results were supported by continued engagement across a broad and expanding prescriber base, reinforcing the durability of volume demand. New store growth, with new store defined as accounts that have been opened for less than 12 months, accounted for approximately 64% of our year-over-year volume growth. Home enrollment for Zio Services in the U.S. remained consistent from prior quarters at approximately 23% of volume in the first quarter. Moving down the P&L. Gross margin in the first quarter was 70.9%, an increase of 210 basis points year-over-year. This sustainable improvement was driven by continued operational efficiencies, including manufacturing automation and workflow optimization as well as scale benefits from higher volumes. First quarter 2026 adjusted operating expenses were $153.5 million compared to $140.4 million in the prior year period, an increase of 9.3% year-over-year, primarily driven by an increase in volume-related costs to serve, litigation-related expenses and investments to drive future revenue growth. We invested purposefully in the business to fuel near, mid- and long-term growth while delivering strong operating leverage with revenue growing meaningfully faster than operating expenses. On the bottom line, GAAP net loss for the first quarter was $13.9 million or a net loss of $0.43 per diluted share compared to a GAAP net loss of $30.7 million or a net loss of $0.97 per diluted share in the first quarter of 2025. Adjusted net loss for the first quarter was $11.3 million or a net loss of $0.35 per diluted share compared to an adjusted net loss of $30.3 million or a net loss of $0.95 per diluted share in the first quarter of 2025. Adjusted EBITDA for the first quarter was $14.1 million or 7.1% of revenue, representing an 880 basis point improvement year-over-year and a significant improvement in profitability, demonstrative of the operating leverage inherent in our business. Free cash flow during the first quarter was negative $33 million, in line with normal seasonality attributable to annual compensation payments and working capital seasonality. We ended the quarter with $549.6 million in cash, cash equivalents and marketable securities, a strong cash position that provides us with substantial flexibility to support future growth initiatives. Looking ahead, we are raising full-year 2026 revenue guidance to $875 million to $885 million, representing 17% to 18% year-over-year growth. This outlook reflects sustained demand across our core business, while maintaining a disciplined approach to forecasting newer and emerging channels. On a full-year basis, we continue to expect pricing to be approximately flat overall to 2025, with revenue growth driven by continued volume growth across core Zio Monitor, Zio AT, innovative channels and international. In the second quarter of 2026, we anticipate revenue to be in the range of $218 million to $220 million, consistent with typical revenue seasonality. For gross margin, we expect the clinical operations and manufacturing efficiencies we've driven will continue to incrementally improve our gross margin profile for the full-year 2026. We believe that these sustainable improvements will continue to lower our cost to serve as we leverage our fixed cost infrastructure over a higher volume of patients over time and introduce new artificial intelligence and workflow tools. Regarding the current geopolitical situation, we have cost containment initiatives in place and do not expect a material impact to gross margin. From a profitability standpoint, we are raising our full-year 2026 adjusted EBITDA margin guidance to 12% to 13%, reflecting increased operating leverage and a balanced approach to investing in our key priorities, including product innovation, commercial initiatives, international expansion and platform capabilities. For the second quarter 2026, we anticipate adjusted EBITDA margin to be between 11.5% and 12.5%. We continue to expect full-year free cash flow in 2026 to grow versus 2025 with free cash flow more heavily weighted in the second half of the year due to normal operating seasonality. In summary, our first quarter results demonstrate the resilience of our business model and the progress we are making in scaling our platform with disciplined investment. We are seeing increasing validation of the value our services deliver, particularly in their ability to help lower downstream healthcare utilization. This dynamic reinforces demand for our solutions, especially as healthcare systems remain focused on efficiency and cost-effective care delivery. We similarly remain focused on growing the number of patients we serve while operating efficiently and investing in the opportunities we believe will drive sustainable growth in our business. I will now turn the call back to Quentin for closing remarks. Quentin Blackford: In the first quarter, we were pleased with our start to the year with strong top line growth, continued margin expansion and ongoing investments in the capabilities that support durable long-term value creation. As we enter iRhythm's 20th year, our performance reflects the strength of our platform, the discipline of our execution and the relevance of the problem we are solving. Arrhythmias remain a significant clinical and economic challenge. They are often episodic, asymptomatic or misattributed to other conditions and are often missed by short-duration diagnostics. Delayed or misdiagnosis can lead to worse patient outcomes and avoidable costs across the healthcare system. iRhythm sits at the intersection of several powerful trends, an aging population, increasing prevalence of arrhythmias, growing cost pressure, cardiology capacity constraints and the shift towards value-based proactive care. We believe the market opportunity ahead is significantly larger than it has historically been recognized and that our platform positions us well to lead that expansion to create long-term value for patients, physicians, providers, payers and shareholders. Our focus remains on disciplined execution. We are driving volume-led growth by expanding access through primary care and integrated networks, advancing our platform through AI and workflow innovation and investing selectively where we see clear clinical and economic return. Looking ahead, the opportunity is not only about expanding the market, it's about strengthening our platform advantage. Our growing clinical data set, AI capabilities and deep body of clinical validation increasingly differentiate iRhythm. As healthcare increasingly prioritizes accuracy, evidence and efficiency, we believe validated data-driven diagnostics will be increasingly important in improving outcomes and lowering system cost, attractively positioning iRhythm to create long-term value for all stakeholders. Before we move to Q&A, I want to briefly touch on a couple of items that are often top of mind. With respect to the DOJ, we have not received any request for additional information since the CID issued in December and continue to cooperate fully. Separately, regarding finalization of the local coverage determination, we have not yet heard back from the MACs. As expected, timing remains uncertain given the current official silent period. With that, we're now happy to take your questions. Operator: [Operator Instructions]. Your first question is from Allen Gong with JPMorgan. Allen Gong: Just the first one is going to be on the guide. You're coming off of a quarter where I think you came in $5 million or so above consensus. You raised the full-year by that amount, but then the rest of the year implies a bit of a deceleration from there. Help me understand how much of that is conservatism? How much of that is informed by what you're seeing so far in April? Daniel Wilson: Yes. Thanks, Allen, for the question. I guess maybe to start, as always, we don't like to get ahead of ourselves. It is early in the year, and we want to be thoughtful around how we set up the year. Certainly, a great start to the year in the quarter. We talked about momentum kind of across the different business. Really encouraged about what we're seeing and the trends that we expect to see for the remainder of the year. I would point the back part of the year, in particular, starts to have some pretty difficult comps given the performance that we had in 2025. Again, feel really good about what we're seeing in the business. There's certainly potential upside that we're not going to bake into the guide given the early part of the year, and that's a similar approach that we've taken previously. If those play through, that's great, but there's a reason we leave them outside the guide to start. Like what we're seeing in the business, a lot of good contribution across the different growth drivers in the business. Quentin Blackford: Allen, I'll just jump in. This is Quentin. In terms of what we're seeing in April, we're encouraged by what we're seeing there, good results. We feel good about that. Obviously, we can contemplate that in the reiteration of the guide and the increase in the guide as well. One last point I'd just make with respect to what Dan had commented on and your point on the slower growth rates in Q2, Q3 and Q4. When you look at things on a stacked growth comp basis, the momentum is very, very strong, and so despite the tougher comps we're running into year-over-year in the next few quarters here, which we contemplate, the overall momentum in the business continues to be really strong. Allen Gong: Then just as a follow-up, I think one of the pressures on the broader medtech space recently has been a fear around AI. Looking at your business, it does seem as though you might be a little bit more exposed to that even more so than other medtech companies. You're talking about this new algorithm that you're planning to launch. But when we think about potential competition from outside of the traditional medtech sphere, how concerned are you about that? How do you position yourself to better compete against those kinds of entrants? Quentin Blackford: Yes, it's a fair question. It's one that we get a lot. It's one that I feel very good about in terms of our defensibility and the moat that we've built in the business. I think you have to keep in mind, we're not simply just offering a software capability or an algorithm. It's much more than that. It's running an end-to-end program for these customers of ours around cardiac monitoring and ultimately arrhythmia diagnosis, which includes, for sure, AI capabilities that we've now got 20 years of experience behind us, a 3 billion hour data set that's curated ECG data that we can build off of. Frankly, that's been part of what's enabled us to move into spaces like predictive capabilities, and we're excited to be launching our first commercial predictive AI collaboration that I mentioned in prepared remarks. It's also what's enabled us to advance our next-gen algorithm that will reduce our technician review time by nearly half over the next several years, which is going to be a meaningful financial contributor. It's the power of that data that allows us to move quickly in those spaces but also the broader end-to-end program that we enable these customers to be able to run without worry, whether that's a hardware device on the front end, like our patch that has incredible patient compliance. 98% of our folks will wear the patch up to 14 days. We know duration of monitoring is important. Getting a longer duration wear period is important, which is more than just an algorithm. That's a form factor in a hardware component. There's the intake process of receiving these things, downgrading the data or -- downloading the data, sorry, coupling it with the patient context that's provided with it. There's many times that you look at feedback and there might not be any arrhythmia in the ECG data, but the patient feedback in the diary or the electronic digital-facing app is meaningful. The physician wants to know that. You're not going to capture all that in just an algorithm alone. Then on top of that, it's got to be clinically validated and upheld to the FDA scrutiny from a quality perspective or you could go on to reimbursement. There's a massive market access component to ensuring that your solution is reimbursed, and that takes tremendous effort. I think we're up to 93% of all lives in the U.S. are now covered with respect to access to Zio. That takes time and effort with other solutions. There's a lot that goes into it. It's not just simply an AI capability. It's an end-to-end program that's being run that we have mastered over the years, and we have a market-leading position for a reason, and we will continue to defend that well. I think the platform we've built ultimately gives us the ability to drop incremental AI capabilities on and through the large integration platform that we have with the vast majority of our customers enable them to have access to some of these capabilities seamlessly on their side. They're not having to integrate multiple times over. They have a single point of integration with iRhythm. We can bring to them several of these solutions and give them very quick, easy access. I'm excited by the position we have. We'll continue to move quickly, and we're bullish on the position we have here. Operator: Your next question is from Stephanie Elghazi with BofA. Stephanie Piazzola: I wanted to ask on the EBITDA margin in the quarter was pretty strong at 7% and better than your guide of 3% to 4%. Just curious what drove that outperformance? Then you raised the guide slightly to 12% to 13%. Just curious why not raise more. Maybe it's just early in the year, but yes, curious your thinking on that. Daniel Wilson: Yes. Thanks, Stephanie, for the question. Maybe the second part of your question first there. Yes, we are raising the guide essentially by the magnitude of the beat in the quarter. Again, early in the year, I don't want to get ahead of ourselves, but certainly seeing the profitability flow through nicely in the business and saw a nice result there in the quarter. I would just comment really continued strong execution across our teams. We've seen gross margin continue to step up nicely. A lot of efficiencies being driven within our clinical operations team, our manufacturing teams and the automation that we've implemented. Certainly, continued opportunity there as we leverage our scale, leverage technology, our next-generation algorithm, as we mentioned, and have a nice road map there to continue to drive efficiencies and operating leverage. Below gross margin, I'd say similar efficiencies and automation. Then maybe we'll just call out some of the maybe more underappreciated aspects of our business that can drive nice operating leverage. That we've talked about innovative channel, the one-to-many selling model that is present in that channel, and that has real operating leverage that's playing through. You think about our land and expand model as we open an account and then expand in the primary care and other prescriber bases, and we can do that really, really efficiently. Related to that, EHR integration, integration drives operating leverage on an account level basis and really allows us to expand prescribers in a really efficient way. Then certainly, within G&A, we've been hard at work there, very disciplined and a lot of opportunities to continue to drive leverage there. Really excited about what we've driven to over the last couple of years, but see a lot of opportunity in front of us to continue to drive profitability expansion. Stephanie Piazzola: Then just wanted to follow-up on the next-gen algorithm. I think that was a new positive update, and you mentioned some of the efficiency benefits it can bring. I was wondering if anything else you can share on the features of this next-gen algo? Then just to confirm, you said it's a separate filing from MCT, but submitted at a similar time. Could we be expecting FDA approval in the coming months? Then what's the plan for rolling that out once you get approval? Quentin Blackford: Yes, Stephanie, this is Quentin. In terms of the financial lever, there's probably not a larger financial lever that we have in the business, quite honestly, than this next-generation algorithm when it gets implemented. We're excited by what that will bring. Our view is it has the opportunity to cut review time by nearly half, if not more, over time, which is going to allow us to scale very, very efficiently into the future, and so as we do some of the math around it over the next 5 years or so, it's well north of $100 million of value on a cumulative basis that we expect to be delivered from this. This is a meaningful lever for us that we're excited to get into the company and start to realize the benefit from it. To your point, we did submit it last year alongside MCT. It continues to run independent and on its own time line. We would expect approval later this year. We'll be sure to keep you updated when that approval comes. In terms of implementing it, we will implement it alongside MCT, when MCT is approved and implemented in the first half of '27. There's some work from the development teams to integrate that algorithm onto the production side. We will team that up with the MCT launch as well and keep those coupled. That's how we're thinking about it. Operator: Your next question is from Vijay Kumar with Evercore ISI. Your next question will be from Brandon Vazquez with William Blair. Unknown Analyst: It's Max on for Brandon. You guys have a handful of innovative channel partners that have been with you for a few quarters now. Can you guys just touch on what you've learned from the more tenured relationships and how that's helping you guys as you approach some of the newer accounts? Quentin Blackford: Yes. One of the things that's most encouraging with our innovative channel partners is that every single one of these partners who patched with us in 2025 is up and patching consistently in 2026. We're starting to see more consistency in that channel. Quite honestly, there will continue to be lumpiness at that customer level, but overall, we're seeing more consistency in it. We're encouraged by that. We continue to sign up some new partners over the course of Q1. The pipeline is incredibly healthy as we head into Q2, same with Q3. We're excited by what innovative channel partners will bring to us. We're starting to see a bit more consistency around it. We want to see that continue to play out into the future before we start to get ahead of ourselves, but we're starting to see what we anticipated we might in those areas. The other thing that's really encouraging is what we're seeing in that channel partner business is most of these customers start with us on the asymptomatic side or maybe better described as undiagnosed, unaware arrhythmia patients. These are folks who generally have symptoms in their medical records. They're just not aware of them or they're being confused with other disease states like type 2 diabetes or COPD, CKD, sleep, you go down the list. What's encouraging in what we're seeing with our innovative channel partners is that folks who started on the asymptomatic side are actually starting to use the device much more on the symptomatic side of their business as well. I think part of that comes back to the attributes of the Zio product itself. These folks are learning through their own real-world data that longer duration monitoring produces a higher diagnostic yield. It doesn't miss the arrhythmias. Where in the past, maybe their symptomatic patients were using a traditional Holter short duration sort of monitor, they're missing them, and they're realizing that and they're starting to patch with longer duration. A lot of really interesting, encouraging trends coming out of that part of the business. We're very bullish on what that means for the future and opening up the 27 million patient TAM that we think is out there. It's still early, but we've been encouraged by what we're seeing. Unknown Analyst: Then, Quentin, you previously talked about how MCT can eventually drive share closer towards that 40% to 50% range over time. How should we think about that market share ramp once MCT launches in first half of '27? I understand AT continues to take share. Should we see that MCT launch as a continuation of that trend? Then how does the next-gen algorithm with MCT play into that? Quentin Blackford: Yes. Look, I think the right way to think about it is a continuation of the trend. We know that the new MCT product closes a lot of the competitive gaps that our current ZAT product has, but I think we're going to want to see that product play in the market before we're going to guide to something different. I think the right way to think about it right now is a continuation of the trend that we see with Zio AT with a lot of excitement that it has the potential to do even better than that. That's probably not how we're going to set expectations out of the gate. I would say with Zio AT's performance, we continue to demonstrate the ability to take share with an inferior product. We're just all the more excited by the ability to get MCT into the product -- or sorry, into the market. With respect to getting the algorithm into the product, it's going to drive meaningful gross margin benefit. One of the nice things about Zio MCT is it's coming on the same form factor that our Zio Monitor is already on, which is going to enable us to leverage a lot of the automation from a manufacturing perspective that we already have. We were already going to see a nice benefit from AT into MCT. Now that we are able to drop the next-gen algorithm onto that platform as well, it's going to really enhance the gross margin profile. We're excited by that. I would note, though, that next-gen algorithm, while we'll bring it to market alongside Zio MCT, it will apply across our entire platform. It's going to be immediately applied against Zio Monitor and the large presence that we have there. We'll continue to run on the Zio AT product as we work through those inventory levels and migrate towards Zio MCT and we'll also be on the MCT product. It's a complete platform application of that new algorithm that we're excited by. Operator: Your next question is from Vijay Kumar with Evercore ISI. Unknown Analyst: This is Kevin on for Vijay. Just the one on the DOJ CID request. I know you mentioned there has not been any request for additional information. Can you just update us on what exactly asked for so far? Looking forward, do you have maybe a preliminary view on what the range of outcomes might be here from this request? Quentin Blackford: Yes. No, the request for information in that CID was very consistent with the original subpoena that dates back to 2023. It seems very clear that they're focused in and around the AT product line and really specific to dates back in the '17 to '21, '22 time frame. That's what we can infer from the line of questions and the information request. To go beyond that, it would be hard for us to do. There's not much more clarity we can give. It just seems like for the breadth of their review and investigation has been focused in that area and tied into those time frames. As we have more clarity, we'd be happy to share it with you. Obviously, Zio AT was not a big part of our portfolio back in those early days. It was newly launched and was growing over time. It's hard to size up anything along those lines though, and that's not something we would speculate on. Operator: Our next question will be from Nathan Treybeck with Wells Fargo. Nathan Treybeck: Are you beginning to see any benefits flow through from reconfirmations for chart-derived diagnoses? Are you anticipating any benefit in your guidance? Quentin Blackford: We haven't contemplated anything in the guide, Nathan, in particular. We continue to believe that we're in a very good position relative to the focus around the chart-derived mention that has been made out there and the increased scrutiny around it. From our perspective, our partners consistently use Zio to get to a confirmed diagnosis, which is exactly what CMS is trying to get to is ensure that there's a real confirmed diagnosis versus just speculation of the chart-derive nodes, and so we like the position. We haven't seen a change in behavior necessarily. To be honest with you, most all of our channel partners are using the product to get to that confirmatory diagnosis, and that's what they've been using from the beginning of the relationship. We'll continue to monitor it and watch it. We think this is a nice tailwind in the business and I expect that's how it will play out, but we haven't adjusted anything in guidance at this point for. Operator: Your next question is from David Rescott with R.W. Baird. David Rescott: Congrats on a good start to the year here. I wanted to ask about the sleep market. It sounds like there's some pilots that are ongoing, but would be curious to hear maybe from our perspective, when we should expect to maybe hear something more on sleep, when we should be thinking about this potentially becoming some type of opportunity that you're more meaningfully moving into. Then when you think about the competitive offerings that are out there, what value do you think iRhythm can bring to that market with not only a hardware component, but also just the broader service offering longer term? Quentin Blackford: Yes. Look, I think you're going to hear us continue to talk about sleep over the course of the year, David. It's an important strategic opportunity for us and one that our pilots are validating to us is real. In terms of meaningful contribution, we'll talk about that as we get out into '27. I don't see it as being something that's going to move the needle in a significant way just yet, but as we get more confidence in it and lean into it, we'll keep you apprised of that, and we'll speak to it when that time comes. I do think that we have a real opportunity to disrupt this space. It's more than about simply a home sleep device, and it's more about an algorithm that can identify and detect sleep disease. This is very similar to what we did with cardiac arrhythmias. We disrupted an entire marketplace by providing an easier end-to-end solution to identify, monitor and diagnose these patients. Right now, sleep patients are being lost in their journey, whether it's getting referred from primary care on to cardiology, on to a sleep practice to a sleep lab to a home sleep test that they never receive or don't send back, like the entire system is just very fractured and one that we believe we can bring a lot of organization to and make it as simple as when that physician wants to order a sleep test. It's as easy as hitting a button in our digital tools, Zio Suite, we get a device to that patient, could either be in the clinician's office. It could be through home enrollment just like we do today with cardiac arrhythmias. The they wear the device. We get the information back. We can provide a report right through an IDTF capability and provide that report right back through the digital tool to that physician where it ends up being incredibly seamless and all that back-end effort is invisible to the physician. We think that is a real opportunity to disrupt in this space. We know from our market channel checks that our customers are prescribing home sleep tests already or would be more than willing to prescribe home sleep test. I think that as we continue to move further up the care pathway, as you see the proliferation of even GLP-1s into the marketplace to treat sleep disease, you're going to see more prescribing in primary care. We can make this very seamless and very easy for the physician. We're excited by that. I think it's much more than just a home sleep test itself. It's about the workflow efficiencies that we can create and I don't think there is a single competitor out there who's able to disrupt and provide an offering in the market like we can. There's nobody else who brings that end-to-end solution like we do today. There's a lot of mom-and-pop one-off sleep practices or sleep IDTFs, but nobody is integrated seamlessly in a workflow like we can be, particularly through the large presence of system integrations that we already have, I think there's a real opportunity to disrupt this. Operator: Your next question is from Marie Thibault with BTIG. Unknown Analyst: This is Alex on for Marie. Congrats on a nice quarter. I just wanted to ask some questions on the international business. You guys mentioned in the prepared remarks that you recently got an update to the reimbursement framework with a supplemental payment. I was just curious on if you could provide any more detail on that? Is there any more ongoing work to try to continue getting the reimbursement rate further up there? Daniel Wilson: Yes. Thanks, Alex, for the question. We did see -- and that's specifically in Japan, we did see a small increase in the reimbursement rate there. It is still below what we think is ultimately the value that we are bringing to the market, and we are still running the head-to-head study and collecting that data to ultimately secure more favorable reimbursement in that market. We will continue to work towards that -- that's likely a 2027 event, but we're looking to collect that data and ultimately get to more favorable reimbursement. Encouraging that we saw a bit of a step-up here recently, but again, I don't believe that reflects the value that we're bringing into that market, and we're going to continue to pursue that premium reimbursement. Operator: Your next question is from Richard Newitter with Truist Securities. Unknown Analyst: This is Filipe on for Rich. Just on the proposed LCD for ACM, if you could just help us understand if that was finalized today in its current state, what are your expectations for just potential impact or implications? Just second question upfront. Just on the electrophysiology opportunity, I guess, can you help us understand like what inning of penetration you are in there? Maybe how does the MCT approval unlock patients you're maybe not getting to? Quentin Blackford: I'll address the first one on the LCD. I'm not sure I exactly follow the second question there, but I'll give it a shot. With respect to the LCD, to your, I guess, specific question of it's implemented as written today, what would that impact be or what we would see. The reality is, as it's written today, it would move just about everything into an MCT category because it's requiring continuous monitoring with 24-hour monitoring, I think, is exactly what the language is in the LCD has currently awarded. If that were the case, you're going to be moving a significant amount of LTCM monitoring business into the MCT category, which would have a significant uplift from a revenue perspective on the company, which I don't believe is probably the intention of what the 3 MACs who are putting that proposed language forward. Now we have engaged directly with the MACs. Nearly all of industry has engaged with the MAC. I think we're all pretty consistent in our recommendation with respect on how to clarify that language, and we expect that we'll see that get revised in some sort in the final language that they put into that LCD. I think if you look at the LCD as it's currently written, it would start to really confuse or even contradict some of what's in the national coverage decision that is out there, which that is not the intent of the LCDs. I think they're trying to provide more clarity around what they want to see within the MCT category, but as currently written, it starts to restrict the ability to provide the other modalities of monitoring, and I just don't believe that that's what they're after. We'll continue to engage with them on the opportunities where they present themselves. They're in a quiet period as we speak, and so we're waiting to see what comes out of that. I think there are other LCDs that are out there who have -- that have been written to sort of clarify around ambulatory cardiac monitoring. Novitas is one of those. I think they did a pretty nice job of providing that clarity. You might end up seeing the 3 MAC here end up with something closer to that. That's speculation. I don't know exactly. As currently written, it would move the majority of the market into an MCT style monitor, and that cannot be what the intent is of the cost of monitoring for the overall healthcare system would be increased dramatically. Operator: Your next question is from Suraj Kalia with Oppenheimer. Suraj Kalia: Quentin and Dan, congrats on a nice start to the year. Quentin, a number of calls going on. Forgive me if you've already talked about this. 2-part question. I'll pose it right upfront, Quentin. Where do you think the current monitoring market stands? I know there are numbers of 5 million, 6 million that historically we have used, but you guys continue on this solid growth trajectory, which means the overall pie is shifting. Can you quantify just in terms of where currently the long-term monitoring is versus the MCT, at least in terms of the U.S. patient, that would be great. Quentin, the second part of my question, if I could pose, there has been a lot of chatter about EP slowdown. I know this is derivative, but are you also picking it up in Zio scripts in post-ablation hospital monitoring? Quentin Blackford: Yes. Good question. With respect to the monitoring market, our view is that monitoring market is somewhere around 6.5 million to 7 million tests today in the U.S., of which probably 3.5 million of those tests are long-term cardiac monitoring or patch-based longer duration monitors, of which we have probably 72% of that market is sort of what our market share estimate is based upon the last data points that we had. There's also about 1 million MCT tests that are being performed in the U.S. market. That's a rough estimate, but that's what our data is telling us. Just in terms of framing up the market, that's how we think about those 2 modalities. I do think that we are expanding the market, though. We're very excited by the fact that we think the market is much larger than anywhere close to the 6.5 million tests being performed today. There's 27 million folks at least in the U.S., who most likely have arrhythmias just have been undiagnosed and unfortunately, are confusing the symptoms of those arrhythmias with other comorbid disease states. It's our intent to go open the market and find those folks, and that's a big part of why the predictive algorithm capabilities that we've built and are now implementing in our first commercial relationship are so important to us. We know we can find these patients. Importantly, we find them and get them monitored because when you diagnose early, the downstream reduction in cost is proving to be very clear and very significant, and we know we can bend that cost curve. In terms of your point on the EP slowdown, I would say there's nothing in our data that would give us that indication at this point. We'll pay close attention to it. It's a little bit of an interesting dynamic. The data continues to sort of coalesce around the fact that longer duration monitoring even post-ablation is quite important. The current guidelines today, I believe, for post-monitoring of a PFA procedure is somewhere around 2 to 3 months out, you're generally monitoring with a short duration monitor and then you're monitoring on an annual basis as well with a short duration monitor. The data would tell us that I think we're missing 25% to 30% of arrhythmias that are present as a result of not using longer duration monitoring in those particular procedures. That becomes quite important, even dangerous because if you're starting to change anticoagulation prescribing off of a short-duration monitoring and you're missing the arrhythmias, you may be stopping too soon on this, which puts the patient at risk, and so that data continues to build. We had some interesting data that was put out at HRS. What I suspect you could see and we might be seeing, I don't know, Suraj, is if there is a slowdown, we might -- maybe we end up seeing an offsetting mix switch towards longer duration monitoring at mask that. I don't have anything to indicate a slowdown at this point in time. Our data wouldn't tell us that either, but I do think we're in a nice position here to increase the amount of monitoring post PFA procedures. Operator: Your next question is from Gene Mannheimer With Freedom Capital Markets. Gene Mannheimer: Congrats on a good quarter and outlook. Along some of the lines that were discussed, kind of running ahead of guidance and raising it, have you contemplated any change to your long-term financial targets? Follow-up would be, could you just remind us the percent of registrations coming from primary care lately? Daniel Wilson: Yes. Gene, thanks for the questions. We have not updated the -- our long-term guidance that's out there for 2027 revenue, gross margin and adjusted EBITDA margin. Certainly, the guidance that we have for 2026 puts us on pace to deliver those targets as we get a bit closer we'll think about potentially updating those, but continue to feel really good about ultimately delivering on that long-range guidance that we set back in 2022. On the second part of your question, we continue to see primary care increase as a percent of volume. That is a big part of the growth that we're driving and moving upstream into primary care. Last quarter, we mentioned over 40,000 primary care prescribers. We see that number continue to increase. We gave a metric at one point, call it, roughly 1/3 or a little bit over 30% of our volume coming from primary care, and that has been steadily upticking as well. That will remain a growth driver for the business, and we're excited about what that means. Operator: Your next question is from Bill Plovanic with Canaccord Genuity. Zachary Day: It's Zachary on for Bill. What you were just speaking about with longer-term monitoring showing that arrhythmias can be missed even after ablation because of shorter-term monitoring. I understand that you're generating data around it, but is there any interaction with societies about switching the protocols for these studies? Or I think someone asked before about interaction with EPs, but in those post-ablation patients, is there any penetration you guys can pick up from there? Quentin Blackford: I think it's certainly an approach and one that we would be very interested in pursuing and certainly be moving down that pathway. Clearly, you need data and you need real data. I think that data is just coming together. This was the first study that was published here recently, and we'll continue to add to that and accrue the data behind it to make it even more powerful. Ultimately, you would love to see those guidelines change. I mean the guidelines today just frankly, leads to a situation where you may be putting patients at greater risk than what you could be if you were using a better modality of monitoring. We know that, that monitoring is there. We know that Zio is it. If we can change guidelines, we will certainly lean in to try to do that. Operator: Your next question is from David Roman with Goldman Sachs. Unknown Analyst: This is David on for David, all by myself this afternoon. I wanted just to ask about the profitability here, maybe as I look at the $5 million raise in revenue for the year, you're also putting through roughly a $5 million raise on EBITDA. The incremental gross margin continues to go up, I think, now approaching something like 80% if you look at Q1. Maybe you could help us just think through some of the factors contributing to the improved P&L here, the drop-through rate you're seeing? Then as you reflect on the margin upside, where are some of the biggest opportunities for incremental investment here? Daniel Wilson: Yes. Thanks, David. I appreciate the question, and we are really excited about what we're seeing in the business in terms of profitability. It does start with gross margin, and we've seen nice leverage there and continued gross margin expansion and see a good kind of road map to continue to drive that. We've talked about manufacturing automation and subsequent phases there continuing to drive efficiencies on, call it, the device side of our cost of service. Within the clinical operations, opportunities there to continue to drive efficiencies with our next-generation algorithm and clinical kind of workflow tools, and we're making those investments now, have been making those investments, and we'll look to implement those to continue to drive gross margin leverage. Then on the rest of the P&L from an OpEx standpoint, we do feel really good that we have a balanced approach here, where as we drive upside in revenue and grow revenue year-over-year, we are letting some of that play through and land at the bottom line while reinvesting back into the business. There isn't a shortage of things that get us excited about in terms of investing into the business. Zio MCT, certainly, the next-generation algorithm, as I mentioned. Clinical evidence has always been something we want to invest in. We'll continue to invest in. We have a nice road map there as we look at the back part of this year. There's a lot we can do from a marketing standpoint. Opportunities there to invest into programs there. International is an opportunity we're investing in to open up as is innovative channel, as is sleep. A lot of opportunities for -- and I don't think I named them all. A lot of opportunities to make investments in the business, and that's what gets us excited and drives us to be as disciplined and as efficient as we can in the spend that we control. We afford ourselves the opportunity to invest in those items that I mentioned. Operator: There are no further questions at this time. I will now turn the call back over to Quentin Blackford, President and CEO, for closing remarks. Quentin Blackford: Well, thank you. As we close another strong quarter, I want to once again thank our iRhythm employees around the world. Their execution has been very good, and our results are a direct reflection of their hard work. Our future has never been brighter, and our market continues to expand around us with many meaningful drivers. As we enter our 20th year, I couldn't be more proud of the team, and I couldn't be more confident in the future that we will achieve together. Thanks for your time. I'll see you guys all soon. Take care. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings. Welcome to the Columbia Sportswear First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matt Tucker. You may begin. Matt Tucker: Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's first quarter results. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary and financial review presentation explaining our results. This document is also available on our Investor Relations website, investor.columbia.com. With me today on the call are Chairman and Chief Executive Officer, Tim Boyle; Co-Presidents, Joe Boyle and Peter Bragdon; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President, Chief Administrative Officer and General Counsel, Richelle Luther. This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations. I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review. Following our prepared remarks, we will host a Q&A period, during which we will limit each caller to 2 questions so we can get to everyone by the end of the hour. Now I'll turn the call over to Tim. Timothy Boyle: Thanks, Matt, and good afternoon. In the first quarter, we're pleased to have again delivered net sales and profitability exceeding our quarterly guidance, driven by early spring 2026 wholesale shipments and better-than-expected demand in Europe and the U.S. as well as disciplined expense management. Our international business, which represents over 40% of our sales, continued to lead our growth, up 16% year-over-year. While our U.S. business remained challenged this quarter and declined 10%, the decrease was largely anticipated based on the decline in our advanced Spring '26 wholesale orders. This also reflected our decision last year to reduce the supply of certain winter products as a precautionary measure in response to U.S. tariff announcements. Cleaner inventories also drove less clearance sales. That said, I'm encouraged by signs of growing momentum in the U.S., including an increased fall '26 order book, which we expect to enable the wholesale business to return to growth in the second half. It's increasingly clear to me that the Columbia ACCELERATE Growth Strategy is resonating with consumers. A major highlight for the Columbia brand in Q1 was the Winter Olympics, where the U.S. Curling team thrilled fans at home and around the world, capturing a historic silver medal in mixed doubles, all while competing in distinctive and iconic Columbia kits. This generated billions of views around the world for one of the most watched Olympic events, along with more than 25 million views of Columbia's U.S. Curling jerseys on social media. Additionally, longtime Columbia and Team USA Freestyle skiing athlete, Alex Ferreira, reached the pinnacle of his sport claiming the gold medal in the men's halfpipe. Alex's performance and victory further demonstrate that Columbia's products meet the highest standards of elite winter athletes. And he has continued to inspire fans and drive energy for the Columbia brand since returning home. He's been celebrating at events such as the recent U.S. ski and snowboard nationals in Aspen, Colorado. The Columbia brand also garnered outsized attention at another sporting event of major importance in Q1 crashing the tailgate party at the big game in Santa Clara with Nature Calls, the only beer that uses bear scat in the brewing process. Columbia sent 2 bear ambassadors to the game, and they made their presence known, appearing 4 times on the stadium's Jumbotron and even making it on the live TV broadcast. This impact was enhanced by influencer partnerships with sports personalities around the event. Social media content from the game itself, generating over 9 million views on social media alongside hundreds of news articles. We're excited that the return to our irreverent roots also continues to see recognition from the media and outdoor community. The Engineered for Whatever campaign was recently awarded a Gold Clio Award, one of the most respected international awards in advertising, marketing and communication for the launch of our Expedition Impossible Challenge that we spoke to you about last quarter, which has generated over 10 million organic views on social media. Congrats to the team and stay tuned for more exciting things ahead. Our engineering excellence was also reinforced in Q1 with several product awards from multiple media outlets. Among many examples, a highlight included our women's Arcadia II jacket and our men's Watertight II jacket, both being featured in the New York Times Wirecutter Guide for Best Everyday rain jackets, a testament to the durability, performance and value we build into every design. Our newer product collections and marketing activations launched under the ACCELERATE Growth Strategy and Engineered for Whatever campaign are increasingly resonating with consumers. This is evidenced by improvements in organic search interest, direct site traffic and customer acquisition rate for the first quarter. Another first quarter highlight for the Columbia brand is the momentum we see building in PFG, performance fishing gear. As a reminder, we have a long and deep heritage with PFG as pioneers of the fishing apparel and footwear category. As a brand known for high performance, authenticity and fun, PFG is inspiring the next generation of anglers, supported by investments in sales and marketing, including an always-on social media strategy, a refreshing ground game and the addition of new fishing athletes and ambassadors to the PFG roster. A key product highlight in the quarter was the Bahama shirt, long known for keeping anglers cool and comfortable and also widely known as the unofficial uniform of country music superstar, Luke Combs. This year, we're celebrating the Bahama's 30th anniversary and expect sales of the Bahama to grow by double-digit percent for the spring '26 season. The celebration will continue beyond Q1 with additional marketing investments and collaborations with authentic artists and influencers to drive energy for this iconic style. Another PFG highlight on the footwear side is the Dry Tortuga Boot, which saw sales more than triple in Q1. We believe it's the most rugged, durable and comfortable fishing boot on the market and delivers attractive styling that's a standout in the fishing category. Looking ahead, we're excited about the potential for PFG to build on this recent momentum and take share in this growing market, particularly with younger consumers who are increasingly adopting the sport and lifestyle of fishing. Now I'll provide an update on our Fall '26 order book, which is another indicator of the traction we're gaining with our ACCELERATE Strategy. Since our last update, the order book continued to trend positively, reinforcing our expectations for mid-single-digit percent wholesale growth globally in the second half. While the overall growth is encouraging, the dimensions of that growth provide further signals of progress under the ACCELERATE Strategy. As a reminder, we launched ACCELERATE roughly 2 years ago. And given product development time lines, we're now increasingly seeing the new products created under this strategy hit the market, driving growth in the order book and representing an increasing share of Columbia brand sales. In addition to U.S. growth in the Fall '26 order book, we're excited to see double-digit percent sales growth in Columbia's women's business and in footwear. At a product level on a global basis, we're seeing outsized growth in our most premium and innovative products and platforms, including double-digit percent growth or better in our titanium product and our Omni-Heat Arctic technology as well as meaningfully scaling of our new MTR fleece. Our 2 major product launches from fall '25, the Amaze and ROC lines will continue to scale with orders up more than double versus the prior year. We're also thrilled to have Amaze featured in triple the number of DICK'S Sporting Goods location this fall as compared to last year. Turning to the current operating environment. While we remain focused on execution and what we can control, the operating environment remains highly dynamic with major external events affecting our business since we last spoke 3 months ago, particularly involving tariffs in the U.S. and the conflict in the Middle East. First, let me address the tariff situation. Following the U.S. Supreme Court's tariff ruling in late February, the U.S. administration implemented a 10% universal tariff under Section 122, which is set to expire in July. Our prior full year outlook, which was issued prior to the court's ruling, included unmitigated incremental tariff impacts of approximately 300 basis points on our gross margin. We are now expecting a slight improvement based on the 10% universal tariffs extending through July and the assumption that the U.S. administration will implement new tariffs at or near IEEPA tariff rates following the expiration of the Section 122 rates. We now expect an approximate 200 basis point unmitigated headwind from tariffs to our full year gross margin outlook. As a reminder, we made the decision last year to absorb nearly all of the fall '25 impact of incremental tariffs and not raise prices. The court's ruling also required the refund of IEEPA tariffs already paid. As of the date they were terminated, we have paid a total of approximately $80 million in IEEPA tariffs. Approximately $55 million of which has been recognized through cost of sales with the remainder residing in inventory on our balance sheet as of the end of the first quarter. We have already taken action by submitting our refund claims, and we fully intend to pursue every avenue available to secure the refunds that we are owed. We have not yet recognized any benefit of refunds in our financial statements nor have we updated our financial outlook for such refunds. Turning now to the ongoing conflict in the Middle East, which broke out in late February. First, my thoughts go out to any of our customers, employees, business partners and their loved ones who may be directly impacted by this conflict. Their safety and security is always our first and primary concern. As far as our business is concerned, this conflict has already triggered order cancellations and forecasted order reductions for certain Middle East distributor markets. While these impacts have not meaningfully changed our full year financial outlook to date, the prolonged nature of the conflict poses further risks. Macroeconomic and supply chain risks are among the areas that could have a more profound effect. These risks, including the potential softening of consumer demand, driven by the ongoing surge in energy prices and the resulting inflationary pressures on consumers' wallets. Increased oil prices are expected to put pressure on our product input costs with the exposure we're getting in our spring '27 season. Further, the conflicts impact on global supply chains could result in late arriving inventory, increased freight and logistics costs and potential order cancellations. Due to the high degree of uncertainty associated with the ongoing conflict and resulting impact on the global economy and supply chains, we are not able to incorporate these risks into our updated 2026 financial outlook. Despite these external factors, I am confident in our ability to navigate these risks given our highly experienced leadership team, flexible and resilient global supply chain, fortress balance sheet and high-quality products that provide a strong value proposition for the consumer. Turning back to our first quarter financial performance. Net sales were roughly flat year-over-year at $779 million, reflecting a balanced performance across channels with both DTC and wholesale coming in flat to the prior year. Gross margin contracted 20 basis points to 50.7%, driven by 310 basis points in incremental unmitigated tariff costs, partly offset by mitigation actions, including targeted price increases. SG&A expenses increased nearly 1%, reflecting higher DTC expenses, partially offset by lower enterprise technology and supply chain personnel expenses, reflecting cost reductions actions which were taken last year. This overall performance resulted in diluted earnings per share above our guidance range. Inventories remain healthy and are relatively flat versus the prior year in dollar terms with units down approximately 11% year-over-year. We remain steadfast in our commitment to driving shareholder value, returning meaningful cash to shareholders, including $150 million in share repurchases during the first quarter, which resulted in the retirement of 2.5 million shares and opportunistic acceleration of activity related -- relative to recent periods. We continue to maintain our fortress balance sheet, exiting the quarter with $535 million in cash and short-term investments and no debt. Looking at net sales by geography. U.S. net sales decreased 10%, but performed better than planned. The decline in sales resulted from a lower spring '26 order book, constrained supply of winter season product, which limited our ability to fulfill consumer demand and lower clearance sales on lean inventory. The U.S. wholesale business was down low teens percent. The U.S. DTC net sales declined high single-digit percent in the quarter. Brick-and-mortar was down mid-single-digit percent, partially reflective of clean inventories and inclusive of the impact of less temporary clearance stores compared to last year. E-commerce was down low teens percent, driven by the shortage of winter product and lower conversion of consumer traffic. We're encouraged with the early spring 2026 selling, led by key categories, including footwear, outerwear, women's sportswear and PFG. We continue to see momentum building through our elevated home page, personalized and digital marketing efforts, including improvements in engagement and customer acquisition. For my review of first quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market. LAAP net sales increased 3%. China net sales increased mid-single-digit percent driven by growth in wholesale from increased spring '26 orders, which benefited from earlier wholesale shipment timing. Highlights from the quarter included a successful airport campaign featuring our Titanium Dry technology and Tellurix performance hiking shoe in China's top 3 airports during the Chinese New Year season, which drove strong full price sell-through for those product lines. We also launched the Columbia Fishing Club to deepen connections with anglers across China following the success we've had with similar club events and activations based on hiking. We can see the impact that activities like these are having for our brand in China, including strong year-over-year growth in new member acquisition and active purchasers as well as market share gains with younger consumers and women. Japan net sales declined mid-single-digit percent, reflecting headwinds from softer international tourism as well as later shipment of spring '26 wholesale orders. While it was a challenging start to the year, we are encouraged by recent trends with a notable improvement in business momentum following the recent launch of Spring '26 product. Korea net sales increased high single-digit percent with growth across all channels, driven by the execution of marketplace initiatives. The Korea team continued to do a great job of leveraging the Engineered for Whatever campaign in Q1 and amplifying consistent high-impact brand visibility across consumer channels, driving strong sell-through for key products such as the Tellurix. I'm also pleased with how the team continues to elevate the marketplace and consumer experience, driving improved productivity in targeted doors. I want to take a moment to thank Jeff McPike for his strong leadership of the Korean business. This summer, Jeff will be returning to the U.S. to assume the critical role of Vice President, North America Retail. In this role, Jeff will be responsible for leading all aspects of our North America brick-and-mortar business. I'm confident in the ability of the Korea team to continue building on the momentum established under Jeff's leadership. Our LAAP distributor markets delivered low double-digit percent growth in Q1, reflecting a healthy order book for spring '26. Growth was driven by the Columbia brand in both footwear and apparel, particularly sportswear as our distributor teams continue to do a spectacular job strengthening our brand with active consumers in these diverse global markets. EMEA net sales increased low 20% overall. Europe direct net sales increased high teens percent, fueled by strong DTC performance and healthy wholesale sales, partly reflecting earlier shipments of spring '26 orders. Results across channels reflected robust demand for winter season product, aided by favorable weather early in the quarter and ample inventory availability. We're thrilled with the strong start to the year and anticipate seeing that momentum continue with a strong start to our spring season. Our EMEA distributor business increased low 30%, reflecting earlier shipments of orders and a healthy order book for spring '26. Canada net sales increased low single digits in the quarter, driven by growth in DTC brick-and-mortar, reflecting increased productivity from existing stores and strong winter sell-through. Looking at the first quarter performance by brand. Columbia net sales increased 1% as international growth more than offset expected declines in the U.S. Turning now to our emerging brands, all of which are expected to grow in '26. As a reminder, each of these brands derive a significant majority of their revenue from the U.S. marketplace. SOREL net sales decreased 12% due largely to reduced supply of winter season products in the U.S. as previously discussed, and lower closeout sales leading to declines across all channels and more than offsetting strong momentum in the international markets. Encouragingly, we have seen sales trends improve with the launch of spring '26 styles, including healthy growth in sneakers, a priority category that demonstrates SOREL is becoming viewed as more than just a winter brand. prAna net sales decreased 5%, driven by declines in wholesale, partly offset by solid growth in in-line DTC channels. This included low teens percent growth in e-com, driven partly by a shift in social media strategy that's helping to drive strong brand momentum, including improvement in new customer acquisition, customer retention, revenue per customer and robust growth with younger consumer. Mountain Hardwear net sales were flat year-over-year. Weakness with winter season product amid unfavorable weather in the Western U.S. early in the quarter was eventually offset by strong momentum with spring '26 product, particularly in e-commerce, driven by a surge in organic search demand. U.S. wholesale grew low single-digit percent in the quarter, led by high-quality specialty retail and digital partners with key product categories of equipment and outerwear driving the growth in Q1. Looking ahead, we're excited about the recent launch of the dry spell technology innovation, which sets a new standard for waterproof breathability. Additionally, Mountain Hardwear's new Lightness of Being brand campaign will emphasize innovative equipment and technical apparel for the trail elemental protection from the sun and rain as well as seasonal sportswear styles inspired by consumer insights. We'll now discuss our financial outlook for the second quarter of '26 and for the full year. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures related to those statements. While Q1 results exceeded our expectations, we've noted that part of the outperformance was timing related with some wholesale shipments occurring earlier than planned. The partial and likely temporary reprieve of Section 122 U.S. tariffs also presents some favorability to our initial assumptions as discussed. On the other hand, the impacts associated with supply chain disruptions and inflationary pressure from the ongoing conflict in the Middle East represent key risks that were not contemplated in our initial guidance and that we currently cannot forecast. Based on the information we have today, we are maintaining our full year outlook for net sales growth in the range of 1% to 3%. We now expect gross margins of 50.3% to 50.5% or down 20 basis points to flat versus the prior year. The improved outlook reflects the termination of IEEPA rates by the Supreme Court and our assumption that rates will remain at current levels through July. Before reverting back to tariff rate levels approximate to the IEEPA rates, subject to the uncertainty of future actions by the U.S. administration. We continue to expect that SG&A will represent 43.6% to 44.2% of net sales, increasing slightly year-over-year but at a slower rate than net sales growth. Based on these assumptions, we are raising our operating margin guidance to 6.7% to 7.5% for the year, leading to diluted earnings per share in the range of $3.55 to $4. In addition to stronger gross margins, this range also reflects the benefit of our accelerated first quarter share repurchase activity relative to our prior assumption. For the second quarter, which is our seasonally lowest revenue quarter of the year, -- we anticipate sales in the range of down 1% to up 1% versus the prior year. This will result in slight SG&A deleverage and when combined with our anticipated decline in gross margin, result in a loss per share of $0.46 to $0.37. In closing, while I'm not satisfied with our overall financial performance in Q1, I'm pleased with the continued strength of our international business and our team's ability to execute and start the year off on a positive note by driving upside to our initial plans. Further, I'm encouraged by the additional signs of underlying momentum in our business under the ACCELERATE Strategy, particularly with the Columbia brand in the U.S., our largest market. Although the operating environment remains highly dynamic and uncertain, our fall 2026 order book and positive early indicators of our ACCELERATE Strategy provide us with confidence that we're on the right track. Thanks again to our global workforce who are instrumental in the execution of our strategies and business success. That concludes my prepared remarks. Operator, could you help us facilitate the questions? Operator: [Operator Instructions] Our first question comes from Bob Drbul with BTIG. Robert Drbul: Tim a couple of questions, if I could. I guess on the first part, from the last time you spoke where the order book was to where you are today, were there any surprises around the remaining, I think, 20% that you were booking? And then I guess just geographically around the order book, can you talk about the trends in Europe? And I guess, just any disruption whatsoever? I know Middle East is a risk that you call out. Can you just talk through those 3 things for us? Timothy Boyle: Certainly. Well, as it relates to the order book for fall, we were pleased -- we expected it to come in at a number, and we were pleased that it came in north of that number. So we're excited about the strength there. And again, we're cautioning because there are so many unknowns today about the Middle East conflict and the potential for increased tariffs beyond where we've estimated. Geographically, I think we're in a good place. We had strong reports from many of the markets, including Europe was good despite the fact that they had sort of a tough early winter in Europe as did we here in North America. So it was really quite broad. I might just point to the continued improvement and strength in our international distributor markets, which -- and despite those that are in the middle of the conflict in the Middle East are doing well. Jim Swanson: Bob, I would just add, as we look at that order book and we take our advanced orders combined with our anticipation of in-season business for the second half of this year, we do contemplate growth across all geographies led by international and growth across each of our brands. So we're quite encouraged by the order book that's come in. Robert Drbul: Great. And then if I could just sneak in one more. On the tariffs, in terms of the application for the refunds, I guess if you are successful in getting those refunds, Tim, what would be the plan with that money that you would do for the business? Timothy Boyle: Well yes. Thanks, Bob. As we know, the administration may or may not allow us to get the returns timely. We have filed all of the documents required to get the tariffs back, but we clearly haven't contemplated those in our plans for '26. We certainly hope we'll get them back promptly. As it relates to where -- what we will do with those funds, we have our standard allocation of capital rules that we use, which will follow. Some of our vendors were contributors along the line to helping us sort of in a spirit of partnership, and we want to make sure that those folks are well taken care of. But we're in discussions. We want to make sure that we utilize it correctly, but we're going to be leaning on our historical capital allocation plans. Operator: Next question comes from Peter McGoldrick with Stifel. Peter McGoldrick: I wanted to ask about your engagement efforts to recruit younger consumers. Can you share any KPIs supporting your progress here and how that's -- how growth is trending with that cohort and how that's embedded in your outlook today? Timothy Boyle: Well, at the end of the day, it's really the acid test is a larger order book and a bigger revenue. So that's -- we're pleased to see that coming along nicely. But I guess I would say these activations that we've engaged in with our ad agency, An, which would include the Expedition Impossible flat earth challenge and the hacking of the big game in Santa Clara in January. Those are primarily focused on a younger consumer, and it's great to see the reaction from those people in terms of visits to our website and important connections in that way. So we're going to be leaning on the acid test to make sure we've got growth growing across the business. Peter McGoldrick: Very good. And then I was hoping you could help me think about today's revenue guidance in terms of price and volume. There's an 11 percentage point spread between inventory dollars and units. I'm curious of how to think of that spread flowing through the P&L. Is there anything you could share on like-for-like price increases and mix embedded in the outlook? Jim Swanson: Well, the biggest place where we've taken price increases as we've previously communicated, some targeted price increases for both our spring '26 and fall '26 product lines in the U.S. And those have been a high single-digit percent of increase. And as you look at the comments we've made with regard to our wholesale order book for the fall '26 season, we anticipate the wholesale business being up a low single to mid-single-digit percentage. So certainly implied in that would be that there's less unit volume on that growth. So hopefully that answers your question, Peter. Operator: The next question comes from Jonathan Komp with Baird. Jonathan Komp: I want to follow up on the momentum you're seeing for the Columbia brand in the U.S. specifically. Could you share any more direct feedback you've had from your wholesale partners and the positive developments you mentioned for the Amaze product, especially at DICK'S Sporting Goods. Is there a potential to replicate that across some of your other partners? Timothy Boyle: Yes. So the Amaze product for fall of '25 was quite broadly distributed across our better customers and better areas of distribution. So we're thrilled to see the results there. I mean it's primarily a women's product. So that area has been very good and sold through at very high margins. We've also taken the learnings from Amaze and extended it into our spring '26 product line, where we have a number of products which are following in the amaze learnings, including soft hand on the fabrics, stretch and colors that are very attractive and are complementary to younger females. We intend to, for Fall '26 to extend beyond those categories of merchandise into some rain and some fleece products where we think we can make the entire Amaze family a much bigger part of our business and frankly, a full franchise where we can be very successful and especially with younger consumers. Jonathan Komp: Great. That's very helpful. And then, Jim, if I could follow up, apologies if I missed this, but I think for the full year, you brought down the tariff headwind assumption by 100 basis points. You raised the gross margin by 50 basis points. So could you be a little more specific about the difference between those 2, what you're embedding today? And then as you think about the broader uncertainties not captured in your current guidance, which ones are sort of the biggest swing factors or the biggest incremental risk factors as you sit here today? Jim Swanson: Yes, John, the delta between the 100 basis point benefit that we're picking up from the reprieve of tariffs and the gross margin outlook improvement of 50 basis points. There's no one discrete item that I would necessarily point to that's driving that, that we're seeing in the business. From an overarching standpoint, if you look at the revenue and margin that we achieved in Q1, it was in line or slightly better than where we had anticipated. So it's really just an acknowledgment of the overall macro environment that we're operating in and the potential risks around that. And I think that part of it is in the latter part of your question as well, just in terms of as we think about ultimately delivering on the guidance that we put before you today. And certainly, we've called out the Middle East risk. The main pressure valve there is just going to be how this weighs on the end consumer worldwide as it relates to gas prices and overall inflationary pressures. Operator: The next question comes from Tom Nikic with Needham. Tom Nikic: I want to ask about the U.S. direct-to-consumer channel. You've had, I guess, a bunch of negative quarters in a row. And it seems like there's been a lot of excitement around the new product and great marketing, et cetera. I guess kind of why do we think it's sort of taking so long to get that business back to growth? And I guess, if we kind of think about, I guess, by channel, like should we think that like digital should turn first or brick-and-mortar should turn first? Like how do we kind of think about the progression about getting U.S. direct-to-consumer growing again? Timothy Boyle: Yes. I would think that when we talk about our brick-and-mortar channel, you have to remember that we're comparing it against a much smaller number of stores since the bulk -- we had many, many stores that were temporary in the effort to liquidate inventories from the logistics logjam that we had. Additionally, we had a high percentage of liquidation inventory in those stores, which typically have a lower -- an impact and a lower rate on our gross margins in those stores. And so that's, I think, is the primary way you're seeing the decline in sales in those numbers. we've always considered ourselves to be a wholesale primarily business and retail is used as a steam valve, escape valve for the company to liquidate inventories in the right way. And so that's the primary use on the outlet channels. On the full-price channel, it's a newer category of retail that we use, and we're still learning our way around that. And we expect that digital is going to be the primary way that we expose our brands to consumers in the best possible light. So that will come, we believe, as the ACCELERATE program becomes more fully established. Operator: The next question comes from Laurent Vasilescu with BNP Paribas. Laurent Vasilescu: I wanted to ask, I think you guys called out that there was a shift from 2Q to 1Q. Is it fair, Jim, to assume that it's $20 million shift and should it be just in EMEA? And then second part of the question is really around the call out that there were some cancellations with Middle East distributors. Is it fair to assume that Middle East is low single-digit percentage of sales and therefore, maybe like $70 million and maybe it was half of it was cut? Just trying to understand that. And then I have a follow-up on the oil input cost. Jim Swanson: Yes, you bet, Laurent. So looking at the first quarter from a revenue standpoint, we beat by around $20 million. Roughly half of that was the timing shift that you're referring to. And the majority of that was European based. There's a little bit from a U.S. perspective. And then with regard to the Middle East distributors, you're a bit high in terms of what that represents in revenue, particularly in the Gulf Coast countries, it's going to be in the -- it's going to be the low single-digit percent range of our total business and the cancellation and forecast reductions that we've taken to date, as we've commented, it's relatively insignificant in the grand scheme of our overall outlook, which you can see that we're holding it. So it's not impacting that. Laurent Vasilescu: Very helpful. And then the second part -- second question is really, I think, to Tim's point, about input costs. Most of the products are oil-based derivatives. I think we heard from adidas yesterday calling out that, that could be a potential headwind. We're hearing tonight that it could be an impact for 2027 spring product. Can you help us frame how do we think about this? If oil hypothetically stayed at $100 throughout the balance of the year for structural reasons, how do we think about that as an increase to your cost of goods sold for at least 1H '27? Jim Swanson: I think it'd be a bit premature for us to provide the exact framing on that. We're in the process of finalizing costing and beginning to buy for the spring season. There's no doubt that certain of those -- I should step back for a minute, certain of the raw materials have been already processed and ready in advance of the Middle East. So this is going to bleed in over some period of time. But there's no doubt that come the spring season, we'll begin to see that pressure. And these things don't calm over the coming months here and it increasingly bleeds into the fall season as well. Timothy Boyle: And Laurent, we also have other mitigation efforts, including engineering our products in a different way and changing the componentry. So we're not trapped with a single source like that. Operator: The next question comes from Mauricio Serna with UBS. Mauricio Serna Vega: Just a quick question on the direct-to-consumer business. Could you talk about in the U.S., how that business trended throughout the quarter? Curious to see if you can provide some context of how consumers have reacted to the high single-digit price increases. And on China, I think you mentioned the growth has been -- you noted wholesale as the primary driver of growth in Q1. Could you talk about the direct-to-consumer business there as well? Jim Swanson: Yes. In terms of taking your first question with regard to the DTC business, I presume you're focused on the U.S. side of that. trending in the quarter, as you might imagine, certainly, the January, February was cold, but we did comment on the shortage of inventory that we had. So that certainly held things back increasingly as we got into the spring season and we're well supplied from inventory, and we were pleased overall with what we're seeing from a demand standpoint in that part of our business, both through our direct-to-consumer business and frankly, through our wholesale business, where the sell-through is outpacing the intake from retailers and where overall stock levels are. As it relates to the high single-digit price increase and from a price elasticity standpoint, because I think that's essentially where your question is at, it came in more or less where we would have anticipated it being. I think I touched on earlier from an overall revenue and margin perspective on the quarter, we were at or around where we would expect it to be. Certainly, there's elasticity in our product. I don't think that's any mystery. There are categories of our business where we've got more pricing power, we can pass along more of those price increases and others that less so. And certainly, we're adapting to that on the fly. And then as it relates to the China business, I guess what I would describe there is, yes, we grew 5% in the quarter. We still contemplate healthy growth out of the China business for the full year. We've got double-digit percent growth that's planned there. Our DTC business was down a little bit in the first quarter, nothing -- not down rather, but certainly not growing the way it had. I wouldn't call out there's anything specific there. We still think that's a healthy business. Mauricio Serna Vega: Okay. And then just quickly on the commentary, to follow-up on the shipments. There was some -- it sounds like a lot of the impact on the earlier shipments was in Europe. Maybe just wondering if you provide a bit more context of how would that impact the second quarter, third quarter of that region as we think about how we model the next several quarters for Europe? Jim Swanson: Well, certainly, the rate of growth that we achieved in Europe in the high teens rate in Q1. Given that shift, you're not going to see that rate of growth come in Q2. But that said, we were very pleased with the spring '26 order book that we took for Europe. It's in the double-digit percent level of growth. I don't have the fall '26 in front of me, but we'd anticipate our European business being healthy from an overall growth standpoint throughout the full year. Operator: The next question is from Paul Lejuez with Citigroup. Paul Lejuez: Curious how much you think sales were hurt in the first quarter in the U.S. due to the inability to fulfill first quarter demand and also if that more sales in wholesale, DTC, both any color you can provide there? And curious what you saw at POS across markets. And maybe if you could provide more specific color on the fall order book that you're seeing in the U.S. Jim Swanson: Well, specifically as it relates to the shortage, and again, I wouldn't want to speculate on what revenue would have been had we not had the shortage. What we can share is it was roughly about a $30 million reduction in our planned fall '26 or fall '25 inventory purchases. And from an overarching standpoint, I would describe that, that was probably more impactful for the wholesale business in Q4 '25 as we were continuing to ship in the season. And then the D2C business would have been a bit more impacted in the first quarter. Paul Lejuez: And then the order book U.S. for the fall? Timothy Boyle: Yes. The order book for USA was -- as we said, we're very pleased with it came in slightly north of where we thought it was going to end up. So we're thrilled. Of course, we have these 2 great -- in addition to a solid growth across the business, we have these 2 great categories of merchandise, the amaze and it's new entrants and then the ROC Pant, which is another great product that's doing very well for us. Jim Swanson: I think the only thing I would add to the fall '26 order book is we previously communicated that we had anticipated the order book being up in the low single to mid-single-digit percent range. And as Tim touched on, the order book came in a bit healthier than we had even anticipated. So it's moving more into that mid-single-digit percent range. We're quite happy with how the order book landed. Paul Lejuez: That was overall, though, right? Not U.S.? Jim Swanson: That's U.S. specifically. From an overall from a global standpoint, we're solidly in the mid-single-digit percent range based on the order book we have and what we anticipate the wholesale growth to look like in the second half. And then my comment with regards to the U.S. is initially, our projections were dated back in February that would be up low single to mid-single as we closed out the order book. And I think given the uptake of the ACCELERATE product in particular, that we ended up on the north end of that range. Operator: The next question is from Mitch Kummetz with Seaport Research. Mitchel Kummetz: Just a follow-up on the $10 million timing shift. I'm just wondering if -- is that -- is your outlook for the second quarter, does that contemplate that as just being like a true shift? I would think that with the orders delivering earlier that, that would kind of lengthen the window for reorder potential. And I'm wondering if you factored any maybe stronger reorders into the guidance if that is an opportunity? Jim Swanson: Potentially, Mitch. I mean, any time you ship into the -- and you're able to set the floors a little bit earlier and if sell-throughs holds up and the consumer is healthy, then certainly that would bode some opportunity. That timing shift, just to be clear, though, that's a timing shift relative to what we forecasted and planned for Q1, not necessarily a year-on-year change. I think, by and large, the year-on-year changes in timing shifts are not all that substantial. I mean there's a couple of pockets of it that you're seeing in the European business and so forth. But on the whole for the company, it's not a meaningful driver. Mitchel Kummetz: Okay. And then, Tim, I think on the last earnings call, you talked about how depleted channel inventory was coming out of the winter season on seasonal merchandise. I'm curious to get your thoughts if you feel like your fall order book is in line with kind of where channel inventory stands? Or do you think that maybe retailers have sort of generally under ordered just because they're being conservative? And does that provide more of an at-once opportunity going into the back half of the year? Timothy Boyle: Yes. I think our retailers ended up quite clean, frankly. And so I expect that we'll be going into a season where we have lots of opportunity. The question is whether or not the consumer shows up in the kind of robust way. So that's why even though we've got indications across the business that we've got a better year looking at us than what we guided, we just want to make sure that we've got the appropriate conservatism. And frankly, we don't have a lot of extra inventory even if things go -- get wildly better, we just don't have a lot of inventory on a speculative basis. Operator: We currently have no further questions in the queue. I would now like to turn the floor back to Tim Boyle for closing remarks. Timothy Boyle: Thanks, operator. Thanks, everybody, who's listening in today. I hope that you'll come away with our -- from this discussion today with a better appreciation of the progress that we are seeing and it gives us the confidence that we're on the right path. There is still much work ahead of us to fully realize our strategic vision and unlock the full potential of our brands. Our financial foundation is solid. Our international business remains robust, and we can now see our U.S. business starting to turn the corner with the traction we're gaining under our ACCELERATE Growth Strategy. In dynamic times like these, strong companies emerge stronger, and I'm confident that our strengths and competitive advantage will position us to compete and win. I look forward to seeing you all on our next quarterly review in the next few months. Thank you. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, everyone. Welcome to the OneMain Holdings, Inc. First Quarter 2026 Earnings Conference Call and Webcast. Hosting the call today from OneMain Holdings, Inc. is Peter R. Poillon, Head of Investor Relations. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode. The floor will be opened for your questions following the presentation. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. We do ask that you please limit yourself to one question and one follow-up. Also, please pick up your handset to allow for optimal sound quality. Lastly, if you require operator assistance today, please press star 0 at any time. It is now my pleasure to turn the floor over to Mr. Peter R. Poillon. Please go ahead, sir. Peter R. Poillon: Good morning, everyone, and thank you for joining us. Let me begin by directing you to Page 2 of the first quarter 2026 investor presentation, which contains important disclosures concerning forward-looking statements and the use of non-GAAP measures. The presentation can be found in the Investor Relations section of the OneMain Holdings, Inc. website. Our discussion today will contain certain forward-looking statements reflecting management's current beliefs about the company's future, financial performance, and business prospects. These forward-looking statements are subject to inherent risks and uncertainties and speak only as of today. Factors that could cause actual results to differ materially from these forward-looking statements are set forth in our earnings press release. We caution you not to place undue reliance on forward-looking statements. If you are listening via replay at some point after today, we remind you that the remarks made herein are as of today, May 1, and have not been updated subsequent to this call. Our call this morning will include formal remarks from Douglas H. Shulman, our Chairman and Chief Executive Officer, and Jeannette E. Osterhout, our Chief Financial Officer. After the conclusion of our formal remarks, we will conduct a question-and-answer session. I would now like to turn the call over to Douglas H. Shulman. Douglas H. Shulman: Thanks, Pete, and good morning, everyone. Thank you for joining us today. Let me begin by saying we are quite pleased with the financial results of the quarter, which continue the momentum we built over the last couple of years. Our customers remain resilient, and we are confident in our ability to execute our 2026 financial plan as we operate from a position of strength. Let me briefly walk you through a few of the highlights for the quarter and then I will discuss progress on some of our important strategic initiatives. Capital generation was $194 million in the quarter. C&I adjusted earnings were $1.95 per share, up 13% year over year. Total revenue and receivables each grew 6% year over year. We achieved this growth while still maintaining a conservative underwriting posture. Receivables growth was supported by focused initiatives to drive high-quality personal loan originations and important contributions from our newer businesses, auto finance and credit card. Credit performance was very good and continues to track well against our expectations both for delinquencies and losses. Our 30–89 delinquency declined year over year, improving on last quarter's slight increase. Quarter-over-quarter improvement in 30–89 delinquency was better than last year and better than the pre-pandemic average. C&I net charge-offs were 8.4%, in line with expectations as first-quarter losses are seasonally the highest of the year, and we feel good about our full-year credit outlook. Consumer loan net charge-offs were 8%, also in line with expectations, and we continue to see strong recoveries across the business. During the quarter, we continued to make progress on key strategic initiatives positioning the company well for continued earnings growth in 2026 and beyond. In our personal loans business, we are always enhancing our product offerings to better serve customers and drive profitable growth while maintaining our disciplined underwriting practices. We continue to refine how we deliver debt consolidation loans, making the experience more seamless. This product provides real value to our customers, as they consolidate other debt onto a loan with a single monthly payment that amortizes down over time. In a majority of the cases, our customers' credit scores improved, and OneMain Holdings, Inc. also benefits from better credit performance. We have also seen an uptick in the number of customers who choose to share bank data with us. By accessing this more granular data, we can offer better loan terms, improve credit outcomes, and continue to enhance our credit models over time. We are also encouraged by the early performance of our new HomeFix secured loan product, which provides OneMain Holdings, Inc. homeowners with a differentiated way to access credit. We continue to pilot this offering, and it is performing very well, attracting high-quality customers and delivering strong results. These types of innovations are positioning our personal loan business for continued growth. As always, we move quickly but with discipline, testing rigorously, scaling what works, and building a pipeline of initiatives that we expect to drive value over time. Turning to auto finance, receivables grew 14% year over year to $2.8 billion. Credit performance was in line with expectations and continues to outperform the broader industry. During the quarter, we continued to grow our dealer network across the country, including through our partnership with Ally. We are also innovating across our auto finance business. Earlier this year, we began piloting an agentic AI tool that improves insurance recovery outcomes on damaged customer vehicles by automating negotiations with insurers. Initial results have exceeded expectations with improved outcomes for us and our customers. We have also deployed AI more broadly across the company where we see clear near-term benefits. This includes using AI across the product development life cycle, leading to faster deployment of technology at a potentially lower cost. We have also developed an AI tool which gives our team members easy access to a broad array of internal information, increasing their effectiveness, saving them time, and speeding up customer service. And we are launching pilots in key customer service areas where the risk is low and the learning potential is high. We are taking a focused, strategic approach to AI by implementing where we have high conviction and piloting in other areas to build capability and scale over time. Turning to our credit card business, we delivered strong results for the quarter, with receivables increasing 45% year over year to just under $1 billion, and customer accounts up 40% year over year to nearly 1.2 million. All of the key metrics in the credit card business were very strong, as we saw increased yields, improvement in loss trends, and decreased unit costs. We are driving profitable growth in the card business by combining product innovation with deeper customer engagement. As the business has matured, we have enhanced line management processes for our best customers. We are developing differentiated offerings across rewards and pricing to increase our share of wallet with lower-risk customers. And our data science team has refined marketing and credit models to make better offers to customers more likely to use the card, thereby creating more value for the customer and for OneMain Holdings, Inc. All of this shifts our portfolio mix to our best customers and supports profitable long-term growth. We are also implementing initiatives to improve delinquency and collections performance while driving cost efficiencies as we scale. Taken together, we expect these efforts to position the business for profitable growth this year and beyond. We have also seen a steady rise in customer adoption of our financial wellness offering, which has recently been enhanced and rebranded OneMain MyMoney. Our customers use OneMain MyMoney to monitor credit scores, manage budgets, track expenses, and negotiate bills to save money. It is another way we build deep, long-lasting relationships with our customers and help them make progress toward a better financial future. These are just a few examples of strategic business initiatives across our company that are driving both short- and long-term value. Let me briefly touch on the consumer. While the current economic environment continues to have some uncertainty, our customers remain resilient. A year ago, tariffs were top of mind. Today, geopolitical tensions and their impact on energy prices are the broader risk. However, unemployment remains low, providing ongoing support for credit performance. As always, we are closely monitoring trends across the consumer and our portfolio, and we are maintaining our cautious underwriting posture. But credit is performing well, as the actions we have taken over the past several years put us in a strong position. Turning to capital allocation, our first priority for capital remains extending credit that meets our risk-adjusted returns while also investing in the business to meet customer needs, drive efficiency, and build an enduring franchise. Our regular dividend, which is currently $4.20 per share on an annual basis, represents a 7% yield at today's share price. As I discussed last quarter, all else equal, we expect incremental capital returns to be weighted more toward share repurchases going forward. In the first quarter, we repurchased 1.9 million shares for $105 million. Over the last two quarters, we have repurchased 3.1 million shares for $176 million. As we look ahead, we will continue to pace share repurchases based on several factors, including the capital needs of our business, market dynamics, and economic conditions. I am feeling very good about our business, as we are operating from a position of strength with disciplined underwriting, a proven team that is experienced in serving the nonprime consumer, and a resilient, diversified balance sheet. We remain confident in our competitive positioning and like the trajectory of our credit performance, and we anticipate continued capital generation growth this year and beyond as we execute on our strategic priorities. With that, let me turn the call over to Jeannette. Jeannette E. Osterhout: Thanks, Doug, and good morning, everyone. Let me begin by summarizing our solid first-quarter performance, which supports our continued confidence in the trajectory of the business. We delivered revenue growth, credit performance, and capital generation in the quarter that was right in line with our expectations. We saw good performance in our personal loan business, coupled with growth in auto and outsized improvement across key financial metrics in the credit card business. Additionally, we executed across all our businesses on several strategic initiatives that we expect to deliver significant value in the quarters ahead. Funding was, once again, a highlight as we further strengthened our balance sheet and accessed markets favorably even in a challenging environment, demonstrating the strength of our programs and our access to capital. We increased our share repurchases in the first quarter to $105 million. While we remain committed to our dividend as the primary means to return capital to our shareholders, we continue to expect to use share repurchases as a means to bolster capital returns in the future. In the first quarter, we generated higher excess capital due to our seasonally lower growth needs and returned that excess capital through our share repurchase program. Looking ahead for the year, we expect to continue generating excess capital, though at more moderate levels, as we deploy additional capital to support higher seasonal growth in the business. As a result, we expect share repurchase activity to adjust accordingly. First-quarter GAAP net income per diluted share of $1.93 was up 8% from $1.78 in 2025. C&I adjusted net income per diluted share of $1.95 was up 13% from $1.72 in 2025. Capital generation totaled $194 million, comparable to 2025. Managed receivables ended the quarter at $26.1 billion, up $1.5 billion, or 6%, from a year ago. First-quarter originations of $3.1 billion increased 3% compared to the first quarter of last year, and we see opportunities to continue our growth across our products. In our personal loan business, we saw good performance as the initiatives we have discussed continued to gain traction. Moving to our newer businesses, auto originations this quarter benefited from the expansion of our dealer network and new partnership activity, which has helped support scale and momentum across our auto business. We like the pace and performance of our auto business and expect it to continue to grow and contribute to our future capital generation. In our card business, we saw growth in both account openings and receivables, as our increased customer engagement continues to support the enhanced value proposition of the BrightWay card product. Notably, in April, we crossed $1 billion in card receivables, marking another important milestone in scaling the card business. As we look forward, we expect both of our newer products and personal loan innovation initiatives to help drive receivables growth throughout the year. Turning to yield, our first-quarter consumer loan yield was 22.5%, up 13 basis points year over year. Consumer loan yields are up over 60 basis points since second quarter 2024, resulting from the proactive steps we took to optimize pricing in certain customer segments since 2023. Despite the mix-shift headwinds from the growth of our lower-loss, lower-yielding auto business, we expect consumer loan yield to remain around current levels throughout the rest of the year, assuming a steady product mix and competitive environment. While the credit card portfolio remains a relatively small portion of our overall portfolio, we continue to see strong yield momentum with total revenue yield of 33.9%, increasing roughly 300 basis points since last year, supporting our overall revenue growth as the card portfolio scales. Total revenue was $1.6 billion, up 6% compared to 2025. Interest income of $1.4 billion grew 6% from the first quarter of last year, driven by receivables growth and yield improvements. Other revenue of $198 million was up 4% from last year, primarily due to higher servicing fees on our growing portfolio of loans serviced for third parties and higher credit card revenue as we grow the card business. Interest expense for the quarter was $322 million, up 4% compared to 2025, driven by an increase in average debt to support our receivables growth. Our interest expense as a percentage of average net receivables was 5.3% this quarter, down from 5.4% in 2025, helping our profitability as we grow the book. Going forward, we expect our funding costs to remain at approximately this level throughout 2026. First-quarter provision expense was $465 million, comprising net charge-offs of $512 million and a $47 million decrease in our reserves driven by the seasonal sequential decline in receivables during the first quarter. Our loan loss reserve ratio of 11.5% remained flat to prior year and last quarter. Policyholder benefits and claims expense for the quarter was $52 million, up from $49 million in the first quarter last year. Looking forward, we expect quarterly claims expense in the mid- to high-$50 million range over the remainder of the year. Turning to credit, 30–89 day delinquency on March 31, excluding Foresight, was 2.62%, down 1 basis point compared to a year ago. This year-over-year performance is in line with our expectations and modestly better than the performance we saw a quarter ago. The 48 basis point sequential improvement was better than the 43 basis point sequential improvement both last year and in the pre-pandemic benchmark period. Our front book continues to perform in line with expectations, while our back book, which represents only 5% of the portfolio, still accounts for 14% of 30-plus delinquencies. This is more than double the impact we would typically expect from vintages on the book this long, so the back book continues to present a headwind for total portfolio credit metrics. Moving to net charge-offs for the quarter, first-quarter C&I net charge-offs, which include the results from our small but growing credit card portfolio, were 8.4%, up 24 basis points year over year and in line with expectations. Consumer loan net charge-offs, which exclude credit cards, were 8% of average net receivables in the first quarter, up 19 basis points from a year ago and in line with our expectations. Strong recoveries continued to support our results, increasing 18% year over year to $104 million in the first quarter. Recoveries as a percentage of receivables increased to 1.7% from 1.5% in 2025, largely due to continued enhancements to our internal recovery strategies, and it is worth noting that bulk sales of charged-off loans, which is one of the strategic tools in our overall recovery strategy, were slightly less than prior year. As net charge-offs are seasonally highest in the first half of the year, we expect losses in the second half of the year to significantly decline following the improvement in early delinquencies we have seen. This normal seasonal improvement is reflected in our full-year C&I net charge-off guidance range provided on our last earnings call, which remains 7.4% to 7.9%. As a reminder, C&I net charge-offs include losses in our credit card portfolio, which has higher yields and higher loss content and will continue to pressure overall losses as the portfolio grows. With that in mind, we are seeing improvement in our credit card net charge-offs, which declined 176 basis points year over year to 18% in the quarter. We also continued to see strong performance in card delinquency, as 30-plus delinquency fell 105 basis points year over year in the first quarter, a notable improvement from the 83 basis point decline we saw in the fourth quarter. While we like the sustained improvements we are seeing, we remain committed to measured growth and disciplined underwriting. Loan loss reserves ended the quarter at $2.8 billion. Our loan loss reserve ratio remained flat both sequentially and year over year at 11.5%. The continuation of the steady improvement in our card portfolio I just spoke about was also reflected in our reserves this quarter, as the reserve rate on the credit card portfolio dropped 80 basis points from last quarter. However, given it is a higher-yield, higher-loss business, the card portfolio maintains a higher reserve rate than the consumer loan book and will continue to pressure the overall reserve rate of the company. This quarter, the credit card portfolio continued to add approximately 40 basis points to the overall reserve rate, and we expect that to increase slightly over the remainder of the year, consistent with the growth of the portfolio. Looking forward, in addition to the shifting product mix of the overall portfolio, we will continue to be prepared to adjust reserves if and when the macroeconomic environment changes. Operating expenses were $437 million, up 9% compared to a year ago, driven by thoughtful investment in growth initiatives in our newer products and solutions, as well as data and technology capabilities to better serve our customers, accelerate product innovation, and drive operating efficiency in the future. Our OpEx ratio this quarter was 6.8%. As the year progresses, we have a clear line of sight to lower quarterly expense growth, which combined with expected receivables growth will drive the OpEx ratio lower, and we remain confident in the full-year OpEx ratio guide of approximately 6.6%. Now turning to funding and our balance sheet, during March, even with escalating geopolitical tensions and market uncertainty, we were able to issue an $850 million three-year revolving ABS. The offering saw very strong demand and was executed at attractive pricing of 4.63%, once again demonstrating our excellent access to markets and strong ability to execute even in difficult market conditions. The proactive measures we took last year to reduce our secured funding mix, redeem and repurchase near-term maturities, and refinance the 9% 2029 bonds reduced our interest expense and gave us significant flexibility on both the mix and timing of issuance in 2026, an important advantage, especially given the increased volatility in markets so far this year. At the end of the first quarter, our bank lines totaled $7.5 billion, unchanged from last quarter. These bank lines add significant liquidity and funding flexibility to our program. Our balance sheet is a core strength, highlighted by staggered long-term maturities, strong market access and experienced execution, a balanced funding mix, and significant liquidity. We view this as a durable competitive advantage that supports our business through economic cycles. Our net leverage at the end of the first quarter was 5.4x, in line with last quarter and within our targeted range of 4x to 6x. We are reiterating our 2026 guidance that we provided last quarter. We had a good first quarter that was in line with our expectations, and we are pleased with our performance. For full-year 2026, we expect to grow managed receivables in the range of 6% to 9% while maintaining our current conservative underwriting posture. We expect C&I net charge-offs in the range of 7.4% to 7.9%, and we expect our full-year operating expense ratio to be approximately 6.6%. All of this supports the strong capital generation of the company for 2026 and beyond. In closing, we are encouraged by our first-quarter performance and start to the year. Our credit metrics are in line with expectations, supporting good momentum over the remainder of the year. We see opportunities to grow through innovation and product expansion while improving efficiency, which we expect will deliver outstanding shareholder value in the quarters and years ahead. With that, let me turn the call back over to Doug. Douglas H. Shulman: Thanks, Jenny. In closing, we remain very confident in the strength and trajectory of our business. We are serving more customers with products that meet their diverse needs and strengthen OneMain Holdings, Inc.'s position as the lender of choice for hardworking Americans. We remain focused on profitably scaling our auto finance and credit card businesses to provide value in both the short and long term. Credit is performing well and in line with our expectations, and our industry-leading balance sheet remains a key competitive advantage, supported by a diversified funding model, consistent market access, and a strong liquidity position. All of this points to our expectations of driving increased capital generation this year and beyond. Let me conclude by thanking our team members for their outstanding execution, as well as their commitment to our customers and to each other. We will now open the call for questions. Operator: Thank you, Mr. Shulman. Ladies and gentlemen, the floor is now open for questions. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. Again, we do ask that you please limit yourself to one question and one follow-up. We will go first this morning to John Douglas Hecht with Jefferies. John Douglas Hecht: Hey, guys. Thanks very much for taking my questions. First, any update on the bank application, any sense of timing and so forth there? Douglas H. Shulman: No updates this quarter. The process continues to move forward. Timing is uncertain, but we remain optimistic because we continue to believe we have a very strong case for approval. We are having dialogues with the FDIC and the Utah Department of Financial Institutions, so we are optimistic, and we will keep folks posted as things evolve. John Douglas Hecht: Thanks. And then you talked about a lot of focus on technology and using AI for productivity. Any update on the branch versus digital activities and how they integrate together, and thoughts on the trajectory of the branch system over time? Douglas H. Shulman: We have, over the last seven to eight years, really focused on being a multiproduct omnichannel lender. We have added card and auto, which are not dependent on the branch, but our core personal loan business has a model where you can do business with us in person, on the phone, or digitally. We do think our branches are a competitive differentiator and one of the secret sauces of how we serve the nonprime customer very well. They can walk into a branch, work out issues with us, gain confidence, and we can advise them on getting into a loan they can afford and the right type of loan. Over the years, our branch footprint shrank from about 2,000 to about 1,400 and has remained somewhat steady. It has gone down about 100 over the last couple of years. We have focused on making sure our branch team members spend time working with customers, either in lending or in servicing, and moving lower-value work to technology, self-service, or our call centers. We have made a lot of progress automating information branches used to need to get, adding outbound calling to complete applications, and bringing in DMV data so branches do not have to look up VINs. We continue to invest in technology to make our branch team members more productive and free them up to work with customers. On AI, we see opportunities to automate tasks and provide chatbots to get information for the branch. A great example is that all of our internal information—previously on our intranet or in different applications—is now fed into an AI program where someone can just ask, “What is the policy for loan size in Tennessee?” or “What is the policy about health insurance for my child?” They can just have a chat and get information at their fingertips, freeing up branch team members. John Douglas Hecht: Great. Thanks very much. Operator: We will go next now to Moshe Ari Orenbuch with TD Cowen. Moshe Ari Orenbuch: Great. Thanks. I was hoping to talk a little bit about credit quality. You called out that you expect credit to improve more than seasonal patterns by the second half, and you have a lower level of the back book, yet it has been a little bit stubborn. Can you expand on what is going on with those loans and customers, and what gives you confidence you will get to that back-half level? Jeannette E. Osterhout: Hi, Moshe. This quarter we saw that back book represent about 5% of the portfolio, and it contributed 14% to the 30-plus delinquency. Those loans are continuing to go delinquent at about two times the rate we would have expected. What gives us confidence is that our loans typically are about five years, and as those loans season and burn off, we should get closer to our historical range, with growth also playing a role in the mix. Moshe Ari Orenbuch: Thanks. I was also intrigued to hear you talk about the credit card business turning to profitability. Can you talk about the level of investment to date and how you think about the ultimate profitability compared to your core installment product and what that might mean for overall earnings for OneMain Holdings, Inc.? Jeannette E. Osterhout: Card businesses are challenging to set up and take time. What has been remarkable is that we were able to start this card business coming out of COVID and leverage the company’s scale, breadth, and knowledge—corporate functions, funding program, and more. We did mention we are now at scale and turning to profitability. From here, it is about scaling in a way we like. In terms of returns, personal loans have a very good return profile. Credit cards are one of the few businesses serving the nonprime consumer where you can have a similar or slightly higher return profile. You can see revenue yields in the low 30s, support over time for credit coming in closer to the mid-teens percent range, and we are very focused on operating and unit operating expenses. As we scale, unit costs come down. We are pleased with where we are and where we are going. Operator: Thank you. We will go next now to Aaron Cyganovich with Truist. Aaron Cyganovich: Good morning. In terms of personal loans, they are up on balance sheet around 2%. I know you are selling a portion as well. Can you talk about the balance of pushing personal loans versus demand relative to card and auto that you are increasing? Is there any push and pull in how you focus on originations? And can you touch on the health of the consumer given rising oil prices and how that might impact your customers? Douglas H. Shulman: There are two questions there. We run the three businesses independently. We are not trying to balance how much personal loans versus card versus auto. Each loan—card, auto, or personal—needs to meet our 20% ROE threshold based on credit box, cost of funds, OpEx, and losses over time. They will move at different paces. We have a very big market share in personal loans, so we are growing from a large base and do not expect as much percentage growth, although it remains the biggest part of our annual originations. Auto and credit card are huge markets—about a $500 billion card market where we have $1 billion of receivables, and a $600 billion auto market where we have just under $3 billion of receivables—so we would expect those to grow relatively faster. Each business has a dedicated team given different characteristics and competitive environments. On the consumer, our customers remain resilient. Our credit is performing where we expected. External data shows employment remains low—ticked up a little in the second half of 2025 but has been stable recently. Wages and savings have been stable. Sentiment has gone down a lot in the last six months, but we are not seeing that in our numbers. We are paying attention to geopolitical tension and oil costs, but we have not seen that creep into our book at this time. Our unemployment insurance data shows no uptick, and our branch survey of managers has been stable over the last couple of quarters. Aaron Cyganovich: Thanks. A follow-up on personal loans. Is there a higher competitive environment today from fintech lenders? Or are credit overlays keeping growth from being faster than expected? Douglas H. Shulman: We have a very conservative credit box, and we have had it for a few years because macro uncertainty has not fully cleared. There is no material change in the competitive environment. The last 18 months have been quite competitive with plenty of funding available for competitors. Different competitors have different return profiles and premiums on growth. We do not chase growth; we focus on profitability. We are still booking 60% of originations in our best, lowest-risk customers with very attractive pricing, which indicates our competitive position remains strong. We have a pipeline of product innovation. It will fluctuate quarter to quarter. We focus on a great product, targeted marketing, and booking loans that meet risk-adjusted returns. We are fine with 6% year-over-year receivable growth. Operator: We will go next now to Mihir Bhatia with Bank of America. Mihir Bhatia: Hey. Good morning, and thank you for taking my question. I wanted to turn to credit for a minute. There are a few moving pieces this quarter. Gross charge-offs and recoveries both stepped up materially year over year. What is driving that? And early-stage DQs, the 30–89 bucket, are basically flat while the 90-plus bucket increased. Is something going on in roll rates where folks are finding it difficult to cure once delinquent? Can you help frame what is going on with credit? Jeannette E. Osterhout: We focus on net charge-offs, and we ended net charge-offs in line with expectations. You are right there were puts and takes. We have seen historically low roll rates from delinquency to loss since the pandemic, and this quarter we saw some normalization in those roll rates. We are not expecting that normalization to continue through the rest of the year, and roll rates remain better than pre-pandemic. Second, recoveries efforts paid off. We saw very strong recoveries that helped offset gross charge-offs, largely from improvements to internal capabilities. Bulk sales of charged-off loans were slightly less year over year. In general, we feel good about where credit is and where it is going. The movement you see in 90-plus reflects some of those roll dynamics, but we are not expecting that to persist. Operator: Thank you. We will go next now to John Pancari with Evercore ISI. John Pancari: Morning. Just to go back to the credit point regarding the back book—you indicated the loans are going delinquent two times faster than expected, but you are still confident in the charge-off expectation given the burn-off. Is that view predicated on that two-times faster DQ formation slowing, or on it remaining stable? What is your assumption around that DQ formation when it comes to your charge-off outlook? Jeannette E. Osterhout: The back book’s contribution to delinquency has shrunk slightly over time, and it will not be perfectly linear with run-off. On a typical personal loan curve, as loans get older, you see some plateauing. For the second half, we look at the composition of vintages. We expect the back book contribution to come down slightly—approximately two times, maybe slightly more than two times, what we would have expected pre-pandemic—but we will also have newer, good-performing vintages coming on book, which improves the mix. John Pancari: Thanks. Separately, can you give us an update on the status of the State AG lawsuit filed back in March—any developments, progression in the courts, thoughts on exposure, fines, remediation, settlements? I know you indicated this issue had been addressed by the CFPB in a previous action. Douglas H. Shulman: First, please see our public statement on our website. The bottom line is the claims made by the states are untrue and have no merit. They are attempting to relitigate issues already reviewed by the CFPB and resolved. We are happy to go to court and are confident we can win. Regarding sizing, these are matters fully resolved with the CFPB, and it is only a fraction of states involved. We do not view this as a material matter or one that will have any material impact on our business. Operator: We will go next now to Richard Barry Shane with JPMorgan. Richard Barry Shane: Hey, guys. Thanks for taking my questions this morning. There is an interesting dynamic: you have had a tight credit box and have consistently tightened since August 2022, driven by sensitivity of lower-quality borrowers to inflation—housing and gas were standouts. We are now two months into substantially higher gas prices. How do you think about the credit box now? Had you anticipated loosening and you will maintain status quo, or do you tighten from here? Douglas H. Shulman: We think we have a good, conservative credit box, and we have kept it conservative for exactly the kinds of uncertainties we have seen recently. We have a 30% stress overlay in our credit box—on top of model predictions, we apply a 30% peak loss overlay—and even with that overlay, loans must meet our 20% marginal return on tangible equity. I would not say things are worse than in 2022. We are more than three years into a period of persistent uncertainty, but performance has been pretty good despite that. We have not declared the coast is clear, and we have constructed a book with better-quality customers, driving losses down and profitability up. We do not react to oil price moves in isolation. We look at on-us credit, external factors, early defaults, and we run weathervane tests—booking a de minimis amount under our 20% threshold to see if they pop above over time. Nothing indicates we should add more overlay now, but we are not taking the overlay off. We are always making tweaks—by geography, product type, and customer characteristics—but the overall overlay remains constant, and we will change it when warranted. Richard Barry Shane: Understood. As a follow-up, incumbent in your guidance is a significant improvement in credit in the second half. Do recent changes—like higher gas prices—reduce your confidence in achieving that? Douglas H. Shulman: No. What we have seen so far does not change anything. If the economy were to materially weaken, our outlook would change, but we are assuming a relatively steady environment and remain confident in our guidance. Douglas H. Shulman: Thank you, everyone, for joining us. As always, our team is available for follow-up. Have a great day. Operator: Thank you, Mr. Shulman. Thank you, Ms. Osterhout. Again, ladies and gentlemen, this concludes today’s OneMain Holdings, Inc. first quarter 2026 earnings conference call. Please disconnect your line at this time and have a wonderful day.
