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Operator: Hello everyone. Thank you for joining us, and welcome to the SandRidge Energy, Inc. first quarter 2026 conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Scott Prestridge, Senior Vice President of Finance and Strategy. Scott, please go ahead. Scott Prestridge: Thank you, and welcome everyone. With me today are Grayson R. Pranin, our CEO; Jonathan Frates, our CFO; Brandon L. Brown, our CAO; as well as Dean Parrish, our COO. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risk and uncertainty, and actual results may differ materially from those projected in these forward-looking statements. These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties, as discussed in greater detail in our earnings release and our SEC filings. You may also hear references to adjusted EBITDA, adjusted G&A, and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I will turn the call over to Grayson. Grayson R. Pranin: Thank you, and good afternoon. I am pleased to report on a strong quarter for the company. Production averaged 18.6 MBOE per day during the first quarter, an increase of 4% on a BOE basis versus the same period in 2025. Oil production increased 31%, and total revenues increased 17% during the quarter versus the same period in 2025, driven primarily by new production from our operated development program. Before getting into this and other highlights, I will turn things over to Jonathan for details on financial results. Jonathan Frates: Compared to 2025, the company saw increases in the market price of both oil and natural gas. We grew production by 4% year-over-year and generated revenues of approximately $50 million, which represents an increase of 26% compared to last quarter and 17% compared to the same period last year. Adjusted EBITDA was $33.7 million in the quarter compared to $25.5 million in 2025. We continue to manage the business with a focus on maximizing long-term cash flow while growing production and utilizing our NOLs to shield us from federal income taxes. At the end of the quarter, cash, including restricted cash, was approximately $104 million, which represents over $2.80 per common share outstanding. Cash was down compared to the prior quarter due to an increase in noncash working capital, primarily related to the timing of payables versus receivables from our one-rig drilling program. Working capital, as represented by current assets less current liabilities, was up by $3.7 million compared to the prior quarter. The company paid $4.4 million in dividends during the quarter, which includes $600 thousand of dividends to be paid in shares under our dividend reinvestment plan. On May 5, 2026, the Board of Directors increased the regular-way dividend by 8%, declaring a $0.13 dividend as well as a one-time special dividend of $0.20 per share, both of which are payable on June 1 to shareholders of record on May 20, 2026. Shareholders may elect to receive cash or additional shares of common stock through the company's dividend reinvestment plan. Following these dividends, SandRidge Energy, Inc. will have paid $5.05 per share in regular and special dividends since the beginning of 2023. Commodity price realizations for the quarter before considering the impact of hedges were $71.11 per barrel of oil, $3.13 per Mcf of gas, and $18.64 per barrel of NGLs. This compares to fourth quarter 2025 realizations of $57.56 per barrel of oil, $2.20 per Mcf of gas, and $14.92 per barrel of NGLs. Our commitment to cost discipline continues to yield results, with adjusted G&A for the quarter of approximately $2.4 million or $1.42 per BOE compared to $2.9 million or $1.83 per BOE in 2025. Net income was $18.7 million for the quarter, or $0.50 per diluted share. Adjusted net income was $21.6 million, or $0.58 per diluted share. This compares to $13 million, or $0.35 per diluted share, and $14.5 million, or $0.39 per diluted share, respectively, during the same period last year. The company generated cash flow from operations of $19.8 million during the quarter compared to $20.3 million during the same period last year. Adjusted operating cash flow was $34.4 million during the quarter compared to $26.3 million in the same period of 2025. Lastly, production is hedged with a combination of swaps and collars representing just under 30% of the midpoint of our 2026 guidance. This includes approximately 37% of natural gas production and 43% of oil. These hedges will help secure a portion of our cash flows and support our drilling program through the year. We continue to monitor prices and take advantage of favorable opportunities, but plan to maintain meaningful upside throughout the remainder of the year. Before shifting to our outlook, you should note that our earnings release and 10-Q will provide further details on our financial and operational performance during the quarter. Now I will turn it over to Dean for an update on operations. Dean Parrish: Thank you, Jonathan. Let us start with a review of the first quarter and discuss recent drilling and completion results. Total capital spend for the quarter, excluding A&D, was $19.9 million, which is better than expectations for the quarter, mostly due to drill schedule adjustments. A rigorous bidding process focused on driving drilling and completion costs down in the Cherokee play and longer artificial lift run times from previous years of improvements kept us on budget. Additionally, we have been securing critical well components needed for the remainder of the year to minimize any supply or inflationary pressures that may affect our capital program. Lease operating expenses for