Cary Savas: Good afternoon, everyone. Welcome to Grid Dynamics First Quarter 2026 Earnings Conference Call. I'm Cary Savas, Director of Branding and Communications. Joining us on the call today are CEO, Leonard Livschitz; CFO, Anil Doradla; CTO, Eugene Steinberg; and SVP, Global Head of Partnerships and Marketing, Rahul Bindlish. Following the prepared remarks, we will open the call to your questions. Please note that today's conference call is being recorded. Before we begin, I'd like to remind everyone that today's discussion will contain forward-looking statements. This includes our business and financial outlook and the answers to some of your questions. Such statements are subject to the risks and uncertainty as described in the company's earnings release and other filings with the SEC. During this call, we will discuss certain non-GAAP measures of our performance. GAAP to non-GAAP financial reconciliations and supplemental financial information are provided in the earnings press release and the 8-K filed with the SEC. You can find all the information I just described in the Investor Relations section of our website. I now turn the call over to Leonard, our CEO. Leonard Livschitz: Thank you, Cary. Good afternoon, everyone, and thank you for joining us today. We started 2026 with solid execution, delivering Q1 revenue of $104.1 million that was higher than our guidance range and ahead of market expectations. This performance reflects continued strength in our business model and validates our focus on AI-led transformation and high-value enterprise engagements. Three trends stood out this quarter, a meaningful and growing contribution from AI revenue, a structural shift in vertical mix toward technology and financial services, and our top customers are undergoing meaningful vendor consolidation with Grid Dynamics emerging as a clear beneficiary. Last quarter, we called 2026 a pivotal year for the accelerating adoption of our AI offerings. Our first quarter results support that conviction with AI revenue reaching 29.3% of total company revenue, growing nearly 60% year-over-year. Given this concentration and growth trajectory, AI practice has become the core of our business, fundamentally reshaping our offerings, our talent development and our client relationships. I'm confident we are well positioned to further accelerate AI revenues in 2026. For the first time, our top 5 accounts are entirely outside of retail, reflecting meaningful diversification into technology and financial services, sectors where AI adoption is accelerating and our capabilities are highly differentiated. This group includes 2 leading global technology companies, a global fintech leader, a U.S.-based global bank and a leading financial institution. What makes this group notable is that each of these customers has undergone meaningful vendor consolidation and Grid Dynamics has emerged as a clear beneficiary. This positions us to capture greater market share in 2026 and beyond. Additionally, we have been actively engaged in AI initiatives across all 5 customers, with some of our largest and most strategic programs driven by this group. Our size and AI technology focus are strategic advantages in a rapidly changing environment. Large enterprises are increasingly seeking highly capable, nimble partners like Grid Dynamics, who can move quickly and deliver meaningful AI outcomes rather than relying on incumbent global system integrators burdened by legacy delivery models. In many ways, headcount leverage is no longer a competitive moat and differentiation comes from the main knowledge, AI capabilities and ability to rapidly scale relevant expertise. We're not a systems integrator. We're a product-centric engineering company focused on solving the most complex mission-critical challenges for Fortune 1000 clients with a deliberate emphasis on driving revenue-generating capabilities, not just cost optimization. As enterprises migrate to our custom-developed solutions, the advantage shifts to partners who can build sophisticated production-grade software from concept to deployment. This is precisely what Grid Dynamics does. AI meaningfully expanding Grid Dynamics addressable market. For example, AI-native SDLC and agentic coding fundamentally changed the economics of delivering services. With delivery time and cost compressing, we can take on larger client initiatives that were previously out of our reach. Also, AI is unlocking a wave of legacy modernization that was not previously economically viable. For years, replacing core legacy infrastructure was considered too expensive, time-consuming and risky. AI lowers these barriers. At the leading home improvement retailer, the infrastructure for global operations is based on legacy mainframe platforms. Modernizing the legacy mainframe platform was considered risky, and required specialized and expensive talent. Using AI agents, Grid Dynamics delivered a full modernization program within the time line and budget. Grid Dynamics expertise is now extending into physical AI. In CPG & Manufacturing, enterprises are turning to self-learning robotics and AI technologies to drive operating efficiencies. Our GAIN platform for physical AI makes intelligent robotics more accessible and economically viable. In the first quarter, we closed our first commercial engagement in physical AI with a heavy equipment manufacturer. We're enabling their mining equipment with intelligent autonomous capabilities. We're building the company around AI. Four pillars define this transformation: AI native delivery, productized engineering, AI consulting, and internal AI automation. The first pillar, AI native delivery, marks a fundamental shift in how we work from human-led workflows to AI agent-driven, spec-based executions across our fixed bid engagements. The economics are compelling and adoption is accelerating. Early indicators point to material productivity gains in select workflows and a structurally different cost base. In Q1, at our global bank, our autonomous AI workflows analyzed 150 green production applications and uncovered latent defects across systems, including test, and coding and correct behavior. By expanding validated behavior coverage to greater than 70%, we reduced false confidence in system integrity and mitigated production security and regulatory risk. The second pillar, productized engineering, focused on converting our repeatable IP into AI native platform-based offering under the GAIN platforms. GAIN consists of 4 domain-specific platforms spanning from Agentic AI Commerce, SDLC, Risk and Compliance, and Physical AI. Our engineers increasingly operate as forward deployed specialists composing and customizing these platforms to each client's specific environment, data and workflows. The result is deeper differentiation and stronger client retention. A good example is that what we achieved in one of the world's largest food distributors. Our client sales associates were spending hours on manual research and proposal preparation for their restaurant clients. We developed AI agents that compressed the preparation process to minutes while improving the quality of the reports. Our efforts resulted in 50% reduction in preparation time and 18% increase in monthly spend for the targeted accounts. The third pillar is AI consulting. As companies undergo AI transformation, existing business workflows must be evaluated and reimagined for agentic world. Clients are seeking out domain knowledge and deep understanding of AI and data. As a leading global fintech company, our engagement focused on development of AI agents which automate enterprise workflows. Early efforts with our Forward Deployed Engineers embedded inside the client organization have identified inefficiencies and deployed AI agents to automate, optimize and scale the process with a human in the loop, resulting in 15% productivity improvement. The fourth pillar is tied to adapting AI for our internal operations. Over the past several months, we have been adopting AI tools both off-the-shelf and internally developed in enhancing our productivity and efficiency. This includes areas such as recruitment, RFP responses, knowledge management and HR. With recruitment, we have seen a 2x productivity improvement in terms of number of applicants we can process. With RFPs, we have increased the number of responses by 50% without growing headcount. With knowledge management, our responses to employee questions improved from hours to minutes. And with HR, multiple initiatives are being rolled out, and we expect more than 20% operational improvement. Q1 project highlights. Our vertical execution in the first quarter is best illustrated by a few, notable client engagements. TMT. For a global technology company operating large-scale manufacturing environments, Grid Dynamics designed and validated a unified manufacturing intelligence platform to replace fragmented, manual data flows. The solution is projected to reduce data discovery and reporting cycle times by over 95%. It also lays the foundation for enterprise-wide operational intelligence. CPG & Manufacturing. Grid Dynamics built and deployed a unified agentic AI platform for a leading global CPG manufacturer, creating the shared infrastructure required to develop, govern and scale AI agents consistently across the enterprise. Running on a major cloud platform, the solution serves as an operational backbone for AI-driven transformation across the manufacturers' supply chain, consumer and commercial domains, the highest complexity, highest impact areas of the business. Automotive part retailer. For a leading global retailer, Grid Dynamics led the end-to-end modernization of a mission-critical inventory and replenishment platform, migrating from legacy on-premise infrastructure to a cloud-native environment. The program delivered over 70% reduction in infrastructure costs and approximately 40% improvement in core responses time, restoring the platform's ability to support real-time replenishment decisions at the global scale. At a premier global multi-brand restaurant company, Grid Dynamics deployed an AI coding harness to replace the manual QA workflows that struggle to keep pace with frequent enterprise changes across web and mobile. AI agents continuously simulate customer behavior and adapt automatically to UI modifications in real time, eliminating testing bottlenecks without human intervention. The platform has reduced testing time by approximately 50%. With that, I will hand over to Rahul Bindlish, Global Head of Partnerships and Marketing, who will share some of the exciting initiatives currently underway and give you a closer look at where Grid Dynamics is headed. Rahul? Rahul Bindlish: Thank you, Leon. Good afternoon, everyone. Partnerships are now a key component of how we go-to-market. Our partner inference revenues have grown to 19.1% of total company revenue in quarter 1, underscoring the value of our ecosystem-driven approach in the agentic era. The majority of our partner inference revenue is driven by Google Cloud, AWS, and Microsoft Azure, our 3 core hyperscaler relationships. They are an active go-to-market channel for our platforms and services. Our go-to-market strategy is aligned with the AI strategy described by Leonard in his comments. We will be deploying all our platforms on the marketplace of hyperscalers. Our GAIN platform for risk and compliance is now listed on both Google Cloud Marketplace and AWS marketplace. Enterprises searching for production grade capabilities in this domain within those ecosystems will find Grid Dynamics IP directly, increasing our sales pipelines. We also have joint sales motions with the hyperscalers to accelerate deal closures. That is a fundamentally different way to win business compared to traditional service and sales. This is the first deployment in a deliberate rollout. We are moving additional platforms onto the marketplaces of every major hyperscaler. It also deepens our co-sell relationships with these partners. Our GAIN platforms plus Forward Deployed Engineers model is a new approach to go-to-market with the hyperscalers. The platform creates the entry point, our engineers deliver the value realization. Enterprises see this clearly and the first few engagement wins reflect their willingness to pay for it. Each platform we bring to market addresses a specific business pain point with domain-specific IP. This changes the sales dynamics in a way that matters for our growth model. When we lead with a vertical-specific platform, whether that is agentic commerce, compliance or physical AI, we enter a client conversation with a validated solution for a specific business problem. Sales cycles compress, conversion rates improve and initial contracts expand faster because the platform's value is visible to both the business buyer and the technical evaluator. This vertical specificity is what makes our co-sell relationships with Google, AWS and Azure productive. Grid Dynamics technical depth and domain knowledge, combined with the hyperscalers cloud infrastructure, is what allows us to win engagements against competition. Our AI revenue acceleration is the output of that combination. We are also expanding our partnership with NVIDIA by porting our solutions onto their software stack. Our GAIN platform for physical AI is built on NVIDIA stack, including Omniverse, and we are taking it to market with NVIDIA for manufacturing and CPG companies. Industrial AI in manufacturing environments requires simulation fidelity and sensor integration that generic AI infrastructure does not support. Building on NVIDIA's stack positions us to address that requirement and enables joint go-to-market with NVIDIA into a customer segment where the demand for production-grade physical AI is accelerating. We have also expanded our partnership ecosystem in the AI consulting space, entering into relationships with specialized firms in business process mining and organizational change management. Effective enterprise AI deployment is more than just a technology problem. Clients who deploy agentic workflows are simultaneously reengineering the processes those agents replace and managing the organizational change that follows. By integrating specialized process mining and change management partners into our delivery model, we extend the value that Grid Dynamics offers from platform and engineering, through to adoption and measurable ROI capture. There are 2 more trends worth noting. Many of the engagements that we are winning through partner channels are extending beyond the initial project. When an AI project delivers clear ROI and our clients are seeing this at scale, the relationship does not close, it expands. Clients return for more use cases, projects and programs. That pattern is visible in our retention data and in the expansion of existing hyperscaler co-sell accounts. At one of the largest food distributors in North America, that pattern played out across 3 distinct phases. The initial engagement was a first project delivered through a co-sell motion with Google Cloud and built on GAIN platform for agentic commerce. The platform search capabilities were in production within weeks. The client retained Grid Dynamics immediately following go-live to extend the program, using our catalog enrichment solution built on the same platform to improve the quality of the search results. We are now in the third phase, the development of an agentic platform for the client's commercial operations with the first use case targeting sales efficiency already in production. The margin profile of AI engagements, especially those built on GAIN platforms, is meaningfully different from the traditional services pipeline. When we win through a joint sales motion, clients are buying a validated solution at a fixed commercial structure. That changes the margin profile, higher gross margins than our blended services average. The GAIN platforms plus Forward Deployed Engineers model is not just an acquisition strategy. It's a retention and margin expansion strategy too. With that, I'll hand it to Anil to walk through the financials. Anil Doradla: Thanks, Rahul. Good afternoon, everyone. We recorded the first quarter revenues of $104.1 million, slightly above the higher end of our guidance range of $103 million to $104 million. Our revenues grew 3.7% on a year-over-year basis. Non-GAAP EBITDA was $12.5 million or 12% of revenues and was at the midpoint of our $12 million to $13 million guidance range. In the first quarter, there was a negative impact from FX fluctuations on a year-over-year basis. We are exposed to a currency basket across Europe, Latin America and India. While we utilize both natural hedges and an active hedging program, the net impact on a year-over-year basis on our EBITDA was a headwind of approximately $1.2 million. As Leonard highlighted, our top customers are global technology and financial enterprises. And this is by design. Our growth strategy is deliberately focused on verticals where AI adoption is accelerating and our capabilities are highly differentiated. In the first quarter, revenue breakdown reflects this redistribution with meaningful diversification into our TMT and financial verticals. Looking at the performance of our verticals, TMT became our largest vertical and accounted for 29.5% of total revenues for the quarter with growth of 30.3% on a year-over-year basis. The growth was primarily driven by a combination of our largest technology customers as well as new customers. Retail contributed 28.4% of total revenues in the first quarter of 2026. The finance vertical accounted for 23.5% of total revenues in the quarter, and we witnessed strong demand from our banking and fintech customers. For the remainder of 2026, we are bullish on our outlook with our banking and fintech customers. Turning to the remaining verticals. CPG & Manufacturing represented 9.4% of quarterly revenues. In the quarter, we witnessed growth from our manufacturing customers in North America and new engagements in Europe. The Other vertical contributed 7.1% of first quarter revenues. And finally, Healthcare and Pharma contributed 2.1% of our revenues for the quarter. We ended the first quarter with a total headcount of 4,964, up from 4,961 employees in the fourth quarter of 2025 and from 4,926 in the first quarter of 2025. We continue to rationalize our overall headcount as we align our skill sets and geographic mix. At the end of the first quarter of 2026, our total U.S. headcount was 353 or 7.1% of the company's total headcount versus 7.2% in the year ago quarter. Our non-U.S. headcount located in Europe, Americas and India was 4,611 or 92.9%. In the first quarter, revenues from our top 5 and top 10 customers were 40.8% and 59.7%, respectively, versus 35.6% and 56.6% in the same period a year ago, respectively. Moving to the income statement. Our GAAP gross profit during the quarter was $36.2 million or 34.8% compared to $36.1 million or 34% in the fourth quarter of 2025 and $37 million or 36.8% in the year ago quarter. On a non-GAAP basis, our gross profit was $36.7 million or 35.3% compared to $36.6 million or 34.5% in the fourth quarter of 2025 and $37.6 million or 37.4% in the year ago quarter. On a year-over-year basis, the decline in the gross margin was from a combination of FX headwinds and higher cost structures across our delivery locations. Non-GAAP EBITDA during the first quarter that excluded interest income expense, provisions for income taxes, depreciation and amortization, stock-based compensation, restructuring, expenses related to geographic reorganization and transaction and other related costs was $12.5 million or 12% of revenues versus $13.7 million or 12.9% of revenues in the fourth quarter of 2025 and was down from $14.6 million or 14.5% in the year ago quarter. The sequential and year-over-year decline in EBITDA was largely due to a combination of FX headwinds and higher operating costs. Our GAAP net loss in the first quarter was $1.5 million or a loss of $0.02 per share based on a diluted share count of 84.7 million shares compared to the fourth quarter net income of $0.3 million or breakeven per share based on diluted share count of 86.4 million and net income of $2.9 million or $0.03 per share based on 87.8 million diluted shares in the year ago quarter. On a non-GAAP basis, in the first quarter, our non-GAAP net income was $7.5 million or $0.09 per share based on 85.9 million diluted shares compared to the fourth quarter non-GAAP net income of $8.7 million or $0.10 per share based on 86.4 million diluted shares and $10 million or $0.11 per share based on 87.8 million diluted shares in the year ago quarter. On March 31, 2026, our cash and cash equivalents totaled $327.5 million, down from $342.1 million on December 31, 2025. Since our fourth quarter earnings call, we repurchased approximately 1.8 million shares for a total consideration of $11.5 million. Since our Board authorized the $50 million share repurchase program, we have repurchased approximately 2 million shares for a total of $13.5 million, reflecting our continued confidence in the long-term value of the business. M&A continues to take priority in our capital allocation strategy. We are committed to augmenting our organic business with acquisitions that strategically enhance our capabilities, geographic presence and industry verticals. Coming to the second quarter guidance. We expect revenues to be in the range of $106 million to $108 million. We expect our second quarter non-GAAP EBITDA to be in the range of $14 million to $15 million. For Q2 2026, we expect our basic share count to be in the range of 84 million to 85 million and our diluted share count to be in the range of 85 million to 86 million. For the full year 2026, we're maintaining our revenue outlook of $435 million to $465 million. That concludes my prepared remarks. We're ready to take your questions. Cary Savas: [Operator Instructions] First question comes from Puneet Jain of JPMorgan. Puneet Jain: So Leonard, thanks for sharing updates on the GAIN framework. As these platforms become increasingly integrated in your delivery, could you talk about the impact it has on overall operations, say, like are these necessarily fixed price contracts? Do clients pay for tokens like for LLMs or are they bundled in your overall services? You talked about like Forward Deployed Engineers. Can you train your current employees to be FTEs? Or do you have to change your hiring mix to be able to offer GAIN platform to your customers? Leonard Livschitz: Let me try to unpack some of your questions. It's a lot than one. But let's go backwards, probably a little bit easier. So let's start with engineering talent and Forward Deployed Engineers. Majority of the people who we deploy, obviously, are internally trained. We have a large number, substantial large number of very technically educated people who we internally build our services and promotions and train them in the models. And it's led by our R&D organization, so you see Eugene is going to give you some more comments, which combining with retraining the delivery organization brings the talent. Obviously, when we bring the talent from the market, it still needs to be structured so they're going to be able to adapt Grid Dynamics GAIN platforms approach. The GAIN platforms approach is really what makes us different. So rather than talking about a very specific model for each individual customers, let me explain a little bit in the words what these new platforms means for the contracts. So basically, we developed a lot of tools over time. And even in the last Board meeting, we introduced lots and lots of different names. And now we're maturing to the point that we can offer a suite of solutions to the client where we actually define a kind of a combination of Grid Dynamics IP and open available sources into the total solution. And the total solutions which we offer are driven by adoption of the engineers and agents in the form of the guidance, where we expect the return on investment for the client. So answering your question, the number of non-T&M projects -- and because there is a lot, there is a tokenization, there is offering of the fixed bid, there is a performance related. They are significantly increased and they continue to increase. And you will actually see that as we continue to answer your questions today because that model itself requires not only training the FD engineers, but adapting the internal processes and the program management and delivery team to actually control a proper engagement in a different venue. So answering your question, definitely, there is a big shift toward non-T&Ms. The training and rollout of our engineering force is going very successfully. You haven't seen right now from the absolute number of employees, how the dynamics of the headcount has changed yet because number looks flat. But if you again unpack that number, you will see a significantly higher contribution on the engineering workforce because some of them require an additional training and reclassification before we deploy them to the clients. But the good news is, overall, we have a very strong vector where we are building our position with adopting our clients, new models related to the GAIN platforms. Puneet Jain: Got it. No, it's a big change. And so it seems like you're already doing a lot of hard work that's involved. Let me ask Anil. So the guidance, like the full year on top line, so it does imply like a mid single digit growth even in the lower half, mid single digit average sequential growth in second half to hit the lower half of the guidance. So what drives the confidence or the visibility on achievement of this guidance for the full year? Anil Doradla: So there are 2 or 3 factors here. Leonard, do you want to talk about pipeline, then I can take it. Leonard Livschitz: Well, I will answer the easy part. And then Anil will dive you a little bit of the numbers. There are 2 parts of the confidence level we have. The number one, the demand has grown substantially. So we have the record number of demand. And I'm avoiding the word number of engineering demand because, again, we're talking about the teams, the platforms, the offering, but overall demand, the vector is very steep right now. That's a subjective factor because, again, this could happen, it may not happen or whatever, but it's a good news. It's a record high. The more interesting factor is, and Anil will dive into the financial estimates, we are facing a larger, as I mentioned in the previous comment to you, number of non-T&M projects. This work force is defined by a different estimate, how do we qualify the revenue based on this project in which point. So when we unpack the number, we are a bit more conservative, which we're going to guide this particular quarter or the next quarter because now it becomes a little bit more of a financial exercise. The work has been signed. The work is going on, but Anil probably give you a little bit better feedback. But the summary for you, the takeaway for me, 2 parts, significantly higher number of the pipeline and a very large number of the non-T&M project, which require a little bit more financial attention, how we guide the numbers for the near future for the next couple of months. Anil Doradla: No, look, I mean, Leonard, you pretty much hit it. Let me kind of build upon that. Leonard and the team in our prepared remarks talked about a fundamental transformation on how we're moving. And the word you will see again and again is a platform. Now the historical approach we all know is that you take the engineer, you have a certain T&M rate, you multiply it by hours, days; and the formula, as you know, is very linear. We're transitioning. We're seeing that. Rahul is leading the way from a partnership and Eugene is leading the way, obviously, on the CTO. We've introduced all these new products and platforms, and we're working on monetization. Now there are stages of monetization. There's upfront, that will get start off small. There's greater stickiness with these engineers. And as our clients become comfortable with both our products as well as our engineers in this new model, that's when we start seeing a lot more monetization there. So when we started looking at these numbers, the obviously, revenue recognition is a key component to it, right? And we're taking, think of it as baby steps right now. We see the pipeline. I look at year-to-date from January 1 through now, compare that with last year, really good. I look at some of these initiatives we're working on, on AI, really good. But the question will be, how do we time it? Is it a linear timing or nonlinear timing? So from that context, for the full year, we're keeping it. Now let's see the couple of quarters. Does it turn out much stronger because we have some of the recognitions or not. So we're still experimenting with this. We're working through it. So the optics of it looks slightly different from what you can see underneath from a business point of view. Leonard Livschitz: Let me add one more factor, because it could be a bit missed from the first point of view. We also guide substantially better margins. So if you look at the delta between Q1 and Q2, you may ask a question, how can you grow such a steep increase of profitability on relatively modest increase of revenue? So this gives you a little bit more a story that we look at the new projects we've been awarded to us -- as Rahul was mentioning in his statement -- at a different margin profile than the current business. We just don't want to run ahead of the time and do all the financial qualification of that until we see the results. But we are very confident in the progress we're about to make. Puneet Jain: So it seems like you are at the cusp of that monetization and that drives the confidence. Cary Savas: The next set of questions comes from Maggie Nolan of William Blair. Margaret Nolan: I wanted to ask about your partner revenue that crossed 19% of revenue. So where do you anticipate that going? And to what extent do you expect that to be a positive margin driver for the company? Leonard Livschitz: I think the best way to start is with the person who is responding to that. I think, Rahul, you have a perfect opportunity to tell how you build the business continue to grow. So please go ahead. Rahul Bindlish: Yes. Thanks for that question, Maggie. Like you have seen, partnerships have become one of our key go-to-market channels, and it will continue to be. We have a long-term goal to get to about 25% to 30% of our revenues being influenced by partnerships. And we are well on our path to achieve that. In fact, I would say we are tracking slightly ahead when we look at our internal goals to achieve that. And with GAIN platforms being deployed on the hyperscaler marketplaces, we'll probably see acceleration of that partner inference revenues in the future quarters. Leonard Livschitz: Let me just add one more color maybe on this. Rahul, a bit kind of mentioned in his prepared remarks, but it's important because, again, it's new. So we talked with Puneet about the new model of the business. Now we talk a little bit different model of engagement with our partners. In the past, we've basically been talking about hyperscalers. And that was a very consistent is, frankly, the influence revenue generated with these partnerships. Now we start adding, especially with the physical AI, some interesting new level of partnerships. And monetization is a little bit lower yet, but we see a substantial growth because now we're adding into with the heavy hitters in the industry because it adds more addressable market. The other element, which is kind of getting also related to our GAIN platforms, it's a consultancy part. So now we're also getting partnerships with some of the business organizations which are asking us to become the lead technology implementation partner, which is adding a little bit more of the flavor from transition from the business conceptual idea to implementation related to specific AI platforms. As you know, business leaders are a little bit more cautious about spending the budget because you can spend a lot of money on experimentation. So they would like to seek some clarity where they would have a confidence that the investment is not going to be not just risky, but send them to wrong direction. And Grid Dynamics is becoming the partner of that, their consultancy work. So I think it's another really important difference from the past. Margaret Nolan: On the TMT growth, do you think that's durable into the back half of the year? To what extent was that driven by concentration with particular clients? And what's the visibility into those clients that drove that? Rahul Bindlish: Yes, Maggie, that's clearly a highlight, and it's super exciting. Not only the TMT, but if you look at some of our financial clients there, we have seen many of these customers consolidating. And the other thing is that in some of them, we have now become a preferred vendor. We were always there, but now as they were consolidating, we reached the preferred vendor status. With the TMT, there are 2 nuances to the movement. There's obviously our work with them, what we're doing. They know what AI is, and they appreciate us. It's a very interesting thing. The smartest technology customers are the one who are seeking our AI capabilities and more, which is a little counterintuitive, right? But the other interesting thing that is going on with these customers is that there's a hyperscaler relationship too. So on both fronts, we are seeing a lot of activity. Now every quarter, there might be some negatives moving there, but the trajectory is very strong as we get consolidated as we're one of the few vendors, as we've got a clean sheet with many of these new stakeholders and we augment that with some of the hyperscaler growth that is going on. Leonard Livschitz: But I think the important color, very specific color for you, Maggie, is that Anil mentioned about selection being a preferred vendor. We're not talking about generic preferred niche vendor anymore. The AI proliferation equalize the supply base. In other words, there is -- the size does not provide advantage to some of the largest vendors. The capability of deploying AI solution at scale has been determined as a vital part. And being a smaller company and being able to transition faster remember, again, the very first question from Puneet -- how quickly we can train people. It's amount of quality work with those specialized teams, which determine our awards on the business side. And with the TMT, it's definitely the #1 followed right now with the financial clients. We'll talk a little bit more about others as time comes. But the top 5, top 6 clients, we are in the driver seat for AI deployments. Cary Savas: The next question comes from Surinder Thind of Jefferies. Surinder Thind: When we think about the non-time and materials model, how do we think about the incremental risk that you're taking on? Obviously, over the past decade, 2 decades, we moved in that direction because projects got bigger, they got more complex. There is maybe greater uncertainty about scope or changes in scope. How does that work in the new model? Because if you're looking at an outcome-based or fixed price token usage, like where is the risk in the model for you guys? Or how are you guys addressing that? Leonard Livschitz: Surinder, I will actually have Eugene Steinberg, our CTO, to start talking because she is a bit of an architect of the system. And uncertainty has 2 prongs. One of them is a risk level, the second one is a reward level. And I will let Eugene talk about the coexist on both and how we handle it. Please, Eugene. Eugene Steinberg: Yes. Of course, when you are taking a fixed price project, you always have to balance risk versus reward. So on the risk standpoint, the main risks in the fixed price projects are coming from uncertainty. Uncertainty is coming usually from understanding of the requirements and finding gaps in the requirements of the project. We are using very actively our AI agents and our specific game, Rosetta framework, to uncover all the uncertainties in the requirements and clarify with our sources ahead of time during the presale phase, and that builds us a very strong confidence in the understanding of what needs to be done. During implementation, we are very actively using always AI coding assistance and our GAIN Rosetta framework, helping to accelerate the delivery of a project and building the buffer for any unknown unknowns, which usually happen in those projects. Anil Doradla: So let me just add one thing to what Eugene just said. So Surinder, you know you've been in the IT industry, and this is a risk not unique to Grid. It's a universal risk. All I'll add is a couple of additions to what Eugene said. The first thing is that when you scope out projects, if you don't have a deep understanding of the project or as Eugene says, the risk, it's a problem. Now when I look back at the history over the last 5 years, historically, we were a T&M shop. We moved towards fixed price. And actually, during those first year or 2 of our fixed price, we learned a lot. We have committed mistakes in the past. This is the pre-AI era, and we worked. As a matter of fact, there were times when our fixed price project margins were comparable with our T&M, and I always went back to the team what's going on. So we learned. Now when you look at our fixed price margins pre-AI, they're higher than our T&M. And those learnings are now moving into our AI. So we really know what we're doing. I think what we've learned is that if you don't understand the problem that you're dealing with and you don't have a technological know-how, you're absolutely right, there is a heightened level of risk. We'll always have that risk. But as Leonard pointed out, there's a reward component too with that. Leonard Livschitz: Yes. And I just want to close on that with one simple statement. In my prepared remarks, I mentioned clearly that Grid Dynamics is not a system integrator. We are a product-centric engineering company. And that actually gives us the higher level of confidence that we take on the projects, we have a higher probability of success. So Eugene was mentioning Rosetta, another methodology we're using. It's all part of the GAIN platforms. Now the outcomes on a greater scale, Surinder, will be seen as we will propagate more and more results of this work. So it's not about how much money we generate in the project, but how much rate of growth we're going to see in this project going forward. Right now, at the size that we have and the scale of the tasks, we are training not only the models, but our customers, how to react on gradual, I would say, continuation of the development and approaching the goals. So it's very, very important for the fixed bid for us to make sure we have intermediary goals because the approximation of the work and deliver results have to be iterative process. And that's very important. So we're improving not only our technology capability, but our project management relationship with the clients as well. Surinder Thind: Maybe just a quick related follow-on. Any color or commentary on the delta between kind of the fixed price margins that you're able to achieve currently and what you're achieving on the time and materials side? Anil Doradla: Sure. So when I look at -- now it varies quite a bit, right? So I'll throw a number out and somewhere in the ZIP code. I have seen the contribution margins when we get to some of our AI work somewhere in the 60-plus range too. Now I mean, not every project is a 60%. Otherwise, we would have been a 60% gross margin, but this is a contribution margin and then obviously, you have to offset by some of the overhead. In general, if you look at most of our AI work, it is higher margins. If you look at the deltas between our T&M business and non-T&M business, there is a delta. So we see non-T&M in general being higher. And then when you look at AI business portions of the business, we do see some outliers, very positive outliers. Surinder Thind: Ultimately, what does this mean from a gross margin perspective? There's obviously the near term that you're able to handle from both managing headcount. But can you talk about where utilization is relative to your headcount goals and how we should think about the evolution over not just next quarter, but the next 12 to 24 months? Because it sounds like there's a big opportunity here, and I just want to make sure I understand the component that you control through managing headcount and utilization versus the component that's ultimately going to roll out as a result of just the revenue mix itself. Anil Doradla: Very good question. So the way I look at, Surinder, your question is there is what I call the near to intermediate areas of focus, which is part of our 300 bps margin expansion, right, Q4 to Q4, and you're already seeing that, right? Then there's a more fundamental question that you're asking is what is this pricing model and what is the margin model. So that is a more evolutionary thing that will not happen overnight, that has a more longer term. And that is what we are all working on as we work on these AI platforms. The whole GAIN -- as a finance guy, if you really look at what I tell Rahul from a GAIN platform and Eugene, who's always excited about technology is, what does it do to the margins and what does it do to the stickiness and what does it do to the growth? I mean, that's what it really boils down to, right? And our long-term model is to embed GAIN platforms with our customers -- that is just not human capital, but it's agents and actually IP -- create more stickiness, move towards a more fixed price model, which should result in a higher margin structure. Now what is that finally going to end up being? It's work in progress. Leonard Livschitz: Yes. So I think Anil gave you a lot of financial guidance. Let me break it down to a couple of key elements, which I gauge the business. So there are 3 elements, obviously, adoption of AI in terms of the efficiency of the business, the marginality of the business. But there's a third factor, which you guys use quite often, which is not totally irrelevant. I think it's quite appropriate. It's the revenue per person. So utilization of the test becomes more driven by the revenue per person increase. And there are 2 parts of it. On an overall EBITDA margin on a net margin, this is the fourth pillar of the platform, how internally we utilize it. But that doesn't help with the growth of the business. With the growth of the business, it comes actually with the idea that we are going to have repeatable and kind of reusable IP intelligence of our platforms. So the utilization part comes with the utilization of humans and IP capital. So it's a new formula, which is really -- will be gauged in my opinion, which I'm going to drive the company -- is increased revenue per person. Now saying that, there's another factor, right? It's Europe versus India versus U.S. local consultancy. Different categories of different regions create a different ratio between revenue and the margin. And I'm telling my team, it's irrelevant. The revenue per person as a guidance for utilization has to grow everywhere. The new ability to create game-based platforms Forward Deployed Engineers and the models should drive the efficiency as we already see in the early adoption regardless of the regions and the traditional T&M models, which are not going to be as much used as we go forward. Cary Savas: The next set of questions comes from Bryan Bergin of TD Cowen. Bryan Bergin: Maybe just at a high level to start on client sentiment. Just given the war in Iran, anything you can comment on how the conversation with enterprises has progressed over the last 2 months here? And just more recently as well, anything in recent weeks that's different? Rahul Bindlish: Yes, I can do that. Thanks for that question, Bryan. So there are clear trends, Bryan, that we are seeing with our clients. Number one is whereas last year, there was clearly clients who were looking at AI projects as POCs and trying to progress them into projects. Clearly, this year, there are production projects being invested in clients across the industries, very consistent. Second trend we are seeing is with AI, it is driving more projects and programs even for application modernization and data platforms. So we are seeing our pipeline grow in those 2 areas as well. Third, very clearly we are saying -- whereas the last year, they were the early adopters of AI, now we are seeing a wave of fast followers. That is increasing really our pipeline as well as, in some ways, our total addressable market. Anil Doradla: Bryan, coming to your point, the Iran war, to me, at least when I look at the business, it's a non-event at this stage, right, in the third place. Leonard Livschitz: Yes, I would say I would not really comment right now because the situation is very fluid there. We don't conduct the business in an area of the direct impact. So it's very hard to say that. The secondary impact on the business, again, it's negligible. I think that we had a huge impact continuing to the impact of the Russian invasion to Ukraine, right? That's much more dear to us. I don't think we're affected as much. But the global world has changed more with the conflict of Middle East and obviously conflict between Russia and Ukraine. And there are various factors. I mean, look, ultimately, the peace and resolution is the benefit for everyone. But how the peace is going to be achieved is very important. Right now, we're just plugging alone. And in our business model and our customer relationship, there is no detriment. There are some positive movements related to their retooling, especially in the manufacturing space because there are obviously more demand for manufacturing of certain type of products. If we talk about our digital twin approach and about our physical AI approach, we're gaining momentum. But I would hate to say that it's really driven specifically by the individual event. But we definitely see the shift of manufacturing to the much higher retooling and scaling the production. And one of them is related to the traditional manufacturing. One of them is related to more semiconductor manufacturing. Bryan Bergin: Second question here, just as it relates to kind of the AI productivity conversation, just coming out of a lot of the larger traditional SIs, the conversation around productivity, pricing compression for them became more pronounced here in recent weeks. I fully understanding you're not competing in many of the places that they are. But just how are the enterprise conversations for you in engagements that are not transitioning under the game framework as far as that type of a dynamic? Eugene Steinberg: So how the conversations are going in the framework -- so in this case, very often, we still enjoy significant productivity improvements from AI. I can give you some examples. So we just completed a project with one of the wealth management client of ours. And this is where we deployed AI agent across the CA pipelines in one of their large business units. So there, we saw 3x to 6x productivity improvements in the creation of the test coverage. And that allowed us to go wide in this customer and increase our stickiness and increase our reach to all business units of these customers going forward. That proved that we can do more with less resources and this differentiates us across other vendor base of this customer. Anil Doradla: Yes. So let me add a couple of statements to what Eugene just said. So the question is really how is the pricing environment right now beyond the AI. So AI obviously has its own dynamics, and I will put that aside. When I look at the business, I look at a couple of very interesting things. One is that I do not see clients coming and asking that now that same engineer give me a big discount now. I'm not seeing that. Now we can argue whether I'm seeing a premium or more premium, that's second question. But we're not seeing any pricing pressures. Number two is that in our case, tied to Leonard's opening comments, we've seen a lot of vendor consolidation over the last 18 months. Very interesting thing about vendor consolidation, it's good news and not so good news. The good news is that they go from hundreds to dozens. The bad news is that, okay, they say that you're one of the chosen one, give me a little bit of a discount for the next year or so, something like that, right? So we've gone through that. So I would say maybe that would be the closest thing I could come to. But the team does a very good job when it comes to new customers, new logos. They're very particular. We have a very strong discipline in terms of ensuring that the margins come in. It's with our well-established customers. And there, we're seeing some of these trends. Leonard Livschitz: You have a very clear example now. Rahul Bindlish: Yes. I just want to add a couple of points there, Bryan. Number one, productivity improvement in the industry is still being shown at individual developer level. When you translate that into projects, especially brownfield projects where majority of our business is, where you are integrating into legacy systems, that productivity at a project level actually falls down to significantly lower numbers, right? So from that perspective, there is less pressure because you are executing projects and programs and not providing individual engineers. At the same time, when we have examples of consistently showing productivity improvements, we are able to go back to our customers and grab more business. So it becomes expansion of a business strategy rather than play on the margin or the rate. Leonard Livschitz: I think let me just conclude. In a good environment people talk about their side cases and I kind of summarize from the global business positioning. So what I see, and this is quite promising because when I personally meet with the leaders or clients and usually, when you go to the top, the conversations on the overall spendings, and the priorities and budgets come quite clearly as a critical path, especially when those leaders coming from technology organizations, which depend to show concrete results to their business leaders. They are much more focused on productivity in terms of the overall return to the clients. Remember, we talked about this in the past. So you agree with business people on ROI on a total budget versus outcome and then you go to the VMO, and VMO breaks it down by the rate per person. We are getting right now in a budget discussion overall projects, where the budgets are driven by the fixed bid by the deliverables. And that model, that productivity conversation usually goes on a deployment of the measurable results before somebody starts looking at productivity, because when are you going to ask productivity if it's a total budget being agreed between both sides. So this environment a little bit better. But before when Surinder was talking about, he acknowledged, obviously, the question of the risk of the model. But that risk is not related directly to productivity anymore at those new adapted businesses. Bryan Bergin: I've got one last one for Rahul here since he's on the call. Just Rahul beyond the major hyperscalers, as you think ahead, what other types of partner ecosystems are you focused on? Rahul Bindlish: So I think there are going to be at least 3 categories. I already spoke about NVIDIA. I do expect that partnership to take off from here. The second category would be specialized partners. I talked about on the AI consulting area. But I do expect as technology evolves, there are more specialized AI firms that we will start to partner with, potentially even the likes of your LLM providers, right, as their strategies evolve. The third category is what Leonard had talked about. We are starting to see interest from large consulting business consulting companies who are looking for technology partners to enable capabilities that they want their clients to have, right? And that's the third very interesting partnership area that I see us progressing with. Leonard Livschitz: This is immediate. This is we're developing right now. Rahul Bindlish: This is we're developing right now, yes. Cary Savas: The next questions come from Mayank Tandon of Needham. Mayank Tandon: I don't know if there's much to ask. But I'll go ahead anyway, give it a shot. Anil Doradla: Mayank, we expect you to be the best questions. Mayank Tandon: I'm sorry, I'm running out of questions here. But I guess just very quickly, just to keep the call on schedule. The question I had was around your visibility. I think you talked about that earlier, Anil. In terms of the revenue, how much of the business would you say is sold versus you have to still go out and win? So what is sort of potentially at risk versus what you already have in the bag in terms of your guidance? Anil Doradla: So you recall, Mayank, we have had a very traditional model or a well-established model about 85%, 10% and 5%, right, where 85% of our revenue in any given year comes from customers who have been with us 2 years and beyond, 10% comes from over the last 12 months and 5% comes from new. That framework more or less continues to be intact. There might be some variations, especially as we ramp some of these new customers. So the way -- I look at it through this lens. Now when you look at our whole guidance philosophy and when you look at our whole outlook philosophy, what we know well is potentially where we have some of these downside risks, right? I mean, we're dealing with these customers and these are big customers, and we have some sense of what we do. So when we give our guidance, for example, at least in the short term, we're taking that into account. When I switch from my short-term guidance to my long-term guidance, I basically switch from a bottoms up to a top down a little bit, right, where I look at the overall pipeline, I look at the forecast, I look at our customer engagements and come up with this. Now if you were to ask me whether I have a number that I believe is at risk, I mean, it's a whole probabilistic distribution, right, on how I look at it. I would say when I look at the business today versus 3 months ago versus 4 months ago, things are improving. So qualitatively, I would say that things are improving. Now there's always that risk that we have with any one particular customer due to circumstances or as someone asked a question on the Iran war, there's a macro issue, consumer-sensitive industries are impacted. That's always there. But as we see right now, we feel good about where we see the overall business. Leonard Livschitz: So let me just give you, as always, direct pointers. After listening to Anil we need some guidance on his guidance. There are 2 areas which I think are very important to understand. Number one, the retail business, which traditionally was the most volatile has been derisked and continues to be derisking because it's a smaller contribution. It's not little, but it's small. So that's area where the variance of uncertainty you are talking about. But the second risk is actually growing as we're going to grow the business is how the AI deployments will actually convert into the measurable profits and gain, not Grid Dynamics GAIN platform, but the client gain, right? And that business is growing very fast. So we're very happy that we can actually forecast a better deployment of these projects. But again, when we talk about fixed bids, we're talking about outcome-based, we're talking about criterion, which before was not that clear, exactly it's how do you measure that ROI. So this criterion becomes a system of criteria, which is growing more and more of our business. So I would say that the business we project is very certain that we're substantially derisking with retail. However, I see as we grow macro going forward, we need to make sure we bet on the right partners. And that's when actually the ecosystem of the partners also evolves. Remember, Bryan's question, who is going to be the next level of partners besides hyperscalers. And then Rahul mentioned 2 parts, of course, consulting is very clear gain. But then which of the other elements of the LLMs on other substantial guys who will provide us data centers, who provide us the material traffic of these deployments, the cost of these models is going to play a much bigger role. We are tuned to the system. We're selected to be preferred in many cases. We're confident. But the whole dynamics of AI deployed deliverable value, it's still something we have to prove on a major scale for everyone. Mayank Tandon: Just to close out, Anil, you mentioned that M&A is still a priority for you. So just wanted to get some context in terms of what you might be looking for. And then, have private companies maybe sort of recognize that valuations have come down a lot and maybe are more inclined to sell versus resisting a potential sale to a company like Grid? Anil Doradla: Yes. So as you rightly pointed out, yes, we're very focused, fingers crossed. We hope to close some deals -- and most of them are tuck-ins. What we're looking at right now are tuck-ins from a capability point of view. So obviously, technology has elevated to be very important, data, AI and certain end markets tied to our strategy. So now when it comes to the valuation, you will always have to pay a premium for good companies. For good, capable companies, you will always have to pay some level of premium. But overall, you're right, they have come in. And things are looking better from a valuation point of view. But at the end of the day, if someone has some true differentiation, you do have to pay. Leonard Livschitz: The bottom line is, the accretiveness of these acquisitions have been the vital point, and we're very close to prove to the market we can still come back and do our M&As because, again, you're right, the appetite for them has been a little bit more modest, but it's not as critical as our broader net, which we threw around the world related to the 2 elements, really 2 elements: AI-related technologies, especially the cutting-edge technologies, we can benefit more as a congruent business than the particular company on themselves. And the second part is looking for the partnership outside of the traditional path, which we're enhancing. So stay tuned. We're in good shape with that. Cary Savas: Ladies and gentlemen, this concludes the Q&A portion of our call. I will now turn it over to Leonard for closing [Technical Difficulty]. Leonard Livschitz: Q1 2026 is proof that our AI transformation is working. Our revenue reached 29.3% of total revenue. GAIN has matured from a framework to platforms with Forward Deployed Engineers. Agentic AI solutions are now in production across a range of industry verticals and are generating measurable ROI at commercial scale. The pipeline entering Q2 is the strongest it has ever been. AI consulting and hyperscale partnerships are expanding. We're executing on our strategic road map, including AI-native delivery, productized GAIN platforms, consulting and internal automation. We look forward to updating you next quarter. Thank you.
Jim Chapman: Good morning, everyone. Welcome to Exxon Mobil Corporation's earnings call. Today’s call is being recorded. We appreciate you joining us. I am Jim Chapman, and I am joined by Darren Woods, chairman and chief executive officer, and Neil Hansen, senior vice president and chief financial officer. This quarter’s presentation and prerecorded remarks are available on the Investors section of our website. They are meant to accompany this quarter’s earnings release, which is posted in the same location. During today’s presentation, we will make forward-looking remarks, including comments on our long-term plans, which are subject to risks and uncertainties; please read our cautionary statement on slide two. You can find more information on the risks and uncertainties that apply to any forward-looking statements in our SEC filings on our website. We also provide supplemental information at the end of our earnings slides, which are also posted on our website. I will now turn the call over to Darren Woods for opening remarks. Good morning, and thank you for joining us. Darren Woods: Let me begin by recognizing the impact of the conflict in The Middle East on our colleagues and partners in the region. We have been in close contact with our regional partners, as well as with companies and countries we have worked with for many years. We are proud to stand beside them during these very difficult times. While the financial impact in the region is real, what is even more real is the daily threat our colleagues and partners have been living under. We remain committed to supporting them as we work to restore operations and repair assets, with a clear focus on safety and disciplined risk management. The Middle East is, and will continue to be, an advantaged and meaningful component of our global portfolio. The disruption to the broader economy we are seeing underscores the critical role our company plays in providing the affordable, reliable energy and products the world depends on. What we produce remains essential to development and progress, sustaining and improving living standards around the world. In this environment, scale, integration, and execution excellence matter. Those advantages, combined with the deep experience and capability of our employees, give us the ability to respond quickly and manage effectively through disruptions. Our competitive advantages are on display in this quarter’s results. We delivered strong operational performance in a challenging environment, maintained rigorous safety and reliability standards, and continued advancing key priorities across the portfolio, supporting long-term value creation for our shareholders. We saw those advantages in our response to supply disruptions, leveraging our global portfolio to support customers. We delivered on our plans to increase Permian production year over year, achieved record levels of production in Guyana, achieved first LNG at Golden Pass, optimized logistics and crude/product flows, and safely maximized refinery throughput where possible. In fact, in March, refinery throughput increased by approximately 200 thousand barrels per day versus February—the equivalent of a midsized refinery—as we brought back refineries from turnaround and deferred maintenance activities where we could, without impacting safety or long-term reliability. Our global supply chain organization rapidly executed alternate routings from the US Gulf Coast to Asia to sustain critical supplies for our customers. Despite the unprecedented impacts in the global energy system, we maintained deliveries to our customers globally through coordinated planning and real-time vessel visibility. Financially, excluding identified items and estimated timing effects, our first-quarter earnings per share were up versus 2025, reflecting the strength and resiliency of the underlying business. Stronger portfolio mix, structural cost reductions, and execution excellence continue to drive improving performance. Those same factors leave us better positioned to manage uncertainty versus several years ago. The strength of that advantaged portfolio is clear in the work we are doing today. We are expanding our LNG footprint. Our newest facility, Golden Pass LNG, a joint venture with Cutter Energy, is increasing US export capacity at an important moment for global supply. Train one of the facility achieved first LNG in March and will deliver an increase of about 5% relative to 2025 US exports. By the time the third train is online, we will increase the country’s current LNG exports by roughly 15%. At the same time, we continue to progress toward final investment decisions on LNG projects in Papua New Guinea and Mozambique, both expected later this year. Elsewhere in the Upstream, Guyana continues to set the standard for execution, development pace, and value creation. We delivered record production, continued strong reliability, and have Oahu, Whiptail, and Hammerhead projects under construction, with Oahu expecting first oil late this year. Consistent with our broader approach to support long-term economic development in countries where we operate, we have committed a $100 million investment over ten years to support national STEM education in Guyana, strengthening our bond with the people of Guyana and establishing a foundation for long-term prosperity. In the Permian, we continue to show how scale and proprietary technologies improve efficiency, recovery, and long-term value creation. We remain on track to grow full-year Permian production to 1.8 million oil-equivalent barrels in 2026, with that growth grounded in value, not volume. We are also progressing our Permian net-zero ambition, with continuous methane monitoring implemented across all key assets in New Mexico. In Product Solutions, performance remained strong, driven by higher-value products and technology-led differentiation. The Beaumont refinery expansion completed in 2023 fully recovered its initial investment ahead of expectation and is contributing to stronger margins and cash flow. This underscores how disciplined investments, grounded in long-term market fundamentals and rigorously executed, generate durable returns independent of price cycles. In parallel, we continue to progress our journey to build a reliable domestic supply of advanced synthetic graphite. We recently held a ribbon-cutting ceremony at the pilot production plant in Kentucky, which represents a critical milestone between lab-scale development and full commercial deployment. In Low Carbon Solutions, we began transporting and storing captured CO2 from the New Generation Gas Gathering Project, our second startup in less than a year. Through this year and next, we plan to start facilities with the capacity to capture an additional 4 million tons per year of CO2. Importantly, with our advantages, these projects deliver attractive returns that compete with the investments in our base business. Technology as a core competitive advantage remains central to our strategy. It is one of the ways we improve structural competitiveness, strengthen returns, and create new earnings opportunity. In Guyana, we achieved the first deepwater fully autonomous well section using rig automation and automated downhole steering tools, improving both safety and efficiency. Additionally, we are on track to leverage our approximate technology in subsea applications with Hammerhead and future FPSOs, further demonstrating the material’s performance in demanding offshore environments. Across the company, we are making further progress to simplify how we run the business through effective application of technology. Our enterprise-wide process and data platform transformation—the largest ever undertaken in the industry—reached an important milestone with a successful launch of a new modern workforce enablement system. This significantly simplifies the work processes that underpin our talent management approach and streamlines our payroll processes in more than 50 countries. It provides a single, consistent data foundation on which future system deployments will be built. We delivered this with no business disruption, demonstrating the strength of our centralized core capabilities, fully leveraging our scale advantage. This is the first step of many to make our processes more efficient and effective, ultimately enhancing the experience of our global workforce. This will allow our people to focus their efforts on high-value work, further reinforcing our competitive advantages. Without the changes we made over the last decade and the focus we have put on leveraging our core advantages, this game-changing enterprise system would not be possible. It is establishing a truly differentiating foundation for long-term competitive advantage. With recent events, the world has been reminded of the critical role and long-term need for reliable, affordable energy products. Today, more people recognize that demand for oil and natural gas remains substantial and will continue to play an important role in global economic growth far into the future. This fundamental and the competitive advantages we bring underpin our strategy, our capital allocation decisions, and the long-term success of our company. We are confident in our advantages, the importance of scale and integration, the critical role of technology and execution excellence, and the power of talented people. We are confident in our continuing transformation and the critical role our company will play in any future scenario. And we are confident in our plan to build long-term, sustainable earnings and cash flow growth—the basis for long-term growth and shareholder value. Thank you. Jim Chapman: Thank you, Darren. Before we move to Q&A, I want to highlight that we plan to publish our 2026 Advancing Climate Solutions report this month, detailing all of our progress on solving the “and” equation—meeting demand and reducing emissions—as well as our latest sustainability report. All these documents can be found on the Investors section of our website. We really encourage you to take a look. We will now open the call for questions. Please note that we ask each analyst to limit themselves to one question as a courtesy to others. Operator, please open the line for our first question. Thank you. Operator: Question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star. The first question comes from Devin McDermott of Morgan Stanley. Devin McDermott: Good morning. Thanks for taking my question. Darren, I wanted to try to unpack some of your views on the near- and longer-term impacts from the situation in The Middle East. On the near-term side, I was hoping you could talk through your view on the timeline for operations in the region, including your own, to return to normal once the Strait reopens. And then, shifting to the medium and longer term, I would love to hear your perspective on how lasting you expect the market impacts to be across upstream, refining, chemicals, and whether you are seeing anything that structurally changes your view of normalized or mid-cycle prices and margins. Darren Woods: Sure. Thank you, Devin. Maybe to start, let me just provide some context around how we are looking at what has been playing out here in the market, which will form the foundation for how we see it continuing to play out. I think it is obvious to most that if you look at the unprecedented disruption in the world supply of oil and natural gas, the market has not seen the full impact of that yet. You only have to look at the ranges that oil prices have moved at, which are very consistent with the last ten years in the history, versus this historically unprecedented disruption. So there is more to come if the Strait remains closed. Why have we not seen those impacts manifest themselves fully in the market yet? Well, there was a lot of oil in transit on the water, a lot of inventory on the water, that has been deployed in the first month of conflict. Strategic petroleum reserves have been released. Commercial inventories have been drawn down. We have seen that play itself off and mitigate the impact as we moved through March and then here through April. As you get to the minimum working levels of inventory on the commercial side, you are going to lose one of these sources of supply, and we anticipate, as that happens and the Strait remains closed, that we will continue to see increased prices in the marketplace. Once the Strait opens back up again, it will take some time to get back to a stable flow rate that was consistent with what we have historically seen. Ships have to reposition themselves. We have to work through the backlog. Then there is obviously the transit time to get the product to market. We are thinking there is going to be a one- to two-month time lag between the Strait opening up and the market seeing normal flow. Depending on how long this goes and how far strategic petroleum reserves are drawn and how low commercial inventories go, there will be a period of time where players, markets, governments, and countries try to refill and replenish those inventories. That is going to bring an additional level of demand into the marketplace, which we think will put upward pressure on prices. I would also add that many countries around the world will look at, if they do not have strategic petroleum reserves, whether they need those. That may bring some additional demand into the marketplace. People are going to reassess their energy security and how they ensure that, going forward, they do not have the same exposure that many of them have realized here in the short term. All those things are difficult to predict exactly, but I do think they will have an impact on prices, basically manifesting as maybe higher demand than we anticipated at the beginning of this year. The final point I would make with respect to longer-term implications is that it depends on where Iran ends up, and how comfortable the world is—what assurances they have—that the flows will remain uninterrupted. Whether or not a risk premium is put into the market is a question that is yet to be answered. With respect to our own facilities, we were, first and foremost, as this conflict erupted, very focused on protecting our people and making sure that we kept them safe, which I am very pleased with how our organization responded to. As the conflict has gone on and we have done our risk assessments, we have allowed more folks to return to help with our partners and assess the damage. I think once the Strait opens back up again, a large part of the capacity that is offline today will come back on in a relatively short period of time. We will have to cool down the LNG trains to get that moving again. That will take a few weeks, but I think we will see that supply ramp up fairly quickly. Ultimately, we will have to work with Cutter Energy on the two trains that were damaged. That will be a much longer time horizon with respect to repair. That will be about 3% of our global production, and Cutter Energy came out very early on and said the repair time will be anywhere between three and five years. Obviously, we are working to be on the low end of that range, but we have more work to do to fully assess the damage and understand what options we have for repair. Neil, anything to add to that? Kathy Mikells: Yes. Hey, Devin. Maybe another perspective on the near term. Obviously, we have been focused on the external impacts to our Upstream production—certainly what we have seen in The Middle East—but we also had some other external impacts in the quarter: some impacts in Kazakhstan from drone attacks, and it seems like it has been a while, but there was also a fairly significant impact from the winter storm in the Permian back in January. If you exclude all those external impacts, it really highlights the benefit and the value of having a global, diverse portfolio. If we take those impacts out, year over year our Upstream production was up 8%. That 8% again comes from advantaged assets in the Permian and in Guyana—organic advantaged assets. It just highlights that, yes, there is a lot of disruption, but having those advantaged assets and that global, diverse portfolio allows us to continue to deliver long-term shareholder value. Devin McDermott: Appreciate all the thoughts. Thanks, guys. Operator: The next question is from Bob Brackett of Bernstein Research. Bob Brackett: Good morning. I am drawn to your exhibit five where you show March 2026 refining margins. Obviously, it is not a full quarter; it is a single month. Can you talk to that opportunity, maybe inform us how April turned out, and then talk about how you can help balance that market and what are the opportunities for you in the downstream this year? Going forward. Darren Woods: Thank you, Bob. Good morning. I would just start by saying one of the advantages we find here in this market, with the pressure on supply and the resulting increase in refining margins, is we are very satisfied that we never lost focus on making sure that we were building a very robust and advantaged refining network. You will recall, we started up a very large expansion at our Beaumont refinery in 2023. When we first announced that investment in refining, there were a lot of questions about whether that was going to play itself out and be a profitable investment. We have now paid that investment off completely. That is an example of how we never doubted that having an advantaged footprint in refining, one that has a diversified product slate, is going to be critical as we move forward to meet the world’s demand. We feel really good about where we are. We have had several investments in high-grading the production of refining, and today we have a very strong circuit to meet the demand that is in the marketplace today. If you look at our Gulf Coast refineries, which is the largest footprint we have, they ran in the first quarter at record utilization rates. We have been very focused on reliability and making sure that the facilities we have are running at peak production. We emphasized that as we moved into March and saw this disruption coming. We worked it through the refining circuit for units that were in turnarounds; the organization expedited that maintenance work to get it back online sooner. For units that we were planning to take down for additional maintenance, we did assessments to see if we could safely defer those. We really worked hard to try to respond to the demand that was out there, and from February to March, we increased refining production by 200 thousand barrels per day. That is just an example of how we were leaning on the organization to meet the moment. On top of that, our supply organization has done a tremendous job at moving barrels all around the world to rebalance the supply we have with the demand shortages that we see developing across the world. All that continues, and I think that is going to play out very well for us as we move through April and into the second quarter. I am extremely pleased that the work we have historically done over the last ten years to reshape the organization—this was a real test of the changes that we have made—has proven itself to be extremely effective with respect to our ability to bring the most critical resources and our best talent on some of the hardest problems. Thankfully, we had built our trading organization up to help facilitate these movements, and all that in combination has led to what was a very successful month of March, not just from an earnings standpoint, but from the ability to meet the moment and meet the demand. That is going to continue to play itself out. Kathy Mikells: And Bob, just to give some context, we had some temporary, transient impacts in our financial results this quarter with the timing impacts that we disclosed in the identified items. But if you set those aside and look at the Energy Products segment, we made $2.8 billion in the quarter, up $2 billion compared to last year, and a few hundred million dollars compared to the fourth quarter. For all the reasons that Darren talked about—leveraging those world-class assets that we brought online last year and leveraging our trading capability—we have been able to deliver to the bottom line in the market environment that we saw in March. Bob Brackett: Very clear. Thanks. Jim Chapman: Thank you, Bob. Operator: The next question is from Arun Jayaram of JPMorgan. Arun Jayaram: Good morning. Thanks for taking my question. I wanted to see if you could elaborate on how you view some of the resource expansion opportunities in Guyana, as well as your initial assessment of the situation in Venezuela. Darren Woods: Yes, sure. Thanks for the question. I will start with the latter. If you look at Venezuela, obviously Venezuela is a huge resource that is now opened up more freely to the world. There is continuing work going on with the industry, with the Trump administration, and with the government of Venezuela to get the context of that opportunity shaped so that it represents attractive investment opportunities for the industry and generates the necessary returns to make the investments in Venezuela. The oil in Venezuela is very heavy and therefore requires a lot of effort to get production up and get it onto the market. Doing that in a way that is low cost is going to be absolutely critical for Venezuelan oil to fully contribute to the world balances and to meet the demand that is out there. I would tell you the work that we have been doing, really anchored in our resource up in Canada and the work on heavy oil technology developments we have been making, I think positions us uniquely in terms of low-cost production of the Venezuela resources when that opportunity, when the context is right, and the investment and the returns look promising. I feel positive about what is happening there. There is more work to do, but I think we will be uniquely positioned and play an important role in bringing those barrels to market. More broadly, looking at the resource opportunity, Guyana continues—we continue—to demonstrate outstanding progress. We were again at record production and, given the investment basis that we had as we brought those projects online, I would say it is a testament to the innovation and ingenuity of the team working that resource and their motivation to continue to find ways to improve and get better. That mentality applies broadly across the team. The team is very engaged in developing the resources across the block, very focused on developing projects that generate the returns across the entire resource base. I think we are going to continue to see projects come online and opportunities present themselves as we continue to develop that resource. There is still a lot of acreage left to be assessed, and I think the opportunity there is significant. As we look at the area as a whole, beyond Venezuela, you have the work that we are doing with Trinidad and Tobago, and I think we are going to see some opportunities there as well with time. Thank you. Jim Chapman: The next question is from Neil Mehta of Goldman Sachs. Neil Mehta: Thank you, Darren and team. I would love your perspective on the Permian. You have been very clear about this being a growth engine—guiding to 1.8 million barrels a day and eventually getting to 2.5 million barrels a day. In light of the higher commodity price and the need for US barrels, do you expect the Permian to have an activity response from an industry perspective? Does this change the way that you are prosecuting the basin in any way? And then I know you have had a lot of conversations with the administration. We are getting a lot of questions about the crude export ban and any risks around that. Do you feel comfortable around that policy? Thank you. Darren Woods: Yes. Thank you, Neil. First, with respect to what we have been doing in the Permian, I think you all know we have had pedal to the metal from the very beginning. We recognize the importance of that resource in meeting world demand and, in particular, in establishing the US as the preeminent player and supplier in this market. We have been very focused on that from the very beginning. You can see that in the growth rate that we have achieved in that resource, obviously focused on doing it in a very capital-efficient way and ensuring a very low cost of supply. The work that we have been doing on the technology portfolio is showing a lot of promise. It is hard to see in the data today because we are in the early stages of deployment, but I would say we remain very optimistic that we are going to continue to see capital-efficiency opportunities and recovery opportunities manifest themselves through the deployment of technology. We are going to continue on the pace that we have been at. We are running pretty full speed, unlike many of our competitors who have predicted the plateauing of the resource and the opportunities out there. We have never seen that, and we do not see it today. Whether views in the industry change, I cannot comment on whether they intend to run through their inventory more quickly. Ultimately, the opportunity here is to do things in a more effective way to maximize the recovery of the barrels, and that is what we are very focused on. With respect to crude export bans, I have been very encouraged by the comments made by Secretary Wright and the recognition that something like that would be hugely detrimental to the industry and the supply. It is important for politicians to understand that countries and companies export product when they do not have the demand domestically. Your most profitable barrels are the barrels that you supply to your local market because transportation cost is the lowest. Everyone looks to that tier first. It is only when you have satisfied the demand of your local markets that you start sending your product and barrels farther afield and incurring the transportation cost. That is what is driving the exports. The world is in price parity, and the market and the prices around the world all reflect a consistent price basis. It really comes down to what are your local opportunities, and when you run through those, you export. If you shut in exports, you shut in production. It is particularly impactful in the US that if you shut that production in, you shut in the associated gas that comes with it. A huge benefit to the US economy to date has been low-cost, low-price natural gas, which feeds our industrial complex and manufacturing complex. It leads to the economic growth we have been enjoying in the country, leads to job creation and expansions. There are a lot of negative implications if we see that happen. I am extremely pleased that the administration recognizes that and is not looking to that as a lever to pull, unlike other countries as you move around the world that have started talking and looking at things like that. They are going to cause a bigger problem for themselves in pursuing what feels like populist action in the short term that has very negative long-term consequences. Neil Mehta: Thanks. Darren Woods: You bet. Operator: Next question is from Betty Jiang of Barclays. Betty Jiang: I want to ask about LNG. Starting with whether today’s disruptions have changed your long-term view on the LNG macro and, given the tightening supply today, whether there is any flexibility to lean in on Golden Pass with the first train that is currently on—whether there is ability to increase that utilization and maybe accelerate the timing of future trains. Maybe just an update on the timing on the next two LNG projects as well. Darren Woods: Thank you for the question, Betty, and good morning. If I reflect on the discussions I have had with all of you over the last year or so, there has been this prediction out there that the LNG market is going long. A lot of our LNG is tied to crude contracts, and so the supply-demand balances and the impact on pricing in the LNG market are a little different than what we have in the crude markets. We were always constructive on LNG going forward. What we see now, with the impacts from what has come offline and some of the damaged facilities, is that the length people were talking about over the last year has gone away, and I think we are going to see a tighter market here, certainly in the short to medium term. That is helpful in the short term, but as you know, we do not make investment decisions based on calling a specific supply-demand balance and price environment. We tend instead to focus on making sure that the capacity we bring on is advantaged—it is low cost and will be successful irrespective of the price environment. Golden Pass is obviously one of those assets; Mozambique and Papua New Guinea are as well. All those are projects that we are developing with a long-term view and have been progressing as expeditiously as we can, consistent with capital discipline and efficient project development. We will look for opportunities in the short term and with our production to see if there is more that we can bring on, but I do not see a needle-moving opportunity simply because, in the base case, we were pushing hard to do it in an efficient and expeditious manner as possible. With respect to Golden Pass, as you know, we have Train one on and getting product to market. Train two we expect to be mechanically complete by the end of this year, and Train three should be mechanically complete as we head into the second quarter of next year. Betty Jiang: Great. Thank you. Operator: Next question is from Doug Leggate of Wolfe Research. Doug Leggate: Good morning, everyone. Thank you for taking my question. Darren, I wonder if I could come back—maybe it is for Neil—back to Qatar. You have quantified the volumetric impact, the LNG impact. But my question is, your participation in the repairs comes up against, I believe, limited remaining contract length in the two trains you are involved in. How does force majeure impact that decision? Do you get the contract extended? Maybe you could walk us through the implications of that. Thanks. Darren Woods: Thanks, Doug. I would just say that the long history we have in Cutter and the partnership we have with Cutter Energy is extremely strong and as strong as it has ever been. We are extremely committed to working with Cutter Energy and helping restore the supply to the marketplace. Having said that, we will do that in a construct that ensures that we generate return on the capital and the money that we put back into that business. I am not going to get into the specifics of how that will play out, but Cutter Energy has always recognized that successful partnerships require win-win solutions and opportunities. That has been a real strength of Cutter Energy and the work that they have done in the industry. It underpins the work that we do with them. They understand and respect the value and the contribution that we can bring in our partnership, and they recognize the importance of being rewarded for those contributions. I know in the discussions I will have with Saad and the rest of the leadership of Cutter Energy that will continue to be respected. We will find a way to do that in a way that is good for Cutter Energy, good for Exxon Mobil Corporation, and frankly good for the world in terms of bringing that low-cost supply back into the marketplace. Doug Leggate: That is very clear. Thanks, Darren. Appreciate it. Operator: The next question is from Biraj Borkhataria of RBC Capital. Biraj Borkhataria: Hi. Thanks for taking my question. It is a follow-up on your LNG portfolio. You talked at the start of the call about countries thinking about their level of exposure to the region, and when I look at the rest of your business, it is fairly diversified. But I look at your LNG portfolio relative to peers and it is obviously much more concentrated, with Qatar being such a big part of that. Do recent events make you think about wanting to diversify much more rapidly? I know you are doing a few things outside of that now, but how are you thinking about it over the longer term? Thank you. Darren Woods: Thank you, Biraj. I would just tell you that we have always believed, and I think you all will recognize, that we have consistently viewed LNG as a business that is going to be critical for meeting the long-term energy demands of the world far into the future. We have always been bullish on the natural gas and LNG markets. What has dictated what we pursue and the investments we go after is the quality of the opportunities and the returns that we can generate. It has not been constrained by anything other than that. This disruption does not change the opportunity set that we have been working on or the emphasis that we have had in that area. If you look at the things in the pipeline that we are pursuing—Mozambique and Papua New Guinea and continuing to bring on the rest of Golden Pass—those are all growing our LNG portfolio, which has been a strategic objective. It is also diversified with respect to sources of supply, which I think was important in establishing a global network of supply points. That is playing itself out as we speak today. If additional opportunities develop in the short term that we feel we can bring advantage to and generate an advantaged project with advantaged returns—with low cost of supply, competitively positioned in the world supply portfolio—we will pursue those. But my going-in assumption is that those opportunities were already out there and we have been actively pursuing them. I do not think that will change with what we have seen, certainly in the short term; we will see what happens longer term. Our emphasis remains constant here. Biraj Borkhataria: Okay. Understood. Thank you. Operator: The next question is from Jason Gabelman of TD Cowen. Jason Gabelman: I just wanted to first clarify one point, going back to Doug’s question. Are you self-insured in Qatar like you are on most of your assets, or do you have insurance on that? And then I was hoping you could talk about the opportunity that is potentially available in the UAE if they were to ramp up production towards that 5 million barrels per day when the Strait of Hormuz reopens. You obviously have a very large footprint in that country, and I am wondering if there is spare capacity on your assets. Thanks. Darren Woods: Thanks for the question. I will not get into the specifics of our insurance. You are right that we have a position where we use a large portion of self-insurance. We also look at third-party insurance where we think it makes economic sense. We take a portfolio approach there. We feel pretty good about the coverage across that portfolio and, frankly, do not see any material impacts with respect to Cutter and the insurance portfolio and the damage we have seen there. With respect to the UAE, the UAE is a strategic partner for us as well. We have a very long relationship there. We have worked very productively with ADNOC in establishing an opportunity set to take some of our capability sets and advantages and bring them to bear in terms of unlocking additional capacity in the UAE, and we are working towards that ambition. We have a very good relationship with them, very good commercial arrangements, and we are actively working to help the UAE grow its immediate ambitions of growing production. We will be a part of that, I am sure of it. We already are, and we are obviously looking for opportunities to do more. Jason Gabelman: Thanks. Operator: The next question is from Manav Gupta of UBS. Manav Gupta: Thank you for taking my question. You are an expert in developing heavy oil—obviously you talked about Venezuela. One area where you kind of stopped growing is Canada. Given everything that is going on in the world and the short supplies, is there a way you and your partner can move that proprietary technology at a faster pace and bring back Aspen or future phases of Canada? When you delayed those projects, there was an egress issue and other issues. Those issues are resolved, so I am wondering if you can restart growth in Canada also. Darren Woods: Thank you. I think you touched on a really important part of the portfolio and the advantages that we have in heavy oil. The emphasis that we have had over the last several years, working with IOL, is to really drive performance improvement in our Kearl assets and make sure that, as you look at the global supply curve and the cost in the portfolio around the world that meets that supply, our Kearl resource is attractively positioned in that supply curve. The team through IOL and the work in that venture have driven improvement to the point where we see that as being a very competitive source of supply in the world market. That is a function of a lot of things we have been working on. Technology is certainly a huge piece of that, but also the practices that we bring through our operations organization and the work we have done to bring things we have learned through our manufacturing assets into that upstream-dominated environment. We have seen huge benefits and a lot lower cost. Today, it is a very productive resource, and we continue to make investments. We see that being a long-term profitable part of our portfolio. Likewise, in the in-situ Cold Lake, we have technical opportunities there and we are progressing those. That is recognized with the technology work that we have done: we have lowered the cost of supply to the point that we think it represents a very attractive opportunity and a low cost of supply. We are continuing to progress that. That is what anchored my comments with respect to Venezuela. I think we are uniquely positioned in terms of the global footprint that we have and the ability to go into Venezuela with the right set of circumstances to apply that technology and produce those barrels at a much lower cost of supply than many of our competitors would be capable of doing. We look forward to exploring that opportunity and seeing if we can flush that out to a point where it becomes a win-win-win opportunity: a win for Exxon Mobil Corporation with respect to the returns for the capital and the assurances we would have with those returns, a win for the government of Venezuela, and a win for the Venezuelan people with the economic activity that would obviously come with that. Manav Gupta: Thank you. Operator: The next question is from Alastair Syme of Citi. Alastair Syme: Good morning. I wonder if I can come back to that slide five. You obviously had chemical margins squeezed in March, but I am wondering if there has been any recovery in April back to those ten-year averages, and how you see your feedstock availability. I think you referenced potential for the Product Solutions business to have 3% lower utilization this quarter, but I am wondering how specifically that shakes out for the chemical products piece. Thank you. Darren Woods: Sure. Thank you. The first point I would make on that slide five is we are representing margins there to help you understand what the macro environment is with respect to the quarter and the circumstances that we were operating in. It does not reflect our footprint specifically. I would say that we are advantaged versus where the general market is, primarily because of all the work that we have been doing to grow performance products and to improve the efficiency and lower the cost of our manufacturing facilities. On top of that, we have a very large base here in the US. As crude prices have risen—and our US footprint is primarily gas crackers—what you see is the world price being set on liquid crackers, and we have a big feed advantage. The expectation, if oil prices remain elevated, is that chemical margins for a large part of our footprint will be advantaged simply because we have a feed advantage coming out of the US. Kathy Mikells: I would just highlight that the North American advantage extends to our refining footprint as well. Again, the slide is a view of a global footprint, but we are more heavily weighted to North America and again benefit from that low-cost energy supply we have here in North America. Alastair Syme: Thank you. Appreciate it. Operator: The next question is from Jean Ann Salisbury of Bank of America. Jean Ann Salisbury: Hi, good morning. For the damaged trains in Qatar, can you give any more color about what drives the three- versus five-year timing to get those back online? I have read that there is a two- to three-year lead time for new cold boxes. Is that right—that that is the primary factor? And are there options to speed that up? Darren Woods: Thank you, Jean Ann. The range is a function of where we are at in the process of working with Cutter Energy and assessing the damage, then working out a plan to address the damage, recognizing the conflict is ongoing. We have been very aligned, and I would say Cutter Energy has been a real leader in making sure that we are very judicious in the steps we are taking and the deployment of people to make sure that we maintain a level of protection and the safety of our people working there. Part of the challenge in the early numbers is the unknown variables we are working through with Cutter Energy around what exactly our options are and what we can do. It is a function of where we are at and the maturity of the work we have done to date in terms of assessing what we can do. On your point around the cold box being a critical path—thinking of it in those terms is accurate. I would just say I have not accepted any specific schedule because we have not been able to do all the work we need to do to challenge ourselves and see what is possible here. What I would say is I have a lot of confidence that the partnership and the work that we do with Cutter Energy, and the capability we bring to this repair, will be unmatched. Whatever we end up doing here and whatever timeline we set, I do not think there would be anybody else who could beat it. I feel very confident in the capability set that we are bringing to bear, and we have to work through the details to see what the ultimate answer is, but whatever it is, I think it will be the best that could be done by anybody in the industry. Jean Ann Salisbury: Very clear. Thank you. Operator: The next question is from Sam Margolin of Wells Fargo. Sam Margolin: Hi, good morning. Thanks so much. This question might be for Neil. It is related to the timing effects. I know it is a short-term issue, but your long-term targets have been very consistent, so maybe that is where the focus is for right now. They encompass a lot of different aspects of the business, and when they reverse, it also involves a lot of different moving parts. Insofar as some of the reversal of the timing effects is related to execution wins within the business—and there are prospects for volatility events to continue throughout this period of uncertainty—were there any learnings or changes in your operating practices made as an adjustment to this event that would help you reverse the timing effects faster, or do you expect it to just pass as they have done in the past? Thank you. Darren Woods: Let me start with that and then hand it over to Neil. I just want to make sure the basis of the timing or the underlying activity of the timing is understood, because what this basically is—you all remember that we have set up this trading organization and have been growing it over the years, with the primary objective to take advantage of our large footprint, the fact that we are an integrated business and involved in many parts of the value chain, and to make sure that we see trading as a channel to optimize that footprint that we think is a real advantage versus anybody else that is out there trading. We have done that in a very methodical way and in a way that we feel manages the exposure and the risk, and I am extremely proud.