the quarter were $10.8 million, or $6.45 per BOE, which falls right in line with expectations. We are also securing the needed equipment and services that will be critical for production operations in 2026, similar to the capital program. We expect to continue to see pressure on diesel fuel through fuel surcharges passed on through service providers that have strict internal protocol to reduce surcharges when diesel prices begin to decrease. During the quarter, the company successfully completed three wells and brought two wells online from our operated one-rig Parakeet drilling program. We recently brought online the ninth well in our program and are drilling the eleventh, while the tenth well awaits final completion. Our operations team continues to execute, with the tenth well that was just drilled being the fastest, lowest cost to date, driven by the team's focus and ingenuity to reduce costs. It is early, but we are seeing some incremental efficiencies on our eleventh well drilling now, and we will have more to share next quarter. Moving to our 2026 capital program, we plan to drill 10 operated Cherokee wells with one rig this year and complete eight wells. The remaining two completions are anticipated to carry over to next year. A majority of the remaining wells in our development program this year directly offset proven or in-progress wells in the area, and we continue to monitor offsetting results. Gross well costs vary by depth but are estimated to be between approximately $9 million and $11 million. We intend to spend between $76 million and $97 million in our 2026 capital program, which is made up of $62 million to $80 million in drilling and completions activity, and between $14 million and $17 million in capital workovers, production optimization, and selective leasing in the Cherokee play. Our high-graded leasing is focused on further bolstering our interest, consolidating our position, and extending development into future years. With that, I will turn things back over to Grayson. Grayson R. Pranin: Thank you, Dean. Let us start with commodity prices. We started the year with strong natural gas prices, which benefited January and February revenues. During this period, our largest natural gas purchaser elected to move to ethane rejection. This means that more ethane is sold as natural gas and less is separated as NGLs. This typically results in fewer barrels of equivalent in volume, which impacted both our NGL and overall BOE volumes for the quarter, but it benefited natural gas volumes and revenue as the gas was sold at relatively higher prices with an increased BTU factor. This had a positive effect on revenue due to the dynamics of high natural gas and lower relative ethane prices during the period. However, natural gas prices have since declined and, with it, the spread between natural gas prices and ethane. Our largest natural gas purchaser returned to ethane recovery in March and plans to maintain recovery until there is further benefit otherwise. Also, while natural gas prices increased during January, we did experience increased production deferment during Winter Storm Fern, which negatively impacted volumes. Despite this challenge, our team did an amazing job operating through the extreme cold weather and minimizing downtime as much as possible—and, most importantly, doing so safely. Now shifting to oil, the year began with oil prices in the mid- to upper-$50 range, which changed dramatically over the quarter. Despite seeing spot rates reach up to triple-digit levels recently, WTI averaged $72.74 per barrel in Q1 because the shift occurred in late February and early March. For the same reason, the increase in WTI prices only partially benefited our revenues during the quarter, as the entire oil price increase occurred in the back half of the quarter. Thus far, oil prices have remained high in the second quarter and could benefit revenues further. Our commodity prices are driven by market dynamics outside of our control. We have used our favorable position and came into the year with minimal hedges to take advantage of the increases year-to-date, the details of which can be found in our earnings release and 10-Q to be filed later today. Combined with our prior hedges, we have hedged a meaningful portion of our PDP volumes for the remainder of the year, which allows us to secure a portion of our cash flows at prices that are materially above where we started the year and where we budget. The remainder of our PDP oil volumes and all of the volumes from our current drilling program will participate at the market with exposure to current high prices. We have endeavored to balance securing cash flows while maintaining an appropriate level of exposure to commodity upside. That said, there has been a lot of volatility in WTI pricing over the last few weeks and much speculation over futures, with the forward curve remaining in steep backwardation. We are content with the current level of hedging this year. We will continue to monitor geopolitical events and future pricing for further adjustment, with specific focus on longer-term periods. Now let us pivot over to our development program. As Dean discussed, we had first production on two wells this past quarter. One well targeted the Cherokee shale in our core area, consistent with wells last year. These wells had an average peak 30-day of approximately 2 thousand BOE per day, made up of 45% oil, including the newest seventh well. The other well turned in line this quarter and tested the Red Fork formation, a sandstone in the Lower Cherokee group. This was an initial well in a new area for us that offset and delineated a