Operator: Hello, everyone. Thank you for joining us, and welcome to Wabash National Corporation First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to John Cummings, senior director of FP&A and investor relations. Please go ahead. John Cummings: Thank you, and good afternoon, everyone. We appreciate you joining us on this call. With me today are Brent L. Yeagy, president and chief executive officer, and Patrick Keslin, chief financial officer. Before we get started, please note that this call is being recorded. I would also like to point out that our earnings release, the slide presentation supplementing today's call, and any non-GAAP reconciliations are available at ir.1wabash.com. Please refer to slide two in our earnings deck for the company's safe harbor disclosure addressing forward-looking statements. I will now hand it off to Brent. Brent L. Yeagy: Thanks, John. Before we begin, I want to recognize Mike Bennett, who as of April 8 is transitioning out of Wabash National Corporation. Mike has been a meaningful contributor to Wabash National Corporation for 14 years and played an important role in shaping our culture and our strategy. His impact on the organization is lasting, and we are grateful for his leadership and commitment to Wabash National Corporation. We wish him all the best as he enters this new chapter of his life. As we entered the first quarter, we did so with a clear-eyed view of the environment in front of us. Freight markets were uncertain, and customers continued to act cautiously. Order patterns were uneven, asset utilization inconsistent, and capital decisions across the industry were being evaluated carefully. At the same time, we were encouraged by early signs of stabilization and improving fundamentals that typically precede a broader recovery. Now as we move into 2026, both our customers and our visibility continue to improve, and it shows an environment that is building to set up for a constructive 2027 as spot rates, contract rates, capacity, and demand all are coming together to drive back to replacement demand for equipment, and possibly beyond as fleets begin to plan more confidently. Against that backdrop, our priorities have not changed. We are focused on controlling what we control, protecting margins through the cycle, and executing against our long-term strategy. That means aligning cost to demand, maintaining pricing discipline, and continuing to invest in areas that differentiate Wabash National Corporation. Particularly parts and services, digital enablement, and our manufacturing operations. The actions we have taken position us favorably for the market's return versus prior down cycles. We are deploying capital more effectively, more efficiently, and at levels above what has been historically possible, managing liquidity with discipline, and building a business that will emerge from this cycle stronger, more resilient, and better positioned to perform as market growth accelerates. Execution remained a focus in Q1. Key operating metrics, including on-time-to-promise, first-time quality, and total recordable incident rates, continue to improve and set new benchmarks. That performance reflects the experience, commitment, and capability of our team. I want to recognize our employees for their continued focus and discipline. Market conditions in the first quarter were largely consistent with what we saw exiting last year. We are encouraged by the progress beginning to take shape across several underlying indicators. Improvements in spot rates and manufacturing activity, for example, are increasing visibility into recovery, as evidenced by the 19% increase in backlog versus the prior quarter, to $837 million. While geopolitical uncertainty continues to influence customer behavior at present, with fleets remaining conservative, extending asset lives, and prioritizing flexibility over expansion, the tone is shifting quickly, and customers are increasingly engaging to discuss their future needs. As expected, the early stages of this recovery continue to be supply-driven. Capacity continues to contract as enhanced driver eligibility enforcement designed to improve safety across the industry improves freight rates and begins to restore carrier profitability. At the same time, key freight indicators are exhibiting some of the strongest year-over-year performance, including the ATA for-hire truck tonnage index having its largest year-over-year increase since October 2022, and the Logistics Managers Index increasing 4.2 points sequentially, the fastest level of expansion since May 2022. As this recovery builds, capital spending will follow. Wabash National Corporation is well positioned to respond with the capabilities, capacity, and customer relationships to support increased demand and increased market share. Looking ahead, our near-term demand outlook remains balanced as customers convert improving profitability into capital spending decisions. Beyond that, the outlook is increasingly constructive as we move into 2027. Multiple leading indicators continue to trend positively, customer conversations are becoming more optimistic, and the very positive impact of the recent change in Section 232 tariffs, and the forthcoming positive progression of the antidumping and countervailing duty process, further support our confidence as we approach the Q3 and Q4 bid season for 2027. While we prepare to exit this stage of the market cycle, operational discipline and cost management remain foundational to how we run the business for both near-term assuredness and long-term improved profitability. That means staying disciplined on costs, protecting liquidity, and remaining ready for multiple scenarios. The plant idling actions announced in our January 2026 call are progressing as planned, with $3 million of the costs referenced in our prior call recognized in Q1 2026 and in line with projections. Beyond those actions, we continue to evaluate opportunities to rationalize our portfolio and rightsize fixed costs while remaining committed to our strategy of delivering industry-leading supply chain solutions from first to final mile. Our objective is straightforward: remove costs in a sustainable way that protects margins and liquidity today and creates leverage for improved profitability and cash generation as volumes recover. We remain agile and prepared to adjust spending, including capital expenditures, as conditions evolve. At this time, we have been deliberate about what we do not cut. Investments in safety, quality, and customer support remain nonnegotiable. We continue to fund initiatives that expand recurring revenue and strengthen customer relationships, particularly within parts and services. The result is a cost structure that is more flexible, more resilient, and better aligned with current market realities while preserving our ability to scale efficiently as demand improves. Recent developments related to Section 232 tariffs and the pending antidumping and countervailing duty rulings are expected to provide meaningful relief for the domestic industry. Wabash National Corporation is proud of its U.S. manufacturing footprint and workforce, and as these measures take effect and the playing field begins to level in late 2026 and into 2027, we are confident in our ability to compete, grow share, and benefit from greater pricing stability. We are also well positioned operationally. The additional dry van capacity from our Lafayette South plant completed in late 2023 provides scalable and efficient capability to produce approximately 10 thousand incremental trailers versus prior upcycles. Flexibility allows us to support customers effectively as conditions normalize. As the market recovery continues to solidly take hold over the next few quarters, uncertainty across the industry will continue to subside, but until then, we will continue to provide quarterly guidance only as we navigate this transitionary period. This approach allows us to deliver more accurate and relevant outlooks while acknowledging limited visibility on timing. Customer engagement is increasing, and our sales team remains active. As mentioned earlier, backlog improved 19% sequentially, which is a historic high rate of growth for the first quarter. For the second quarter, we expect revenue in the range of $380 million to $400 million and adjusted EPS in the range of negative $0.40 per share to negative $0.60 per share. This outlook is consistent with our expectation that Q1 2026 represented the low point for the year, with sequential improvement expected in each subsequent quarter. We remain focused on execution, liquidity, and readiness to capture profitable growth as market conditions continue to improve. I would now like to highlight some of our strategic initiatives. Digital enablement continues to be a key differentiator for Wabash National Corporation. At the recent NPEA event, which showcased SPECT SYNC, we significantly reduced friction from the quoting and product configuration process for our customers. The response exceeded expectations, and we are focused on scaling these capabilities across the network as we create breakthrough advances in both speed and quality of the customer experience—key enablers to capture additional market share in a forthcoming expanding market. Across the organization, we are using digital tools to improve selling, tracking, and supporting our products, enhancing fleet visibility, enabling smarter maintenance decisions, improving inventory efficiency, and elevating the customer experience through data-driven AI insights. These capabilities are particularly critical within parts and services, where they support more predictable revenue streams and reinforce our shift from products to solutions. What is coming into focus for Wabash National Corporation are clear opportunities, with the recent advancements in AI technology, to leap forward in operations, supply chain, working capital efficiency, and the customer experience. I am very excited to share in the future what we will look to accomplish over the next 36 months and beyond in terms of growth, profitability, and customer satisfaction. The synergies from these initiatives lead us to target dry van share of more than 25% in the first half of the cycle. I also want to touch on our upfit business, which remains an important component of our strategy and a clear example of how we are expanding beyond traditional equipment manufacturing. Demand for vocational body-based solutions remains attractive, particularly across utilities, telecom, landscaping, highway construction, and solid waste, where fleet complexity and uptime requirements create a strong need for local, fast-turn customization. New site openings are progressing in three of the largest using metroplexes, designed to serve the Chicago, Atlanta, and Phoenix areas. These markets sit within state concentration that drives many units, and the new locations are intended to improve proximity, reduce lead times, and increase win rates by bringing install and customization capability closer to where customers operate. We are already supporting major national accounts out of our Atlanta location, and we are confident the growth we have seen in our existing upfit locations will translate to the same new sites as volumes ramp and capacity utilization improves. At peak, we expect the additional upfit sites to generate incremental revenue in the range of $10 million to $20 million per site and gross margins approaching 20%. There is more we can do with these assets over time and into the future. I will describe how we will grow the addressable markets of each of these and future locations on additional calls. Over time, our work to deploy digital tools, AI insight, and upfit capabilities strengthens our parts and services platform, deepens customer relationships across our products, and creates a natural pull-through for additional offerings. They also strengthen our transportation products business. In addition to recurring revenue, together they help reduce cyclicality and improve our margins. I am going to end my comments discussing workplace safety. I want to recognize the organization's continued drive for safety excellence. In Q1 2026, our overall injury rate improved 7% versus 2025, and 19% versus 2025. Total injuries declined 9% sequentially and 42% year over year. An injury rate of less than one is attainable, and Wabash National Corporation is on a mission to achieve it. It reflects the level of operational discipline we are driving today on our shop floor and the readiness we have to perform as the market moves upward. I am very proud of our people on the manufacturing floor, and I am eager to have them show what they are truly capable of when they rise to meet the challenges and the opportunities contained within the acceleration of demand at the start of a new industry period of expansion. With that, I will turn it over to Pat for his comments. Patrick Keslin: Thanks, Brent. I will begin with a review of our first quarter results. For the first quarter of 2026, consolidated revenue was [inaudible]. During the quarter, we shipped 5,378 new trailers and 1,527 truck bodies. As expected, challenging market conditions persisted throughout the quarter. While we did see sequential top-line growth in truck bodies from Q4 2025, that improvement was more modest than anticipated. The truck body business entered the down cycle later than traditional trailers. Based on current visibility, we now expect this segment to remain soft through 2026, with a recovery profile that trails dry vans by approximately six to nine months. Lower production volumes continued to pressure operating efficiency. As a result, adjusted non-GAAP gross margin was negative 2.6% of sales, and adjusted non-GAAP operating margin was negative 18.3%. As a reminder, these adjusted results exclude costs associated with the idling of our Little Falls and Goshen facilities, as well as favorable purchase accounting impact from the acquisition of our marketplace joint venture. Adjusted non-GAAP EBITDA for the quarter was negative $38 million, or negative 12.5% of sales. Adjusted non-GAAP net income attributable to common shareholders was negative $47.5 million, or negative $1.17 per diluted share. These results were below expectations, driven primarily by lower-than-planned volumes. While results were below our prior guidance, our view that Q1 represents the low point of the year remains unchanged, and we continue to expect sequential improvement as we move forward. Turning to our segments, Transportation Solutions generated $250 million in revenue and reported an operating loss of $34.5 million on a non-GAAP basis. Results reflect lower demand across core markets and the inefficiencies associated with reduced production levels. Parts and services delivered $54 million in revenue and negative $2 million of operating income on a non-GAAP basis. Segment profitability was adversely affected during the quarter as we incurred startup costs for newly established upfit sites that have not yet begun generating revenue, resulting in a heavier cost burden as volumes are still ramping. While upfit operations were breakeven in the quarter, we have clear line of sight to growth in the coming quarters and expect strong profitability as capacity utilization improves and we meet customers where they operate. Turning to cash flow, operating cash flow for the quarter was negative $33.7 million, resulting in negative free cash flow of $37.3 million. As of March 31, total liquidity, including cash and available borrowings, was $165 million. Throughout the ongoing market softness, we have remained focused on preserving liquidity and maintaining financial flexibility. This disciplined approach positions us to manage near-term headwinds while continuing to support our strategic priorities and longer-term initiatives. During the first quarter, we invested approximately $4 million in traditional capital expenditures, and returned $3.5 million to shareholders through our quarterly dividend. As we navigate uncertain market conditions, we are maintaining a prudent and conservative approach to cash management in 2026. Preserving liquidity and strengthening balance sheet resiliency remain central priorities. Working capital management continues to be an area of strong execution, and we are preparing the organization for an efficient working capital ramp as markets recover. In support of this effort, we are engaged in discussions with our banking partners, and we intend to address our existing ABL facility ahead of September 2026 when the ABL would turn current. Looking ahead to the second quarter, we expect revenue in the range of $380 million to $400 million, an operating margin of approximately negative 5%, and adjusted earnings per share in the range of negative $0.40 to negative $0.60. Capital expenditures remain under close review. While we are prepared to adjust timing based on market conditions, we currently expect modest sequential growth in Q2 spending following disciplined deferral actions in the first quarter. As we communicated on our prior call, Q1 was expected to be the weakest quarter of the year, and that expectation is reflected in our Q2 guidance. We anticipate continued improvement as we progress through 2026, with positive adjusted EBITDA expected in 2026. In summary, the first quarter reflects continued challenges and uneven demand conditions across transportation. At the same time, it reinforced the resilience of our organization and our ability to actively manage liquidity and costs in real time. We remain focused on disciplined execution, maintaining financial flexibility, and positioning the business to respond quickly and decisively as underlying market indicators continue to improve. Our priorities remain unchanged, and we are committed to building long-term value while navigating near-term uncertainty with clarity and control. I will now turn the call back to the operator and we will open it up for questions. Operator: We will now open the call for questions. We ask that you pick up your handset when asking a question to allow for optimum sound quality. You are muted locally; please remember to unmute your device. Our first question comes from the line of Michael Shlisky with DA Davidson. Michael, your line is open. Please go ahead. Michael Shlisky: First, on the guidance you put out there for next quarter, are your backlogs now that we are already well past order season and well past even March fully booked for the quarter, or are you still waiting on a few orders here? Brent L. Yeagy: Yes, good question. We have complete visibility on the backlog that went into our guidance. Michael Shlisky: Okay, great. Thank you for that. I also want to ask about the truck body business. I assume that some of the very largest truck buyers that you make are some of the weaker areas—if I am wrong, correct me there—and what are you looking for, macro-wise, in truck bodies to really feel good that things will, in fact, get better after the next quarter or two here? Brent L. Yeagy: Yes, so I would say that truck bodies are really being impacted across, I would say, Class 2–3 all the way up to predominantly Class 6. As we sit here today, that is the majority of truck bodies that we are going to produce. I would not say there is a tremendous difference in the classes at this point, and it kind of goes to the second part of your question. We really need to see some of the discretionary-spending-related areas pick up, which is really going to reflect in the overall sentiment of the consumer as we go forward. I think the other parts of it are that the generation and consumption of some of the more consumable discretionary products—we are starting to see some movement in manufacturing—need to continue and hold as we move into 2027. Housing is a substantial part of the equation, especially when you think about some of the largest consumers of truck bodies to support their rental businesses, which is really predicated on the movement of people into those new homes. So the housing market is a market that we are really paying attention to right now. Michael Shlisky: Got it. Maybe can you also update us on your current status and plan for reefers? Do you think you have to hire or get a ramp-up period to get that started again and get that rolling? And if you see improvement in demand generally—dry vans too—do you have the people that you need to ramp that up once that arrives? Brent L. Yeagy: We will start with the dry van piece. As we approach 2027, we are in a good place in terms of installed capacity sitting here approaching midyear of 2026. With the shifts that we have running and our ability to flex those to meet initial demand, coupled with the efficiencies that we have gained with our South plant, the relative hiring needs that we will have on the early stages of the ramp are somewhat muted for us based on all those actions. Now, as the ramp continues into the later half of 2027, there will be additional hiring that will have to be done to add additional shifts, which would be expected as we meet that demand. Specifically with refrigerated, we are still going down the process of development of a repositioned refrigerated van product. We have done low-level capital purchases in order to address long lead-time areas. We remain committed to working through a deployment schedule for that to be a material addition to Wabash National Corporation as the cycle progresses. Michael Shlisky: Okay. Appreciate that color. I will pass it along. Thank you. Brent L. Yeagy: Thanks, Michael. Operator: There are no further questions at this time. I will now turn the call back to John Cummings for closing remarks. John Cummings: Thank you, everyone, for joining us today. We look forward to connecting with you throughout the quarter. Have a wonderful day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the Novacyt Full Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Lyn Rees. Good morning to you. Lyn Rees: Good morning, Alex, and thank you. And good morning to all of our investors as well. I understand there's potentially up to 150 people joining us online this morning. So as ever, we thank you for your time and your commitment this morning. I'm joined today by Steve Gibson, our CFO. So between myself and Steve, we'll be going through the results presentation. And this represents, pretty much, our second year anniversary as the CEO and CFO of this organization. So really looking forward to updating on what I think has been some really solid progress over the last 12 months for this business. I'm just going to start with a quick introduction slide of what we do. I mean, what we do, sorry. Obviously, a lot of people will realize that we're an international molecular diagnostics company with a portfolio of clinical assays. That's the Yourgene Health side of the diagram. We have a series of research tools and instrumentation that are done on a research use-only basis. That's the Primer Design side of this diagram. And then in the middle there, you'll see a brand-new part of our business, the distributor part of our business as a result of the acquisition of Southern Cross Diagnostics. And we'll be talking a little bit about that as we go through this deck, okay? So the business is fundamentally still, as per the last presentation, located in Manchester. That's our headquarters in Manchester. We obviously added Sydney, Australia to our list of international territories now. And we currently sit about 230 people within our organization. So in terms of the first sort of main slide I really want to talk through, this is a sort of operational and post-period highlights. I'm going to start on the bottom right-hand corner. About a couple of months ago, we launched our strategic plan. We had a lot of feedback that the market didn't really understand where we were going coming out of COVID. Obviously, the merger of a clinical business and a research use-only business. So we launched our strategic plan. Steve and I sat down and shared the investment thesis, which is fundamentally putting some more money into R&D so we can get new product launches and more content for our customer, keeping an eye on the cost of the business, streamlining the group from an operational and a cost perspective and delivering market expectations. They were the 3 sort of key areas that we said we wanted to commit to as a leadership team. And I think then if you look at the remaining boxes on this page, let's start with that strategic investment in R&D. Well, what did we launch last year? We launched a brand-new LightBench Discover. And as Steve will talk through in the figures a bit later on, that drove a 20% plus growth in the instrumentation side of our business. We received IVDR accreditation for our Yourgene QST*R-based assay. And probably worth just taking a bit of time to talk about IVDR. I'm kind of trying to be raising its profile over the last couple of sessions that we've done with our shareholder base. IVDR is critical to be able to sell products long term into this marketplace. It's a very high regulatory barrier. It takes a lot of investment, a lot of time, a lot of expertise. We're very, very well positioned on this IVDR journey. We've been ahead of that curve for some time. We've got a fantastic regs and quality team, and we continue to have our products approved. And whilst it doesn't make huge news when those approvals are given, when the market changes, you have to have IVDR approval in order to be able to sell products. I genuinely believe that this regulatory advantage that we have will mean that there are less people in the market selling products because the non-regulated products will simply not be able to be purchased, and we're in this really strong position. So I think the fact that we're launching new products or have launched new products, the fact that we are getting continued IVDR accreditation for those products creates a really strong foundation for this business. And in addition to the products that we launched last year, obviously, we're very much looking forward to the launch of our new DPYD assay, which is currently scheduled to be launched live into the market at some point in May. So ticking the box for the first strategic investment that we delivered the product portfolio. We put an extra couple of million into R&D, and that's starting to reap rewards with the product category growth that Steve is going to talk through a little bit later on. Looking at the core business, our NIPT business, this is the clinical part of our business. Our clinical products, in total, equate to about 70% of the sales of the group. So we were delighted to win the St. George University Hospital tender for the NHS, which basically does all of the south of the country's NIPT tests. We picked up that contract for another couple of years. We've won the tender in Iceland for NIPT, and I've just been over there installing new systems and processes and training of teams for the Icelandic market to deliver NIPT solutions to the marketplace. And midway through last year, the Thailand government, the Thai government reimbursed NIPT, so it made it available for every mom and dad-to-be in the Thai region. And we've been busy installing our services and processes into 4 key labs in region, working with a new distributor, and we feel we captured about 40% of the market share in that part of the world. So as reimbursement continues to happen for our NIPT products and services, you can see that we are winning back existing contracts that we had, and we're winning new business, which has delivered another double-digit year of growth for our NIPT franchise within our organization. So new products are being launched, existing products are being sold more. And then the final growth pillar was looking at inorganic growth. And you'll have seen, obviously, that we've acquired Southern Cross Diagnostics, which was immediately earnings accretive. Steve is going to talk through a rather complicated preferential subscription rights issue that we had to do in order to complete the transaction. But hopefully, the summary here is over the last 2 years, myself and Steve, alongside our executive leadership team, our Board and the 230 people that work in our organization have made real strides into giving the business a strong foundation of existing product, approved product to be sold continuously in the market with no gaps, new product coming through, and we've accelerated that plan by doing a bit of M&A work on top as well. So we're really pleased, and we're really encouraged with the foundation that we've built for this business in the last couple of years. I know we sent out a video recently on Southern Cross, but for those that weren't able to catch that, just a bit of an understanding on who Southern Cross are and why we acquired them. They're a relatively small organization, just 11 people with 1 founder director, but those 11 people generate north of GBP 6 million worth of revenue, a revenue line that has been growing and tripled since 2023. The business was established in '28, and gross profit is continually increasing. And the founder, Nick, who I've known for, gosh, a long time in this industry, probably over 15 years or more. Nick decided to invest some of the money that we paid for the business and is now a shareholder in Yourgene -- sorry, Novacyt, and has committed to the business long term. And we're looking forward to working with Nick to leverage and sweat his database of opportunities, customers, products and businesses in the region so we can continue to see growth in what is already a fast-growing part of our business. The clinical market in Australia is growing. It's valued at about $1.4 billion at the moment. And it's expected to grow and pretty much more or less double in size because the Australian government is reimbursing a lot of diagnostic tests, understanding the importance of getting a quick diagnosis always leads to better or more efficacious treatment. And the Australian government is one of the most forward thinking from that perspective. So we see a lot of growth in this market. We were seeing growth via our distributor, SCD, for sales of our cystic fibrosis. DPYD has just been reimbursed in the Australian diagnostic market, so we have a new product launch coming up. So it made sense to get a little bit closer to that customer base where we can have conversations with the key opinion leaders. And the people are shaping the way that diagnostics is done in that region, as well as being able to get -- capture a larger share of the margin associated with those sales, which naturally accelerates the pathway to EBITDA profitability for the Novacyt groups. So when we looked at this acquisition, it was a fast-growing market. We had great people that we've known for a long time. The business was winning more and more business through delivery and reputation. It aligned with our plans for geographic expansion and the increase in international sales. It gave us access to key accounts, not just from a commercial perspective, but also the key opinion leaders that sit within those accounts. And it was an inorganic step change in terms of increasing our revenue and profitability. In addition to that, Nick and his team take a wide range of products from diagnostics, infectious disease, serology into Australia and New Zealand. And Nick is visiting and spending a bit of time in the U.K. over the next couple of weeks so that we can meet with some of the owners of these third-party products and hopefully discuss opportunities for wider distribution and give us a chance to grow our sales and grow the number of products that we take to market. So when we look at all of those things, the acquisition made perfect sense, and I'm delighted that we were able to complete it. But it was a process that was -- that came with a bit of challenges. So I'm going to hand over to Steve now, who will explain just how we did the acquisition and what it's meant to our business. Over to you, Steve. Steve Gibson: Brilliant. Thanks, Lyn. Good morning, everyone. Hope you're well. So if I just talk you through the consideration structure. So we acquired Southern Cross for around $8.5 million, that was an upfront cash payment. And then on top of that, there's the ability for them to earn an earn-out of around AUD 16.5 million over a 4-year period, and that's dependent on hitting certain EBITDA targets. And to put it into context, for the full deferred consideration to be paid, they will have to deliver an EBITDA of over AUD 30 million cumulatively over those 4 years. So we think it's a win-win situation. Now straight after the acquisition of Southern Cross, we launched this preferential subscription rights process. And we did that because it was the only option we had following the AGM last year in terms of raising capital. So we launched this process. We issued just under 2 million new shares. And I would just like to take this opportunity to thank shareholders who participated in that process because we were oversubscribed. So thank you for that. At the end of it, over 50% of the newly issued shares were given to the prior owner of Southern Cross, and we'll use that cash to strengthen our balance sheet going forward. So we're going to turn to look at how we've done in 2025. So I have a number of slides to run through. So I think we were really pleased as a business that the 2025 results exceeded all market expectations. So revenue totaled GBP 20 million. However, when you strip out the impact of the Taiwanese divestment, that meant that revenue grew year-on-year by about GBP 800,000 or 4%. In addition to that, we've seen half year-on-year growth since the end of 2024, so a pleasing set of revenue figures. From a gross profit perspective, that ticked up to GBP 12.6 million when you strip out the impact that the DHSC settlement had on the 2024 numbers. And from a gross margin perspective, it remains strong, and we delivered a 63% gross margin. And that was helped by sales of our PCR range of products. And in particular, our Primer Design business continued to deliver a gross margin of over 80%. Our costs continue to track downwards, and we reduced our OpEx from a pro forma of GBP 27.5 million when we combine Yourgene and Novacyt down to around GBP 20.4 million this year. And that's against the backdrop of continued investment in R&D, and I'll talk about that more in detail later. So all of that accumulated in the EBITDA loss reducing by around 14%, down to a GBP 7.8 million loss. Now if we move on to look at revenue from a segment perspective, then the product mix year-on-year remains fairly consistent. So our Clinical business delivered around 70% of our total revenue or just under GBP 14 million. And as Lyn mentioned earlier, NIPT technologies is up around 10%, and that delivered around GBP 5 million of new revenue. And that was predominantly driven by winning a new customer in Asia Pac. The RUO business, that delivered around 1/5 of our total revenue at GBP 4 million, and that remains our cash cow of the business. And Instrumentation grew by around 25% to GBP 2.5 million, and that was driven by the successful launch of our new product, the LightBench Discover instrument. Now if we have a look at revenue also from a geographic perspective, we remain well balanced and have a diversified income stream. And we're not reliant on any one region, which is really important in the current geopolitical situation that we're in. So our largest region continues to be Europe, and that delivered around 50% of our total revenue or just over GBP 10 million. Now if we look at it in a little bit more detail, the U.K. and Ireland region, which is where we've got the most boots on the ground, delivered around GBP 4.2 million of revenue. Asia Pac is growing like a weed. It's grown at double digits and delivered around 30% of our total revenue or just under GBP 6 million. And again, we continue to see strong demand for our reproductive health range of products in that region. What we are seeing in some of the countries out there that they are price sensitive, so it will put pressure on our gross margin percentage going forward. Now if we look at the income statement and we move down to operating costs, what you'll see is that they decreased. OpEx has, down to GBP 20.4 million from GBP 41 million in the prior year. Now last year's costs were inflated by around GBP 20 million because of the bad debt provision that we booked. So if we strip that out and we're comparing apples with apples, it means that our underlying OpEx costs have decreased by about GBP 700,000 or 4%. Now that's against the backdrop of increase in our R&D expenditure on a net basis by around GBP 1.3 million, and that took our overall R&D P&L cost to just over GBP 4 million. But we were able to offset that expenditure due to the successful site consolidation program of work that we've done that's reduced our footprint and has also reduced the cost base of our business. So from an EBITDA perspective, as I mentioned earlier, we made a loss of GBP 7.8 million. But on top of that, we incurred exceptional costs that totaled just under GBP 16 million. Now the majority of this was not cash impacting. So around GBP 14.5 million of it related to impairment charge covering the goodwill and intangible assets associated with the Yourgene Health acquisition. So the actual cash impacted items and the exceptional charges totaled just under GBP 1.5 million, and that included site closure costs and M&A-related fees. So this meant overall, the group reported a loss after tax attributable to the owners of GBP 22.9 million, which is significantly down on the prior year's loss of GBP 42 million. So we've made good progress. If we move on to the balance sheet, there's a couple of areas that have decreased and have moved year-on-year. So the first one is noncurrent assets, you will see at the top has decreased by around GBP 19 million. Now the bulk of that is what I mentioned earlier. So GBP 14.4 million of it relates to the impairment charge. And then the remainder is the usual amortization and depreciation charges that we see. And the other big move is cash. You'll see that cash has decreased by around GBP 11 million, and we'll go on to look at that on the next slide in a little bit more detail. So we closed 2025 with GBP 19 million in the bank, so an GBP 11 million outflow. Now the main cash outflows were driven by core operations consuming around GBP 8 million of cash during the period. Now on top of that cash outflow, there were some onetime items. Clearly, there were costs around the site consolidation program of work, and they totaled around GBP 1.3 million. And then we had some M&A-related costs that cost a couple of hundred thousand. So if we strip out those onetime entries, it meant our cash burn per month in 2025 was around GBP 825,000. Now I just want to touch on the closing cash position at the end of March 2026. So we announced in the RNS today that we had GBP 11 million in the bank at the end of last month. So that means it was a Q1 cash outflow of around GBP 8 million. Now GBP 5 million of that related to the acquisition of Southern Cross and covered the initial consideration, plus the working capital adjustment, plus fees, plus fees associated with the preferential subscription rights, offset with cash that came in from the successful PSR process. On top of that, there was around GBP 0.5 million of non-repeating items as well. So that's a quick run through of the financials, and I'll hand back to Lyn now. Lyn Rees: Thank you, Steve. So just looking to summarize this and put some of this together. So where are we today? I think we're making strong, strategic progress. We just talked through the acquisition of Southern Cross, which gives us immediate earnings and revenue and strengthens market reach and access to third-party products. It's only been a couple of weeks now since we acquired this business. I think it was done on March 2. And I just spent the last 2 weeks in Australia with the team, making sure that they feel comfortable, they feel confident as part of the new group. They hit their first target. The first month of sales was the March month of sales. So I was delighted to see them hit that over the line. They've got an exciting pipeline of potential new products to take into region. We've got a team that feels very comfortable being part of a wider group, a team that we've known for some time. So I think that acquisition accelerates our pathway to profitability and has allowed us to use our balance sheet to support our growth. And it was great to see some of the shareholders supporting that process through the PSR, and I really thank everyone for contributing to that. So I think we've delivered what will be a very successful acquisition for this business, and that's going to bring growth to our organization. From an organic perspective, our key products have hit those key milestones. I took a bit of time out to talk about the importance of IVDR and the importance of reimbursement. I was asked the question a couple of weeks ago, do we think the products will be provided to the market? Are they clinician-backed products? Well, they kind of are because the governments in the various territories where we sell these products have decided to reimburse this testing. So they must see a clear value in it. And we often work with key opinion leaders. So to launch these products, to see the growth that we -- continued growth in NIPT of double digit, to see the 20% growth that we saw in the range of technology shows to me that we made the right decision to invest a bit more in R&D as we look to drive the content within our organization. That portfolio expansion will continue. We are on the precipice of launching our DPYD assay. This is an assay that unfortunately, patients who are Stage 3 or 4 in cancer and are having a capecitabine or a 5-FU chemotherapy treatment. This is a test that every one of those patients will have before that treatment because if they don't, you can lose up to 1 patient in every 100 that are tested for this. Now our original DPYD product we launched 4 or 5 years ago have been taken a little bit by the market. More targets were added into the competitors, so we lost a bit of market share. We're just about to launch a brand-new product that has a full suite of targets in there. It's been developed alongside some pretty hefty key opinion leaders in the market globally, and we're looking forward to driving that out. And whilst that's really good news, I think we're launching the RUO version in May, and the regulated IVDR version will probably be out June, July. And we have hit a snag with the SMA product that we were also working on. Now that was an OEM product that we were bringing in from a third party. And that went through the regulatory journey. There were a couple of questions that we were unable to answer. So we've gone back to investigative mode on that and deciding whether we continue to look for a third-party product or we just develop it ourselves. One will be quicker, one will be more profitable. So we're just having that discussion at the moment. But we continue to invest in our portfolio. I expect us to have more range of technology available either at the end of this year or very early 2027. As I said, we've got the DPYD product coming out in the next couple of weeks. And we will continue to look for opportunities to partner with our customers, with our partners and bring out more content into this space. In terms of the business itself and its cash position, I still think we have a well-funded and a strong balance sheet. We are now delivering sustained growth. I think we've had 4 consecutive half year periods of growth over the last 2 years. For the first time, we put market expectations out there. We overachieved them, albeit slightly, but still a tick in a box to overachieve those expectations. And I think that gives us a real solid foundation of growth for this business. Steve and I have pretty much spent the last 2 years working hard with our leadership team and our Board and in general, all the people in our organization to create a real solid base, to create an identity for the business, to create a strategy for the business. During that period, we were quite quiet. And in the last couple of months, we're opening up our communication, and you will be seeing more of us over the coming months. We're going to attend some retail investor shows, and we are committed to give you more updates, especially as we launch our new technology and we bed in this new acquisition. But I think that reduced cost base for the group, in Steve's presentation, all the arrows are going in the right way. That will be a continued focus for us. That's probably one of the challenges is deciding when to stop investing in the new products and to claw back the cost. But I think we're probably at a point where we can look to do that as an organization, continue to manage cash as if it's our own because we understand the importance of it in the market and just create a strong foundation for the business. So it's a delight and an honor to be here in front of you today to say, look, we hit our numbers. We met expectations. We launched product when we said we'd launch product. We won the new business that we said we would, okay. The growth is at 4%. We're targeting double-digit growth for 2026 and beyond. And after the first quarter's performance, we certainly hit that number after Q1. So we really appreciate your time. We really appreciate your patience as investors and shareholders in our business. For those non-shareholders that are on this call today, hopefully, you've seen enough to convince you that we're worth your time and energy and investment. And for those existing shareholders, as I say, thank you very much for your continued support. We're doing all we can to make this business successful long term, and we believe the work that we've done over the last 2 years really builds that foundation. We've got products that we can sell all over the world because they are very highly regulated. We've got new products coming out which will continue to excite and delight our customers. We're investing and growing our commercial footprint organically and inorganically. And we look forward to updating you on the progress throughout this year as we go through the journey. So thank you, everyone, for your time today. Operator: Thanks, Lyn and Steve, for your presentation. [Operator Instructions] I would like to remind you that a recording of this presentation, along with a copy of the slides, can be accessed via our investor dashboard. And Lyn, Steve, if I may now hand back to you to take us through the Q&A session, and I'll pick up from you both at the end. Thank you. Lyn Rees: Yes. Thank you very much, Alex. Okay. We received a number of pre-submitted questions. So if you could bear with me as I read these through and between myself and Steve, we'll answer them. I'm not going to try and read out the French version. So for any French shareholders on the call, I do apologize. I think we're having some translation added when this video goes out into the market. Steve, can you comment on the auditor's opinion and indicate whether there are any emphasis of matter or material uncertainties, going concerns in the audit report? Steve Gibson: Yes, certainly. So there were no material uncertainties that were flagged, and we wouldn't expect that in terms of the going concern because we have adequate funds for the next 12 months, which it looks forward to the end of April 2027. And then in terms of the emphasis of matter, in the group accounts, there is no emphasis of matter. But in the French social accounts, so the local Novacyt accounts under French GAAP, they have flagged an emphasis of matter. But that's just to bring to the readers' attention that we've adopted the new French chartered account. So it's more of a disclosure saying we changed the look and feel of accounts, but nothing to worry about. Lyn Rees: Thank you, Steve. And staying on a financial note, what is the cash position and the cash runway after the capital increase? How are the raised funds being used, and what portion remains available for operations and growth? Looking to understand the impact of the capital increase on liquidity and the capacity to execute strategic plans is crucial for assessing the shareholders' financial risk. Steve Gibson: Okay. Thank you for that. So I think I covered some of that in the presentation deck. But at the end of March, we have GBP 11 million in the bank. I think Lyn alluded to it or mentioned it earlier that, again, as a business, we think we have enough cash to reach EBITDA profitability as long as we hit our forward forecast. In terms of the PSR process, why do we do it. So we did it to allow existing shareholders to participate in the capital raise post the acquisition of Southern Cross and also to bring in new shareholders. So cash has been well managed. As Lyn said, we're treating it as our own. In terms of liquidity, we have a high retail shareholder base, so as you would expect for that sort of share offering. Lyn Rees: Thank you, Steve. The next question was asking around the -- can you give any detail on the operational and commercial integration of Southern Cross Diagnostics, synergies realized to date, contribution to revenue and the expected time line to achieve integration objectives? Yes. Well, as I said earlier, I've literally just got back off a plane from Oz. I can tell you, I mean, this is a business that doesn't make any product. So from an operational perspective, it's a pretty easy integration process. And they've already been supplying our products into the market for the last 4 or 5 years. So there's a strong relationship there. We have a 90-day integration plan that's managed through our project management office, or PMO. As it stands at the moment, we are 75% through all of the tasks. So we've completed 75% of the integration tasks within about 60% of the duration of the project. So we're well on plan for the integration. It certainly helped when you know the principles and you work with the organizations for so long. So naturally, we're leveraging that strong relationship that existed. I think commercially, whilst I was over there, we launched the LightBench into the Australian market. Southern Cross hadn't previously taken that product to market. So we attended a big genomics conference, and we walked away with over 50 leads for LightBench because it's the first time we showcased that there. We've got some conversations going around in NIPT, and we're really focused for the launch of DPYD into the Australian market. So I think commercially, the integration is going really, really well. How do we assess that? Well, they've got a budget, and they hit their first monthly budget, and they're on track for what we can see for the budgeted year. So, so far, so good with those guys. The project will -- initial project will take 90 days. So I think it comes to an end at the end of May. And as I said, I'm very comfortable and confident on where we are with that integration right now. In terms of potential synergy, we do have a lovely base now in Sydney. So there's opportunity to look at running more of our processes, holding maybe more stock there, and we will update the market with any further synergy plays. But this was more about buying a business that would accelerate growth. We've been in cost-cutting mode and consolidation mode for the last 2 years. We're really looking forward to jumping into growth mode. And yes, this acquisition was more about growth. But obviously, if there are any synergies to be taken, we will be talking about that. Okay. What are the main drivers of revenue and margin fluctuations in the 2025 fiscal year? And which ones are recurring versus one-off? What guidance do you provide for 2026? And thank you, [ Mark A. ]. You've also put in a similar question about guidance for 2026 EBITDA and revenue. Steve, do you want to? Steve Gibson: Yes, I can take that. That's fine. So I think in terms of -- if you look at the margin year-on-year, we're very consistent at 63%. So maybe I'll break that down into a little bit more detail. So our Clinical business that has around 70% of revenue, that runs at a blended gross margin of around 60%, and that covers our NIPT and our PCR chemistry businesses. Then we have the RUO business, and that's about 20% of our revenue. And that runs at around an 80% plus gross margin, and that's all our PCR technology. And then we have the Instrumentation business. That's about 10% of our revenue, and that runs at about 50% gross margin. So that's how we get the blended group overall margin of about 63%. As I said, it's consistent year-on-year, but there is some differences depending on the product that we're selling. I think one of the questions was, there any material one-offs in 2025? Nothing material. So there wasn't a big GBP 2 million or GBP 3 million onetime revenue item in the 2025 numbers. And addressing the guidance query. As a business, we don't specifically give forward-looking guidance. What we do have is via one of our brokers, so Singer Capital Markets, they launched an initiation note back in October last year. They just issued an updated note this morning on our results, and that gives some updated forward-looking guidance from that perspective for the next couple of years. So please, I would ask you to go and have a look at that if they want to have a look at what our forward numbers might look like. Lyn Rees: Yes. And just to clarify that for anyone who doesn't have access, and we know that's one of the challenges in this market space at the moment. I'm looking at Singer's note now, and the expected revenue for 2026 is GBP 26.4 million. So hopefully, that's given you some clarity there. Steve, another one for you. What are your capital deployment priorities for the next 24 months, R&D, acquisitions, debt repayment, dilution, dividends or share buybacks? And what criteria will trigger new market transactions? Steve Gibson: Okay. Lots in that question. So I think the key is that we're going to continue to invest in opportunities that will drive growth. I think that's our fundamental ambition. There's no plans to pay any dividends until we're profitable. So we need at the moment, all of our cash to get us to EBITDA profitable. Then once we're profitable, we can look at distributable profits and potentially paying dividends. In terms of the question on debt, we have no debt. So there are no repayments of debt at the moment. And I think our general principle is we're always looking at opportunities to accelerate the breakeven position of the business, whether it's organically through increased R&D expenditure like we've seen for the last 12, 18 months or inorganically through the recent acquisition of Southern Cross. This is where we're going to prioritize deploying our cash going forward, the breakeven position of the business and driving growth in the top line. Lyn Rees: Thank you, Steve. We've had a further question from our French holders, French shareholders. Novacyt is positioned as a player in global health, and tests which have attained the IVDR label theoretically give it an advantage in technical, regulatory and legal aspects compared to its competitors. Has the idea occurred to you that due to the global situation, the company could also become a major player for the U.K., Europe and Australia in terms of food security or defense contracts to protect populations across the environment and agri food production? Thank you for the question. I guess, in the first part, yes, I completely agree, our IVDR position and the fact that our products are already approved is an advantage over the competitors. It's an advantage we're not seeing commercially yet at the moment because you can still buy what are called RUO products, research use-only products that don't need the IVDR badge of approval. But that's changing, and it's changing quickly. So we'd expect within the next 24 months to see a reduction in the number of competitors and an opportunity for us to take advantage of the strong regulatory position that we have. In relation to food security and military or defense contracts, you need 2 different levels of regulatory approval for that. So to do any defense contract work, you need something called List X security status. We don't have that. It's a very expensive accreditation to gain. I've gained it before in a previous organization, and we have no plans to go into that side of the market. And similarly, for food, whilst we do provide a lot of products into the vet, the food, the sort of animal testing area, you need AOAC approval specifically for food, and that's something that we don't have. So we continue to sell our products in research-only capacity, and that gives us enough of a market to go out with our primary design range of products and services. But we have no plans to increase the scope of that to get into military or some of the bigger food opportunities because the time line and the costs are -- we just couldn't afford that, we don't have the time to do it. Next question. Steve, what are you expecting the payout to be on the current LTIP? Steve Gibson: Okay. So for people who don't know what an LTIP is, so the long-term incentive plan. So just to remind people of the scheme. So it looks at the average share price in January 2024 and compares it with the average share price in December 2026. So at the moment, no idea what the share price will be in December 2026, so we can't quantify what our liability is. The other point, just to remind people, is that it is not a cash settled LTIP, it is an equity settled LTIP from a business perspective as well. Lyn Rees: Thank you, Steve. Next question. Are you able to provide some detail on what product launches Novacyt expect to deliver in 2026, and with which divisions? Yes. So that's easy for me to answer. Our first product launch is weeks away. It's the launch of a new DPYD assay. This is a pharmacogenomic assay that's used to treat patients that are about to start the chemotherapy journey, the 5-FU or capecitabine. This product is a very inclusive product. So it has loads of additional markers. As we saw the product originally roll out, it started off, I think in Wales was its first ever introduction before we knew it globally, and we needed to add in more markers to manage the global population. And now, we were all of a sudden, testing, as opposed to more of the U.K. population. That work has been done. We're looking forward to launching the RUO version of that product in May. And we should get regulatory approval, I think, early July. So we're going to be launching that product hard at the European Society of Human Genomics show, and we'll be doing lots of soft launches and talking to customers about that over the last couple of months. In addition to that, I think we have the usual couple of new products in from the Primer Design team. We're looking at a new version of the LightBench that can measure RNA as well as DNA, and that looks scheduled to come out towards the end of the year. And I think this year, we're really focused on bringing some partnerships. We've got a lot of development capability within the Novacyt Group, a lot of skill sets, both in next-gen sequencing and PCR. As the race to provide content to the market becomes more acute, I think there's opportunity to do contract development work there and partner up with some of the players in the global market to create content and work together. So there's 2 products that we hope to launch this year. There's some other announcements that as soon as we're in a position to share with you, we will be doing so. The next question is on SCD. I think we covered the integration and where the tangible operational and financial benefits are. I've got another question here. How has the conflict in Middle East affected the group? I think Middle East accounts for -- Africa, about 6% or 7% of our sales. So we haven't seen too much disturbance there. I think there's still a lot of testing going on in these regions. And thankfully so because these are important products regardless of the geopolitical situation. In terms of what effect has it had on us as a business, it slowed down some of our supply chains. We've had to reroute certain supply lines to avoid flying over certain areas or being shipped through certain areas. So we've seen a slight delay to our lead times. But other than that, I would say the conflict hasn't really affected the business so much, but we continue to keep a careful eye on that and watch what's happening in the global markets. But so far, the impact has been minimal for the organization. Just looking at the questions that have come in. RC, you're asking me a couple of questions here. You're asking me about when can we expect to become EBITDA cash positive. Share price has been hitting lows, what are the management doing to boost that? Because market seems not to be happy with Novacyt management. And then are there any big deals that Novacyt is expected to win in the coming months? Well, I can't talk about deals that we'd expect to win, I can only talk about deals that we have won. So we will update you as we have done this trip with the news of the St. George's contract, the update for the tender in Iceland and for the new opportunities that we won in the Thai marketplace. We are, of course, on a pipeline. We have projects and opportunities around this all the time. So we will update you when we win those. We can't update you beforehand. With regards to the share price, what is the management doing? Well, we kind of listened to all the feedback, and we listened hard to that feedback, and it was around more presence, being more visible. Unfortunately, a lot of the information that talks about the analyst reports and what have you, the retail investment community doesn't always get access to that. So I think this year, we're going to be doing more kind of catch-up videos with Steve and myself. We're going to be attending some investor shows. So I think we're attending the Mello show coming up in the next couple of months. I'm trying to get more visibility in front of retail investors whilst we wait for the institutional investors to wake up. I think we've done everything that we said. We've beaten all the market expectations for our business this year. We launched new products. We've got a sustainable business. We've got growth, and we've got cash in the bank. So other than waiting for the market to respond, the market did seem to be getting a bit better before the war in the Middle East started. So I think we're going to have to work our way through that. But I can assure you, A, we're doing everything we can to increase the valuation of this company. We think this company is a very different organization from the one that we took on 2 years, much more clarity, much more control over costs, much more control over whether the business is growing and investing in the right areas for that growth. We've trimmed the business down, made it more lean, and we filled in some management gaps. So to see the business, I think, in a much stronger position 2 years after Steve and myself took up our roles, but to see the capitulation in the share price during that period is very frustrating for us as well as you, and we absolutely share that feeling. We bought some shares in the open market this year. I will continue to invest in the business as it continues to invest in itself. So other than waiting for the macro market conditions to improve and just keep delivering on our promises, I think that's what we can kind of do right now. Steve, a couple of questions on cash burn that are coming through. One in French, I can't understand. So have we got any comments? I think you covered that. Steve Gibson: In terms of cash burn, I think we covered that in terms of the Q1 outflow of around GBP 8 million. And just breaking it down in terms of the Southern Cross acquisition was GBP 5 million all in because there was this additional working capital adjustment. And then there's all the fees associated with that and the PSR process, so they need to be factored into the cash consumption. I think the essence is, do we expect the cash burn to reduce this year? Absolutely. So obviously, we're acquiring Southern Cross. And that will help our EBITDA [ and get us to ] EBITDA profitable, so that will reduce our cash burn. We have the unwinding of the working capital from a Southern Cross perspective. Plus as we grow the business, we expect our EBITDA to improve, and therefore, that will generate more cash and reduce our cash outflow. So those are the key drivers why we think our cash outflow will reduce going forward. Lyn Rees: Thank you, Steve. And unfortunately, that's all we've got time for today. So I really appreciate for everyone that submitted questions in advance. Thank you for those guys that have submitted them during this call. We really appreciate the opportunity to respond to your specific questions. And I apologize if we can't answer everyone, but we've got a limited set of time for this. So I just wanted to say thank you to everyone. I want to leave you with the thought that I'm more excited about this business than I've ever been. The last 2 years have been hard, doing consolidation, shutting sites, making those decisions, understanding where the best place to invest in terms of new technology is. And I think the decisions that we've taken alongside our Board have been the right decisions. I think we're investing in the right areas as a business. I think we've consolidated the business to the best commercial and operational footprint that we can. It was a real delight to be able to use some of our cash to accelerate that plan through the acquisition of Southern Cross Diagnostics. I think that will be a very good acquisition as Elucigene has proved to be, as Coastal Genomics has proved to be, and hopefully, as Yourgene has proved to be for the Novacyt Group. So I think if we can bed that in and make that a real successful acquisition, there's more potential to come in there. There's very much a buyer's market. But even the organic plan of this organization, it's starting to really work. Our products are getting more traction, the things we're invested in are growing at double-digit growth. And this is the year as a business, having done the consolidation, that we're really focusing and targeting double-digit revenue growth and reaching that profitability as soon as we can. So we really appreciate your continued support. We look forward to updating you in coming months at the various investor shows that I said we will be attending and the update videos that we will provide for you. And thank you for your continued support, everyone, and enjoy the rest of your day. Thank you. Bye-bye. Operator: Fantastic. Lyn, Steve, thank you very much indeed for updating investors today. Could I please ask investors not to close the session, as you'll now be automatically directed to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.