very productive well drilled by a reputable operator. This well allows us to better establish performance expectations in a new target in a new area. The leasing costs have been very attractive. Currently, we do not have any Red Fork wells planned for the rest of the year. However, we plan to monitor the performance of this well, industry and offsetting activity—which has increased over the past year—as well as commodity prices and other factors while evaluating the go-forward plan in the new area. Given the tailwind of WTI prices and the enhancement to returns, we plan to continue our Cherokee development with one rig and further grow oily production. While the program is attractive in a range of commodity environments, our team will continue to be diligent by prioritizing full-cycle returns, monitoring reasonable reinvestment rates, and, when needed, exercising drill schedule flexibility to make prudent adjustments to our development plans in different economic environments. Also, we do not have any significant near-term leasehold expirations and have the flexibility to defer these projects if needed for a period of time. I am very pleased with our team for their continued focus on safety, execution, and cost focus in development and production optimization programs. They have truly championed safety, resulting in the continuation of a record of more than four years without a recordable safety incident. In addition, they continue to operate at a high level with a lean, but very engaged and experienced staff with peer-leading operating and administrative cost efficiencies. I would like to pause here to highlight the optionality we have across our asset base. Coupled with the strength of our balance sheet, it sets us up to leverage commodity price cycles. The combination of our oil-weighted Cherokee and gas-weighted legacy assets, as well as a robust net cash position, gives us multifaceted options to maneuver and take advantage of different commodity cycles. Put simply, we have a strong balance sheet and a versatile kit bag, which makes the company more resilient and better poised to maneuver and adjust, no matter the commodity environment. I will now revisit the company's advantages. Our asset base is focused in the Mid-Continent region with a PDP well set that provides meaningful cash flow, which does not require any routine flaring of produced gas. These well-understood assets are almost fully held by production, have a long history, a shallowing and diversified production profile, and double-digit reserve life. Our incumbent assets include more than a thousand miles each of owned and operated SWD and electric infrastructure over our footprint. This substantial owned and integrated infrastructure helps de-risk individual well profitability for the majority of our legacy producing wells under roughly $40 WTI and $2 Henry Hub. Our assets continue to yield free cash flow. This cash generation potential provides several paths to increase shareholder value realization and is benefited by a low G&A burden. SandRidge Energy, Inc.'s value proposition is materially de-risked from a financial perspective by our strengthened balance sheet, including negative net leverage, financial flexibility, and advantaged tax position. Further, the company is not subject to MVCs or other off-balance-sheet financial commitments. We have bolstered our inventory to provide further organic growth opportunities and incremental oil diversification, with low breakevens in high-graded areas. Finally, it is worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around them. Not only do we continue to operate our existing assets extremely efficiently and execute on our Cherokee development in an effective manner, but we do so safely. Shifting to strategy, we remain committed to growing the value of our business in a safe, responsible, efficient manner while prudently allocating capital to high-return growth projects. We will also evaluate merger and acquisition opportunities while maintaining financial discipline, consideration of our balance sheet, and commitment to our capital return program. This strategy has five points. One, maximize the value of our incumbent Mid-Con PDP assets by extending and flattening our production profile with high rate-of-return production optimization projects, as well as continuously pressing on operating and administrative costs. Two, exercise capital stewardship and invest in projects and opportunities that have high risk-adjusted, fully burdened rates of return while prudently targeting reasonable reinvestment rates that sustain our cash flows and prioritize a regular-way dividend. Three, maintain optionality to execute on value-accretive merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complement its portfolio of assets, whether it utilizes approximately $1.5 billion of federal net operating losses or otherwise yields attractive returns to its shareholders. Four, as we generate cash, we will continue to work with our board to assess paths to maximize shareholder value to include investment and strategic opportunities, advancement of our return-of-capital program, and other uses. To this end, the board continues to focus on the company's return of capital to stockholders as a priority in capital allocation, and as a result, expanded its ongoing dividend program by 8% and declared a one-time dividend. The final staple is to uphold our ESG responsibility. Now, shifting to administrative expenses, I will turn things over to Brandon. Brandon L. Brown: Thank you, Grayson. As we close out our prepared remarks, I will point out our first quarter adjusted G&A of $2.4 million, or $1.42 per BOE, continues to lead among our peers. The consistent efficiency of our organization reflects our core values to remain cost disciplined and to be fit for purpose. We will maintain our efficient and low-cost operation mindset and continue to balance the weighting of field versus corporate personnel to reflect where we create the most value. The outsourcing of necessary but more perfunctory functions such as operations accounting, land administration, IT, tax, and HR has allowed us to operate with total personnel of just over 100 people for the past several years while retaining key technical skill sets that have both the experience and institutional knowledge for our business. In summary, at the end of the first quarter, the company had approximately $104 million in cash and cash equivalents, which represents over $2.80 per share of our common stock outstanding; an inventory of high rate-of-return, low breakeven projects; low overhead; top-tier adjusted G&A; no debt; negative leverage; a flattening production profile; double-digit reserve life; and approximately $1.5 billion of federal NOLs. This concludes our prepared remarks. Thank you for joining us today. We will now open the call for questions. Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 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. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Evaxion Business Update and First Quarter 2026 Financial Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO, Helen Tayton-Martin. Please go ahead. Helen Tayton-Martin: Thank you, and welcome, everyone, to Evaxion's Q1 2026 Business Update Call. I'm very pleased to be joined today by our CSO, Birgitte Rono and COO, recently promoted, we will talk more about that; and Thomas Schmidt, our CFO; and our Head of Investor Relations and Communications, Mads Kronborg. So if we move to the first slide, just to provide some orientation as to what we will cover today. We will spend a little bit of time on our achievements in the first quarter of this year and some notable changes that we have made in order to address and focus on our strategy. I will then hand over to Birgitte, who will talk through some of the recent highlights from our R&D portfolio and AI-Immunology platform. Birgitte will then hand over to Thomas, who will walk you through our Q1 financial results. And then we will have some concluding remarks before opening up the call for Q&A. So if I move to the next slide, just to reiterate, we may make some forward-looking statements on the call today, and investors and all listening are guided towards our SEC filed documents. So if I go past our introduction to Slide 5. I just wanted to, as before, emphasize our 4 key focus areas within the organization and give you a sense of the momentum as we perform an update in each of those areas. First of all, our core focus around business development and partnering is very much underway and strengthened. By the way, we have reorganized the organization somewhat, and I'll come on to that to focus on the external outreach and positioning of the company to a broader audience and also to raise the awareness of exactly what it is that Evaxion can deliver in terms of products and the platform. And I'm pleased to say that we have many discussions ongoing there, and we hope to report more on that later as the year progresses. Secondly, in our R&D focus areas, we are delighted to talk about our recent data from our EVX-01 lead program Phase II study in which we were able to update some of the translational data recently at AACR, and Birgitte will talk in more detail about the performance of the cells that we produce in relation to the vaccines given to the patients and the 86% immunogenicity conversion rate we have there. We also were able to present at AACR, a new set of data preclinically in collaboration with our collaborators at Duke University on the scope to use the AI-Immunology platform in glioblastoma. We have always felt that the approach could be applied to other high mutational burden tumors, but also to others where high mutational burden was not a feature, and that is very much part of how we were able to demonstrate the broader applicability of the platform in glioblastoma. And again, Birgitte will speak more to that. Finally, we were able to confirm the completion of the last patient, last visit in the extension phase of our EVX-01 program and our Phase II trial, and more to come on that later in the year. More broadly on the AI-Immunology platform, we continued to optimize and strengthen that around its ability to deliver products across our infectious diseases as well as oncology portfolio and again, also in autoimmune disease, again, where we'll update later in the year. But in this first quarter, I'm delighted to say that we were able to show some initial data on a new polio vaccine concept presented in collaboration with The Gates Foundation. And finally, as Thomas will come on to, we have maintained our disciplined allocation of resources aligned to our stated aims with the portfolio and the platform, and our cash runway remains unchanged into the second half of 2027. Moving to Slide 6. As mentioned, we have reorganized slightly inside the organization. I'm delighted to announce the promotion of Birgitte to the combined role of CSO and COO, which really reflects on how we organize the company and how well it's been run in recent times, but also to enable me, in particular, to have a greater focus externally on behalf of the company in terms of our business development and our investor interactions. Separately, and in parallel, we were able to welcome Jens Bitsch-Norhave