Operator: Welcome to IRadimed Corporation's First Quarter of 2026 Financial Results Conference Call. [Operator Instructions] This call is being recorded today, May 1, 2026, and contains time-sensitive accurate information that is valid only for today. Earlier, IRadimed released its financial results for the first quarter of 2026. A copy of this press release announcing the company's earnings is available under the heading News on their website at iradimed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on Form 8-K and can be found at sec.gov. This call is being broadcast live on the company's website at iradimed.com, and a replay will be available there for the next 90 days. Some of the information in today's session will constitute forward-looking statements with the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements focus on the future performance, results, plans, and events and may include the company's expected future results. IRadimed reminds you that future results may differ materially from these forward-looking statements due to several risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, please see the Risk Factors section of the company's most recent reports filed with the Securities and Exchange Commission, which may be obtained free from the SEC's website at sec.gov. I want to turn the call over to Roger Susi, President and Chief Executive Officer of IRadimed Corporation. Mr. Susi? Roger Susi: Thank you, operator, and good morning. Welcome to IRadimed's Q1 2026 earnings Call. Sorry for the late start, we have a microphone problem. We once again have a very positive performance to announce with the first quarter 2026 revenue of $22 million, a 13% increase over the first quarter of 2025. These results reflect solid execution across our product lines with strong revenue contribution from our MRI-compatible IV infusion pump and our MRI patient monitoring, noting that revenue substantially derived from the [indiscernible] 3860 pump system. There also continues to be growing revenue support for our Ferro-magnetic Detection System. Our continued revenue growth, combined with disciplined expense management, including a modified commission structure, drove operating income of $7.2 million, a 33% improvement over the first quarter of 2025, with net income of $5.8 million, or $0.45 per diluted share, a 22% increase over the prior year. Next, I'd like to provide a brief recap of our expectations for the new 3870 MRI IV pump. Recalling that in positioning this new product and its pricing, we had anticipated that the 3870 pump deal typically its ASP would increase by some 10% to 14% over the historical 3860 pump ASP. However, though just beginning, initial quoting and actual orders are showing a lift closer to 20% of 3870 ASP. Additionally, we are seeing that a majority of this new business is for Quad, 4 pump systems rather than simply replacing the older 3860 dual-channel system. Thus, we are seeing both a higher per-pump ASP and a larger group of customers purchasing twice as many pump channels, doubling the number of pump channels at a particular customer site. Though obviously, our sales efforts are in the very early stages, these 2 factors present the most exciting prospect for bookings and revenue as the year progresses. Opportunities for the 3870 Pump system, as previously described, are both increased penetration of greenfield, which are predominantly those facilities that continue to deal with IV fluid delivery in the MRI setting via various old-school workarounds as well as the quite substantial replacement of IRadimed's aged installed base of 3860 pump systems, the most immediate and significant increase coming from the large replacement opportunity. This replacement opportunity will be our key growth driver for the next several years; as that growth, as mentioned, has now begun to be the driving factor in this second quarter. To provide some clarity to the revenue expectations in Q2 and beyond, it will not be a step-change, but rather a controlled ramp, which is initially controlled -- composed of declining revenue derived from the older 3860 pump system, domestic orders, which have trailed off as expected, offset positively by increasing revenue from the new 3870 system as we ramp up its production. Jim, our CFO, will provide our Q2 guidance for further quantifying how Q2 is expected to develop. To reiterate the source of the 3870 opportunity as given in our previous call, for the U.S. market, there are approximately 6,400 5-plus year old or older 3860, 3861 pump channels up for replacement. We have been selling approximately 1,100 such 3860 channels annually. With the new 3870, we are targeting adding another 1,000 channels per year to replacement sales from the existing 6,400 3860 units that are over 5 years old. As advertised, this starts in Q2 and continues through the rest of 2026 and beyond. It is also important to understand that replacing only 1,000 channels per year leaves many more to be replaced in the years to come. For our domestic business only, selling north of 2,000 3870 pump channels annually with the higher ASP currently being experienced, we expect to approach a $50 million annual revenue run rate for pumps. Adding disposables, maintenance, international sales, the MRI monitoring business, Ferro-magnetic System, one can understand our confidence in achieving $100 million-plus revenue run rate as 2026 progresses. Timing has been discussed previously as well. But to recap that, we did not launch our sales effort for 3870 until late January. As advised, we targeted shipping 130 to 135 3870s in Q2. Both the launch and the manufacture of those initial 130, 135 3870s are progressing as planned. As we issued in this morning's Press Release, the interest in the new 3870 has been very gratifying. The number of orders and the dollar size are well ahead of our expectations this early in the product-launch, giving us great encouragement. Still, however, Q2 Revenue will not fully reflect this high level of exciting order activity, as shipping even 135 new 3870 systems, combined with the declining revenue of older 3860s, keeps Q2 Revenue somewhat in check. Again, it will be the back half of 2026 that will shine as we continue to book more pumps at higher ASP and fixing production of this 3870 system. I'll turn the call over to Jack Glenn, our CFO, to review the quarter's financial results and provide deeper color on growth through the balance of the year. Jack? John Glenn: Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a GAAP basis and a non-GAAP basis. You can find a description of our non-GAAP measures in this morning's earnings release and a reconciliation to GAAP on the last page. For the 3 months ended March 31, 2026, revenue was $22 million, up 13% from $19.5 million in the first quarter of 2025. IV infusion pump systems contributed $7.7 million, up 28% year-over-year, reflecting the fulfillment of 3860 pump backlog from the beginning of the year. Patient vital signs monitoring systems contributed $7.1 million, up 9% year-over-year. Disposable revenue was $4.9 million, consistent with the prior-year period, while Ferro-magnetic Detection System contributed $600,000. Domestic sales accounted for 82% of total revenue, consistent with the first quarter of 2025. Gross Profit for the quarter was $16.8 million with a Gross Margin of 77%, up from 76% in the first quarter of 2025. Total Operating Expenses for the quarter were $9.6 million, roughly in line with the first quarter of 2025. General and Administrative expenses were $4.6 million, Sales and Marketing were $4.1 million and Research and Development were $1.1 million. The increase in R&D was largely due to the end of capitalized internally-developed software for the 3870 compared with Q1 of 2025, as well as new product development for the next-generation monitor. Income from Operations for the quarter was $7.2 million. Net income was $5.8 million or $0.45 per diluted share on a GAAP basis, a 22% increase over the prior year period. Non-GAAP net income was $6.4 million, or $0.49 per diluted share, up 17%. The effective tax rate for the quarter was approximately 25%. The increase in the effective tax rate for the quarter was largely due to the timing of deductions tied to the windfall deduction for equity grants, which is a discrete item taken at the time of vesting of the equity grant, most of which will occur in the fourth quarter of this year. Therefore, we anticipate that the rate will trend down and, by the end of the year, be more in line with previous years. We ended the quarter with cash and cash equivalents of $56.4 million. Cash flow from operations was $8.3 million for the quarter, compared to $4.3 million in the first quarter of 2025, an increase of 93%, reflecting higher net income and favorable working capital movements. Non-GAAP free cash flow was $7.8 million for the quarter after capital expenditures of approximately $500,000. Also today, the company's Board of Directors declared a regular quarterly cash dividend of $0.20 per share of outstanding common stock payable on May 29, 2026, to stockholders of record as of the close of business on May 15, 2026. And lastly, for our financial guidance, for the second quarter of 2026, we expect Revenue of $20 million to $21 million, GAAP diluted earnings per share of $0.40 to $0.44, and non-GAAP diluted earnings per share of $0.44 to $0.48. For the full year 2026, we reaffirm our guidance with a Revenue of $91 million to $96 million, GAAP diluted earnings per share of $1.90 to $2.05, and non-GAAP diluted earnings per share of $2.06 to $2.21. The company expects stock-based compensation expense, net of tax, to be approximately $2.4 million for the full year and $600,000 for the second quarter of 2026. With that, I will turn the call over to questions. Operator? Operator: [Operator Instructions] Our first question comes from Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Congrats on all the solid progress. I was hoping to start with a follow-up on, Roger, your comments related to Quad system ordering. How do you -- maybe break that down a little bit why you think folks are going from a single dual-channel to ordering 4 individual channels? And then my assumption is you can't assume everybody goes to ordering 4 channels, but is there something specific to call out with some of these early customers that would be more likely to order 4 systems? Or is it fair to assume that a lot of your customers reordering could fall into this camp of ordering 4 systems at once? Roger Susi: Yes. Good question, Frank. welcome. Yes, that's a good question. So it's a bit of a surprise that so -- more than half of these orders we've taken so far have been for this Quad systems. So that's a bit surprising. We were hoping for maybe 10%, 15% customers, we could step up to this doubling the number of channels they operate. So why? -- your question I get is why is that happening? So I have to say that I got to give the sales force a little credit for this by and large. They are close to the customers, and they felt that with the new system, the way it works and the way the impression convene customers, it's smaller than the old pump. And the way they actually Stak together on a poll, they really work together as 4 very easily. And so we're showing it that way. And we show -- we walk in and we're showing the Quad Stak. And when customers see it, though they, of course, hadn't been thinking in terms of that before because they only had a 2-channel version before. It does seem that it's fairly quick that, as I said, more than half these existing customers fairly quickly see that, oh, wow, we've had some cases come up over the years that we've been using the older IRadimed pump where, yes, we need the third and fourth channel handy. And this stimulates this conversation to make customers think of those situations where they could see that they needed that many channels. And they put the budget through. And another very positive sign has been these orders get -- we only started selling this thing in late January, as I pointed out. So orders that we're getting in at this point have been rather quick, quicker than the typical cycle time for getting orders so far. So it's all very positive. But I think that's generally the reason if you picked it up that customers do have experience where extra channels were required in the past, and they're going ahead and taking advantage of buying Quad Stak. Frank Takkinen: That's great. And then maybe just one follow-up on that. Is there a financial element to it as well? Are they getting a better per pump deal if they're buying 4 at a time? Roger Susi: No, that pump ASP is, as I said, it was higher. And the list price of the previous pump was $20,000. So let's recapture that, right? So the list price of the previous pump is $20,000. You can buy the second channel for about another $10,000. As we've told many times, our typical ASP pump deal is just under $40,000 by the time you get the pump and the sidecar, the pole, and the remote and all that. That's where it was landing. So the Quad systems we've been selling, again, Quad Stak of the 3870s, again, the IV pole, the remote control, each coming in at more than $100,000, so it's very exciting. Frank Takkinen: Wow, that's great. Maybe a bigger-picture question, the concept that you laid out from going from around 1,000, I think you said 1,100 pumps a year to adding another incremental 1,000 on top of that. What are the drivers to that? I assume this concept we just talked about, the Quad pump ordering is a significant driver, too, but is there an assumption of greenfield capture in that number as well? Or is it really just a replacement? Roger Susi: No. When I was speaking about that earlier in the call, I'm just talking taking 1,000 out of the installed-base where the old pumps are. Greenfield will be extra. And frankly, maybe I'll make it more clear. But frankly, the excitement level and the customers -- existing customers calling us wanting to see the new pump is kind of a frenzy right now. I don't see that we're going to have time to start calling on the greenfield for a while. So that doesn't have any upside from greenfield factored in at this point. Frank Takkinen: And then just last one for me, and I appreciate all the time on manufacturing. How are you feeling from that standpoint? I think in our previous conversations, you felt really good about that. But as you're taking orders now and scaling that, how is all that going? Roger Susi: Well, sales team wants us to ramp it up a lot faster, but we're trying to take it a bit cautiously and ramp it up here, that's what we're talking about 130, 135 pumps for this quarter. The sales team would like us to ship over 200, but we just can't do it. We're going to stay at that level. We're going to get them right. And then third quarter, we'll plan to double that up again over -- in the next quarter, maybe a little bit more in third quarter and so on in the fourth quarter, where we should be by fourth quarter, we're pretty heavy stride on the number of these new pumps we're kicking out here. And of course, having this new facility, we have the space and it's a matter of ramping up the know-how and stabilizing the supply chain. And so that's why we're being a little conservative on the ramp. Operator: [Operator Instructions] I'm showing no further questions at this time. I'd like to turn the call back over to Roger Susi for closing remarks. Roger Susi: Well, thank you all once again for joining us on today's call. I'd like to add as we close the call today, that the market is very excited about the new 3870 pump system, and we are being invited into customer facilities to show the device at a very high rate and Sales Team is rather inundated. Further, we have had bookings with greater-than-expected ASP, as well as the majority of those orders thus far are for double the number of pump channels. It's clear to us that the 3870 is having a great acceptance, generates great excitement, and motivates very positive and rather quick customer response. We're quite pleased. And with that, we look forward to demonstrating IRadimed success as we further execute the launch of this exciting 3870 MRI IV pump system and capitalize on the huge replacement opportunity throughout 2026 and beyond. Thank you. Operator: Thank you. This concludes the call. You may now disconnect.
Operator: Good morning, and welcome to the Novacyt Full Year Results Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. I would now like to hand you over to CEO, Lyn Rees. Good morning to you. Lyn Rees: Good morning, Alex, and thank you. And good morning to all of our investors as well. I understand there's potentially up to 150 people joining us online this morning. So as ever, we thank you for your time and your commitment this morning. I'm joined today by Steve Gibson, our CFO. So between myself and Steve, we'll be going through the results presentation. And this represents, pretty much, our second year anniversary as the CEO and CFO of this organization. So really looking forward to updating on what I think has been some really solid progress over the last 12 months for this business. I'm just going to start with a quick introduction slide of what we do. I mean, what we do, sorry. Obviously, a lot of people will realize that we're an international molecular diagnostics company with a portfolio of clinical assays. That's the Yourgene Health side of the diagram. We have a series of research tools and instrumentation that are done on a research use-only basis. That's the Primer Design side of this diagram. And then in the middle there, you'll see a brand-new part of our business, the distributor part of our business as a result of the acquisition of Southern Cross Diagnostics. And we'll be talking a little bit about that as we go through this deck, okay? So the business is fundamentally still, as per the last presentation, located in Manchester. That's our headquarters in Manchester. We obviously added Sydney, Australia to our list of international territories now. And we currently sit about 230 people within our organization. So in terms of the first sort of main slide I really want to talk through, this is a sort of operational and post-period highlights. I'm going to start on the bottom right-hand corner. About a couple of months ago, we launched our strategic plan. We had a lot of feedback that the market didn't really understand where we were going coming out of COVID. Obviously, the merger of a clinical business and a research use-only business. So we launched our strategic plan. Steve and I sat down and shared the investment thesis, which is fundamentally putting some more money into R&D so we can get new product launches and more content for our customer, keeping an eye on the cost of the business, streamlining the group from an operational and a cost perspective and delivering market expectations. They were the 3 sort of key areas that we said we wanted to commit to as a leadership team. And I think then if you look at the remaining boxes on this page, let's start with that strategic investment in R&D. Well, what did we launch last year? We launched a brand-new LightBench Discover. And as Steve will talk through in the figures a bit later on, that drove a 20% plus growth in the instrumentation side of our business. We received IVDR accreditation for our Yourgene QST*R-based assay. And probably worth just taking a bit of time to talk about IVDR. I'm kind of trying to be raising its profile over the last couple of sessions that we've done with our shareholder base. IVDR is critical to be able to sell products long term into this marketplace. It's a very high regulatory barrier. It takes a lot of investment, a lot of time, a lot of expertise. We're very, very well positioned on this IVDR journey. We've been ahead of that curve for some time. We've got a fantastic regs and quality team, and we continue to have our products approved. And whilst it doesn't make huge news when those approvals are given, when the market changes, you have to have IVDR approval in order to be able to sell products. I genuinely believe that this regulatory advantage that we have will mean that there are less people in the market selling products because the non-regulated products will simply not be able to be purchased, and we're in this really strong position. So I think the fact that we're launching new products or have launched new products, the fact that we are getting continued IVDR accreditation for those products creates a really strong foundation for this business. And in addition to the products that we launched last year, obviously, we're very much looking forward to the launch of our new DPYD assay, which is currently scheduled to be launched live into the market at some point in May. So ticking the box for the first strategic investment that we delivered the product portfolio. We put an extra couple of million into R&D, and that's starting to reap rewards with the product category growth that Steve is going to talk through a little bit later on. Looking at the core business, our NIPT business, this is the clinical part of our business. Our clinical products, in total, equate to about 70% of the sales of the group. So we were delighted to win the St. George University Hospital tender for the NHS, which basically does all of the south of the country's NIPT tests. We picked up that contract for another couple of years. We've won the tender in Iceland for NIPT, and I've just been over there installing new systems and processes and training of teams for the Icelandic market to deliver NIPT solutions to the marketplace. And midway through last year, the Thailand government, the Thai government reimbursed NIPT, so it made it available for every mom and dad-to-be in the Thai region. And we've been busy installing our services and processes into 4 key labs in region, working with a new distributor, and we feel we captured about 40% of the market share in that part of the world. So as reimbursement continues to happen for our NIPT products and services, you can see that we are winning back existing contracts that we had, and we're winning new business, which has delivered another double-digit year of growth for our NIPT franchise within our organization. So new products are being launched, existing products are being sold more. And then the final growth pillar was looking at inorganic growth. And you'll have seen, obviously, that we've acquired Southern Cross Diagnostics, which was immediately earnings accretive. Steve is going to talk through a rather complicated preferential subscription rights issue that we had to do in order to complete the transaction. But hopefully, the summary here is over the last 2 years, myself and Steve, alongside our executive leadership team, our Board and the 230 people that work in our organization have made real strides into giving the business a strong foundation of existing product, approved product to be sold continuously in the market with no gaps, new product coming through, and we've accelerated that plan by doing a bit of M&A work on top as well. So we're really pleased, and we're really encouraged with the foundation that we've built for this business in the last couple of years. I know we sent out a video recently on Southern Cross, but for those that weren't able to catch that, just a bit of an understanding on who Southern Cross are and why we acquired them. They're a relatively small organization, just 11 people with 1 founder director, but those 11 people generate north of GBP 6 million worth of revenue, a revenue line that has been growing and tripled since 2023. The business was established in '28, and gross profit is continually increasing. And the founder, Nick, who I've known for, gosh, a long time in this industry, probably over 15 years or more. Nick decided to invest some of the money that we paid for the business and is now a shareholder in Yourgene -- sorry, Novacyt, and has committed to the business long term. And we're looking forward to working with Nick to leverage and sweat his database of opportunities, customers, products and businesses in the region so we can continue to see growth in what is already a fast-growing part of our business. The clinical market in Australia is growing. It's valued at about $1.4 billion at the moment. And it's expected to grow and pretty much more or less double in size because the Australian government is reimbursing a lot of diagnostic tests, understanding the importance of getting a quick diagnosis always leads to better or more efficacious treatment. And the Australian government is one of the most forward thinking from that perspective. So we see a lot of growth in this market. We were seeing growth via our distributor, SCD, for sales of our cystic fibrosis. DPYD has just been reimbursed in the Australian diagnostic market, so we have a new product launch coming up. So it made sense to get a little bit closer to that customer base where we can have conversations with the key opinion leaders. And the people are shaping the way that diagnostics is done in that region, as well as being able to get -- capture a larger share of the margin associated with those sales, which naturally accelerates the pathway to EBITDA profitability for the Novacyt groups. So when we looked at this acquisition, it was a fast-growing market. We had great people that we've known for a long time. The business was winning more and more business through delivery and reputation. It aligned with our plans for geographic expansion and the increase in international sales. It gave us access to key accounts, not just from a commercial perspective, but also the key opinion leaders that sit within those accounts. And it was an inorganic step change in terms of increasing our revenue and profitability. In addition to that, Nick and his team take a wide range of products from diagnostics, infectious disease, serology into Australia and New Zealand. And Nick is visiting and spending a bit of time in the U.K. over the next couple of weeks so that we can meet with some of the owners of these third-party products and hopefully discuss opportunities for wider distribution and give us a chance to grow our sales and grow the number of products that we take to market. So when we look at all of those things, the acquisition made perfect sense, and I'm delighted that we were able to complete it. But it was a process that was -- that came with a bit of challenges. So I'm going to hand over to Steve now, who will explain just how we did the acquisition and what it's meant to our business. Over to you, Steve. Steve Gibson: Brilliant. Thanks, Lyn. Good morning, everyone. Hope you're well. So if I just talk you through the consideration structure. So we acquired Southern Cross for around $8.5 million, that was an upfront cash payment. And then on top of that, there's the ability for them to earn an earn-out of around AUD 16.5 million over a 4-year period, and that's dependent on hitting certain EBITDA targets. And to put it into context, for the full deferred consideration to be paid, they will have to deliver an EBITDA of over AUD 30 million cumulatively over those 4 years. So we think it's a win-win situation. Now straight after the acquisition of Southern Cross, we launched this preferential subscription rights process. And we did that because it was the only option we had following the AGM last year in terms of raising capital. So we launched this process. We issued just under 2 million new shares. And I would just like to take this opportunity to thank shareholders who participated in that process because we were oversubscribed. So thank you for that. At the end of it, over 50% of the newly issued shares were given to the prior owner of Southern Cross, and we'll use that cash to strengthen our balance sheet going forward. So we're going to turn to look at how we've done in 2025. So I have a number of slides to run through. So I think we were really pleased as a business that the 2025 results exceeded all market expectations. So revenue totaled GBP 20 million. However, when you strip out the impact of the Taiwanese divestment, that meant that revenue grew year-on-year by about GBP 800,000 or 4%. In addition to that, we've seen half year-on-year growth since the end of 2024, so a pleasing set of revenue figures. From a gross profit perspective, that ticked up to GBP 12.6 million when you strip out the impact that the DHSC settlement had on the 2024 numbers. And from a gross margin perspective, it remains strong, and we delivered a 63% gross margin. And that was helped by sales of our PCR range of products. And in particular, our Primer Design business continued to deliver a gross margin of over 80%. Our costs continue to track downwards, and we reduced our OpEx from a pro forma of GBP 27.5 million when we combine Yourgene and Novacyt down to around GBP 20.4 million this year. And that's against the backdrop of continued investment in R&D, and I'll talk about that more in detail later. So all of that accumulated in the EBITDA loss reducing by around 14%, down to a GBP 7.8 million loss. Now if we move on to look at revenue from a segment perspective, then the product mix year-on-year remains fairly consistent. So our Clinical business delivered around 70% of our total revenue or just under GBP 14 million. And as Lyn mentioned earlier, NIPT technologies is up around 10%, and that delivered around GBP 5 million of new revenue. And that was predominantly driven by winning a new customer in Asia Pac. The RUO business, that delivered around 1/5 of our total revenue at GBP 4 million, and that remains our cash cow of the business. And Instrumentation grew by around 25% to GBP 2.5 million, and that was driven by the successful launch of our new product, the LightBench Discover instrument. Now if we have a look at revenue also from a geographic perspective, we remain well balanced and have a diversified income stream. And we're not reliant on any one region, which is really important in the current geopolitical situation that we're in. So our largest region continues to be Europe, and that delivered around 50% of our total revenue or just over GBP 10 million. Now if we look at it in a little bit more detail, the U.K. and Ireland region, which is where we've got the most boots on the ground, delivered around GBP 4.2 million of revenue. Asia Pac is growing like a weed. It's grown at double digits and delivered around 30% of our total revenue or just under GBP 6 million. And again, we continue to see strong demand for our reproductive health range of products in that region. What we are seeing in some of the countries out there that they are price sensitive, so it will put pressure on our gross margin percentage going forward. Now if we look at the income statement and we move down to operating costs, what you'll see is that they decreased. OpEx has, down to GBP 20.4 million from GBP 41 million in the prior year. Now last year's costs were inflated by around GBP 20 million because of the bad debt provision that we booked. So if we strip that out and we're comparing apples with apples, it means that our underlying OpEx costs have decreased by about GBP 700,000 or 4%. Now that's against the backdrop of increase in our R&D expenditure on a net basis by around GBP 1.3 million, and that took our overall R&D P&L cost to just over GBP 4 million. But we were able to offset that expenditure due to the successful site consolidation program of work that we've done that's reduced our footprint and has also reduced the cost base of our business. So from an EBITDA perspective, as I mentioned earlier, we made a loss of GBP 7.8 million. But on top of that, we incurred exceptional costs that totaled just under GBP 16 million. Now the majority of this was not cash impacting. So around GBP 14.5 million of it related to impairment charge covering the goodwill and intangible assets associated with the Yourgene Health acquisition. So the actual cash impacted items and the exceptional charges totaled just under GBP 1.5 million, and that included site closure costs and M&A-related fees. So this meant overall, the group reported a loss after tax attributable to the owners of GBP 22.9 million, which is significantly down on the prior year's loss of GBP 42 million. So we've made good progress. If we move on to the balance sheet, there's a couple of areas that have decreased and have moved year-on-year. So the first one is noncurrent assets, you will see at the top has decreased by around GBP 19 million. Now the bulk of that is what I mentioned earlier. So GBP 14.4 million of it relates to the impairment charge. And then the remainder is the usual amortization and depreciation charges that we see. And the other big move is cash. You'll see that cash has decreased by around GBP 11 million, and we'll go on to look at that on the next slide in a little bit more detail. So we closed 2025 with GBP 19 million in the bank, so an GBP 11 million outflow. Now the main cash outflows were driven by core operations consuming around GBP 8 million of cash during the period. Now on top of that cash outflow, there were some onetime items. Clearly, there were costs around the site consolidation program of work, and they totaled around GBP 1.3 million. And then we had some M&A-related costs that cost a couple of hundred thousand. So if we strip out those onetime entries, it meant our cash burn per month in 2025 was around GBP 825,000. Now I just want to touch on the closing cash position at the end of March 2026. So we announced in the RNS today that we had GBP 11 million in the bank at the end of last month. So that means it was a Q1 cash outflow of around GBP 8 million. Now GBP 5 million of that related to the acquisition of Southern Cross and covered the initial consideration, plus the working capital adjustment, plus fees, plus fees associated with the preferential subscription rights, offset with cash that came in from the successful PSR process. On top of that, there was around GBP 0.5 million of non-repeating items as well. So that's a quick run through of the financials, and I'll hand back to Lyn now. Lyn Rees: Thank you, Steve. So just looking to summarize this and put some of this together. So where are we today? I think we're making strong, strategic progress. We just talked through the acquisition of Southern Cross, which gives us immediate earnings and revenue and strengthens market reach and access to third-party products. It's only been a couple of weeks now since we acquired this business. I think it was done on March 2. And I just spent the last 2 weeks in Australia with the team, making sure that they feel comfortable, they feel confident as part of the new group. They hit their first target. The first month of sales was the March month of sales. So I was delighted to see them hit that over the line. They've got an exciting pipeline of potential new products to take into region. We've got a team that feels very comfortable being part of a wider group, a team that we've known for some time. So I think that acquisition accelerates our pathway to profitability and has allowed us to use our balance sheet to support our growth. And it was great to see some of the shareholders supporting that process through the PSR, and I really thank everyone for contributing to that. So I think we've delivered what will be a very successful acquisition for this business, and that's going to bring growth to our organization. From an organic perspective, our key products have hit those key milestones. I took a bit of time out to talk about the importance of IVDR and the importance of reimbursement. I was asked the question a couple of weeks ago, do we think the products will be provided to the market? Are they clinician-backed products? Well, they kind of are because the governments in the various territories where we sell these products have decided to reimburse this testing. So they must see a clear value in it. And we often work with key opinion leaders. So to launch these products, to see the growth that we -- continued growth in NIPT of double digit, to see the 20% growth that we saw in the range of technology shows to me that we made the right decision to invest a bit more in R&D as we look to drive the content within our organization. That portfolio expansion will continue. We are on the precipice of launching our DPYD assay. This is an assay that unfortunately, patients who are Stage 3 or 4 in cancer and are having a capecitabine or a 5-FU chemotherapy treatment. This is a test that every one of those patients will have before that treatment because if they don't, you can lose up to 1 patient in every 100 that are tested for this. Now our original DPYD product we launched 4 or 5 years ago have been taken a little bit by the market. More targets were added into the competitors, so we lost a bit of market share. We're just about to launch a brand-new product that has a full suite of targets in there. It's been developed alongside some pretty hefty key opinion leaders in the market globally, and we're looking forward to driving that out. And whilst that's really good news, I think we're launching the RUO version in May, and the regulated IVDR version will probably be out June, July. And we have hit a snag with the SMA product that we were also working on. Now that was an OEM product that we were bringing in from a third party. And that went through the regulatory journey. There were a couple of questions that we were unable to answer. So we've gone back to investigative mode on that and deciding whether we continue to look for a third-party product or we just develop it ourselves. One will be quicker, one will be more profitable. So we're just having that discussion at the moment. But we continue to invest in our portfolio. I expect us to have more range of technology available either at the end of this year or very early 2027. As I said, we've got the DPYD product coming out in the next couple of weeks. And we will continue to look for opportunities to partner with our customers, with our partners and bring out more content into this space. In terms of the business itself and its cash position, I still think we have a well-funded and a strong balance sheet. We are now delivering sustained growth. I think we've had 4 consecutive half year periods of growth over the last 2 years. For the first time, we put market expectations out there. We overachieved them, albeit slightly, but still a tick in a box to overachieve those expectations. And I think that gives us a real solid foundation of growth for this business. Steve and I have pretty much spent the last 2 years working hard with our leadership team and our Board and in general, all the people in our organization to create a real solid base, to create an identity for the business, to create a strategy for the business. During that period, we were quite quiet. And in the last couple of months, we're opening up our communication, and you will be seeing more of us over the coming months. We're going to attend some retail investor shows, and we are committed to give you more updates, especially as we launch our new technology and we bed in this new acquisition. But I think that reduced cost base for the group, in Steve's presentation, all the arrows are going in the right way. That will be a continued focus for us. That's probably one of the challenges is deciding when to stop investing in the new products and to claw back the cost. But I think we're probably at a point where we can look to do that as an organization, continue to manage cash as if it's our own because we understand the importance of it in the market and just create a strong foundation for the business. So it's a delight and an honor to be here in front of you today to say, look, we hit our numbers. We met expectations. We launched product when we said we'd launch product. We won the new business that we said we would, okay. The growth is at 4%. We're targeting double-digit growth for 2026 and beyond. And after the first quarter's performance, we certainly hit that number after Q1. So we really appreciate your time. We really appreciate your patience as investors and shareholders in our business. For those non-shareholders that are on this call today, hopefully, you've seen enough to convince you that we're worth your time and energy and investment. And for those existing shareholders, as I say, thank you very much for your continued support. We're doing all we can to make this business successful long term, and we believe the work that we've done over the last 2 years really builds that foundation. We've got products that we can sell all over the world because they are very highly regulated. We've got new products coming out which will continue to excite and delight our customers. We're investing and growing our commercial footprint organically and inorganically. And we look forward to updating you on the progress throughout this year as we go through the journey. So thank you, everyone, for your time today. Operator: Thanks, Lyn and Steve, for your presentation. [Operator Instructions] I would like to remind you that a recording of this presentation, along with a copy of the slides, can be accessed via our investor dashboard. And Lyn, Steve, if I may now hand back to you to take us through the Q&A session, and I'll pick up from you both at the end. Thank you. Lyn Rees: Yes. Thank you very much, Alex. Okay. We received a number of pre-submitted questions. So if you could bear with me as I read these through and between myself and Steve, we'll answer them. I'm not going to try and read out the French version. So for any French shareholders on the call, I do apologize. I think we're having some translation added when this video goes out into the market. Steve, can you comment on the auditor's opinion and indicate whether there are any emphasis of matter or material uncertainties, going concerns in the audit report? Steve Gibson: Yes, certainly. So there were no material uncertainties that were flagged, and we wouldn't expect that in terms of the going concern because we have adequate funds for the next 12 months, which it looks forward to the end of April 2027. And then in terms of the emphasis of matter, in the group accounts, there is no emphasis of matter. But in the French social accounts, so the local Novacyt accounts under French GAAP, they have flagged an emphasis of matter. But that's just to bring to the readers' attention that we've adopted the new French chartered account. So it's more of a disclosure saying we changed the look and feel of accounts, but nothing to worry about. Lyn Rees: Thank you, Steve. And staying on a financial note, what is the cash position and the cash runway after the capital increase? How are the raised funds being used, and what portion remains available for operations and growth? Looking to understand the impact of the capital increase on liquidity and the capacity to execute strategic plans is crucial for assessing the shareholders' financial risk. Steve Gibson: Okay. Thank you for that. So I think I covered some of that in the presentation deck. But at the end of March, we have GBP 11 million in the bank. I think Lyn alluded to it or mentioned it earlier that, again, as a business, we think we have enough cash to reach EBITDA profitability as long as we hit our forward forecast. In terms of the PSR process, why do we do it. So we did it to allow existing shareholders to participate in the capital raise post the acquisition of Southern Cross and also to bring in new shareholders. So cash has been well managed. As Lyn said, we're treating it as our own. In terms of liquidity, we have a high retail shareholder base, so as you would expect for that sort of share offering. Lyn Rees: Thank you, Steve. The next question was asking around the -- can you give any detail on the operational and commercial integration of Southern Cross Diagnostics, synergies realized to date, contribution to revenue and the expected time line to achieve integration objectives? Yes. Well, as I said earlier, I've literally just got back off a plane from Oz. I can tell you, I mean, this is a business that doesn't make any product. So from an operational perspective, it's a pretty easy integration process. And they've already been supplying our products into the market for the last 4 or 5 years. So there's a strong relationship there. We have a 90-day integration plan that's managed through our project management office, or PMO. As it stands at the moment, we are 75% through all of the tasks. So we've completed 75% of the integration tasks within about 60% of the duration of the project. So we're well on plan for the integration. It certainly helped when you know the principles and you work with the organizations for so long. So naturally, we're leveraging that strong relationship that existed. I think commercially, whilst I was over there, we launched the LightBench into the Australian market. Southern Cross hadn't previously taken that product to market. So we attended a big genomics conference, and we walked away with over 50 leads for LightBench because it's the first time we showcased that there. We've got some conversations going around in NIPT, and we're really focused for the launch of DPYD into the Australian market. So I think commercially, the integration is going really, really well. How do we assess that? Well, they've got a budget, and they hit their first monthly budget, and they're on track for what we can see for the budgeted year. So, so far, so good with those guys. The project will -- initial project will take 90 days. So I think it comes to an end at the end of May. And as I said, I'm very comfortable and confident on where we are with that integration right now. In terms of potential synergy, we do have a lovely base now in Sydney. So there's opportunity to look at running more of our processes, holding maybe more stock there, and we will update the market with any further synergy plays. But this was more about buying a business that would accelerate growth. We've been in cost-cutting mode and consolidation mode for the last 2 years. We're really looking forward to jumping into growth mode. And yes, this acquisition was more about growth. But obviously, if there are any synergies to be taken, we will be talking about that. Okay. What are the main drivers of revenue and margin fluctuations in the 2025 fiscal year? And which ones are recurring versus one-off? What guidance do you provide for 2026? And thank you, [ Mark A. ]. You've also put in a similar question about guidance for 2026 EBITDA and revenue. Steve, do you want to? Steve Gibson: Yes, I can take that. That's fine. So I think in terms of -- if you look at the margin year-on-year, we're very consistent at 63%. So maybe I'll break that down into a little bit more detail. So our Clinical business that has around 70% of revenue, that runs at a blended gross margin of around 60%, and that covers our NIPT and our PCR chemistry businesses. Then we have the RUO business, and that's about 20% of our revenue. And that runs at around an 80% plus gross margin, and that's all our PCR technology. And then we have the Instrumentation business. That's about 10% of our revenue, and that runs at about 50% gross margin. So that's how we get the blended group overall margin of about 63%. As I said, it's consistent year-on-year, but there is some differences depending on the product that we're selling. I think one of the questions was, there any material one-offs in 2025? Nothing material. So there wasn't a big GBP 2 million or GBP 3 million onetime revenue item in the 2025 numbers. And addressing the guidance query. As a business, we don't specifically give forward-looking guidance. What we do have is via one of our brokers, so Singer Capital Markets, they launched an initiation note back in October last year. They just issued an updated note this morning on our results, and that gives some updated forward-looking guidance from that perspective for the next couple of years. So please, I would ask you to go and have a look at that if they want to have a look at what our forward numbers might look like. Lyn Rees: Yes. And just to clarify that for anyone who doesn't have access, and we know that's one of the challenges in this market space at the moment. I'm looking at Singer's note now, and the expected revenue for 2026 is GBP 26.4 million. So hopefully, that's given you some clarity there. Steve, another one for you. What are your capital deployment priorities for the next 24 months, R&D, acquisitions, debt repayment, dilution, dividends or share buybacks? And what criteria will trigger new market transactions? Steve Gibson: Okay. Lots in that question. So I think the key is that we're going to continue to invest in opportunities that will drive growth. I think that's our fundamental ambition. There's no plans to pay any dividends until we're profitable. So we need at the moment, all of our cash to get us to EBITDA profitable. Then once we're profitable, we can look at distributable profits and potentially paying dividends. In terms of the question on debt, we have no debt. So there are no repayments of debt at the moment. And I think our general principle is we're always looking at opportunities to accelerate the breakeven position of the business, whether it's organically through increased R&D expenditure like we've seen for the last 12, 18 months or inorganically through the recent acquisition of Southern Cross. This is where we're going to prioritize deploying our cash going forward, the breakeven position of the business and driving growth in the top line. Lyn Rees: Thank you, Steve. We've had a further question from our French holders, French shareholders. Novacyt is positioned as a player in global health, and tests which have attained the IVDR label theoretically give it an advantage in technical, regulatory and legal aspects compared to its competitors. Has the idea occurred to you that due to the global situation, the company could also become a major player for the U.K., Europe and Australia in terms of food security or defense contracts to protect populations across the environment and agri food production? Thank you for the question. I guess, in the first part, yes, I completely agree, our IVDR position and the fact that our products are already approved is an advantage over the competitors. It's an advantage we're not seeing commercially yet at the moment because you can still buy what are called RUO products, research use-only products that don't need the IVDR badge of approval. But that's changing, and it's changing quickly. So we'd expect within the next 24 months to see a reduction in the number of competitors and an opportunity for us to take advantage of the strong regulatory position that we have. In relation to food security and military or defense contracts, you need 2 different levels of regulatory approval for that. So to do any defense contract work, you need something called List X security status. We don't have that. It's a very expensive accreditation to gain. I've gained it before in a previous organization, and we have no plans to go into that side of the market. And similarly, for food, whilst we do provide a lot of products into the vet, the food, the sort of animal testing area, you need AOAC approval specifically for food, and that's something that we don't have. So we continue to sell our products in research-only capacity, and that gives us enough of a market to go out with our primary design range of products and services. But we have no plans to increase the scope of that to get into military or some of the bigger food opportunities because the time line and the costs are -- we just couldn't afford that, we don't have the time to do it. Next question. Steve, what are you expecting the payout to be on the current LTIP? Steve Gibson: Okay. So for people who don't know what an LTIP is, so the long-term incentive plan. So just to remind people of the scheme. So it looks at the average share price in January 2024 and compares it with the average share price in December 2026. So at the moment, no idea what the share price will be in December 2026, so we can't quantify what our liability is. The other point, just to remind people, is that it is not a cash settled LTIP, it is an equity settled LTIP from a business perspective as well. Lyn Rees: Thank you, Steve. Next question. Are you able to provide some detail on what product launches Novacyt expect to deliver in 2026, and with which divisions? Yes. So that's easy for me to answer. Our first product launch is weeks away. It's the launch of a new DPYD assay. This is a pharmacogenomic assay that's used to treat patients that are about to start the chemotherapy journey, the 5-FU or capecitabine. This product is a very inclusive product. So it has loads of additional markers. As we saw the product originally roll out, it started off, I think in Wales was its first ever introduction before we knew it globally, and we needed to add in more markers to manage the global population. And now, we were all of a sudden, testing, as opposed to more of the U.K. population. That work has been done. We're looking forward to launching the RUO version of that product in May. And we should get regulatory approval, I think, early July. So we're going to be launching that product hard at the European Society of Human Genomics show, and we'll be doing lots of soft launches and talking to customers about that over the last couple of months. In addition to that, I think we have the usual couple of new products in from the Primer Design team. We're looking at a new version of the LightBench that can measure RNA as well as DNA, and that looks scheduled to come out towards the end of the year. And I think this year, we're really focused on bringing some partnerships. We've got a lot of development capability within the Novacyt Group, a lot of skill sets, both in next-gen sequencing and PCR. As the race to provide content to the market becomes more acute, I think there's opportunity to do contract development work there and partner up with some of the players in the global market to create content and work together. So there's 2 products that we hope to launch this year. There's some other announcements that as soon as we're in a position to share with you, we will be doing so. The next question is on SCD. I think we covered the integration and where the tangible operational and financial benefits are. I've got another question here. How has the conflict in Middle East affected the group? I think Middle East accounts for -- Africa, about 6% or 7% of our sales. So we haven't seen too much disturbance there. I think there's still a lot of testing going on in these regions. And thankfully so because these are important products regardless of the geopolitical situation. In terms of what effect has it had on us as a business, it slowed down some of our supply chains. We've had to reroute certain supply lines to avoid flying over certain areas or being shipped through certain areas. So we've seen a slight delay to our lead times. But other than that, I would say the conflict hasn't really affected the business so much, but we continue to keep a careful eye on that and watch what's happening in the global markets. But so far, the impact has been minimal for the organization. Just looking at the questions that have come in. RC, you're asking me a couple of questions here. You're asking me about when can we expect to become EBITDA cash positive. Share price has been hitting lows, what are the management doing to boost that? Because market seems not to be happy with Novacyt management. And then are there any big deals that Novacyt is expected to win in the coming months? Well, I can't talk about deals that we'd expect to win, I can only talk about deals that we have won. So we will update you as we have done this trip with the news of the St. George's contract, the update for the tender in Iceland and for the new opportunities that we won in the Thai marketplace. We are, of course, on a pipeline. We have projects and opportunities around this all the time. So we will update you when we win those. We can't update you beforehand. With regards to the share price, what is the management doing? Well, we kind of listened to all the feedback, and we listened hard to that feedback, and it was around more presence, being more visible. Unfortunately, a lot of the information that talks about the analyst reports and what have you, the retail investment community doesn't always get access to that. So I think this year, we're going to be doing more kind of catch-up videos with Steve and myself. We're going to be attending some investor shows. So I think we're attending the Mello show coming up in the next couple of months. I'm trying to get more visibility in front of retail investors whilst we wait for the institutional investors to wake up. I think we've done everything that we said. We've beaten all the market expectations for our business this year. We launched new products. We've got a sustainable business. We've got growth, and we've got cash in the bank. So other than waiting for the market to respond, the market did seem to be getting a bit better before the war in the Middle East started. So I think we're going to have to work our way through that. But I can assure you, A, we're doing everything we can to increase the valuation of this company. We think this company is a very different organization from the one that we took on 2 years, much more clarity, much more control over costs, much more control over whether the business is growing and investing in the right areas for that growth. We've trimmed the business down, made it more lean, and we filled in some management gaps. So to see the business, I think, in a much stronger position 2 years after Steve and myself took up our roles, but to see the capitulation in the share price during that period is very frustrating for us as well as you, and we absolutely share that feeling. We bought some shares in the open market this year. I will continue to invest in the business as it continues to invest in itself. So other than waiting for the macro market conditions to improve and just keep delivering on our promises, I think that's what we can kind of do right now. Steve, a couple of questions on cash burn that are coming through. One in French, I can't understand. So have we got any comments? I think you covered that. Steve Gibson: In terms of cash burn, I think we covered that in terms of the Q1 outflow of around GBP 8 million. And just breaking it down in terms of the Southern Cross acquisition was GBP 5 million all in because there was this additional working capital adjustment. And then there's all the fees associated with that and the PSR process, so they need to be factored into the cash consumption. I think the essence is, do we expect the cash burn to reduce this year? Absolutely. So obviously, we're acquiring Southern Cross. And that will help our EBITDA [ and get us to ] EBITDA profitable, so that will reduce our cash burn. We have the unwinding of the working capital from a Southern Cross perspective. Plus as we grow the business, we expect our EBITDA to improve, and therefore, that will generate more cash and reduce our cash outflow. So those are the key drivers why we think our cash outflow will reduce going forward. Lyn Rees: Thank you, Steve. And unfortunately, that's all we've got time for today. So I really appreciate for everyone that submitted questions in advance. Thank you for those guys that have submitted them during this call. We really appreciate the opportunity to respond to your specific questions. And I apologize if we can't answer everyone, but we've got a limited set of time for this. So I just wanted to say thank you to everyone. I want to leave you with the thought that I'm more excited about this business than I've ever been. The last 2 years have been hard, doing consolidation, shutting sites, making those decisions, understanding where the best place to invest in terms of new technology is. And I think the decisions that we've taken alongside our Board have been the right decisions. I think we're investing in the right areas as a business. I think we've consolidated the business to the best commercial and operational footprint that we can. It was a real delight to be able to use some of our cash to accelerate that plan through the acquisition of Southern Cross Diagnostics. I think that will be a very good acquisition as Elucigene has proved to be, as Coastal Genomics has proved to be, and hopefully, as Yourgene has proved to be for the Novacyt Group. So I think if we can bed that in and make that a real successful acquisition, there's more potential to come in there. There's very much a buyer's market. But even the organic plan of this organization, it's starting to really work. Our products are getting more traction, the things we're invested in are growing at double-digit growth. And this is the year as a business, having done the consolidation, that we're really focusing and targeting double-digit revenue growth and reaching that profitability as soon as we can. So we really appreciate your continued support. We look forward to updating you in coming months at the various investor shows that I said we will be attending and the update videos that we will provide for you. And thank you for your continued support, everyone, and enjoy the rest of your day. Thank you. Bye-bye. Operator: Fantastic. Lyn, Steve, thank you very much indeed for updating investors today. Could I please ask investors not to close the session, as you'll now be automatically directed to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.