to our Board of Directors. And Jens comes to us with a huge amount of experience in BD and corporate strategy and outreach in general, both from a biotech perspective but more recently from J&J and Hengrui, where he is currently Corporate VP and Global Head of Corporate Development. So we're delighted with the way that we've been able to strengthen the organization to focus on our stated strategy, to build and maintain what we have and build greater partnerships. So on Slide 7, just to summarize, we remain a lean and capable and focused team in terms of the management organization. Two of the members are here on the call with me today, and Andreas continues to support and drive the organization's innovation strategy around AI-Immunology. And our Board remains the same but with the addition of Jens, as I mentioned. Finally, moving to Slide 8 to set up our objectives and key milestones for this year. Just a reminder that Evaxion over many years now has the privilege of having a pipeline in Phase II in oncology with our EVX-01 asset in advanced melanoma, our personalized neoantigen-directed peptide-based vaccine, where we've got great data, which Birgitte will touch on in terms of now and what's to come. We have our EVX-03 program, which is a combination of personalized and IRF-based antigens on our DNA platform. And then we also have coming along in preclinical development, aiming for clinical readiness by the end of this year, our off-the-shelf vaccine program, EVX-04 targeted to AML, which will be a single vaccine approach for multiple AML patients. More to come on that. Infectious diseases, we remain focused on driving forward our preclinical assets, EVX-B1 against pathogen staph aureus, our B2 program against Neisseria gonorrhea and also in collaboration in -- with Afrigen on an RNA platform. EVX-B3, our options partner program continues to move forward with MSD. And before our more recent newer program on Group A Streptococcus is making great strides in initial early discovery component design. And our first viral program is continuing to make progress in terms of confirming the candidate components. So a lot going on in the organization. In Slide 9, I just wanted to remind the audience of our 2026 milestones and the fact that we have achieved the first one of those in our EVX-01 additional biomarker and immunogenicity data, and we remain on track in terms of updating on the approach of AI-Immunology in autoimmune disease, our 3-year data for the EVX-01 melanoma program, our planned strategy with the EVX-04 AML program and the early work maturing in our preclinical EVX-B4 program against Group A Streptococcus. And fundamentally, we are driving the partnership strategy to focus on the platform and the assets so that we can continue to build value in the company and focus on delivering those into early development where we believe we can add value. So at this point, I'd like to hand over to Birgitte, who will talk you through our R&D and AI-Immunology update. Birgitte Rono: Thank you, Helen. So today, I'll be focusing on our lead candidate, EVX-01. And as mentioned, this is our personalized neoantigen cancer vaccine currently in Phase II in advanced melanoma. And then I will present the exciting new data demonstrating the scalability of our AI-Immunology platform into the hard-to-treat deadly brain cancer glioblastoma. And lastly, I will showcase how we have applied AI-Immunology to design optimized vaccine antigens for an improved polio vaccine. So if you take the next slide. So as Helen mentioned, we presented EVX-01 Phase II biomarker and T-cell immune data at the AACR Annual Meeting here in April. And we reported that 86% of the EVX-01 vaccine target triggered a specific immune response, and this is substantially higher than what has been reported for other similar vaccine candidates. Furthermore, we also reported that 86% of the immunogenic vaccine target induced a de novo T-cell response, meaning that the EVX-01 vaccine specifically triggers novel T-cell responses and not just amplifying existing responses. And this is of great importance as induction of these novel responses have been linked to clinical benefit. Furthermore, we demonstrated a positive correlation between the predicted quality of the EVX-01 vaccine targets and the magnitude of the T-cell response induced by the vaccine targets. And this high vaccine target success rate, together with this positive correlation demonstrates the strong predictive power of our AI-Immunology platform. If you take the next slide. So EVX-01 continues to deliver strong data, adding to the already existing and promising clinical and immunological data package. So at ESMO last year, we reported a 75% overall response rate, including 25 complete responders and 92 sustained responses, indicating a durable benefit. So importantly, more than half of the patients converted into an improved clinical response upon EVX-01 treatment. And with the newly presented Phase II immune data, this further strengthens the picture with the 86% immunogenicity and the 86% de novo immune responses, demonstrating broad and consistent immune activation. So looking ahead, we have a clear development trajectory. We will announce 3-year data, including clinical outcome in the second half of this year. Further, we are evaluating and discussing additional relevant cancer indications and with further trials expected to be conducted in partnerships. And importantly, EVX-01 has already received FDA Fast Track designation, validating both the unmet need and then also the development potential. So overall, this positions EVX-01 very strongly as we move forward into the next phases of value creation. If you take the next slide. So let's turn our focus to the other promising data set presented at AACR. So in collaboration with Duke University, we demonstrated that our AI-Immunology platform scales beyond melanoma. And here, it's exemplified with glioblastoma or GBM. So GBM is the most common and the most aggressive primary malignant brain tumor. And despite surgery followed by chemoradiation, outcome remains very poor for these patients with a median overall survival of approximately 15 months and a 5-year survival below 10%. So using our AI-Immunology platform, we have evaluated tumor omics data from 24 GBM patients and demonstrated that a fully personalized vaccine design was feasible for all these cases. And importantly, these designs were based on 2 classes of antigens or classical neoantigens and also antigens derived from the dark genome so-called endogenous retroviruses or ERs. So in 21 out of the 24 designs, they included both types of antigens, 2 vaccine designs included only neoantigens and 1 design relied solely on the ER antigens. This analysis showcases the flexibility and the scalability of the platform to integrate antigen from different sources, fitting the patient tumor biology. So overall, the data demonstrate that AI-Immunology can address hard-to-treat low mutational burden tumors like GBM and it also supports broader applicability of the platform across different cancers. If you move on to the next slide. So another example of how AI-Immunology can be used to design improved vaccine was showcased at the World Vaccine Congress. And together with The Gates Foundation, we presented a new polio vaccine concept using AI-Immunology, we designed a novel hybrid capsid antigen and a novel de novo B-cell antigen with the aim of eliciting a strong and broad tumor response against all serotypes. And overall, this highlights the potential of AI-Immunology to reinvent classical vaccines with improved simplicity and also improved breadth. Take the next slide. So having highlighted progress across the key R&D program, let's step back for a moment and focus on AI-Immunology and the data validating its ability to generate high-quality product candidates. So AI-Immunology is clinically validated with positive outcomes in 3 out of 3 oncology trials. And preclinically, we have demonstrated proof of concept across multiple disease areas, including cancer with our IRF targeting off-the-shelf vaccine concept as well as in infectious diseases with several vaccine candidates targeting multiple bacterial and viral pathogens. And importantly, the EVX-01 concept is highly scalable with potential in other solid tumors beyond melanoma. Additionally, the platform's applicability in challenging cancer indications was further validated in GBM. So finally, AI-Immunology supports multiple modalities, including peptides, proteins and DNA and RNA, enabling both pipeline and also partnership potential. So in conclusion, we have demonstrated strong progress across our platform and our R&D pipeline, and we are looking forward to keeping you updated as we advance our programs further. So with that, I will now hand over to Thomas, who will present our quarterly financial results. Thomas Schmidt: Yes. Thank you, Birgitte. And as mentioned, I will now then present and take you through our Q1 '26 results. The highlights of the first quarter of the year really is a continued discipline that we have applied in our resource allocation, of course, aligned with our strategy and certainly investing into our value drivers. So really according to plan. And that also means that we are on track to deliver what we expect of an operational cash burn of roughly USD 14 million for 2026. That also underlines and reconfirms that our cash runway is into the second half of 2027 and remains as such. Also, as earlier communicated, not assuming any partnerships or deals that we will hopefully be making and communicating within that time frame. Looking at the P&L, we have operating expenses overall more or less in line with last year, but slightly reduced. It comes from our R&D with a minor increase as we continue, as mentioned before, to progress and advance our pipeline and programs according to plan. On the other side, our G&A expenses are slightly lower versus last year, also mainly driven by the fact that we have lower capital market costs in Q1 '26 versus the same period in '25. The first quarter resulted in a net loss of USD 3.6 million, again, according to our plan. On the balance sheet side of things on the next slide, reconfirming once again, our cash position and equivalent end of the quarter stands at $18.4 million, which confirms runway until the second half of '27. And the total equity has been reduced since year-end, really as a result of the net result of the first quarter, meaning that we have USD 13.2 million as equity at the end of the quarter. So all in all, financials according to plan, allocation into our main priorities and cash runway confirmed until the second half of 2027. With that, I hand it back to Helen for some concluding remarks. Helen Tayton-Martin: Thanks, Thomas, and thanks, Birgitte. And so I would just like to emphasize that we believe we've made a great start to 2026, achieving the first of our milestones with a really encouraging translational data from EVX-01. We've got various presentations that have been made that validate the capabilities and scalability of the platform, as Birgitte has explained. Business development remains a key priority in terms of engaging with organizations on the value of the assets that we have and the capability to develop those