Operator: Good morning, ladies and gentlemen, and welcome to the West Fraser Q1 2026 Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 30, 2026. During this conference call, West Fraser's representatives will be making certain statements about West Fraser's future financial and operational performance, business outlook and capital plans. These statements may constitute forward-looking information or forward-looking statements within the meaning of Canadian and United States securities laws. Such statements involve certain risks, uncertainties and assumptions, which may cause West Fraser's actual or future results and performance to be materially different from those expressed or implied in these statements. Additional information about these risk factors and assumptions is included both in accompanying webcast presentation and in our 2025 annual MD&A and annual information form as updated in our quarterly MD&A, which can be accessed on West Fraser's website or through SEDAR+ for Canadian investors and EDGAR for United States investors. I would like to turn the conference over to Sean McLaren. Please go ahead. Sean McLaren: Thank you, Ina. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. I am Sean McLaren, President and CEO of West Fraser. And joining me on the call today are Chris Virostek, Executive Vice President and Chief Financial Officer; Matt Tobin, Senior Vice President of Sales and Marketing; and other members of our leadership team. On the earnings call this morning, I will begin with a brief overview of West Fraser's first quarter and then pass the call to Chris for additional comments before I share some thoughts on our outlook and offer concluding remarks. As we entered 2026, we saw seasonal improvement in the lumber market. Southern Yellow Pine, in particular, saw a better balance between available supply and seasonal demand. While underlying demand for new residential construction and repair and remodel remains subdued, we experienced healthier market conditions compared with the second half of 2025. In OSB, Q1 market conditions remain challenging, though modest signs of improvement began to appear toward the end of the quarter as seasonal demand increased. Against this backdrop, West Fraser saw a positive sequential turnaround in first quarter results, led by stronger lumber pricing and operational progress. We generated negative $66 million of adjusted EBITDA, but this result includes $114 million of prior period duty adjustments, which Chris will get into shortly. Removing the impact of these adjustments, the underlying business generated $48 million with all 3 of our segments: lumber, North American engineered wood products and Europe contributing to the positive results. This reflects a significant improvement from the $79 million loss in the fourth quarter, representing a turnaround of over $120 million. We continue to high-grade our portfolio during the quarter. We have completed production activities at our high-level OSB mill in Alberta and are 4 months into the production ramp-up at our new Henderson lumber mill in Texas. Our U.S. lumber portfolio optimization continues to lower our cost structure with 5 mill closures and 2 brownfield modernizations over the past 5 years. Our balance sheet remains strong, providing us with the flexibility through the cycle and optionality for the future. We ended the quarter with liquidity close to $900 million. The change in Q1 reflects the normal seasonal buildup of log inventory in Western Canada, which is consistent with our typical working capital cycle. We expect this inventory investment to reduce in the second and third quarters as our mills work through their log inventories. We continue to operate with a strong balance sheet, allowing us to execute our capital allocation strategy. Our financial position also provides optionality for value-creating opportunities should they arise. As always, we will be disciplined on execution and returns. With that high-level overview, I'll now turn the call to Chris for additional detail and comments. Christopher Virostek: Thank you, Sean, and good morning, everyone. A reminder that we report in U.S. dollars and all my references are to U.S. dollar amounts, unless otherwise indicated. In Q1, we generated negative $66 million of adjusted EBITDA. As Sean discussed, we had 2 large softwood lumber duty-related adjustments in Q1, totaling $114 million. Both adjustments are noncash in nature. The first is based on preliminary rates released by the U.S. Department of Commerce for the 2024 calendar year. and the second, due to a change in our estimate of amounts recoverable and payable as a result of the liquidation process covering the last half of 2017. I would point you to our news release of April 16 and our first quarter MD&A and financials for further details. The lumber segment posted adjusted EBITDA of negative $84 million in the first quarter, but removing the duties impact results in positive $30 million compared to negative $57 million in the fourth quarter, an improvement of $87 million. This improvement is largely a result of higher SYP and SPF pricing. North America EWP segment delivered $11 million of adjusted EBITDA in the first quarter, an improvement from the prior quarter's negative $24 million. This $35 million improvement is due largely to better OSB pricing in the quarter. In Europe, we generated $10 million of adjusted EBITDA in the first quarter, more than doubling the $4 million we generated in the fourth quarter. And we've seen an improvement -- improved environment in Europe with better demand and higher prices. This marks the highest level of adjusted EBITDA in Europe since the second quarter of 2023. We have moved our previously named Pulp and Paper segment to other in the first quarter as the business has become a less significant part of our total operations, and we'll no longer be specifically addressing the results of that segment. Bridging our results from Q4 to Q1, the majority of the improvement came from higher prices in lumber and North American EWP. In addition, higher volumes in U.S. lumber in Europe and a favorable inventory adjustment represented the biggest variances. Costs were flat relative to Q4. Lower SYP costs were offset by repair costs due to the fire at Blue Ridge. And in North American OSB, we saw higher costs from resin and energy-related inputs. Resin plays a significant role in our panel cost structure and the recent rise in methanol-based resin pricing is a factor we anticipate will be more visible in our Q2 results. Our U.S. lumber business continues to show improved operating efficiency stemming from the actions we have taken. In the U.S. South, total cost per thousand board feet have reduced by approximately 6% in the last 2 years. During this period, we have closed 5 lumber mills, completed a full brownfield modernization and successfully completed a number of smaller but significant capital projects and cost reduction initiatives. This better enables us to react to changes in the external environment and improves our ability to compete more effectively and help provide low-cost supply to our customers. In Q1, our SYP shipments were 4% higher than Q4 on better operating efficiencies. Excluding the impact of the downtime at Blue Ridge in Q1, our overall shipment volumes remained consistent with expectations. We saw higher shipments in both OSB and -- in both North American OSB and European OSB. North American volumes increased due to the normal seasonal patterns. And in Europe, we increased shipments to meet higher demand. Cash flow from operations was impacted by the seasonal build in working capital, resulting in negative $170 million in the first quarter and a net debt position of $457 million. We expect this working capital position to reverse in the second and third quarters. Net debt was influenced by 2 dividend payments made during the quarter, which occurred as a result of our fiscal quarter ending on April 3 rather than March 31. Our net debt-to-capital ratio remains in single digits, and our balance sheet is robust. With respect to share repurchases, we did not repurchase shares in the first quarter as we prioritize liquidity through the cycle. Our commitment to returning capital to shareholders through a combination of both dividends and tactical share repurchases has not changed. Regarding our operational outlook for 2026, we have made no changes to our shipment guidance across our main products as well as our capital expenditure range. Transportation and resin costs have been influenced by evolving geopolitical dynamics, and we expect these factors to be more fully reflected in our second quarter results as we manage through the current environment. Due to the fluidity of the situation, it is hard to quantify what that impact may be, but we are actively managing where we can. With that overview, I'll pass the call back to Sean. Sean McLaren: Thank you, Chris. I'll now shift to our general outlook and offer some concluding remarks. Our first quarter results showed a solid improvement relative to the last half of 2025. The $120 million turnaround relative to Q4 shows what the underlying potential of our business is. Our strong balance sheet and a well-invested diversified portfolio positions us well to adapt to changing market conditions and capitalize on operating leverage while also mitigating downside risk. We manage for the long run by reinvesting in our business and are improving our operating efficiency. In the first quarter, we continued to advance our heat energy and dryer project at Bemidji, a project that, when complete, will improve safety, increase throughput, lower costs and lower energy usage and emissions. For our lumber assets in the U.S. South, as Chris discussed, we are seeing the results of the continued portfolio optimization work we are doing by removing costs, increasing margins and repositioning our production to lower cost and more efficient mills. We continue to ramp up our modernized Henderson mill, which we believe is positioned to be one of the lowest cost mills in our fleet once it achieves full operating rates. In Canada, production at Blue Ridge was temporarily paused due to a fire and the mill has since resumed full operational capacity. We have also seen preliminary duty rates poised to come down later this year by approximately 6% with the release of the proposed AR7 rates, and we continue to hold a cost advantage in SPF relative to other Canadian exporters. In our North American EWP business, the indefinite curtailment of our high-level Alberta OSB mill is complete. Our wind down of high level, a less competitive and higher cost mill, representing approximately 860 million square feet will allow us to focus our operations on our most efficient production. In Europe, we are encouraged by the progress achieved in Q1 and continue to navigate market dynamics, including managing energy and fiber costs. We are focused on operational improvements and cost reduction and expect our European operations to continue to be competitive through the cycle. Of course, this takes place in a dynamic environment influenced by developments in the Middle East. Against this backdrop, global market conditions remain fluid, and we continue to assess how broader trends may influence end market demand and energy-related cost inputs across our business. In the near term, we expect costs to be influenced by inputs linked to energy prices, and we are adapting our logistics approach to reflect the current operating environment. We continue to closely monitor these developments and remain focused on managing controllable costs, maintaining operational flexibility and supporting our customers as conditions evolve. We are realistic about the demand environment. Housing remains challenged in the near term. However, we believe the longer-term demand drivers remain favorable. Since the start of the conflict, long-term mortgage rates have moved above 6% and gas prices have risen, reflecting current economic conditions that continue to shape consumer sentiment. Despite ongoing macroeconomic and affordability pressures, lumber pricing improved modestly on a sequential basis in Q1. While uncertainties remain, the seasonally better supply-demand balance, combined with our cost reduction focus gives us cautious confidence as we navigate near-term uncertainties. To summarize, first, our Q1 results demonstrate the operating leverage in our business as markets improve. Second, our balance sheet and diversified portfolio are strengths that continue to differentiate us in this environment. And third, we are focused on lowering costs and investing in capital projects that improve the quality of our portfolio. Thank you again for your time and continued interest. We look forward to updating you next quarter. With that, we'll turn the call back to the operator for questions. Operator: [Operator Instructions] And your first question comes from the line of Sean Steuart from TD Cowen. Sean Steuart: A few questions. Sean, hoping we can pull apart the cost inflation piece a little bit. And the freight part, I think I understand, but I'm hoping you can give it a little bit more perspective around the magnitude of resin cost pressure and how that flows through and how higher diesel will feed into delivered wood costs as well? Sean McLaren: Well, I'm going to make a few comments here, then ask Chris to add anything more, fill in what I missed. So first off, on the magnitude, I would say a few comments here. First off, I would talk geographically that it's different in Europe than it is in North America. We saw the impact more quickly in Europe, but our team in Europe quickly began navigating through that. Hard to really have a lot of exact visibility on Q2 other than the pressure continues to build and our team continues to react and kind of navigate through that cost structure. And our assets in Europe are -- this affects everybody. So our assets are well positioned to compete in this environment of higher costs. In North America, I think we're still seeing that evolve. We've got obviously large relationships with our suppliers, and we're working with them to navigate the impact of that. Again, difficult to quantify for Q2. Resin is a significant component of OSB costs. But to date, we've been able to navigate it effectively and to be determined to see how significant that is in the coming months. On diesel pricing, again, in Western Canada, our wood supply is delivered. So this will be a Q3 issue as we begin to replenish log inventories. So we'll see where things are at, at that moment. And in the South, I think so far, we've been able to navigate that through and have not seen a material change in our cost structure yet, but it's something we're monitoring and watching closely. Chris, anything to add to that? Christopher Virostek: No, that's a great summary. Thank you. Sean Steuart: Okay. The second question I have is around chip offtake for your sawmills. We saw a recent announcement of a pulp mill closure in the South. And I'm not asking you to speak to that initiative specifically. But Sean, can you give us general comfort with respect to the strength of your wood chip offtake agreements across your sawmill system? Sean McLaren: Yes, you bet, Sean. And I know we've maybe spoken about this on prior calls. But clearly, over the last several years, both in the U.S. and in Canada, the restructuring of the pulp industry has implications not only on sawmills, but on landowners, but in any number of areas where they operate and those closures happen. From a West Fraser perspective, I'd maybe leave you with a few comments. One is our diverse portfolio, not only geographically between Western Canada and the U.S. South, but across both of those regions. And particularly in Western Canada as we're integrated in British Columbia with Cariboo Pulp. So we've got lots of optionality depending on where the impacts happen on how we reposition our production or our residuals and react to that. In the South, we have a number of long-term relationships as well as a number of other kind of offtake agreements that we look to, and we've been successfully able to navigate each of these changes. Does it create pressure and pinch points? Absolutely, but our team is doing a terrific job navigating that. And then finally, just as a reminder that as pulp mills restructure, our OSB business also purchases pulpwood. So we have an offset or a hedge in our system that is -- that allows us to press on costs where those opportunities present themselves. Operator: And your next question comes from the line of Ketan Mamtora from BMO Capital Markets. Ketan Mamtora: Maybe to start with and not trying to put too fine a point on the resin issue. But Sean, to the extent it's possible, can you talk about sort of how you'll are navigating this dynamic environment? Is it using different types of resins in manufacturing OSB? And if it's possible at all to maybe just give us some rough sensitivity in terms of what it means for, I don't know, like a 10% move in resin cost. Is there a way for us to think about it? Sean McLaren: Yes. And this might again be a little repetitive from the last question. So it's really hard. There's a lot of moving parts, as you can imagine, within this. So resin, I think, is roughly 25% of the cost structure in OSB mill. The -- saying that, there are different types of resins. There are different ways for the team to be able to build the board. And first and foremost is us working with our resin suppliers to navigate through this period. And this is an issue that affects sort of everybody the same, like it's not a unique West Fraser issue. So I think it all comes back to how we feel our assets are positioned on the cost curve, and we feel like they're positioned pretty well, and we're going to be able to navigate this and compete through. Ketan Mamtora: Understood. Okay. And then just maybe looking back at Q1, the price differential -- or not just the price differential, but the change in prices in Southern Yellow Pine versus SPF that we saw in Q1. Can you talk about sort of what drove that, particularly against the backdrop of what's going on with supply cuts. And I'm curious whether you are seeing any signs that Southern Yellow Pine is gaining share in the new residential market? Sean McLaren: I'm going to turn it over to Matt to make a few comments on that, Ketan. Matt Tobin: Sure. We saw Southern Yellow Pine prices rise off a low point from Q4. And this has been a pretty typical, I'd say, seasonal uplift with trigger activity picking up in the first quarter. So it's something we've seen, I'd say, the last few years is that rise in first quarter demand. And I think that watching it and talking to customers, we don't see a structural shift in demand. I'd say it's just typical seasonal activities in the first quarter around SYP. Ketan Mamtora: Understood. Okay. And then just last question for me. Chris, you talked about on the repurchase side, prioritizing liquidity. How should we think about sort of your approach over the next -- in the coming quarters against the backdrop of kind of weaker-than-expected housing demand? Should we expect that in the near term, this is on pause? Or is it sort of something that you're evaluating every quarter? Christopher Virostek: I think, Ketan, the best guide would be to look at what we've done historically, right, is we take a lot of pride in having a durable capital allocation strategy. So throughout this cycle, which we're 3 years in, in lumber now, we've been very disciplined in what we've done, right, with whether that's share repurchases or the level of the dividend or the management of the debt, the debt load and the cash balance. And so look, we came through 2 negative quarters in the back half of last year. First quarter has turned positive, the way that we look at it, excluding this $114 million on the duties. Clearly, there's a lot of uncertainty out there. But how we look at the intrinsic value of the company hasn't changed. And we're not a buyer necessarily at all times, but we're a buyer opportunistically when the flexibility is at a level on our balance sheet that we think is right and the shares are priced attractively. And I think you can count on us to continue to operate that way no differently today than over the past 2 or 3 years. Operator: And your next question comes from the line of Ben Isaacson from Scotiabank. Ben Isaacson: I just wanted to extend Ketan's question. You talked about SYP, but didn't talk about SPF. Can you talk about whether you were surprised at the relative underperformance of SPF to SYP? Or was it kind of consistent with your thinking and why? Matt Tobin: I would say in the SPF, I mean, we saw steady markets, some slight price improvement over the quarter. I would say seasonally kind of normal tightening of those spreads in the first quarter, like I said, more to do with trigger activity. I think we see those dislocations and price changes change relative to their kind of regional supply or their end user supply-demand structure. And so I would say not necessarily unexpected to see a pickup in SYP and SPF just to be -- continue to be steady. Ben Isaacson: My second question is coming back to this cost pressure. I was just hoping you could frame it or provide some goalposts. If nothing were to change from today, can you give some magnitude in terms of the goalposts for cost? I mean, should we expect a $30 to $50 per MDF change or $0 to $10? I mean how should we be thinking about it? Sean McLaren: Yes. I'll make a few more comments here, and Chris, please fill in if we can add more. Again, very -- I know the conflicts few months here. We've been able to navigate these pressures so far, but the pressure is building, and it's hard to predict where energy fuel prices might go. So I'm very reluctant to kind of speculate on magnitude because we just don't know. So we won't do that. What I would say is we've been so far able to navigate through the cost pressure. Chris, would you add anything to that? Christopher Virostek: Yes, not really. I think as Sean indicated, resin is about 25% of the input cost in OSB manufacturing. I think the other factors that he's raised that, look, this isn't something that uniquely affects West Fraser. It affects the entire industry because everybody uses resin to make OSB. So there's not, in our view, a disproportionate impact in any -- in one aspect, right? Like our fleet of assets and how they exist in different markets and make different products gives us a degree of flexibility that operators with smaller fleets may not have in order for us to mitigate more of this impact as we navigate this. I think very difficult to speculate when you see oil price moving around the way that it's moving around on a day-to-day, week-to-week basis. trying to pin a number on this and say this is discretely what it's going to be in Q2, there's as much likelihood that we're wrong as we're right in trying to give that guidance. So I think it goes back to, look, we've -- throughout this cycle, we've made investments to lower costs consistently, which gives us more headroom to deal with these shocks when they happen. And we like how we're positioned to be able to deal with this. Ben Isaacson: And my final question, Sean, can you just give a quick outlook for OSB as it relates to North America versus Europe? How are you feeling about kind of each of those regions? Sean McLaren: Yes. No. Thank you, Ben. Yes, maybe just a few comments. First off, in Europe, as Chris mentioned in his comments, our best quarter since mid-2023. So it's been 3 years. And the macro in Europe is -- continues to be difficult like North America. Saying that, our 2 OSB assets over in Europe are pretty well positioned. We have a terrific management team. We're located in good markets, good raw material areas. So our cost position, we feel quite good about. And at the same time, there is cost pressure in other regions that have resulted, we believe, in better market conditions over in Europe. So hard to -- again, the macro continues to be challenging over there. but some good sequential improvement in those markets over the last 12 to 18 months. And then in North America, again, a lot of uncertainty. And I can tell you, again, from West Fraser's perspective, we are just leaning into the things that we can control. Our asset ramp-up at Allendale, the work we've done at Chambord, the adjustments we made at high level, all those things make our platform in OSB stronger and continue to push down costs, continue to give us the ability to navigate, like Chris talked about the spike in resin costs or whatever comes our way. Hard to say on the market. All I would say is without any change, we're putting ourselves in a better position to compete. Operator: Your next question comes from the line of Nikolai Goroupitch from CIBC Capital Markets. Nikolai Goroupitch: Given the attractive margin dynamics for lumber in the U.S. South, do you suspect that meaningful production has already come back online across the industry in the region? Sean McLaren: Again, hard for us to speculate on what others are doing. I'll only maybe speak to our platform. And we were navigating to the demands of our customers the last 2 quarters, the second half of last year. As Matt touched on, things improved seasonally. So we were able to respond to that, saying that our ability to add other than the ramp-ups we're in the capital execution we're in, our operating excellence focus, our ability to quickly react. I think you saw that in Q1. If you look compare it to Q3 and Q4, you see the difference there. So I -- others may be in a little different spot, hard for me to speculate on that. But I know from our perspective, we're going to continue to be cautious, and we haven't seen a fundamental change in the underlying fundamentals. So we'll continue to manage our business against that backdrop. Nikolai Goroupitch: Great. I see. And any more color you can provide what you're hearing from customers regarding the health of R&R demand? Sean McLaren: I might ask Matt to maybe comment on that. Matt Tobin: Sure. I'd say customers are mixed. I'd say you get some customers thinking it's going to be flat. Others are more positive. But I'd say across the customer base, really kind of mixed visibility there. And from what we see with our treated customers that we think are a decent lens into that market, it remains subdued. Operator: And your next question comes from the line of Matthew McKellar from RBC Capital Markets. Matthew McKellar: For all the details so far, particularly on costs. I'd like to, I guess, follow on that theme just a little bit, but from a slightly different angle and ask about capital equipment. Can you provide any perspective on if or how capital cost to build or even maintain lumber and OSB mills in the U.S. specifically may have evolved over the past few quarters, with new tariffs and tariffs that have changed in scope and magnitude? Sean McLaren: Yes. Matthew, maybe just a few comments on that. First comment I would make is we've done a lot of work, a lot of capital work the last 3, 4 years. And we're really in the mode of operationalizing that capital in start-up, getting the benefit from all the money we spent. So our exposure to some of those costs today are considerably less than they've been in the last couple of years. The one big project we have underway is Bemidji, and that equipment is largely delivered. And so we're -- again, our exposure there is -- we have very little exposure left on that project. Saying that, I don't think it's fundamentally different today if you were going to do a major project. And then you add on the potential of steel and other tariff issues for equipment that comes from outside of the U.S. So pressure is probably higher, but we're largely into the operational phase of our capital program. Matthew McKellar: Great. Just one more for me. I appreciate, I guess, that diesel is pushing transportation costs higher pretty generally and that the impact remains hard to quantify. Are you seeing any actual scarcity of capacity beyond that, that would potentially create any bottlenecks for you or your customers? Sean McLaren: Maybe I'll turn that one over to Matt. Matt Tobin: Sure. I would say it's been a challenging market in the freight market. And I think if we look back to the end of last year, there's been quite a few publications talk about the uptick in bankruptcies in trucking companies to end '25. And I'd say logistics will always kind of correct to the size of the demand. And so we've definitely seen a little bit more tightness. And when you layer on top of as well, end of Q1, early Q2 is a seasonally tight period for trucks anyway, you get uptick in produce and other things. And so you layer on a spike in fuel, and it certainly created tightness in the market. And we're working with our vendors and our customers to try to continue to provide on-time shipments of our products every day. Operator: There are no further questions at this time. I will now hand the call back to Mr. Sean McLaren for any closing remarks. Sean McLaren: Thank you, Ina. As always, Chris and I are available to respond to further questions as is Anil Aggarwala, our new Director of Treasury and Investor Relations. Thank you for your participation today. Stay well, and we look forward to reporting on our progress next quarter. Operator: This concludes today's call. Thank you for participating. You may all disconnect.
Operator: Hello, and welcome to -- the Vita Coco Company's First Quarter 2026 Earnings Conference Call. My name is Howard, I'll be coordinating your call today. Following prepared remarks, we will open the call to your questions and time. I'd now like to turn the conference over to John Mills with ICR. John Mills: Thank you, and welcome to -- the Vita Coco Company First Quarter 2026 Earnings Results Conference Call. Today's call is being recorded. With us are Mr. Mike Kirban, Executive Chairman; Martin Roper, Chief Executive Officer; and Corey Baker, Chief Financial Officer. By now, everyone should have access to the company's first quarter earnings release issued earlier today. This information is available on the Investor Relations section of the Vita Coco Company's website at investors.thevitacococompany.com. Also on the website, there is an accompanying presentation of our commercial and financial results. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs Concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also, during the call, we will use some non-GAAP financial measures as we describe our business performance. Our SEC filings as well as the earnings press release and supplementary earnings presentation provide reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures and are available on our website as well. And with that, it is my pleasure to now turn the call over to Mike Kirban, our Co-Founder and Executive Chairman. Michael Kirban: Thanks, John, and good morning, everyone. Thank you for joining us today to discuss our first quarter financial results and our expectations for our full year 2026 performance. I want to start by thanking all of our colleagues across the globe for our strong operational and financial start to the year while also staying committed to -- the Vita Coco Company and advancing our mission of creating ethical, sustainable, better-for-you beverages that uplift our communities and do right by our planet. I'm thrilled with our momentum and by the acceleration we have seen in the quarter. Our strong inventory position and quick reaction to higher demand have enabled us to deliver very strong first quarter results in global net sales, gross profit, net income and adjusted EBITDA. Coconut Water remains one of the fastest-growing categories in the beverage aisle according to our retail data for the first quarter 2026. Growing 31% in the U.S. and 63% in our measured European markets year-over-year. For the quarter, Vita Coco Coconut Water, excluding our coconut milk-based products like treats, grew 40% in retail dollars in the U.S. I'm very excited about our international business, which continues to grow even faster than our Americas business, driven primarily by our strong performance in Europe, where our organizational and marketing investments are paying off. We saw 57% retail dollar growth this quarter in our measured European markets, gaining branded share across all our major markets. We continue to explore opportunities in international markets where we believe that we are well positioned to enter and drive profitable growth long term. Looking forward, this summer, we will continue to double down on active hydration across our markets as a driver of consumer growth, positioning Vita Coco as the natural choice for performance-minded consumers while expanding more deliberately into sport and recovery. With 3.5x the electrolytes of the leading sport drinks and clean ingredients, we believe that Vita Coco is uniquely positioned to recruit new consumers, increase usage frequency and further unlock the next phase of sustained consumer growth. We expect to maintain strong growth trends as we invest in and develop the coconut water category in our priority markets and develop and nurture new markets. Our asset-light model, leading market share and strong cash generation positions us well to take advantage of the opportunities ahead. As I've said before, I believe that the coconut water category is in the very early stages of gaining mainstream appeal on a global level. Coconut water appears to be transitioning from niche to mainstream, and we are at the forefront of that trend. If we continue the household penetration and consumption gains that we are seeing, I'm confident that coconut water will one day be as large as some of the major categories in the beverage aisle, which bodes well for our future. We are focused on building the capacity and organizational capabilities to take advantage of this opportunity. And now I'll turn the call over to our Chief Executive Officer, Martin Roper. Martin Roper: Thanks, Mike, and good morning, everyone. I'm pleased to report Vita Coco's robust first quarter performance. Our net sales were up 37%, driven by the strong growth of Vita Coco Coconut Water of 42%. Our brand trends are very healthy in all our major markets and the acceleration in retail scans that we saw this quarter contributed to our ability to deliver net sales ahead of our expectations. We believe that our U.S. Vita Coco branded business is benefiting from both increased household penetration and healthy velocity per household growth, which is combining to produce volume growth in U.S. retail scans of 36% in the 13 weeks through March 29, 2026, with the positive net impact of the 2 price increases taken in the U.S. last year, contributing an additional 3% to our retail dollar sales growth. Our year-to-date branded scan results in the United States accelerated even before accounting for the impact of the earlier major club promotion this year versus last year. We estimate based on underlying trends that through the end of April, which will account for a like-for-like view of key promotions that our Vita Coco brand will have grown 30% in U.S. retail dollars. This includes a positive impact from the Walmart reset, which we estimate to be approximately 5% to our year-to-date results. As Mike noted, the retail scan performance in all our major markets was strong and has accelerated during the quarter. I will refer you to Page 7 of our quarterly investor deck for the numbers and source of this data. Please note that we are now using Nielsen data for all European markets while continuing to use Circana for U.S. retail scan reporting. In our focus European markets, Nielsen covers a broader range of retailers, including more private label-focused channels, giving us a better view of market size, share and our potential than we previously had shared. Our total reported Americas shipments were very strong with branded shipments benefiting from a shift in timing related to a club promotion, which fell more heavily in April last year versus March this year. While the change in timing of the shipments for this promotion means this quarter's growth rate should not be used to project full year trends, the underlying acceleration in demand across our business ahead of our expectations is exciting and has caused us to raise our full year net sales outlook. We are seeing cost of goods year-to-date in 2026 benefit from the reversal of tariffs and from the Lower ocean freight costs than the full year 2025 levels, with those benefits partially offset by increased finished goods costs driven by inflationary pressure, combined with some weakness in the U.S. dollar and increased domestic logistics costs. Our observed impact to date from the recent events in the Middle East is seen mostly in inflationary factors at our manufacturing partners, particularly packaging costs and energy and in minor fuel surcharges on ocean freight with some further increased domestic transportation costs due to fuel price increases. We believe these cost increases are manageable and are incorporated into our guidance. We are in discussions to enter into fixed rate agreements with several ocean freight carriers, but have not yet increased our coverage beyond the agreements that we disclosed in February that covers approximately 25% of our expected 2026 ocean shipping requirements. As we look to the balance of 2026, we expect full year healthy brand growth in our focus markets and accelerating growth in private label, benefiting from the regained business referenced earlier and the start of shipments for the new business. We believe that we are currently well positioned with our current inventory and supply capability for the planned demand. We now expect to operate the year at between 85% and 90% of committed capacity, supporting our higher-than-planned growth through increased capacity utilization. We are working to expand capacity again for 2027 and beyond to meet our expectations for continued healthy coconut water growth in our major markets as well as the potential for growth in our smaller markets and our aspirations to enter into new markets. To summarize, our category is very healthy. Our brand and private label business are strong. Our supply chain is performing well and anticipated to support our expected growth. We are confident in our team's ability to execute and deliver on our plans for 2026 and our confidence in the category and Vita Coco brand trends remains very high. With that, I will turn the call over to Corey Baker, our Chief Financial Officer. Corey Baker: Thanks, Martin, and good morning, everyone. I will now provide you with some additional details on the first quarter 2026 financial results and our outlook for the full year. For the first quarter, net sales increased $49 million or 37% year-over-year to $180 million, driven by strong Vita Coco Coconut Water net sales growth of 42% and private label growth of 28%. Our private label shipment trends for the quarter represent very strong international private label shipments and a return to growth in the Americas. The Americas private label shipments do not yet reflect the new U.S. account announced last year where a major retailer is launching Tetra Pak private label for the first time as shipments are expected to begin in the second quarter. On a segment basis, within the Americas, net sales grew 32% to $148 million, led by Vita Coco Coconut Water that grew net sales by 37% to $118 million. This was driven by a 29% volume increase and a 6% net price/mix benefit. Private label increased net sales 15% to $24 million, driven by an 18% increase in volume and a price/mix decrease of 2%. Our International segment net sales were up 72%, where we saw continued exceptional net sales growth across branded and private label coconut water. Vita Coco Coconut Water net sales grew 71% and private label increased 86%. Consolidated gross profit was $72 million, an increase of $24 million versus the prior year. Gross margin finished at 40% for the quarter. This is up approximately 320 basis points from the 37% reported in Q1 of last year. The increase in gross margin resulted from better coconut water pricing and lower ocean freight, partially offset by increased finished goods, the impact of tariffs and slightly higher domestic logistics costs. The remaining $2 million of tariffs capitalized in inventory at the end of 2025 fully flowed through our P&L in Q1. Moving on to operating expenses. SG&A costs increased $9 million to $38 million, driven by increased investments in people resources focused on driving future growth, including increased performance-based stock comp expense, increased marketing spend and higher distributor-related expenses. Net income attributable to shareholders was $30 million or $0.50 per diluted share compared to $19 million or $0.31 per diluted share. The $12 million increase in net income was primarily driven by the increase in gross profit, partially offset by higher SG&A investments, increased income tax expenses and a foreign currency loss this year versus a gain last year. Our effective tax rate for Q1 was 18.6% versus 22.5% last year. The decrease in the effective tax rate is largely driven by more favorable discrete tax items. Adjusted EBITDA was $39 million or 22% of net sales, up from $23 million or 17% of net sales in Q1 2025. The increase was primarily due to the increased gross profit, partially offset by higher year-on-year SG&A expenses. Turning to our balance sheet and cash flow. As of March 31, 2026, our balance sheet remained very strong with total cash on hand of $202 million and no debt under our revolving credit facility. For the quarter, we generated $5 million of cash driven by strong net income, partially offset by increases in working capital, driven primarily by a $39 million increase in accounts receivable, partially offset by a $25 million reduction in inventory, both driven by very strong sales in March. The operating cash improvement was mostly offset by share repurchases of $12 million within the quarter. We have started 2026 with exceptional category trends in our major markets, healthy inventory levels and confidence in our team and our Vita Coco brand. As a result, we are raising our full year expectations for both net sales and adjusted EBITDA. We now expect net sales between $720 million and $735 million, with expected gross margins for the full year of approximately 38%, delivering adjusted EBITDA of $132 million to $138 million. Our expectation for the strong net sales growth is built on our assumptions for the U.S. category growing approximately 20% and our international business led by the U.K. and Germany, maintaining very healthy growth rates. We now expect consolidated growth of Vita Coco Coconut Water net sales mid- to high teens with our U.S. Vita Coco net sales growing low to mid-teens due to the impact from the strong year-end 2025 shipments to our DSD partners, investments in distributor incentives to deliver growth, which slightly compresses revenue per case and the anticipated impact from the launch of private label at a large U.S. retailer. Due to the stronger U.S. category growth and our regaining of some previously lost private label business, we now expect increased private label net sales growth of 35% to 40% in the U.S. We expect 2026 gross margins to improve from 2025 levels as we benefit from the branded pricing taken in 2025, the removal of tariffs and favorable ocean freight rates, partially offset by impacts from the inflation and fuel surcharges Martin referenced previously. We expect full year branded price increase of low single digits, assuming no further price actions with a higher mix of private label resulting in minimal consolidated net pricing growth. We expect Q2 2026 gross margins similar to Q1 before seeing slightly lower margins in the second half due to the current inflationary factors and planned price promotion cadence. If inflationary factors related to the current conflict in Iran appear permanent, we will explore potential price increases later this year or in 2027. We expect SG&A to increase high single digits as a percentage of net sales as we increase investment in marketing and key personnel areas to deliver the expected 2026 results and invest for long-term growth. We expect to deliver full year SG&A leverage of about 1 point over 2025 as we continue to deliver strong growth with disciplined investments. Finally, we have submitted refund claims through the CBP ACE portal for $15.6 million of IEEPA tariff paid last year. There is no guarantee that we will receive any of this refund and a successful refund is not contemplated in our current guidance. And with that, I'd like to turn the call back to Martin for his closing remarks. Martin Roper: Thank you, Corey. To close, I'd like to reiterate our confidence in the long-term potential of the Vita Coco Company, our ability to build a better beverage platform and the strength of our Vita Coco brand and the coconut water category. We have strong brands and a solid balance sheet and believe that we are well positioned to drive category and brand growth both domestically and internationally. We are confident in our ability and are excited about our key initiatives to drive long-term growth. Thank you for joining us today, and thank you for your interest in the Vita Coco Company. That concludes our first quarter 2026 prepared remarks, and we will now take your questions. Operator: [Operator Instructions] Our first question or comment comes from the line of Bonnie Herzog from Goldman Sachs. Bonnie Herzog: I have a question on your strong and impressive sales in the quarter. I guess hoping for a little bit more color on the drivers behind this. You touched on this, but could you provide a little more color on any distribution and space gains this year? I guess I'm trying to understand if there was any pull forward volume in Q1. And then your new guidance implies about 15% top line growth through year-end, which is good. But just trying to reconcile the very strong Q1 growth and I guess, some implied or expected slowdown through year-end. Martin Roper: Okay. Bonnie, I'll take the first part and then maybe Corey can take the full year guidance part. As it relates to the first quarter, we obviously benefited from a pull forward of a major club promotion into the March period from April period, which would have significantly increased shipments in the quarter. We tried to provide some sense of the scale of that by indicating that we expect U.S. retail scans through the end of April, which would basically negate the movement of that MVM in that time period because it remains in that time period to be approximately plus 30%. As we look at what is going on, first of all, our international business is very healthy and is growing ahead of our expectations. Secondly, we feel that we saw an acceleration above our expectations in Q1 in the U.S. business. And yes, the U.S. business obviously has benefited from increased distribution at Walmart through the resets that occurred in November. We've estimated that, that is potentially or possibly a 5% benefit to our U.S. scan data. But even if you strip that effect out and if you normalize for the movement of the club promotion, the business in the U.S. in the first quarter was very healthy and ahead of our expectations. When we look at what is driving it, it doesn't appear to be driven by incremental distribution. Spring resets are currently happening. So that's not driving the scan data. And our shipments are sort of pretty broadly tracking the scan data. So there's not anything weird to call out as it relates to inventory or loading. So just overall, we're very pleased. We're adjusting our guidance up to -- as the first quarter has exceeded our expectations. Obviously, we don't know whether it's a permanent or a temporary blip, but we're excited, and we're prepared to deliver on the year as we've outlined. And I'll just let Corey talk about the assumptions that went into our current guidance. Corey Baker: Bonnie, just to build on that, we saw, I think, exceptional category growth in Q1 and the brand through the end of April will be, I think, slightly above the category. We're estimating the guidance built on the U.S. category growing in the range of 20% through the first quarter, it's stronger than that. But we do see just above our expectations in the first quarter. And then as we get into the back half of the year, some of the things we talked about entering the year, the distributor inventory build, the Walmart load, we're just kind of watching those things, and they have some timing impact on shipments in Q3, Q4. That is why you see a much stronger Q1 than we'll get to through the back half of the year. And how that falls Q2, Q3 is hard to call. But we do expect that this -- the category remains quite healthy at plus 20%, but not as healthy as it is. And then just some timing on that distributor inventory and the Walmart load in through the back half. Bonnie Herzog: All right. That was helpful. And maybe just a quick follow-up. Thinking about your innovation pipeline, any color that you can provide to us on any upcoming innovation or new packaging that you plan to be rolling out either still in the first half or maybe in the second half of this year? Martin Roper: There's nothing significant. I think since we last talked, Lemonade Treats is out there, and there's another treats on an exclusive with a major retailer. But treats shows up in coconut milk as a scan data and the incremental effect of treats to our U.S. scans is 2%, 3%, I think, order of magnitude. So that's exciting, but the health of our business is being driven by coconut water. So we're executing all the major packs as hard as we can. We're still trying to add multi-packs as we've talked about, still trying to add 1 liter to convenience store, but we're basically driving the core and the growth is coming from the core. to convenience store, but we're basically driving the core and the growth is coming from the core. Operator: Our next question or comment comes from the line of Peter Galbo from Bank of America. Peter Galbo: Martin, maybe just to put a finer point on Bonnie's question around the top line and maybe a little bit more specific to 2Q. I mean, so is it fair to kind of think, again, if we average the growth rate over the first half, given the shift in the MVM that we should be kind of landing in that 30% range based on what you know today, just as a clarification point. Martin Roper: That sounds like a guidance question. So I'm going to pump that to Core, and we typically don't break guidance down by quarter, Peter, but thank you for the question anyway. Corey Baker: Peter, I maybe not follow the 30% through April on shipments. Is that? Peter Galbo: Correct. Correct. Martin Roper: Well, the 30% April number is a retail scan number. Corey Baker: Yes. And our shipments to date have been tracking close to retail. So I think that's a fair assumption on the U.S. branded shipments. But there's always timing and inventory impact, but we're not seeing anything in the beginning of the year that's driving shipments different than retail scans. And then the volume is a bit different, right? Martin Roper: And one additional point, May, June, July, August are typically peak season. The volumes are a little bigger. First quarter is predicted normally a slow quarter. So how to extrapolate these trends to the peak summer is hard. Obviously, we're planning for the optimistic scenarios from an inventory perspective and execution perspective, but it's pretty hard to project a Q1 increase for the full summer. Obviously, that would be terrific. Peter Galbo: Right. Okay. No, that's clear. And Corey, maybe just as a follow-up on the gross margins. I mean, obviously, the performance in Q1 in spite of the MVM very impressive. You're kind of calling for similar Q2 and yet you left the unchanged. I know there's some factors in the back half, but maybe you can just unpack a little bit. It would imply a pretty material sequential step down in the second half. So I just want to maybe press on that a bit more and see how much of that is what you have foresight into versus maybe conservatism on the gross margin line. Corey Baker: So I think Peter, 2 things have happened to gross margin in the last quarter. One, the branded growth is stronger than expected in guidance, and that helps push margins up. And then we are starting to see or are feeling some pressures from the conflict in Iran through domestic logistics, fuel costs, packaging materials, factory energy. So we are embedding some estimates of what that will impact through the -- it will begin later in the year. And then as we said, we'll evaluate pricing as we get closer and we see how everything unfolds. Operator: Our next question or comment comes from the line of Chris Carey from Wells Fargo Securities. Christopher Carey: Just one clarification. I believe it was Corey commenting on just considerations for revenue phasing. So are you saying that in the back half of the year, you could see revenue slowing a bit versus the front half because you're going to be comparing against some distribution expansion associated with early shipments at Walmart. Can you just expand on that comment a bit, what you meant there? And then regarding these MVMs or promotions, what are the kind of key considerations that we should be thinking about as you see them today? I know they're not all predictable, but just as you think about kind of quarterly phasing over the course of this year? Corey Baker: So, To clarify, Chris, the quarters are hard, especially Q2, Q3. But as we get into the back half, if you remember, in Q4 of last year, we saw shipments above our expectations with a chunk of that going into the distributor inventory. And then we also had the Walmart overlap that will be coming up to, and that does result in our estimates that our shipment growth will slow for sure, from Q1, how Q2, Q3 fall is a little bit harder to call. But the balance of the year will be, as you would expect, slower than plus 37%... Martin Roper: And then as it relates to -- I think you were asking about cadence of major promotions, and I assume you're referring to the major club promotion that moved from April last year into May. Last year, we ran one in July and one in October, which was similar. At this point in time, we're not aware of any sort of changes to that proposed cadence. But until the actual orders come in, we can't guarantee that business is there. Our guidance is based on what we currently know. Christopher Carey: Okay. A follow-up on international. Is there a way to frame, I guess, where you are in the international growth trajectory? I mean it appears that a lot of this is being driven by just several countries how long could these countries continue to deliver the types of growth rates that we're seeing? What's the penetration rate potential? And then just your ability or capacity or willingness to expand to other markets. Can you just maybe contextualize the international runway for us a bit more between current drivers and where you think the business is going? Martin Roper: Sure. I think we've said that our goal is for our international businesses to be as large as our Americas businesses today. In the investor deck on Slide 7, we provided a little bit of context on market size data. I would note, as we said in our remarks, that we are now using Nielsen for our European retail data and the Nielsen covers a broader range of retailers and is capturing more private label retailers. So the category to us now looks larger as we use Nielsen data, while maybe our reported share is lower, not reflecting any change in the market conditions. But in that, you'll see that the U.K. has an estimated market size of about USD 130 million. We're doing the dollar conversion. Germany is only at USD 53 million. We've previously shared that on a consumption per head basis, the U.K. is behind the U.S. and then obviously, Germany is behind the U.K. So I think there is great evidence that there's huge opportunity in Europe to bring the consumption per head up to what we are seeing in the U.S. levels and to do it across markets. And different markets are at different stages of development. If you had gone into Germany 4 years ago, for instance, you'd have seen a couple of small brands and some very dominant private label. When a market has very dominant private label, no one is investing in the market for education and growing and promotion. And so our belief is those markets are lagging the other markets where brands have been able to play. So there's a long runway here. We're very optimistic on international. We're obviously talking about it more on these calls and trying to share information. Exactly how it happens is obviously yet to be determined, but we are trying to drive it and trying to focus on large markets that are willing to adopt coconut water as their favorite beverage where we can play and be a major player. So we prioritize the markets, and we're sequencing it. We're not trying to take on too much, but we're certainly trying to take on more than we have historically. Operator: Our next question or comment comes from the line of Eric Serotta from Morgan Stanley. Eric Serotta: Last quarter, you were fairly explicit in terms of the promotional plans for the second half and essentially giving back some of last year's tariff-driven pricing. Can you give us a little bit of an update there? Are you still looking at pricing potentially being negative in the second -- in the third quarter or second half based on your current promo fund? Corey Baker: So Eric, it's amazing how different the world is from last quarter. So we are currently working through the second half retail plans. It's a different inflationary environment than it was in the second half. So the teams are now working on those plans, and we don't have any changes at this point to our kind of outlook. And our pricing guidance is the same as it was, but we'll, as we said, continue to evaluate as we move through the year. Martin Roper: And I think certainly, if the current inflation looks permanent, right, we will take -- we will have to take pricing, which is not where we were in February. Eric Serotta: Great. And then just in terms of what you're seeing in terms of inflation on your freight lanes. Obviously, you're not shipping coconut water through the street. But what have you seen in terms of rates on your key lanes from Asia to the U.S. and Brazil to U.S. and Europe? And you mentioned looking to contract more, which would imply that the rates are still pretty attractive. But any color there would be helpful. Martin Roper: Yes. So base rates sort of have held pretty firm where they were when we last spoke to you. And they are pretty attractive, obviously, relative to the last 3, 4 years, still not at long-term averages, but they're at rates that we have considered sort of locking in some percentage of our business. What we've seen since the recent Middle East escalation has largely been the carriers asking for fuel surcharges, which is on top of the base rates. We haven't seen the base rates move that much, but there have been requests for surcharges, which is pretty normal. It reflects maybe a much more normal shipping environment as existed pre-COVID that there would be fuel surcharges when fuel sort of moved around. Those surcharges are several hundred dollars depending on the lanes. It's manageable within our guidance, and it's not the material shift in ocean costs that we saw like in '22 when those changes were pretty material. So we're pretty comfortable or very comfortable with our gross margin guidance. The inflationary factors that are perhaps more significant than that are in energy costs and gasoline costs in our supplying countries, which is affecting their energy costs, their production costs, their workers' costs and et cetera. There's certainly scarcity of fuel in some of those markets. We haven't seen that affect production yet, but it's something we're monitoring. And then we're also seeing domestic transportation cost increases, right? So at this point -- and then on the packaging side, we've seen packaging inflation cost increases taken by the packaging suppliers in response to the cost inflation they're seeing. And certainly, we use TETRA a lot, and that has a relatively high shipping cost component for the inbound. So that's sort of what's going on. And that's the bigger driver of the underlying inflation we see. That tends to be a little bit more sticky than energy inflation. So that's why we're watching it closely. Operator: Our next question or comment comes from the line of Eric Des Lauriers from Craig-Hallum Capital Market Group. Eric Des Lauriers: Congrats on a very impressive quarter here. On the supply side of things, I know sourcing coconuts and coconut water has never really been a constraint for you guys. But volumes do keep surprising to the upside. There is accelerating demand sort of above your internal expectations. Could you just give us a bit more color on current outlook for matching inventory supply with the accelerating demand? Is this anything that should be on our radar at this point now? Martin Roper: So we're obviously very comfortable with our guidance from a supply perspective. We're comfortable with some potential increase on that from a supply side. I think we indicated in our prepared remarks that we're sort of operating the balance of the year closer to 85%, 90% of available capacity. We would typically try and operate 80% to 85%. So that reflects a step-up in utilization of the capacity. We've also pulled the inventory down a little bit in the first quarter, also reflecting that supported that surge, so to speak. And we think with inventory and our current committed capacity, we're in pretty good shape for what we expect to happen on the balance of the year. But if that were to accelerate significantly, then obviously, that would be challenging. As it relates to the long term, we're looking at this and going, okay, what does this mean for '27 and '28 how do we plan for it. Those discussions have been happening a long time ago, and we're tweaking up our sort of commitments and/or plans to support what we could expect if the category continues at this rate. Eric Des Lauriers: All right. That's very helpful. I appreciate that. And then on the private label side of things, so very encouraging to see this improved outlook. Could you just kind of give us an update on the landscape for private label in the U.S.? Are there other kind of large retailers still remaining that could be significant wins or I guess, significant contributors to the private label revenues? And can you just give us an update on the sort of competition or competitive environment for bidding on these private label contracts? Martin Roper: Yes, there is still some -- I would describe as major retailers, but they're not maybe in the top 4 retailers that don't have private label. So there are still some options in the U.S. and there's still opportunity for private label sort of retail space to be created. The -- internationally, most of our markets, there's already strong private label presence with a strong private label share, maybe with the exception of the U.K. major grocery where private label isn't as visible, but private label obviously exists in some of -- in the discount channels there, which have relatively significant volume. The environment on the contract side continues to be dynamic. As we said before, when there are disturbances to the cost system and the supply system and/or the demand, frankly, you tend to have retailers responding to those disturbances to see if there's a better deal to be had and a better deal might be price or service, particularly if the demand is accelerated and the service levels have been poor. So that continues to be a pretty dynamic environment. We're excited with the business that we've won to date. And I think we're more positive that there's potential to diversify our retailer group going forward so that we diminish our reliance on 1 or 2 key retailers there. But I would say the outlook looks very positive. And then on the demand side, private label is growing faster than the category in the U.S. in Europe, it's sort of growing with the category, maybe a little slower because we're gaining some share from quite a small share base, right? So -- but from a demand side, this appears at least in the U.S. to be strong interest in private label, and that is driving both our sort of share stability even with our great trends and also providing consumers, I would guess, the option for coconut water where they're choosing to shop. So I think it's more of them choosing to shop in certain channels than anything else. We're not really -- in retailers that have brand and private label sites side year round, we're not really seeing that effect. Operator: Our next question or comment comes from the line of Kaumil Gajrawala from Jefferies. Kaumil Gajrawala: I guess maybe just digging in a little bit to this acceleration in growth. It's not that small of a category, and it's putting up, in dollar terms, like very, very substantial rates of growth. Is there something that maybe more specific that's changing? Are there entirely new customers that are coming in? Is it something marketing related? Like if we could just get a few building blocks on what's sort of what was already a healthy growth rate now accelerating quite substantially. Just trying to understand it a little bit better would be, I think, helpful. Michael Kirban: I think it's clearly a hydration thing, a need for hydration, a want for hydration from consumers, everyday hydration. It's something we've been talking about. And we've talked about for a while how we pull pretty equally from -- or historically have pulled pretty equally from sport drinks, premium bottled water and conventional juices. We're seeing an acceleration specifically of how we're pulling from sport drinks. So hydration is clearly, I think, one of the drivers of the acceleration of growth that we've been seeing in the last couple of quarters, but specifically this quarter. And we seem to be aging down. Younger consumers coming into the category. Some of the marketing, I think, that we're doing and some of the things that are happening organically in social media is driving that. And it comes back to the functionality. It's potassium, it's hydration. It's 3.5x the electrolytes of leading sport drink. We think that all of these things are driving a lot of the acceleration we're seeing specifically with young consumers. Kaumil Gajrawala: Okay. Got it. And maybe just following up on that supply question prior. How are you thinking about the setup for supply for '27, '28? Have you sort of maybe fundamentally changed how you're thinking about how much you'll need? Because I guess if things continue at this rate, they're presumably growing at a faster pace than you will have expected. So is it early enough to start making those decisions? Or is it something you're just going to sort of wait out a little longer? Martin Roper: So I think we've talked about previously how it takes 12 to 18 months to put new capacity in an existing facility. A new facility might take 18 months to 2 years if they haven't done coconut water before. So that's sort of our planning horizon. We run a 3- to 5-year sort of outlook based on our assumptions on growth, and then we try and plan capacity for the next 2 years to give us a range of outcomes around that while working on the longer-range projects so that they fit in. Projects that come in at a certain capacity and can expand are ideal, so we work on those. So that's how we do the sort of capacity planning. We are also trying to plan that the available capacity is 80% to 85% of what we think the demand is. So that gives us some flexibility to deal with underestimating what demand would be. When we see a demand, let's say, surge, that immediately goes into those plans and adjust those efforts. You'll see we've talked about increased personnel costs. We've increased investments in our Singapore team to add capacity more aggressively. This started last year, if not before. And we are comfortable that we can meet the demands that we know about today for '27. Obviously, '28, we're working on. So as we said before, there are plenty of coconuts involved. And so coconut availability is not an issue. And we're investing in our supply chain to meet this exciting demand we're seeing, and we are comfortable we'll be able to do so. Operator: Our next question or comment comes from the line of Mike Lavery from Piper Sandler. Michael Lavery: Just wanted to come back. You mentioned the distributor incentives as a little bit of a headwind to price realization. And I don't feel like it comes up very often. Could you just maybe elaborate a little bit on that dynamic? And is it something new? Or what's changed there? Martin Roper: Sure. Yes, with certain distributors at appropriate times, there are good conversations about how do we move the business forward and close distribution gaps and align incentives across our organizations. And we've had some of those conversations over the last 3, 4 years. And with the acceleration of growth, those incentives are starting to sort of play out a little bit, and we're just taking that into account in our revenue planning. But we're very pleased with the distribution. That's great gains that are happening, where we fit in our distributors' sort of priorities and how they're responding to those incentives. And so it's all good, and it's basically making sure that we're aligned across all organizations. Michael Lavery: Okay. That's helpful. And just you've obviously flagged your balance sheet strength and the cash build. Just any thoughts on priorities for how to go spend the money? Martin Roper: Well, I think as we said before, our #1 priority is supporting the growth, whether that be marketing investments, creating organizational capabilities to support these new markets or investing in the long-term supply chain capability, whether that be our own capability or potentially partnering with suppliers on investments and/or underwriting them in some way, right? So that's the #1 priority. Second priority would be sort of innovation. And at this point in time, with the strength of the business, perhaps our innovation push is maybe not as strong as it was prior because of all the opportunities we have ahead of us, but we still are investing in R&D and product development work and testing on a range of things so that we can take advantage of opportunities if the occasion was right. I think we said our third priority is M&A and looking for something that would add significant value to our long-term shareholders. And we continue to do that. Obviously, it's a patient look, and we've come close a couple of times, but -- so we are serious about it, but we haven't pulled the trigger on the final structures, et cetera, for a number of reasons. So we continue to do that. And then based on all those things, and I would add sort of inventory management to that as well, given how inventory can help us deal with seasonality, both on the production side and the demand side. And then finally, we sit down and we look at all those factors based on what we think is happening, both on what we expect our cash generation to be over the coming months, and then we make decisions as to buyback jointly with the Board. You have seen, year-to-date, we purchased $20 million of shares. We still have $21 million remaining under the authorization. So that what the fourth priority is one that we're active on when the other activities are well funded. Operator: Our next question or comment comes from the line of Robert Ottenstein from Evercore. Robert Ottenstein: A couple of follow-ups, if I may. You mentioned that traditionally, you pulled equally from sports drinks and juices, and that now, kind of, the sports hydration need is becoming more prominent. So I'm just wondering, one, does that change how you and retailers are looking at shelf space and positioning? Two, does that help perhaps on convenience stores? And maybe talk a little bit about how you are doing on convenience stores? And then my second question is, I understand that there's plenty of coconuts. Your supply chain is looking good if the demand is higher than expected during the peak seasons. The other side of that is your service levels and your ability to keep the product on the shelf. So I was wondering if you can address that as well if this demand keeps surging during the high season, your ability to prevent out of stocks. Michael Kirban: I think on the first couple of questions, position in the store, regardless, I think, of whether we feel we're pulling more from juice, premium bottled water or sport drinks, we don't like moving around in the store. You've seen how that's created a problem for us. Historically, we are in different areas of the store. Some stores, we're in the sport drink set. Some stores, we're in the enhanced water set. Some stores, we're in the juice set. But moving around creates temporary issues. So we like where we're at. Relationships with retailers are very strong as we're, again, fastest-growing category in beverage aisle. And so we don't want to move. And we think we're well positioned and well placed in the store. We want to continue to gain space, expand that billboard at retail, which we've been doing and continue to do. As you think about C-store, yes, we see our C-store business growing really nicely, not only in terms of velocity, but also in terms of actual ACV. If you look at Slide 10 in the investor deck, over the past year, we've grown from 55% ACV to 59% ACV on our core item in C-store. And we want to keep that growing. We think one day, there's no reason we shouldn't be in the 80s in C-store. So continuing to grow distribution as more and more consumers are buying the product on the go at C-store for hydration specifically. And then as it relates to the supply chain piece and not running out of stock, Martin, do you want to... Martin Roper: Sure. Yes, yes. So obviously, our intention is to never run out of stock. Obviously, that intention is not always fulfilled when demand drastically increases above our expectations. By design, we entered the year with, I think, over $100 million of inventory sort of in our position on the water, which was unusually high. That allowed us to support the first 3, 4 months surge that we've seen, including the movement forward of the major club promotion. But you'll see at the end of the quarter that our inventory was down. That partially reflects the very large March that we had. It also partially reflects a little bit of delay in getting some product out of some ports, which is currently manageable. And the product is there, and the ships are coming. There was just a backlog. So as we look at the summer, obviously, I can't tell you there won't be service issues because if demand greatly accelerated, there would be, frankly, for everybody in the category. Also, with this sort of surge, I think you tend to see other suppliers and even some private label businesses running out of stock and then you get customers moving to the brands that have stock. So it can be something that you don't cause, but it happens because other people are having problems. That said, very comfortable we can support our guidance, comfortable we could support some volume above our guidance. There's obviously a limit to that. But we're in a very good shape, and we're certainly in much better shape today than we were 2 years ago when, if you remember, we entered Q4 -- 3 with a big inventory constraint and had major service issues in Q3. So I don't expect that currently based on what we see, but obviously, I can't say never. Robert Ottenstein: Congratulations. Martin Roper: Thanks. Operator: Our next question or comment comes from the line of Jim Salera from Stephens. James Salera: Martin, I actually wanted to ask a follow-up on your previous answer that you just gave. If we see the demand continue to be as robust as it's been in 1Q, is there any toggle on the promotional timing such that you might not need them and that could potentially be a net benefit to gross margin in kind of the back half of the summer, back half of the year? Martin Roper: Yes. Difficult one. Obviously, there is. But obviously, if you've made a commitment to a retailer pulling that commitment back, it is a very awkward conversation, particularly if they feel that you're not pulling back from other retailers, right? So yes, generally, you can. Yes, you can moderate entering into new agreements, but commitments that have been made, which tend to be made 3, 4 months out, right, at least, you sort of have to offer to continue to fulfill unless there's a major, major issue that everyone in the industry recognizes and a major promotion. So as an example, in our history, there was one major club promotion that we just said, look, you can run it, but it's going to be horrible. And we think we're better off not running it. And frankly, the retailer is grateful for that input. But that isn't always how the conversations go, particularly when they believe that other people might be getting price support. So difficult conversations can be had. It depends on what's going on in the industry. It's certainly a lever that we would explore to see if it made sense for us and our retail partners. James Salera: Great. I appreciate the thoughts there. And then I wanted to ask on the Treats platform. Since that's kind of a unique item that doesn't really neatly fit into a specific category or subcategory, can you just help us frame up how you think about the potential size of that as part of your portfolio? And if you could offer any thoughts on where that is right now and how you expect the incremental flavor launches to contribute to the year? Martin Roper: So it's classified as a coconut milk. It's a coconut milk ready-to-drink. There are some other beverages in that sort of space, Starbucks Pink ready-to-drink being one. It's currently contributing, I think I said 3 percentage points to our retail. That scans in the U.S., that's pretty good. I think it's fair to say, we launched it in an international market and it didn't stick. So it's not a proven success in every market. And this goes to how every market is different, and we can talk about that at great length, like what's working in Germany isn't the same as what's working in the U.K. from a flavor perspective, for instance. But I think Treats is interesting. It's currently working to where I think it has a good long-term future within our portfolio. We think we need to have flavor innovation to bring new news to it and find the right flavor additions. I'm not sure we found the right flavor portfolio yet. So that will be incremental. But I think that's pretty normal in a flavor-driven category that you work out what works and what doesn't work. So our intention is to do that, and it certainly sits nicely in our space. And I think the retailers that have added the extra SKU and supported it are happy. Operator: Our next question or comment comes from the line of Jon Andersen from William Blair. Glenn West: This is Glenn West on for Jon Andersen. We hit on a lot, so maybe a quick one. Corey, I know you mentioned the potential for like a $15 million refund from CBP. Do you have any idea on the time line of those claims or any idea when you expect kind of a decision on that? Corey Baker: We're not 100% sure, but the news would indicate 60, 90, 120 days, let's say. So we'll see how the process runs. We've submitted through to the systems and followed the rules, and we'll see how fast it gets processed and if it's accepted, all those things. Martin Roper: And if it isn't challenged, et cetera. So we're in the fight, and we'll see what happens. Operator: Our next question or comment comes from the line of Gerald Pascarelli from Needham & Company. Gerald Pascarelli: I just had a quick follow-up on capacity utilization. So like in the scenario that demand continues to surge, just thinking about this in the context of your private label business, right? Like you're regaining new business this year that you previously lost. So just again, if demand continued to surge, how would you think about balancing the split between servicing your branded products and private label this year specifically? I think any color on that would be great. Martin Roper: Yes. It's a good question, Gerry, but I think we've said this historically that our goal is to try and provide equal service to everybody, including our brand. Obviously, if we were talking about commitments and bids, let's say, '27 business or '28 business, we'd take all of these factors into account, and we try not to commit to business that we feel we're not going to be able to provide a fair level of service to. And then our -- these retail relationships and the private label, they're long-term relationships. They need to be treated as partnerships. We need to treat them fairly. We do everything we can to produce to their forecast. It's fair to say that forecasts aren't always accurate and you can then run into some difficulties. But we have -- we keep track of that stuff. And we go, this is what was committed to and this is what we committed to and all that sort of stuff. But if there's an opportunity to take care of key customers, we will. We do have a pretty long supply chain. So I would just remind everybody that what is currently on the water will get sold in July, August or what's being produced. Let's say, next month will be sold in August, September. So for most of this year, we're sort of almost locked, right? We've still got a few months we can influence. And so we will do the best we can, and we will try and service every customer in the way that we think is fair to them based on the commitments they've made to us. Operator: Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Martin Roper for any closing remarks. Martin Roper: Thanks, Howard. No closing remarks. Thanks, everybody, for joining us for the quarter. We look forward to chatting to you at various events during this quarter and then obviously doing this again, hopefully, in 3 months' time. Everyone, have a great day. Operator: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Casella Waste Systems, Inc. First Quarter 2026 Conference Call. [Operator Instructions] Please advise that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Jason Mead, Senior Vice President of Finance and Treasurer. Please go ahead. Jason Mead: Good morning, and thank you for joining us on the call. Today, we'll be discussing our first quarter 2026 results, which were released yesterday afternoon. This morning, I'm joined by Ned Coletta, President and Chief Executive Officer of Casella Waste Systems; and Brad Helgeson, our Chief Financial Officer. After a review of these results and an update on the company's activities and business environment, we'll be happy to take your questions. But first, please note that various remarks we make about the company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-K, which is on file with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views on any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. These forward-looking statements should not be relied upon as representing our views as any date subsequent to today, May 1, 2026. Also during the call, we'll be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, to the extent they are available without unreasonable efforts are included in our press release filed on Form 8-K with the SEC. And with that, I'll now turn it over to Ned to begin today's discussion. Ned Coletta: Good morning, and thank you, everyone, for joining us today. We are very pleased with our performance in the first quarter and the strong start it provides for 2026. Our team executed well across the business, delivering solid financial results and margin expansion that exceeded our budget while also advancing our strategic priorities. We combine disciplined positive pricing, steady core operations and meaningful acquisition activity to position the business for a strong year. Importantly, the momentum we are seeing is broad-based. It reflects the consistency of our operating model and the continued focus of our teams on execution, safety and customer service. Revenues for the quarter were $457.3 million or up 9.6% year-over-year. Growth was driven by contributions from acquisitions and the base business with strong pricing across our collection, in disposal lines and continued strength in our Resource Solutions segment, particularly in national accounts. Pricing continues to perform well and remains a core driver of our results. Solid waste pricing was up 5.1% overall, including 5.3% in the collection line of business and 4.7% in disposal. From a volume perspective, the quarter played out largely as we expected, with slightly negative volumes mainly due to the challenging winter weather across our footprint. Despite these headwinds, total landfill tons were up year-over-year, including increases in both MSW and C&D volumes with C&D volumes actually up 13% year-over-year to landfills. These results reflect the strength of our sales pipeline, all of our internalization efforts over the last 1.5 years and our unique landfill asset positioning in the Northeast. Further, we are well positioned for the seasonal upswing in volumes that we see in the spring, and we've seen positive trends through April. On the cost side, our fuel recovery program worked effectively in the quarter with floating fees fully offsetting the increase in fuel costs across our business. This continues to be an important component of our ability to manage risk and produce stable and predictable operating results. As we've emphasized, our focus remains on disciplined execution to offering level. Our teams continue to make progress on route optimization, fleet efficiency and automation, and we're seeing those efforts translate into our results. Adjusted EBITDA increased 12.3% year-over-year, and we delivered 50 basis points of margin expansion in the quarter. Safety is our first priority in our operations every day. And we continue to invest in safety initiatives, including the expansion of our Triage programs to minimize the cost associated with workers' compensation claims and the implementation of the Lytx in-cab AI technology across our entire fleet in 2026. The Lytx system is helping our drivers with real-time coaching to reduce unsafe behaviors. This leads to lower incidents and strengthens our overall safety culture. These efforts have resulted in better safety performance with our key OSHA metric, TRIR, improving by 20% year-over-year. We have also attracted several excellent new leaders to Casella over the last several months, including Chris Rains as our new Chief Revenue Officer, joining in March. We're excited to have these accomplished executives join our team, adding key skills through our already strong leadership team. In the Mid-Atlantic, we've made significant progress on our integration efforts. We've migrated nearly all customers to our new lead-to-cash system and integrated customer payment portal and we are on track to complete the remaining migration by the end of next week. This is an important milestone as it allows us to shift our focus from systems migration to the exciting work of recognizing operational synergies through route consolidations, automation and facility consolidations. As guided, we're on track to cut $5 million of operating costs in 2026 and another $10 million over the next 2 years. From a technology and efficiency standpoint, we continue to make steady progress. On the customer side, we've been investing in key platforms to improve customer experience, including the launch of our new payment portal last month and the planned rollout of the new Casella app in the second quarter. We also continue to develop our e-commerce capabilities. These efforts are focused on improving the customer experience while also yielding cost efficiencies. At the same time, we remain focused on reducing G&A costs, and we are on track with our previously announced $15 million in targeted G&A savings over the next 3 years. As mentioned last quarter, these savings will come in three phases with the first phase yielding in the second half of 2026 as we implement credit card convenience fees. The second phase will come in 2027 as we eliminate redundant system costs and the last phase will come throughout '27 and '28 as we automate back-office functions and take out costs. Across these initiatives, we're also focusing on AI-enabled tools in investing in data infrastructure to support further capabilities. Over time, we expect these investments to generate additional leverage across our back office and yield additional efficiency gains. We continue to make great permitting progress on our expansion efforts at the Hakes and Hyland landfills in New York. With the Hakes permit expected by the third quarter of 2026 and the Hyland permit expected by the first quarter of 2027. As we previously mentioned, we're working to more than double the annual permit at Hyland from 460,000 tons a year to 1 million tons a year, while also working to add 60 years of capacity. At the Hakes, C&D landfill, we're permitting a 10-plus year expansion. Additionally, we completed the new rail transfer station at the McKean landfill in the last month, allowing us now to accept materials from both gondolas and intermodal containers, including internalized MSW volumes from Massachusetts later this year. Our McKean land flow is a great rail option for the Northeastern waste that does not have access to local disposal. As a reminder, about 30% of the waste that's generated in the Northeast needs to be exported given the lack of disposal capacity in our markets. The McKean landfill is proximate to dense populations in the Northeast and is one of only a few rail surf landfills that can service the market given the capital intensity and logistical complexity. Acquisitions remain an important component of our growth strategy, and we've had a strong start to the year. We have completed four acquisitions so far in 2026, representing approximately $150 million of annualized revenues. This includes the Star Waste acquisition which closed on April 1 and adds approximately $100 million of annualized revenues. These transactions continue to align well with our strategy of building density within our existing footprint. Star Waste is an excellent example of that approach with strong overlap in Massachusetts and clear opportunities for integration and operational improvements. Our teams are making great progress on integration with an early focus on safety, onboarding our new team members in aligning integration plans. At the same time, our acquisition pipeline remains very strong, and we have our number of tuck-in opportunities in later stages that fit well within our existing markets. Overall, we feel very good about our execution year-to-date, and we believe we have a solid outlook for the remainder of the year, including adjusted free cash flow growth of roughly 14% at the midpoint of guidance. Our business proved its resiliency in the quarter as we beat our budget, expanded margins by 65 basis points in the base business and fully recovered rapidly rising fuel costs. I want to thank our employees for their continued focus on safety, service and execution. And with that, I'll turn it over to Brad to walk through the financials in more detail. Bradford Helgeson: Thanks, Ned, and good morning, everyone. Revenues in the first quarter were $457.3 million, up $40.2 million, 9.6% year-over-year with $23.9 million from acquisitions, including rollover and $16.2 million from same-store growth or 3.9%. Solid waste revenues were up 10% year-over-year, with price up 5.1% and volume down 2.5%. Within solid waste, price in the collection line of business was up 5.3% in the quarter, led by 6.5% price at roll-off and 6% price in front load commercial. As a reminder, our reported price figure represents realized price net of rollbacks, not gross price increases and is more comparable to what several of our peers report as yield. Collection volume was down 2.1%, with softer roll-off volumes in particular during a quarter of difficult weather. Price in the full line of business was up 4.7% including 4.3% third-party price at the landfills. Rental volumes overall were up 19,000 tons or 2.3% in the quarter, with internalize volume up 13,000 tons and third-party volume up 6,000 tons. The landfill business is strong coming out of the winter months, and we anticipate improved year-over-year third-party pricing in 2026 of 4% to 5%, consistent with our guidance expectation for 5% price growth overall in the solid waste business. You'll note that we are providing additional detail in our press release starting this quarter to break out disposal pricing volume between landfills and transfer stations. These metrics transfer stations give visibility to disposal market trends generally across our footprint, but not represent significant EBITDA contribution on a line of business basis in the same way that landfills do. Resource Solutions revenues were up 8% year-over-year with recycling and other processing revenue down 2.7%, impacted by lower commodity prices and national accounts up 20.7%. Within Resource Solutions processing operations, our average recycled commodity revenue per ton was down 22% year-over-year though the market has stabilized, and we expect the negative year-over-year comparisons to moderate as we move through the year. Notwithstanding market pressures, our contract structures share this risk with our customers by adjusting tip fees in down markets, so the net impact of lower commodity prices on our revenue was only about $1 million. Note that this full picture is not reflected in our processing price statistic because further offset is generated by our floating SRA fee, which shares risk with our collection customers at the curve and has passed back to the recycling facilities intercompany. Processing volume and revenue terms was up 6%. National Accounts continues to grow nicely with volume growth of 11.2% and price of 4.4%. It's worth noting the contribution of national accounts to our overall collection business. As I mentioned, we reported a volume decline in third-party collection revenue in our solid waste business in the quarter, but this does not reflect the work that we do to service our national account sales with our own trucks, which is intercompany. Including this new business coming via national accounts, we would have added 1% to the collection volume statistic for the Solid Waste segment. We generated $3.6 million in additional revenue in the quarter from higher fees, including our floating fee programs for recycled commodity and fuel risk. As Ned mentioned, we successfully covered all of the increase in fuel costs in the quarter with minimal lag as diesel prices rose quickly. Adjusted EBITDA was $97.1 million in the quarter, up $10.7 million or 12.3% year-over-year with $4.4 million of contribution from acquisitions, including rollover and over 7% organic growth. Adjusted EBITDA margin was 21.2% in the quarter, up approximately 50 basis points year-over-year overall. Bridging the year-over-year change in adjusted EBITDA margin, new acquisitions contributing at lower initial EBITDA margins than our overall business, diluted margins by 15 basis points in the quarter. The base business, excluding new acquisitions completed in the past 12 months, expanded margins on a same-store basis by 65 basis points. Recall, the privately held businesses that we acquire typically operate at lower margins, which can create short-term margin dilution. As we integrate these businesses, capture synergies and apply our operating model, they become margin expansion opportunities over time, creating a regenerative benefit as we continue to execute on our acquisition strategy. Cost of operations were $308.9 million in the quarter, up $28.5 million year-over-year, with $17.2 million of the increase from acquisitions and $11.3 million in the base business including $1.9 million from higher fuel costs, which we covered with our fuel recovery program. General and administrative costs were $58.1 million in the quarter, up $1.6 million year-over-year. As I said last quarter, 2026 will be a pivotal year as we laid the groundwork with better systems and process for becoming more efficient in our back office and generating better scale as we continue to grow transitioning to lower G&A as a percentage of revenue beginning in 2027. Depreciation and amortization costs were up $6.5 million year-over-year with $5 million resulting from acquisition activity in the past 12 months, including the amortization of acquired intangibles. Adjusted net income was $12.8 million in the quarter or $0.20 per diluted share, up $0.6 million and $0.01 per share. GAAP net income was lower by $0.7 million in the quarter on higher acquisition expenses and additional costs associated with the organics facility closure in the quarter. Net cash provided by operating activities was $62.3 million in the quarter, up $12.1 million year-over-year or 24%, driven by EBITDA growth. DSO was 34 days at March 31. Adjusted free cash flow was $30.7 million, up 5% year-over-year.. Capital expenditures were $50 million, down $5.5 million year-over-year with $9.2 million of upfront investment in recent acquisitions. As of March 31, we had $1.16 billion of debt and $127 million of cash with our consolidated net leverage ratio for purposes of our bank comes at 2.29x. On a pro forma basis for the acquisitions closed on April 1, including Star Waste, our leverage ticked up to approximately 2.75. We still have approximately $500 million in available liquidity, which will enable us to be opportunistic in continuing to execute on our growth strategy and robust acquisition pipeline. As laid out in our press release yesterday, we updated financial guidance for 2026 to reflect acquisitions closed to date. We increased guidance for revenue to a range of $2.06 billion to $2.08 billion an increase of $90 million, adjusted EBITDA to a range of $473 million to $483 million, an increase of $18 million and adjusted free cash flow to a range of $200 million to $210 million, an increase of $5 million. As a reminder, we completed the acquisition of Mountain State Waste on January 1 and it was included in our original guidance for the full year. We completed three more acquisitions, including Star Waste on April 1, so this guidance revision reflects approximately $120 million of new annualized revenue for 9 months of the year. Guidance further assumes adjusted EBITDA margins of approximately 20% and adjusted free cash flow with a typical conversion from EBITDA reflecting the incremental impact on net interest costs as we finance the transaction entirely with cash on hand and borrowing on our revolver. We have not yet increased our guidance for the base business after the first quarter. However, we are well positioned relative to our internal plan, and we'll reevaluate guidance in future quarters. With that, operator, would you please open the line for Q&A. Operator: [Operator Instructions] And our first question comes from the line of Adam Bubes of Goldman Sachs. Adam Bubes: I think you spoke about $30 million of cost reduction over 3 years between G&A and Mid-Atlantic synergies. I think that translates to something like 50 basis points of additional annual average margin expansion. I know there's always moving pieces and unanticipated bad guys. But all else equal, should we be thinking about a period of outsized margin expansion over the next couple ofyears? Bradford Helgeson: It's Brad. Yes, I think you should. We've always talked about over time. And as you said, there are puts and takes in any given quarter or year. But, generally, we like to get 50 basis points of recurring margin expansion in the base business over time. Given the, I'll call it, pent-up synergy opportunity in the Mid-Atlantic, it's been delayed by certain factors and the opportunities we see to start to get to the G&A line as a percentage of revenue in a way that the company hasn't really been able to before. We do see an above brand margin improvement opportunity over the next 2 to 3 years, I think that's a fair assumption. Adam Bubes: Great. And then you recently remarked, I think that the closure on Ontario could work out to be EBITDA neutral. Can you just talk about the moving pieces there? Presumably the closure could result in lost external tons and maybe longer transportation distances, but I think there are some offsets. So can you just help us think through the different moving pieces? Ned Coletta: Yes, sure. And we'll work on additional information on this over the next several years. But right now, we plan to close the Ontario landfill in December 31, 2028. And as you're aware, we've been working on two important permit increases in New York for a number of years going on 5 to 6 years now. And the most important, Thailand, where we're moving the tonnage up from 460,000 tons to 1 million tons a year. Ontario does roughly 750,000 to 800,000 tons a year. Mainly MSW, but there are C&D volumes that go into the site. So we will look as Ontario's winding down, we will look to shift volumes that were historically going into Ontario to both Hakes and Hyland and more and more of them into Hyland over that time period. And what's really important to note here is Ontario is our most expensive aerospace in the company to build and operate each year. And Hakes and Hyland represents some of the least expensive to build and operate each year. So we'll have it in capital efficiency, we'll have operating efficiency, and as you can do the simple math, it doesn't track ton per ton. But as we look at it from an EBITDA standpoint, we should be pretty neutral during that period. On an operating income basis, we'll actually come out the other side with a benefit, it will improve both our operating income and net income as we close Ontario. Adam Bubes: Great. And then last one for me. Can you just provide an update on where we are along the landfill gas program? I know you're not putting up dollars, but could still be a nice royalty stream. How are you thinking about the timing of the ramp there? Ned Coletta: Yes. This has been an interesting journey. So the first thing to note, I think everyone on the line notices, but we should reinforce is that we chose many years ago to not develop and invest in RNG facilities ourselves. So we've chosen partners through selection processes to develop these sites and they've invested all of the capital to develop each of the sites and bring them online. We've had mixed results, frankly. It's taken far longer for these developers to develop projects and come online successfully. And it's frankly a bit of complexity as well. As you know, managing the landfill and managing gas at the landfill appropriately within permit compliance doesn't always align with creating the best pipeline quality of gas. So we have four projects online today. We have our project at Juniper Ridge Maine, which is an RKMBP project. We have our project at North Country in New Hampshire. It's a Viridi project. And then we have two new projects that came online in Q1, both with Waga at our Chemung and Hyland landfills. And they're all kind of in shakedown stage right now, and they're generating -- we expect this year several million dollars of EBITDA from overall the portfolio of these assets. There's a wide range of outcomes, and we'll be watching very closely over the next quarter or 2 quarters and getting additional information out to the Street. The Waga projects, in particular, appear to be operating very well in these early shakedown stages, but I think we're a little early to start calling the exact production levels of each of these. Just to give you a sense, like we're running 25,000 MMBtus a month at Chemung, Hyland, North Country right now in the shakedown phase, just to give you a sense of scale. Operator: Our next question comes from the line of Trevor Romeo of William Blair. Trevor Romeo: I wanted to ask maybe one or two on Star Waste. So it sounds like a good deal. I guess, $100 million of revenue, but how should we think about the current margin profile for that business? And then I think they had done something like 8 acquisitions in the last 4 years themselves. So what are your thoughts on where they are from an operating efficiency perspective and how they kind of integrated the deals that they had done? Bradford Helgeson: Yes. Trevor, it's Brad. So our assumption for guidance purposes and external conversation is about 20% EBITDA margin. I mean it's broadly consistent with other acquisitions that we've acquired I think like with most or all of our acquisitions, we're going to seek to get those margins up materially over time. Given in particular, where Star fits into our existing business in the Greater Boston area, growth opportunities that unlocks for us, particularly on the south side of Boston, we're actually really bullish on the opportunity to improve that business within the Casella footprint over time. Ned Coletta: And on your integration point, the entrepreneur who funded -- founded Star [indiscernible] really did things the right way, hit a great team. They invested heavily in systems and process and they were integrating these small tuck-ins as they went along. And we bought a great company who's operating extremely well, has a strong management team, as I said, is a nice platform for growth into the future. This is not a fix it one. Sometimes you buy companies that we spend quite a bit of time working on fixing things and having to overinvest to get them to a certain standard, this is backed by a great PE firm Clairvest, that is putting some excellent capital into it. As an example, they just completed a great retrofit to their construction and demo processing facility, transfer station and processing facility and had state-of-the-art technology in the facility. So we're buying something that's a very nice platform and integrates well with our business. Bradford Helgeson: Yes. And you mentioned recent acquisitions the company has made something that's somewhat unique with this acquisition is they have some potential future acquisitions in their pipeline that will flow into our efforts going forward. Trevor Romeo: That's interesting. Okay. And maybe just a quick follow-up on Star again. I think you mentioned, I think the transfer station coming on in McKean could take volumes from Massachusetts now. So just in terms of kind of the disposal and maybe internalization opportunities with this deal, anything there or just maybe anything broadly on the synergy opportunities you could point out? Ned Coletta: Yes. So in this first phase, we're looking at it as more of how do our trucks, Casella's trucks pre-acquisition route to their transfer station. can we take advantage of that from a route synergy standpoint. Initially, the materials from that transfer station will continue to go to third-party sites. They have attractive contracts with several third-party disposal sites. We'll look at that long term to see if there's an internalization opportunity. But that's not one of the first phases of synergy. If we're able to advance permits in New Hampshire over the next several years and develop additional landfill capacity in New Hampshire, it would be very strong vertical integration there. Trevor Romeo: Yes. Okay. Great. If you don't mind, maybe one more quick one. Just on the national accounts business because I think obviously very strong growth there. I think that business has a sort of a margin mix impact. So if you think about that growing, call it, double the rate of the company. Maybe you could just remind us kind of the incremental margins on that business and whether that makes the 65 basis points of kind of base business margin you're talking about, maybe we keep them better on an underlying basis? Bradford Helgeson: Yes, it's a good question. So we love that business. Obviously, as you alluded to, the growth profile, it's very little capital investment. It helps to drive business back across our solid waste segment to the extent that there are customers that are coming in to the national account sales effort that are serviced, ultimately by our own trucks. That's the kind of work that we love. Really, the solutions-based sales effort aligns really well with Casella and our strengths and our focus areas. So it's a great business. The only footnote, I guess, from a financial standpoint is low market because it's low capital and the nature of the business. So on an EBITDA margin basis, it's mid-single digits, mid to upper single-digit EBITDA margin. So if you were to pull national accounts out that would be accretive to our EBITDA margin. But obviously, there are many other factors that lead us to think this is a great business that we want to push forward. Operator: Our next question comes from the line of Tyler Brown of Raymond James. Tyler Brown: I want to come back to the 4.3% landfill price number. I think that number last quarter was 2.5%. So that's a really nice acceleration. But can you kind of talk about what drove that acceleration? Was the issue more about last quarter being a bit lower? Or was it a more concerted effort this quarter? Just any color on that metric specifically? Ned Coletta: Yes. So we're working hard to get more process and discipline around our sales efforts up and down the company and great new hire and Chris Rains. And about 1.5 years ago, our longtime lead of landfill sales stepped away, and that responsibility was kind of absorbed across a couple of other places. And we frankly didn't have enough management of pipeline, quality of revenue and what we're doing. And we rebuilt that through 2025, and we're working to further advance it now under Chris' leadership. So I think it's one part like -- we didn't get the job done as well as we could have gone it done. And two, frankly, for a little bit there. There's a one rail move that was ramping up out of New Jersey that was putting a little downward pressure on the overall Northeastern environment, that rail move is full now as a third-party company is moving waste out of New Jersey out to Ohio really don't have a lot of excess capacity in that system. So they never directly took one of our customers, but generally probably a little bit of pressure on the overall environment as well. Tyler Brown: Okay. Okay. That's helpful. And then quickly on Star. Just to be clear, they are not or at least not materially in heavily flow-controlled markets tied to the Massachusetts burner. So internalization could be an opportunity long term? I just want to understand that. Ned Coletta: Yes. There is no flow control in those markets. But as with any major metropolitan market, traffic matters in the positioning of assets matter, so as Brad said earlier, we're really strong today, Boston, Boston North to the West, stars very strong to the south from the positioning of their hauling businesses. And it really gives us the opportunity to grow in those markets. We've had the strongest organic collection growth over the last decade in the Greater Boston market. And you kind of think about this from our sustainability, our resource solutions approach, the integration with our state-of-the-art recycling facility in that market, we've sold a lot of really premier customers, and we've grown share of wallet. And we think we can kind of expand upon the success Star has had in a similar way over the next coming years. Tyler Brown: Okay. Great. And then Brad, just to help us on Q2 margins. So I know that there's a normal step-up because it kind of unthaw, if you will, up in the Northeast. Revenue kind of takes a step up sequentially. But then you've got acquisitions that are dilutive by nature, fuel is dilutive by nature. Can you just give us any color on how we should think about margins either sequentially or year-over-year, just to kind of get us in the right spot. Bradford Helgeson: Yes. So as you pointed out, sequentially, margins are much better in the second quarter and then advancing into the third quarter in our business, particularly given our geography. On a year-over-year basis, I mean you really mentioned the two main factors that we'll be dealing with this second quarter, which is fuel surcharges. I mean we'll see where fuel goes over the second quarter, but higher fuel costs that are covered by our recovery fees or, of course, margin dilutive and the acquisitions. So we'll see how the acquisitions impact things. Another point I would make on the base business, just thinking about your modeling quarter-over-quarter is the synergies in the Mid-Atlantic and also actually the G&A savings that Ned had mentioned earlier, those will be more back-end loaded. So we'll start to see, as we've completed the consolidation of the Mid-Atlantic onto our system. We're going to start to see those benefits in the second quarter of the synergy realization, but that's really a Q3 and Q4 story more so -- and then the convenience fees that Ned mentioned are entirely back-end loaded. So Q2, we'll see where we end up. There are some headwinds as you mentioned. But our focus is really on frankly, the third quarter and the fourth quarter for this year and then, of course, going into 2027. Tyler Brown: Right. But if your kind of updated guidance is flattish on the margin line with the dilution. So is it -- is it crazy to think it could be slightly down in Q2 on a year-over-year basis, up sequentially though? Bradford Helgeson: It's a really good question. That's not crazy to think that way. Ned Coletta: But to be clear, the base business will be the positive acquisitions could weigh on it slightly negative. We weren't able to get fully under the hood on [ Star Waste ] and a [ DOJ ] process on the customers to wrap all of those things until really day 1, Tyler. We're digging in now and really looking at the progression of what we can do there. So as we said, probably little more overhang on margins of 20-ish percent to start with and look to improve from there. Tyler Brown: Okay. I just want to make sure I had that. And then just last one, if I can, Ned. This is a bit of a periphery question, but I'm kind of curious about it. So I think in Massachusetts, there are a couple of larger landfills -- sorry, ash landfills that are set to close in coming years that are kind of related to some of the burners. How do you think that's going to play? And what do you think and how will they deal with that excess ash? Ned Coletta: Yes. So it needs to go somewhere and it needs to go to Subtitle D landfill. So that will take up capacity in the marketplace is something that really hasn't been discussed. I can't get into a lot of details there, but we believe there's some real value working with some of our peers across the waste-to-energy business on certain of those streams, and it's an area that we've been actively engaged, and we think there's some value creation over time. And hopefully, we'll have more to report. But it's a great point. I think the easiest part of the point is those landfills are closing or filling up. And that ash, the further you move it, the more expensive it gets, and we've got some great in-market solutions. Our McKean rail facility actually fits very, very well with some of the burn plants as well. Bradford Helgeson: And Tyler, you mentioned Massachusetts landfills, but there's -- as a reminder, there's also a lot of ash that goes into the Brookhaven landfill on Long Island, which is going to be closing ash over the next few years. Ned Coletta: Yes, that's as much as 400,000 tons a year that goes into that landfill today. And the Brookhaven landfill, that caused a little up when it was closing from a C&D standpoint, but it's still open for ash through the next 2 years and to be closed at that point in time. And there's still -- and we talk about this sometimes, it ebbs and flows. As we look out over the next 10 years, there's still a lot of disposals coming offline in the Northeast. And as you pointed out, some of these sites are just taking ash. But at any point in time, you could go through a year period of time where you have a little bit more capacity like we did in 2025 of rail, then that fills up, people look to the next phase of sites closing. So I think the long-term horizon is still the same as we've been talking about for years. There's a supply-demand imbalance in these markets and our in-market capacity is very valuable and we'll continue to have pricing power. Operator: Our next question comes from the line of Jim Schumm of TD Cowen. James Schumm: So that's actually my question is I wanted you guys to address a little bit more the supply/demand situation in the Northeast because I think a lot of investors are solely focused on rail or hearing rail is moving waste out and maybe you look at some of the landfill pricing recently, which is sub-5%, which maybe is not that impressive to some folks. And there's a concern that landfill pricing is going to be depressed longer term. So I just wanted to get your views. We've talked about you've talked about a couple of moving parts. But like what is your longer-term view on your Northeast landfill pricing. From time to time, you are going to see these rail projects move waste out. But when you guys look at the closures, what does that mean for pricing in 2027, 2028, 2029, can you get -- is it more mid-single digits? Can you get upper single digits at some point? Or like how are you guys thinking about that? Ned Coletta: Yes. Thanks for the question. So if we look at the last decade plus, pricing at the landfills has generally been mid-single digits in its range from a couple of lows for us and in 2025, the highs as much as 8% or 9% during that time period. And it really depends. I mean, you need to look at the book of business. So some of our outside years also have a relationship with big large contracts that might be renewing in those periods, and there might be step-ups in those contracts. So they have a 5-year contract and the market continues to tighten over the 5 years, you might get some of those outsized pricing years around those resets. But generally, we're kind of stacking up that mid-single digits. And I think we feel really confident that if we can price at those levels, we'll have a great economic outcome and returns for shareholders. I said it to Tyler a minute ago, and I feel the same way. If you look at all the sites that we'll be closing over the next decade, there's not enough space for all of this waste in the marketplace. So then you start to look at what are the alternatives. The best alternatives are in market, right, where you can use a truck, move the waste via long-haul trough to a landfill or to a waste-to-energy plant. The more expensive solution both capital and operating costs is to move it via rail. It's far more expensive, but it's the only viable option as in-market capacity comes out. So we see that as a tailwind for us over the next number of years as well. Sites will be closing. We've got a great outlook on capacity. We have over 25 years at our sites today. We've got some important expansions in progress -- process that are working well, and we expect to land those in the next year. And we look at the backdrop, which should be positive over the next decade. James Schumm: Okay. Great. And then I just wanted to ask you another question I get from investors a lot is you have this network of landfills in the Northeast and then you make this platform acquisition into the Mid-Atlantic and then you're growing west or southeast from there. But you don't really have any landfills in this -- in this area. So you kind of McKean in Pennsylvania, but what is the -- how should people think about your collection margins, what is the sort of the ultimate goal? I mean can you earn 30% margins without a landfill in Mid-Atlantic geography? Or is it more like should we be thinking more like 25%? And I know that you guys have said it's closer to 20% right now, and let's think about 25%, I think, over the next couple of years. But longer term, is there upside to that 25% number? Ned Coletta: Yes. So one of the things that's important to note is we use market-based pricing at all of our landfill or recycling facilities or transfer stations. So we charge our self market-based rates. So if you look at our collection business, say, in the Northeast, where it's vertically integrated, the margins produced by that collection business are apples-to-apples to Mid-Atlantic because we're charging intercompany market-based rates. And we generally generate about 30% EBITDA margins on our collection line of business. In the Mid-Atlantic today, our margins are roughly 20%. This is not because we don't have landfills. This is because we have work to do. This is a business that the quality of the truck fleet was lacking. There wasn't enough density in certain parts, quality of revenue. And we've got strategies around each of these points, and we've laid out a plan for the next 3 years as we put more automated trucks in the fleet, collapse routes to add about $15 million of EBITDA to that market, which will translate to mid-20% margins. Having landfills is a great thing and having the vertical integration. But what also is important is having the right transfer assets. So you can get your trucks off the road, consolidate waste and then be able to look to multiple disposal options. And much of our focus right now in the Mid-Atlantic is either on buying or developing the right transfer assets in that marketplace that will allow us to successfully continue to grow. And we've had some great progress here. We've bought an excellent transfer station last year in the third quarter. We're working on some additional opportunities. We have a new recycling facility we just bought on April 1. We're working on developing another recycling facility ourselves. So you'll look to see that margin progression come up and we do look at over time is apples-to-apples, and we'll be able to have the trajectory, hopefully, over the number of years to get the same 30% margin level. Bradford Helgeson: Yes. And I just sort of add on to that is not air market is created equal, of course, from a disposal perspective. So having the security of disposal capacity in our markets in New England, let's say, upstate New York is incredibly strategically valuable. You contrast that with the Mid-Atlantic Eastern Pennsylvania will be a great example, there's plenty of landfill capacity down there. We like the landfill business. It would help margins. We wouldn't turn down the opportunity to own landfill there, but it's not a strategic imperative. I think the focus, as Ned said, the focus down there is really going to be building out our transfer station network so that we can most efficiently access the disposal sites that are down there. Operator: Our next question is Tami Zakaria of JPMorgan. Tami Zakaria: Congrats on the nice results. We've seen the CPI tick up lately. So can you remind us how any acceleration in the headline CPI impacts your pricing maybe on the entire parts of the portfolio? And is there a typical lag? Bradford Helgeson: Yes. So, hey, Tami, it's Brad. It does impact our pricing on some of our business. most notably, municipal contracts, that direct relationship between the contract pricing and the underlying inflation index. But as a reminder, 75% of our collection business is open market, meaning we just have service agreements directly with customers where pricing is wherever we want to set it and whatever the market will bear and whatever is appropriate given our underlying cost inflation. So I would say, directionally, it impacts us, but actually not necessarily directly because we have total flexibility to react to the circumstances. Ned Coletta: But I think higher CPI prints in a certain way to do allow maybe a bit more pricing spread. But as Brad said, 70%, 75% of our book of business, we can price it well, and we've shown that amazing flexibility over time. Last year, we talked about this. We saw our price/cost spread narrow more than we wanted to in the first half of the year. And we came out on a select group of customers with a second set of price increases in the last half of the year. And we thought that was an important thing to do to get that spread back to where we believe it should be. So we're trying to be really dynamic. But of course, the CPI print is something we're always looking at, but we're also looking at our own cost profile where we need to be. Operator: Our next question comes from the line of Shlomo Rosenbaum of Stifel. Shlomo Rosenbaum: Net, it was just echoing that it was really good to see that third-party landfill pricing stepping back up. And you talked about two factors, one of your own, just putting in more effort and ensuring appropriate pricing and getting good business. And the other one was rail. Just in terms of the impact over the last few quarters and then the turnaround, would you say that it was more a matter of turning around because the rail -- the competitor just kind of filled up already over there? And the other aspect I want to just dig a little bit into is, do you have a sense in terms of the comparison between the rail pricing and what you're getting at your own kind of transfer stations and tipping at the landfills? Just at what point would it make more sense for someone else to add a lot more capital and just go ahead and add more capacity through rail. I guess what I'm trying to just get at is to understand the risk of kind of something just kind of popping up again? Or is it something that is unlikely because the amount of capital would be very expensive. And right now, given the comparability of cost is not worth it? Ned Coletta: Yes. Great questions. So I'll start off with your first question around the pricing in the quarter and the pricing trajectory at our landfills. As I mentioned earlier, I think it was one part kind of pipeline management and quality of revenue we are seeking and managing the customer base. And one part looking at certain rail roof that was ramping up out of New Jersey over the last several years that they gave some negative pricing pressure to the overall marketplace. If you look at -- there's only a few landfills that except railways from the Northeast or just railways in general. And a few of them have some excess capacity, but they're very expensive to get to, and it takes a long time in a lot of rail exchanges. A few of them are a bit closer to the market and more reasonably cost. And if we look at both sides of that equation, one, the capacity to actually move more railcars each day out of certain transfer stations, and two, the actual capacity at these landfills against their daily permits, you're seeing both sides that have constraint today. And the last factor, and we heard about one of our competitors talked about this on their earnings call last week. Generally, I would say the major companies who have rail service landfills, including Casella, we're not looking at these as merchant sites where we're looking to get the lowest cost waste. We're looking at these as long-term defensive strategies to take care of our own customers. And we talked -- we heard this one company talk about how the vast majority of their rail move was really tied to their own tons in New York, state in New York City and looking to gain certainty there of cost and certainty of disposal. And Casella looks at through the same lens and I know others do as well, where this isn't a merchant play to seek the bottom of the market. This is very capital intensive, very costly move to material. So coming back to your point, this one competitor is ramping up capacity. They're at capacity today on the transfer side forming the trains and they're generally at capacity at the landfill side. So they're going to look to returns and pricing quality. They don't have room for a lot more tons. So I think through periods like this, what we do is we look at returns on our sites, and we're laser-focused on taking the right materials in at the right price and long-term return profiles because the scarcity is real, and you can't replicate any of these assets. Shlomo Rosenbaum: Okay. Great. Then I just wanted a little bit more tactically in the quarter, you drove that large EBITDA margin outperformance. And even though in the beginning of the year, you were talking about there being more margin expansion in the second half of the year. And really drove pretty good margin expansion this quarter. And I was wondering what went better than expected just from an operational perspective, like what surprised you? Or where were you able to really execute better than you thought you would? Bradford Helgeson: One example of where we did a little bit better than we expected and better year-over-year was on the maintenance side. So in the Mid-Atlantic, where, as Ned was talking about, where just on the cusp of completing our system integration and... Ned Coletta: Next week, Brad. Next week. Bradford Helgeson: Next week. There you go. To be in a position to execute on our synergy plan. But we've also -- as we've been working on that, we've received delivery of a large number of trucks into that market. And so the ongoing maintenance costs, equipment rental for us to keep trucks on the road to keep customer service. We no longer have a need for those. So that's just one example, not necessarily the old story, but that's been a nice tailwind for us. Shlomo Rosenbaum: Okay. If I could just squeeze one more in. Would you mind just going over the volumes in terms of year-over-year growth along the various lines that are kind of cyclical. So the special ways to see indeed, the temporary poles, just the things that people are looking at to see where things are going cyclically. Bradford Helgeson: Yes. So on the -- first off, on the collection side, the portion of our collection business that is most cyclically impacted is the roll-off business. The roll-off was down a little over 3% year-over-year. So that's something that we look at and point to for where the economy might be impacting us. In our case, I think it was probably more weather than it was economy, but that's an area we look at. On the landfills, we saw MSW stronger. We saw C&D stronger. C&D would be a potentially economically cyclical volume stream. One area where we did see relative weakness year-over-year, which impacted us on mix was special waste volumes. So again, that's another area where we don't have perfect knowledge on whether that's weather, whether that's uncertainty given the fact that we're at war and projects not moving forward, hard to know exactly, but that's another area where we may have seen it. Ned Coletta: Yes. In a particularly cold winter, though, many of those jobs, whether they be infrastructure jobs or the start major construction projects where you're digging out contaminated soils or even just industrial jobs where you're dredging out industrial lagoons and things like that, like they're just not happening at the same pace in the winter and not to blame the weather, but when it gets really cold, you're just not doing that work. Operator: Our next question comes from the line of Harold Antor of Jefferies. Harold Antor: This is Harold Antor on for Steph Moore. Just one for me. I guess just on the pricing front, I think you did 5.1% in the quarter and the guide at around 5%. So I guess, typically, 1Q is a high watermark. So I guess, will we expect I guess this implies kind of consistent pricing at these levels for the rest of the year. I guess what's kind of driving that? Do you expect second half pricing to ramp just given improvement in the Mid-Atlantic? Anything there? And I guess just on -- could you remind us how churn performed in the quarter? I think the industry has been seeing better churn metrics in the quarter. So I just wanted to get a sense for what churn around for you guys and how that -- and if you're doing -- making any investments on the tech side that's improving that? Bradford Helgeson: Yes. Hey, Harold, it's Brad. So we feel pretty good about the trend of pricing as we look forward to the end of the year. I guess a couple of points to highlight. One, and really, this is really a function of the price number that we report. We're not reporting the price increases that we go out with and then see that number erode as prices are rolled back over the course of the year. I mean that's a net number of rollbacks. So it's not one that all else being equal, should deteriorate over the course of the year. The other important point I think for us right now is the Mid-Atlantic. So given where we are with systems consolidation, we've had very limited ability to assess pricing across the customer base, assess profitability and implement our pricing programs with the intelligence and specificity that we do in the rest of our business. So we would expect that to be a consistent tailwind over the course of the second half of this year and into next year on pricing. As far as technology and Ned hinted at this in his prepared remarks, we're actually on the cusp of rolling out an app and really a different way of accessing the customer and meeting the customer where they want to do business, where they can pick up an app and sign up for service rather than picking up the phone. Ned Coletta: Yes. In our digital customer engagement, e-commerce activities are right now across about 60% of our markets will be across 100% in the third quarter. And this is actually our fastest-growing sales channel, as you can imagine, and we're rejiggering our back office, our sales alignment to support the growth as well. Operator: Our next question comes from the line of William Grippin of Barclays. William Grippin: Great. I appreciate you squeezing me in. Just one quick one here. But given the Star Waste acquisition on April 1, and that was kind of a chunkier deal, could you just elaborate a little bit on how you're thinking about maybe balancing leverage versus further tuck-in M&A over the balance of the year and just your capacity to do that following Star Waste. Bradford Helgeson: Yes. I mentioned in the prepared remarks that pro forma for Star and the other two acquisitions that we closed on April 1, we're at about 2.75 leverage. That has room to grow. We don't aspire to be highly levered. I think a key tenet of our capital allocation strategy and capital strategy generally has been to maintain moderate leverage to stay nimble and for risk management purposes. That all being said, at [ 275 ], we do have capacity to move down a bit higher. And for immediate quickly emerging opportunities, we have about $500 million of available liquidity. So we're not done. We're looking at a lot of attractive opportunities. Our pipeline is healthy, and we'll see what we can cross over the course of the year. Operator: I'm showing no further questions at this time. I will now turn it back to Ned Coletta for closing remarks. Ned Coletta: Thank you, everyone, for joining us today. We look forward to speaking with you again in early August to discuss our second quarter results. Everyone, have a wonderful day and weekend. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Encompass Health First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mark Miller, Encompass Health's Chief Investor Relations Officer. Please go ahead. Mark Miller: Thank you, operator, and good morning, everyone. Thank you for joining Encompass Health's First Quarter 2026 Earnings Call. Before we begin, if you do not already have a copy, the first quarter earnings release, supplemental information and related Form 8-K filed with the SEC are available on our website at encompasshealth.com. On Page 2 of the supplemental information, you will find the safe harbor statements, which are also set forth in greater detail on the last page of the earnings release. During the call, we will make forward-looking statements, such as guidance and growth projections, which are subject to risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties, like those relating to regulatory developments as well as volume, bad debt and cost trends that could cause actual results to differ materially from our projections, estimates and expectations are discussed in the company's SEC filings, including the earnings release and related Form 8-K, the Form 10-K for the year ended December 31, 2025, and the Form 10-Q for the quarter ended March 31, 2026, when filed. We encourage you to read them. You are cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information, at the end of the earnings release and as part of the Form 8-K filed yesterday with the SEC, all of which are available on our website. I would like to remind everyone that we would adhere to the one question and one follow-up question rule to allow everyone to submit a question. If you have additional questions, please feel free to put yourself back in the queue. With that, I'll turn the call over to President and Chief Executive Officer, Mark Tarr. Mark Tarr: Thank you, Mark, and good morning, everyone. We are pleased with our start to 2026 as first quarter revenue increased 9% and adjusted EBITDA increased 11.2%. Based primarily on our Q1 results, we are raising our guidance for 2026. Doug will review the details in his comments. We achieved these strong results while once again delivering outstanding patient outcomes. Compared to Q1 of '25, our discharge community rate improved 50 basis points to 84.5%. Our discharge acute rate improved 30 basis points to 8.6% and our discharge to SNF rate improved 20 basis points to 6.2%. Our performance on each of these quality metrics exceeds the industry average. We continue to invest in our clinical staff by providing professional growth and development programs such as our career ladder programs, providing nurses with support to attain Certified Rehabilitation RN Certifications and offering in-house continuing education opportunities. We've seen increased participation in and benefits from these development programs. We believe our success in these programs contributes to the continuing improvement in our clinical staff turnover trends. Q1 of '26 annualized RN turnover was 17.8%, down from fiscal year '25's 20.2% and annualized therapist turnover was 6.4%, down from last year's 7.8%. This represents our lowest RN turnover rate since at least 2012 and helped drive a 9.4% decline in premium labor spend compared to Q1 of 2025. We also believe that our clinical advancement programs and reduced clinical staff turnover further enhance our abilities to serve high acuity, medically complex patients and increase patient satisfaction scores. Demand for IRF services remains strong, and we are continuing to invest in capacity additions to meet the needs of patients requiring inpatient rehabilitation services. In Q1, we opened a new 49-bed hospital in Irma, South Carolina, our 11th hospital in that state. We also added 44 beds to existing hospitals. Over the balance of the year, we plan to open 7 more hospitals with a total of 340 beds and add an incremental 100 to 150 beds to existing hospitals. We continue to build and maintain an active pipeline of new hospital development projects, both wholly owned and joint ventures, while also executing on bed expansion opportunities as dictated by occupancy trends and market dynamics. Our pipeline of announced new hospital projects with opening dates beyond 2026 currently consists of 11 hospitals with 520 beds, and we anticipate additional projects, including small format hospitals will be announced over the balance of the year. We have previously discussed the innovation of our small-format hospital, which will serve to facilitate a hub and spoke strategy in large and growing markets. We are confident we will open at least one small-format hospital in 2027 with the potential to add more depending on the timing of pending real estate transactions. The small-format hospitals will operate as remote locations under the same Medicare provider number as an existing in-market hospital and will share certain administrative services with that hospital. Small-format hospitals will complement our existing de novo and bed expansion strategies. This is a particularly active year on the regulatory front, with implementation of TEAM beginning on January 1 and expansion of RCD into Texas effective March 1 and California beginning today. We will work to address these developments as we have the numerous other regulatory challenges we have successfully navigated in the past through extensive preparation and proactive refinements of our operations. This is not to say that we will be immune from short-term transitory impacts to our business. Nonetheless, the fact remains that demand for inpatient rehabilitation services remains considerably underserved and is growing as the U.S. population continues to age. We are uniquely positioned to address this important societal need. On April 2 of this year, CMS released the 2027 IRF proposed rule. The proposed rule included a net market basket update of 2.4%, which we estimate would result in a 2.4% pricing increase for our Medicare patients beginning October 1, 2026. We expect the IRF final rule to be released in late July or early August. With that, I'll turn it over to Doug. Douglas Coltharp: Thank you, Mark, and good morning, everyone. Q1 revenue increased 9% to $1.59 billion and adjusted EBITDA increased 11.2% to $348.8 million. The revenue increase was comprised of 4.3% discharge growth, inclusive of 1.6% same-store discharge growth and a 3.7% increase in net revenue per discharge. Net revenue per discharge growth benefited both from patient mix and a favorable year-over-year comparison in the annual Medicare SSI adjustment. Bad debt expense increased 20 basis points to 2.2%, primarily as a result of writing off claims from 2013 associated with the legacy audit appeal. As a reminder, since the end of Q2 2025, we have closed 3 IRF units hosted within acute care hospitals as well as our lone SNF unit hosted within one of our freestanding hospitals. Together, these 4 units were essentially breakeven in terms of adjusted EBITDA. The unit closures impacted total and same-store discharge growth in the quarter by approximately 85 basis points. The impact on future period discharge growth will diminish as we consolidate this volume into other proximate hospitals and as we anniversary the unit closure dates. We expect to add 66 beds to our existing hospitals in these markets. We previously announced the closure of our 18-bed unit hosted within our acute care hospital JV partner in Evansville, Indiana. This closure will occur in early 2027 and represents another market consolidation opportunity. We are in the process of adding 40 beds to our existing freestanding hospital in this market to support the consolidation and future growth. These incremental beds are expected to be operational in late 2026. Following the Evansville unit closure, we will have 9 remaining hospital-in-hospital locations with no further closures currently planned. The hospital and hospital format remains a viable strategy to capitalize on market opportunities. Over the next 2 years, we expect to open 3 additional hospital and hospital locations in existing markets. These 3 projects are already in our bed addition assumptions and will address needed capacity in these markets. Q1 SWB per FTE increased 3.7%, driven in part by the increased participation in our career ladder programs Mark discussed earlier. Greater participation in career ladder programs leads to more of our clinical staff obtaining higher licensing and compensation levels. Over time, we believe this drives financial and operational benefits, primarily in the form of reducing turnover and premium labor costs. Premium labor costs comprised of contract labor and sign-on and shift bonuses declined $2.7 million from Q1 '25 to $25.9 million. Contract labor FTEs as a percent of total FTEs was 1.2% in Q1, down 10 basis points from Q1 '25. Net pre-opening and ramp-up costs were $4 million. We continue to expect net pre-opening and ramp-up costs of $18 million to $22 million for the full year 2026. We continue to generate significant free cash flow. Q1 adjusted free cash flow was $194 million. Our primary use of free cash flow continues to be capacity expansions. During Q1, we repurchased approximately 708,000 shares of our common stock for a total of $71.6 million. We paid a $0.19 per share cash dividend and declared another $0.19 per share cash dividend that was paid in April. Our leverage and liquidity remain well positioned. Net leverage at quarter end was 1.9x. Based primarily on our Q1 results, we have raised our 2026 guidance as follows: we now expect net operating revenue of $6.375 billion to $6.470 billion, adjusted EBITDA of $1.35 billion to $1.38 billion and adjusted earnings per share of $5.89 to $6.11. The considerations underlying our guidance can be found on Page 11 of the supplemental slides. And with that, operator, we'll open the line for Q&A. Operator: [Operator Instructions] And we'll take our first question from Ann Hynes with Mizuho Securities. Ann Hynes: So I know your organic volume discharge growth was impacted by closures. Do you have a number of what that would have been if you exclude the closures? Douglas Coltharp: Yes. As I mentioned in my comments, the impact of the closures was approximately 85 basis points, and that would be the same for both total and same-store. And again, we would anticipate that, that impact will diminish through the course of the year because we're going to be consolidating some of that volume and in certain instances, adding beds to those markets, the existing hospital in those markets, and then we'll also be anniversarying the closure date. Mark Tarr: And then just a reminder as Doug noted earlier, there is no impact on EBITDA. That was discharges only. Ann Hynes: Okay. And then just your comments around nursing. You have the lowest nursing turnover in 2012, which is very impressive. What do you think is driving that? I'm sure there's internal factors and external factors like inflation, but any observations you can provide on why you think that's so low? Mark Tarr: And I'm going to ask Pat Tuer to weigh in on that. Patrick Tuer: So, Ann, the -- a couple of things on that. We talked about our centralized talent acquisition team before, and they have done a great job bringing talent into our organization. Net hiring for the quarter was higher, in fact, than the first 2 quarters combined last year on a same-store basis. And on the turnover front, our ladders are really starting to take hold. So we have about 35% of our nursing staff is now on clinical ladders. That's up about 300 basis points from last quarter. Turnover -- if we can get a nurse on the ladder in Q1, the turnover for that group was a little over 2%. It was 2.6% compared to 20.7% for non-laddered nurses. So really, our hospital teams are doing a great job engaging our staff to become more organizationally rooted and get into these ladder programs and as a result, earn more compensation. I would say more broadly, the dynamics around the labor environment can be unpredictable, but we have seen a lot of positive momentum from a hiring and retention standpoint. Mark Tarr: And as Pat noted, having that centralized talent acquisition here in Birmingham frees up the local hospital staff then to do nothing but really focus more on retention. So there's a lot of other programs involved, but certainly, clinical ladders are an important part of the tools they've added in the last couple of years. Operator: We'll take our next question from Matthew Gillmor with KeyBanc. Matthew Gillmor: Maybe following up on Ann's line of questioning on the same-store volumes. The [ 2.6% ] number, if you adjust out the 85 bps is still a pretty healthy number, but slightly moderated from the trends you saw in 2025. Curious if there were any other sort of puts and takes to think about and how you're sort of thinking about same-store volume performance for the balance of 2026. Douglas Coltharp: Yes. And Matt, we don't want to make it sound like a litany of excuses, but since you've asked for further insight on volume, I think we would cite 4 factors in the first quarter. The first was the unit closures, which we've already covered. The second is occupancy levels, and I'll go through that in more detail in just a moment. The third is something that you've heard from the acute care hospitals reporting, which was it -- was a relatively light, meaning low severity flu and respiratory season. And the fourth is some continuation of the MA trends that we experienced in Q4. To dive a little bit deeper on the occupancy story, our Q1 average occupancy of 78.7% was essentially flat with our record high levels in Q1 of '25, and that was up 200 basis points from Q1 of '24 and up over 500 basis points from Q1 of '23. And that's reflective of our strong growth and as Mark pointed out, the underlying demand for inpatient rehabilitation services. To meet that demand, we've obviously been adding beds via de novos and bed additions, and we've been seeking opportunities to convert semi-private rooms to private rooms, that's something we've talked about quite a bit before. At the end of the first quarter, 58% of our beds were private, and that compares to 41% being private at year-end 2020. But in spite of those efforts, occupancy has become a bit of a constraint in certain markets. In Q1, approximately 35% of our hospitals had occupancy in excess of 90% with that cohort having an average occupancy of 95%. A subset of that group is comprised of relatively recent de novos that have been growing quickly, and they crossed the 90% threshold in Q1. More than half of our hospitals within Q1 that had occupancy in excess of 90% are slated for bed additions between 2026 and 2028, and we're anticipating adding more of those hospitals to the list as well as introducing small format hospitals per Mark's discussion in certain of those markets. So we probably fell a little bit behind because the growth was faster than we anticipated, but we've got a plan to address that. Just a little bit more commentary on the flu and respiratory season. Debility for us is a proxy for the severity of the flu season and also for respiratory illness. And as you've heard from the acutes, Q1 '26 was relatively light in that regard. Debility is approximately 11% of our patient mix, and it only grew by 70 basis points in total for the quarter and actually declined 1.5% on a same-store basis. That's purely a seasonal item, and it's going to fluctuate from year-to-year. And then again, MA continued to be a bit of a struggle as we moved into the quarter. I'd probably there point to some things on a longer trend. We can talk about, obviously, the success that we're having with regard to the admit and appeal strategy that we began implementing at the end of February. That's very early on. It's only in 9 hospitals, but we're seeing some good traction there. But some of the things that you've probably been hearing nationwide on an MA basis that are worth underscoring is that nationwide MA penetration appears to have peaked at approximately 52%. And it's now actually receding slightly as a matter of fact, if you look at the year that ended in March of '26, 20 states experienced a decline in MA penetration from the prior year. And we have hospitals in 12 of those states. And if you drill down even further to our home counties, 48 of our 154 home counties or 31% had a year-over-year decline in MA penetration. So we're not necessarily saying that there's going to be a wholesale abandonment of MA, but what we would point to is there continues to be a very large population of Medicare fee-for-service patients that continues to grow that remains considerably underserved. Patrick Tuer: Just to add a little bit to that, Matt, this is Pat. Doug talked about how half of the hospitals are being -- have capacity expansion plans underway. That could beg the question, what about the other half? And those are all under evaluation as well. Some of those are landlocked. Some of those are in competitive markets where it makes more sense for us to consider a small format hospital. But we're looking at a lot of options in those markets as well. In addition, one of the things that we found is we have ramped up in many of these markets faster than anticipated. And as a result of that, we've historically talked about how we have looked at hospitals to have an occupancy between 80% and 85% for us to start the bed expansion process. Well, that worked for a long time. But what we're seeing now is that the process can take a little longer. The permitting process takes longer than it used to. The regulatory process can take longer than it used to. So we have lowered the threshold internally where we're now looking at 70% to 75% from an occupancy standpoint. And that -- what we're hoping is going to allow us to time these capacity additions a little better so that when the capacity is available when the occupancy is reaching to the point where we actually need it. The other thing that I'll mention is we typically build a 50-bed hospital, and we've been talking internally about in some markets, should we be looking at larger footprints. And that's something that we're also evaluating currently. So we have several plans to address these occupancy challenges and constraints moving forward. Douglas Coltharp: I will say with regard to occupancy, it meets the definition of a high-quality problem. Matthew Gillmor: Yes, I agree with you. That's great. Let me try one follow-up on the Medicare proposal. Within that proposal, there was an RFI to potentially make some adjustments to the payment model. From our perspective, it seemed pretty neutral. But I was curious if you all had any initial reaction or maybe it's even too soon to kind of give an educated guess, but any perspective there would be great. Patrick Tuer: Yes. This is Pat again. And I think we're aligned with your -- some of the points you made in your question. So this is a concept at this point. It's not a proposal, and it lacks many of the details necessary for us to model out what the particular impact could really look like. But it's not any sort of site-neutral concept. And in fact, it would look more to change the SNF PDPM buckets to account for the unique and more complex patient populations that are treated in IRFs. And the new process would ultimately be based on ICD-10 coding for both levels of care. So it's more just trying to make things uniform from how things are coded and classified rather than any type of site neutral push. But too soon to tell, not really a concern for us right now. Mark Tarr: Matt, we -- as we always do, we'll be responding to the proposed rule with our comments as a company as well as working closely with the trade associations to contribute to the feedback to CMS. Operator: We'll take our next question from Andrew Mok with Barclays. Andrew Mok: Just wanted to follow up on those comments around MA trends. So you previously called out aggressive utilization management from a large national Medicare Advantage payer. Is this issue broadening out to other payers? Or is more of the MA drag coming from the higher fee-for-service volumes? And if the latter, why is that the case? Douglas Coltharp: I'm not sure I fully understood the second part of your question. The first part of your question, has it extended to other payers? Now the trends from Q4 to Q1 remain pretty consistent. And again, I want to highlight that as we mentioned last quarter, we did begin implementing a strategy for MA patients in certain markets of admit an appeal. And as a reminder, whereas previously, for a very high percentage of the patients on which we received an initial denial, we would simply not admit the patients and move on and not attempt to take that any further. Towards the end of February, in 9 of our hospitals thus far on certain MA patients where we believe we have a very strong case that referral is appropriate. We are now admitting those patients even with an initial denial and taking them through the 5 various levels of appeal. We've started to see some positive results there, and we anticipate rolling that out further. It's important to note that, that is not targeted at any one particular MA plan that is based more on the specific patients and not the plans. Andrew, could you help clarify me on the second part of your question regarding fee-for-service? Andrew Mok: Yes. I think you made a comment that the slower MA membership growth -- industry membership growth is creating maybe a little bit of a volume drag. I guess why is that the case if fee-for-service penetration is a little bit higher? Douglas Coltharp: I was going the opposite. I think for many years, what we were observing is that an increasing percentage of newly minted Medicare beneficiaries were signing up for MA. And so the total MA penetration of the MA beneficiary population had been increasing. But it appears that it peaked at about 52%, and it's actually backing up now. And I was giving some specificity about how MA penetration in some of our home markets has receded, which means that a higher percentage of those patients are fee-for-service, which generally speaking, is a good thing for us. Patrick Tuer: Just to add to that, Andrew, this is Pat. Sequentially, our conversion rate with MA actually went up, but it was down versus Q1 of prior year. And just a little more color on Doug's comment around the admit and appeal strategy. It is way too early to form an educated opinion about this. But in the 9 markets that we are piloting this, we have seen some nice improvement in the approval rate of claims that we submit for authorization. So we're encouraged by what we're seeing. We have a number of cases that are pending ALJ hearing, and we'll wait until we have several of the decisions around those before we make a decision on when and if to scale this up further. Andrew Mok: Got it. Okay. And then as a percentage of revenue, it looks like SWB is the lowest levels we've ever seen, which is even more impressive given 1Q SWB tends to be the highest in the year. Beyond low turnover, is there -- are there any other factors driving the strength in SWB this quarter? And how should we think about sort of the seasonal progression from here given that starting point? Douglas Coltharp: Yes. I mean you had a couple of things depending on how you're looking at it as a percentage. First of all, we had a pretty significant increase in state-directed payment revenue because that included some out-of-period stuff. Now we believe that the net provider tax impact on EBITDA for the quarter had some seasonality to it, and we continue to believe that for the full year, it's going to be relatively flat with last year. And then also part of our pricing increase, as I mentioned in my comments, was a favorable year-over-year impact from the Medicare SSI adjustment. And so you're pulling in incremental pricing revenue without any labor required to offset that. There's always some seasonality in our labor. First quarter just because of the higher occupancy rate tends to be one of the more efficient quarters. It's also going to be impacted by the timing of de novos when that capacity comes on. And as was the case last year, we're pretty back-end loaded this year. Patrick Tuer: One other comment on that. On a same-store basis, and we don't give out same-store EPOB. But to Doug's point, the ramping de novos and the timing of de novos can really impact EPOB, and we look really good for Q1. But on a same-store basis, we are showing incremental improvement year-over-year, and that's just a product of us continually working to make sure that our hospitals are as efficient as possible without sacrificing any type of clinical or quality outcome. And with an organization of our size, you'll have some variation from hospital to hospital or region to region. And those are the markets that we work to get in line with our expectations. Douglas Coltharp: The last thing I'd point out that had an impact there, Andrew, is that the closures had a favorable impact on that because as we mentioned, we were taking out the revenue and the volume, but they were breakeven from an EBITDA perspective, which leads you to conclude that the SWB associated with that volume was a substantially higher percentage than we run on average. Operator: We'll take our next question from Pito Chickering with Deutsche Bank. Pito Chickering: Shockingly, to you guys, I want to go back to that occupancy question. You gave some good details around the facilities that are capped in occupancy, but half of those you can expand in the next few years and half of them you can't because they're landlocked. What do you think is the ceiling for same-store discharge growth over the next year or 2 until those beds are getting added just because you're capped at occupancy? Douglas Coltharp: Yes. I want to be clear, and I think Pat elaborated on this. We've identified bed expansion opportunities for half of that cohort. It's not that we can't do the other half. Some of those just moved into that category faster than we anticipated. So we're evaluating those. And even in those where we are landlocked, there's a good chance that we'll be able to solve for that equation with a small format hospital. So I would actually anticipate that for those high occupancy markets, there's only going to be a relatively small percentage that over time, we can address with incremental capacity in some way. In terms of a theoretical cap on discharge growth, again, this is another reason and the introduction of the small format hospital goes into this category, where we believe it is increasingly irrelevant to think about the breakdown between total discharge growth and same-store discharge growth because you're going to have buckets that move in and out. So with regard to total discharge growth, it's just a matter of how quickly can we add new capacity and continue to fill in and boost the occupancy rates as we do so. And we certainly believe that, that number is greater and perhaps substantially greater than that which we posted in the last 2 quarters. Mark Tarr: Pito, if you look at the track record of our real estate and our design and construction team, I'm very proud of the way they've been able to bring these projects on plan, on schedule and within budget. So we've got a lot of confidence that the team that we have in place here will help us to address the occupancy and capacity issues. Pito Chickering: Yes. These are all pretty high-quality problems to your point. I guess a follow-up here from a CapEx question then, what's the right level of CapEx in order to keep on filling this demand. Does CapEx as a percentage of revenue go up as demand is going faster than you guys think? Or is this sort of the right level of CapEx as a percent of revenue? Douglas Coltharp: I think it's going to increase as a percent of revenue relatively modestly over the next 2 to 3 years and peak at probably about 15% and then start to recede back towards the, call it, 10% to 12%, which was probably going to represent a longer-term run rate. Operator: We'll move next to Whit Mayo with Leerink Partners. Benjamin Mayo: Doug, was the Medicaid DPP, the supplemental known when you gave guidance, I believe that it was. And then just how much more incremental directed payments do you have within your plan for the rest of the year? And then are there any states that you're looking out for that may not be in the plan? Douglas Coltharp: Yes. So we're not aware of any new states coming online. Q1 was larger than we anticipated, largely due to a significant portion being out of period, and we called that out the EBITDA impact from the out-of-period was about $4.2 million. In our Q4 call, we suggested that we anticipated for this year that the EBITDA impact from net provider taxes would be roughly flat with last year, which was $21 million. And we continue to believe that the increase in Q1 was really a timing issue and that the full year will be in that range. As a reminder, the peak that we had in last year was in Q3, where we had a $10 million favorable impact from provider taxes at the EBITDA level and $6 million of that was out of period. So again, we just think that's a flow between quarters and that the EBITDA impact should be flat on a year-over-year basis. Benjamin Mayo: Okay. And then my follow-up is I just wanted to kind of take your temperature on buybacks again with leverage now drifting to probably 1.5x soon, just seems like you could add a half turn, maybe a full turn of leverage in the next year or 2, deplete a lot of the market cap, maybe move the investor focus away from EBITDA to EPS. So just wanted to hear the latest thinking about the longer-term buyback strategy. Douglas Coltharp: Yes. I'll leave it to you guys to decide whether you want to move the focus from EBITDA to EPS. We do feel like using some of the capacity in our balance sheet and buying back shares, particularly at the levels we've been trading at here more recently, represents a really attractive complement to our overall strategy. And so if we just do some math around that and you look at the guidance assumptions that we've included in our supplemental slides, the midpoint of our free cash flow estimate for the year is roughly $818 million. And what's not included in that number and by the way, the reason that the taxes went up was predominantly, as you can see from that end note, was predominantly because of the proceeds we received on the sale of the Gamma Knife and then also on the receipt of legal proceeds of legal fees in the Delaware litigation, that adds another $40 million of cash. And so that would take you to cash available for investment of roughly $858 million. The midpoint of our growth CapEx estimate is $725 million. You hold the dividend constant, that's $77 million. So at those levels, even without utilizing any capacity in the balance sheet, you've got roughly $56 million that would otherwise be available. If you look at the end of the first quarter, our funded debt was roughly $2.575 billion. And the midpoint of our EBITDA range based on the updated guidance is $1.365 billion. If you simply took the leverage up to 2x from 1.9x, that would suggest total incremental capacity of $212 million for share buyback. We did $71 million in the first quarter. So you've got at least $140 million available. And then you could do the math in a similar fashion if you decided that you want the leverage to flow between 2x and 2.5x. So I mean, that's the simple way that the math works, and we believe that share repurchases will continue to be part of our allocation of free cash flow. Patrick Tuer: Whit, this is Pat. Just going back to the state-directed payment question for a second. We do think this represents an opportunity for us in certain states to work with our acute care partners to get additional Medicaid volume. There's about 20% of our markets are in states that have a pretty attractive Medicaid reimbursement structure that on the surface, it doesn't look like it covers our cost. But when you factor in the other dynamics, it does. And that represents an opportunity for us on the volume growth side as well. Operator: We'll take our next question from Joanna Gajuk with Bank of America. Joanna Gajuk: I just want to follow up on the discussion around the proposal, thanks for sharing your initial views about this RFI that CMS included in the proposal. I know it's early details. But also in the document, CMS actually quotes MedPAC analysis and they talk about like the mix varies by the ownership and they talk about aligning payments with costs. So kind of what are your thought process there? Like what exactly CMS is trying to kind of allude here to? And would you expect something specific they have in mind as they're thinking about '28 because obviously, '27, like they cannot add anything. But like, I guess, in a year from now, sort of would you expect something in that proposal? Patrick Tuer: Joanna, this is Pat. It's hard for us to tell and to discern the -- for a long time, what has been issued by MedPAC has not historically been followed or given much attention. So the fact that something was quoted now, it's hard for us to be able to speak on that intelligently. What I can tell you is this proposed rule is relatively benign. There's some pieces of the proposed rule that could create some minor burdens from a logistics perspective. I'm not really sure what it does to help patient care. But in any case, we will provide comments by June 1, as Mark said and we will adapt and be prepared to meet any changes that are included in the final rule. Mark Tarr: Joanna, just in general, as you know, we're always quite active in D.C. and have our own resources up there and remain part of the discussion with CMS and members of Congress and others about just making sure that people understand the value proposition that comes with inpatient rehabilitation, and we are the leader within that sector. So we'll always be part of those discussions. There will be thoughts that are shared from CMS and other types of proposals. As you know, a lot of times, these things are discussed, but actually implementing them is a major challenge. So we'll be part of being those discussions and give our feedback and want to make sure that we're ahead of the curve. Douglas Coltharp: And we do believe that CMS is aware and is sympathetic to the amount of change that they're inflicting on any one particular sector at a time. And it's not lost on them that team implementation began on January 1 and that RCD is being extended this year in a significant way as well as some of the specific provisions in the proposed rule regarding the therapy evaluations and treatment, the preadmission screening and then also the timing of the interdisciplinary team meeting. So there's already a lot underway. Operator: [Operator Instructions] We'll take our next question from A.J. Rice with UBS. Albert Rice: So obviously, you've had a nice pacing of your JV opportunities. I wondered if you'd update us on how that pipeline looks? Is it still pretty plentiful? And obviously, your leading peer in competing for those JVs is in the midst of going private. Does that maybe even create more opportunities, maybe the potential partner is a little hesitant because of that or maybe they're just pulling back because they're going to focus their cash flow elsewhere. Any thoughts? Mark Tarr: Well, look, we've had this business model in place now for well over 30 years in terms of joint venturing with acute care hospital systems. As I noted in my prepared statements, we have a nice mixture of both wholly owned and joint venture projects that are in the pipeline. I like our chances if we -- when we go out with other providers as we show what we can do. And the fact that we have about 1/3 of our overall hospitals are partnerships, we have a lot of partners that can validate what a great partner we are and what a great manager we are. So A.J., I'm not concerned about what others are doing, but I am very confident in our ability to move forward. Douglas Coltharp: If you look on Slide 18 of the materials we distributed this morning, we note that we have 18 IRF development projects underway. Now only one of those is currently identified as a joint venture opportunities, and that's our Loganville, Georgia hospital, which will open as part of our partnership agreement with Piedmont. But as you've seen with us over the last several years, as we've ascended the learning curve with regard to de novo development, we've gotten increasingly comfortable going ahead and forging ahead on an individual basis in a market even as discussions with potential joint venture partners are underway. So I think there's a better-than-even prospect that some of the development projects that are listed on that page will ultimately turn out to be joint ventures. With regard to Select Medical, we don't expect any change in their appetite for incremental growth. Their strategy is somewhat different from ours in that they are 100% JV focused, and they tend to focus a lot on HIHs as well. So we would expect them to continue to be a viable competitor, but the pool is big enough for both of us. Mark Tarr: Hey, A.J, I think one of the trends that you do see within our joint venture partners is building multiple hospitals within that partnership. Piedmont is a prime example of that. We've done that with Vanderbilt. We've done the BJC and a number of other providers where we are building multiple hospitals within that same partnership. Douglas Coltharp: Yes. The last thing I would say there, and this also relates back to some of the high occupancy doors. Some of those are joint ventures. And as we have gone back to some of our joint venture partners and introduced them to the potential for a small format hospital, we're getting a very favorable reception. Albert Rice: Okay. Then my follow-up, I wanted to ask you about the small format hospitals. Is the ROI on those materially different than the regular size facilities? Is there any ability to get around certificate of need or more flexibility on certificate of need with the small format hospitals and just how you're going to think about those versus the traditional size? Douglas Coltharp: Yes. So the ROI falls squarely between bed expansion, which is our highest ROI and a de novo. So better than the de novo, not quite a bed expansion because of the infrastructure leverage. In CON states, the addition of beds is almost always subject to CON requirements. Because you're operating under the same Medicare provider number and because you're dealing with less than the number of beds associated with the de novo, that tends to be -- not always, but it tends to be a lower hurdle to get over. It is not a substitute for a de novo hospital. It is a complement to de novo hospitals and is a bit of a substitute for a bed addition at an existing hospital. Patrick Tuer: A.J., just in terms of how we're thinking about the scale of this opportunity, you could have markets that have 3 or 4 of these at maturity. You could have markets that have 1 or 2 and some markets won't have any. It gives us a lot of flexibility in how we approach markets. But we are currently evaluating dozens of markets and building out a robust pipeline, similar to we've done with our bed expansion process and our de novo process. We're doing the same thing for small format hospitals. Douglas Coltharp: And we are actually developing an enhanced market analysis tool that includes all aspects of the market, including projected growth and real estate aspects in conjunction with Palantir that's going to help us be a lot more prescriptive when we're entering in a new market about what should be the initial size and location of the de novo that's going to anchor that market and then what would be potential sites prioritized in terms of timing for augmenting that with small format hospitals. So that's going to allow us to be much more proactive with regard to our real estate strategy. And hopefully, even as occupancy ramps up quickly with new capacity coming on board, it's going to alleviate some of these concerns we have when we've fallen behind with regard to bed expansions. Operator: We'll take our next question from Brian Tanquilut with Jefferies. Brian Tanquilut: Maybe, Doug, since you mentioned Palantir. So when I look at what your hospital -- acute care hospitals are doing, rolling out a lot of AI here. Just curious, I mean, what are the initiatives that you're doing right now? And then when I think of where something like a Palantir can come into place, I look at your length of stay of 12 days right now. Is there room for AI or analytics to improve on the clinical and operational side beyond just kind of like back office stuff? Douglas Coltharp: Yes, I think there's a lot going on. Pat, do you want to speak to maybe some of the clinical and operational aspects of it? Patrick Tuer: Yes. The first thing I'll say in regards to Palantir on the length of stay front, we're not actively trying to get our length of stay down further. What we're trying to do is make sure that each patient has an appropriate care plan for their needs. That just happens to average around 12 days. And again, we're not trying to pressure our hospitals to get that down. So we're really focused on appropriate patient care for each patient. But we are on the same note, looking for opportunities to make sure that our care plans are as efficient as possible. We've talked about our partnership with Palantir on prescreen narratives, appeal letters. But we are looking at and have -- are in various stages of implementation of documentation efficiency for our physicians and providers around histories and physicals, face-to-face notes, discharge summaries, and we're evaluating other opportunities as well. And this is all in an effort to give our physicians and our clinical staff time back so that they can do direct patient care instead of documenting. And I think there's going to be operational benefits that come along with that, and we're excited to see where that goes. We're really encouraged by some of the things we're seeing and how efficient it is allowing our providers to be. Douglas Coltharp: I would further say just kind of in summary, in the queue with Palantir, we have the real estate analysis and the market analysis project I mentioned before. We've got a substantial CRM opportunity. We've got a revenue cycle management opportunity, and we've got a clinical staffing opportunity as well. Those are all in the queue. Mark Tarr: Brian, just as a follow-up on the length of stay discussion we've seen our length of stay over the years come down from 14 to 12, as Pat noted. And you get to a point where you want to be careful on pushing it down much lower because some of these quality metrics that I mentioned in my opening comments relative to the ability to have 84-plus percent of our patients go back home to the community, have very few of them go back to the hospital on acute care transfers or skilled nursing discharges. Those all kind of tie to that length of stay. So we're very careful in terms of trying to really push that down. Douglas Coltharp: Yes. And I think it's important to note that much of the reduction from 14 days to 12 days had less -- that was much more to do with removing the friction on the discharge process than any change to the care that the patient has been treating, the volume and the intensity of it while in our facility. Brian Tanquilut: That makes a lot of sense. And then maybe, Doug, last one for me. So when I think of $4 million of preopening costs in the quarter, is that kind of in line with expectations? And how should we think about the back half given the timing of bed adds? And then maybe just in the same vein, the free cash flow guidance was revised down. Just curious what we need to be thinking about as it relates to that adjustment. Douglas Coltharp: Yes, absolutely. So with regard to the preopening, we -- $4 million for the quarter, we anticipate for the full year, it's going to be $18 million to $22 million, midpoint of that $20 million going to be a little bit more heavily weighted towards Q3 and Q4, probably following a little bit of the same pattern that we had last year. Q3 will probably be the most significant on that. The free cash flow came down because of upward revisions in 2 items. One was interest expense, which moved up by about $5 million. That's simply reflective of the fact that as we're -- as our CapEx is rolling out and as we're spending a little bit more money on share repurchases, we're carrying a larger balance on the revolver, but not overly significant. The second piece is that cash taxes went up. That estimate went up solely because of the tax payments that are due against the gain on the sale of the Gamma Knife and also the taxable portion of the recovery of legal fees on the Delaware litigation. As I mentioned previously, what you don't see from an accounting perspective in that table is the $40 million benefit from the receipt of proceeds. So net-net, the actual cash available for us in spite of the increases in those 2 categories actually increased for the year. Operator: We'll take our next question from Jared Haase with William Blair. Jared Haase: I appreciate all the details thus far. Maybe I'll take a step back for a little bit of a bigger picture question on the market landscape. But obviously, a lot of what you've messaged today is demand clearly remains very strong, and you're seeing that show up in all of the occupancy dynamics. But I am curious just as we think about this long-term kind of structural thesis that you had around capturing some share away from skilled nursing facilities over time, moving that volume to IRFs, are you seeing some of these competing SNFs in your markets increasing their investments around clinical capacity programs, other services that would help them move further into higher acuity patients? Patrick Tuer: This is Pat. I think much like every level of care is probably trying to improve what they do and how they operate. I'm sure the SNFs are doing the same thing. But it's an entirely different level of care. They don't have the staffing intensity or the clinical oversight that we do, the investment that we have in our programs, technology. It's just apples and oranges. And there's a time and a place for skilled nursing facilities. But I've talked before on these calls that across the country, in markets that we're in, patients are still twice as likely to end up with a CMS-13 diagnosis to end up in a nursing home. And we have an opportunity to continue to add capacity to address that. Our average age patient is around 78 years old. The oldest baby boomer turned 80 in January. There's a few years of baby boomers that haven't even hit Medicare eligibility. So there's a lot of volume dynamics for a long period of time that we can serve. And again, I still see a lot of opportunity for us to continue to capture market share away from SNFs. Jared Haase: Okay. That's really helpful. And then this is admittedly a small nuance here, but I thought I'd just clarify. It looks like there was a slight change in your guidance assumption for the bed expansions that went from approximately 175 to now 150 to 200. And so I guess, obviously, just in light of everything you've shared with what's going on from an occupancy perspective, just is there anything we should be thinking about as to why maybe a slightly lower end is in play here from bed expansions this year? Is that mostly just a timing dynamic? Douglas Coltharp: It's exactly that. So the midpoint of 150 to 200 is obviously the 175 point estimate that we used previously. We've got 2 fourth quarter projects with both -- which have the potential just based on timing and weather conditions to flip over into the first quarter of next year. And so we just hedged a little bit with the range. Operator: [Operator Instructions] Our next question comes from Raj Kumar with Stephens. Raj Kumar: Yes. Maybe just kind of thinking about sticking to the kind of MA versus fee-for-service dynamic. You typically called out that your MA patients tend to exhibit just a higher average acuity versus your fee-for-service population. I guess given more payer intervention or just kind of more stringency around that, have you seen that kind of acuity gap to grow maybe over the past couple of years? And then I guess maybe also on the kind of the admit and appeal strategy, I would be curious on kind of what the win rate target is or what that's kind of demonstrated early into the program. Douglas Coltharp: Yes. So I'll start, and I'm sure Pat will want to chime in as well. We have seen more of a concentration within MA in our highest acuity categories. In the first quarter, stroke was almost 36% of our MA volume, that's not surprising. Those tend to be non-jump ball cases as well. And so the favorable aspect of that is because reimbursement across all payers is tied to acuity, the average reimbursement gap between Medicare Advantage and Medicare fee-for-service shrunk to 1% for the quarter. But we continue to think that there are opportunities and necessities for us to service a broader spectrum of acuity of MA patients. With regard to the appeal and admit strategy, again, we are seeing favorable results even at the first level of appeal, which is an expedited appeal right back to the plan itself. We don't have enough of a universe yet to understand how we're going to succeed at the various levels of appeal beyond the Maximus decision, which tends to be a bit of a rubber stamp, but there's reason for optimism. Patrick Tuer: Raj, this is Pat. Just a couple of points. So on MA, this remains grossly underpenetrated. And if the dynamics around that ever change, we'll have a lot of opportunity to continue to add even more capacity. The higher acuity dynamic of the MA patient, I don't necessarily view it as a positive. It's great from a revenue perspective. But what that signals to me is there's a lot of other patients that should be coming to us that just aren't giving the opportunity to do so. And that's something we'll continue to focus on. On the admitted appeal strategy, we really got that up and going kind of mid-February. March, we started to see some significant improvement in those markets. We did have -- Doug talked about Maximus. We did have our first overturn at the Maximus level. So that's encouraging. And it's probably going to take us about 6 to 8 months to really get our arms around and have a better sample size of what our success rate is at the ALJ level, what -- if we want to take cases beyond that, that could extend the time a little further. So I would say 6 to 8 months, we'll be in a better position to make a decision on scaling up or increasing the size of the pilot and probably within 12 to 18 months, we'll have a lot of clarity around this. Douglas Coltharp: Yes. And just to maybe dimensionalize this as well with regard to MA, by 2030, it's projected that 20% of the U.S. population is going to be aged 65 and older. So that means 70 million Americans by 2030 will be Medicare beneficiaries. If you assume for a moment that the MA penetration rate based on recent trends stabilizes at around 50%, that means that you've still got 35 million Medicare beneficiaries who are not MA patients, which means that they're likely to be fee-for-service. That's a total addressable market. Some portion of those are going to be CMS-13 eligible of 35 million individuals. Our total discharges on the last 12-month basis were 266,000. So there's a really big pond out there for us to fish out of. Raj Kumar: Great. And maybe as a follow-up, just kind of going back to Pat's comment on the kind of Medicaid side of the business and with the funding environment being supported there. And then I think outpatient visits for the first time in a while grew positively year-over-year. And so I kind of think about that business, even though it's a smaller part, just kind of thinking about if the 1Q is a good baseline for that business kind of going forward from a volume perspective, just given how the funding environment has been kind of supportive to -- from an economics perspective as well. Patrick Tuer: Raj, this is Pat again. I wouldn't read too much into the outpatient volume in Q1. It's really not a core business of ours, and we've continued to ramp down the number of outpatient clinics that we have. I would anticipate that we'll continue to assess the clinics that we're in. And if they're not profitable or not, there's not a good business case for them to be in operation, we'll continue to look at opportunities to further bring that count down. And then the -- what was the second part? Raj Kumar: Medicaid. Patrick Tuer: Yes, Medicaid is -- this is a newer opportunity for us. I know it's been a big tailwind for the acute providers. And it just has not been a big focus for us, and we are starting to see some of the benefits in those states. So we are, like we do anything else, developing strategies around how we can serve those patients more effectively. And I'm excited about some of the early progress that we're seeing. Douglas Coltharp: And on that point, Raj, what's really changed there is if you roll back the clock as recently as maybe 3 or 4 years ago, on an annual basis, our net provider tax impact to EBITDA was essentially 0. It would be plus or minus $1 million. And with the implementation of new programs by states over the last several years, that's increased to the point again where we're estimating $21 million this year. That's obviously not evenly distributed across all states. So when we look at some states where historically, the on its face rate that we were paid for IRF services didn't cover our variable cost, if you include the directed payment portion of that with the actual reimbursement that we get, it puts in a position where in some of those states, it is a profitable patient for us to treat. And so we'll look at handling those referrals perhaps in a slightly different manner. Operator: This does conclude our question-and-answer session. I'd like to now turn the call back over to Mark Miller for any additional or closing remarks. Mark Miller: Thank you, operator. If anyone has additional questions, please call me at (205) 970-5860. Thank you again for joining today's call. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.