assets as we've talked a bit about. And the cash runway is maintained through to the second half of 2027. So we are rigorously following execution of our strategy and engagement externally and making great progress. So with that, I would like to hand back over to take some questions by the operator. Operator: Our first question comes from the line of Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Two for me. With respect to the 3-year EVX-01 data, ASCO is obviously too soon. But should we anticipate something like an ESMO readout? Or will you do it independent of a broader scientific meeting? Helen Tayton-Martin: So we will be updating in the context of a scientific meeting. We will not be sort of outside of that, that's not our intention. And we'll confirm which of the 4 conferences it will be once we're able to -- once abstracts are released. Thomas Flaten: I think the GBM data that you put out, albeit early, was very exciting, and obviously, a disease state and great need. Is it your strategic intent to take that into humans? Or would you seek a partnership based on the data you have now and perhaps some additional preclinical data? Helen Tayton-Martin: So we are very excited about the data. We agree it's really interesting and it's really exciting in a very difficult-to-treat disease. We would anticipate that that will be something that we will be partnering. It sort of strengthens the overall personalized approach that we have developed with EVX-01, but probably more to come on that as more data and discussions mature, but it would be a partnering approach for that one, too. Operator: Our next question comes from the line of Michael Okunewitch from Maxim Group. Michael Okunewitch: Congrats on all the great progress. I guess to kick things off, I'd like to ask just a little bit about expansion and I guess, your design philosophy and strategy around that. So first off, when thinking about targets for expanded indications in cancer, in particular, is the plan to go after other diseases where PD-1s have historically been ineffective due to that synergistic activity of directing the antitumor immune response? Helen Tayton-Martin: So I think we've taken a lot of parameters into account. But Birgitte, do you want to comment on how we have been marshaling the approach internally to focus on the rare diseases? Birgitte Rono: Yes. So as mentioned, we are looking at multiple different antigen sources currently, and there's further development in this area in the company. So we would like to be able to provide a cancer vaccine for all patients independently of their antigen profiles or landscapes. So we have so far looked at more than 30 different indications, mapping out their seasonal burden, their ERV burden, et cetera, and can see that for many of these indications, we're able to -- with the capabilities we have currently to design a high-quality vaccine. And of course, one would need to further dive into medical need and current treatment landscapes to find the optimal subpopulations where our therapies would fit, but not necessarily in PD-1 low patient, it could also be in high. So it's mostly -- we are mostly focusing on understanding the antigenic landscape and fitting our therapies towards these profiles. Michael Okunewitch: When thinking about designing new vaccines, do you find that it makes more sense to use one personal vaccine and then see if you could expand that to multiple tumor types with the same vaccine for more universal coverage? Or does it make more sense to go tumor by tumor and create a new back of targets that are directed specifically at the common target for that given tumor type like melanoma or like glioblastoma and have an individual vaccine candidate for each of those different cancers? Birgitte Rono: So the way that we are approaching this is to look into a lot of data from certain indication and understanding, as mentioned, the landscape. If we do see that there are these conserved antigens, so antigens that are shared across patients, we would definitely develop an off-the-shelf vaccine just due to the fact that the statistics are more simple and also the cost for the manufacturing would be way lower than for a personalized approach. Further on, you can -- if there's an off-the-shelf therapy, you can immediately treat the patients and not have to wait for that personalized batch to be ready. So that's -- everything comes back to the patient omics data and the profiles that we are seeing in our analysis. For some indications, we know that developing an off-the-shelf cancer vaccine would be very challenging. So it clearly depends on these different biological profiles. Helen Tayton-Martin: I think the EVX-04 illustrates just where in that setting, I think, the high level of conserved has enabled us to produce a single vaccine for those patients. Michael Okunewitch: I appreciate the additional color and looking forward to the 3-year data coming up later this year. Operator: We will now take our next question. And this question comes from the line of Danya Ben-Hail from Jones. Danya Ben-Hail: Congratulations on the update. You mentioned that there are several parallel partnerships and discussions. Can you provide more detail on whether these discussions lean toward broad platform licensing or specific asset-based collaboration in future? Helen Tayton-Martin: So we obviously can't say much at this point. I think we have stated the priority around partnership on EVX-01. But as you've heard, that has broader applicability than melanoma in our minds. And that has obviously also gathered interest externally with partnering conversations also. Across our infectious diseases portfolio there are a number of assets there, which are of interest to a number of companies. So we can't really provide any more details than that. Suffice to say that we are trying to be strategic around the way we have the partnering discussions in terms of maximizing the value, whether it's from an asset group in infectious diseases or the approach with something like the personalized EVX-01, EVX-03 cancer vaccines. So obviously, we will -- as soon as we can tell you more, we'll be delighted to do so, but we're pushing forward on a more strategic basis, if you will, around how to get the most value out of the assets that we can produce from AI-Immunology. Danya Ben-Hail: Just one more question on the autoimmune platform part. So we should expect more details in the second half? Helen Tayton-Martin: Yes, that's our current plan and aligns to -- as is always generally with Evaxion, generally aligns to scientific relevant conferences to report on data. Operator: There are no further questions for today. I will now hand the call back to Helen Tayton-Martin for closing remarks. Helen Tayton-Martin: Thank you. Thank you very much. And thank you to all those who listened into the call, and thank you very much for the questions that we received. I think in summarizing, we are very enthusiastic and excited about the performance so far in Q1 2026. We are really just getting started and we are achieving our milestones as we have stated them to be. So very excited about the initial data, very excited about the additional updates to come later this year. With that, I'd like to thank you very much, and I think we'll be closing the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the MDU Resources Group, Inc. Q1 2026 earnings conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Brent Miller, Treasurer. Brent, please go ahead. Brent Miller: Thank you, Operator, and welcome everyone to the MDU Resources Group, Inc. First Quarter 2026 Earnings Conference Call. Our earnings release and supporting materials for this call are available on our website at mdu.com under the Investors section. Leading today's call are Nicole A. Kivisto, President and Chief Executive Officer, and Jason L. Vollmer, Chief Financial Officer of MDU Resources Group, Inc. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. Please refer to our SEC filings for a discussion of risks and uncertainties that could cause actual results to differ. I will now turn the call over to Nicole for her prepared remarks. Nicole? Nicole A. Kivisto: Thank you, Brent, and good afternoon, everyone. We appreciate you joining us today and for your continued interest in MDU Resources Group, Inc. This morning, we reported first quarter 2026 earnings of $80.8 million, or $0.39 per share. Results reflected strong operational performance across our businesses, offset by mild winter weather impacts, which reduced earnings by approximately $0.03 per share. At the same time, rate relief and recent investments such as the Badger Wind Farm and other pipeline expansions contributed positive results, and we continue to see encouraging demand trends, including interest tied to data center development. During the quarter, we concluded our binding open season for the proposed Bakken East pipeline project with continued strong interest received. As a reminder, we have not yet reached a final investment decision on this potential project, but we are certainly encouraged with the approximately 1.4 billion cubic feet per day of submitted interest received in the open season. Of that total, approximately 40% has been signed under precedent agreements, with additional precedent agreements in active negotiation. Included in the signed precedent agreements is a firm capacity commitment of $50 million annually for 10 years from the state of North Dakota. With these results, we are now expecting the design of the potential project to include approximately 353 miles of 42-inch, 36-inch, and 30-inch diameter mainline pipe; approximately 21 miles of 30-inch, 24-inch, and 20-inch diameter lateral pipelines; additional compression at three existing compressor stations; and the construction of three new compressor stations. Based on these assumptions, we are projecting total capital investment for the potential project in the range of $2.7 billion to $3.2 billion, which would be incremental to our current $3.1 billion capital investment forecast. We are encouraged by the level of interest and ongoing commercial discussions that demonstrate continued demand for additional takeaway capacity from the Bakken region, which the Bakken East project could provide. This potential project would also provide natural gas transportation service to meet growing customer demand from industrial, power generation, and local distribution companies in the region. As we look to finance a project of this size and scope, we will evaluate all options, including using our balance sheet to finance the project, pursuing potential partnerships, and various other options. Also during the quarter, we saw continued ramp of our data center load. We currently have 580 megawatts under signed electric service agreements, of which 180 megawatts has been online since mid-2023. Fifty megawatts from the second data center is currently online, with an additional 50 megawatts currently ramping online. An additional 150 megawatts is expected online later this year, with another 100 megawatts expected online in 2027, and the remaining 50 megawatts expected online in 2028. Our current approach to serve these large-load customer opportunities is with a capital-light business model, which not only benefits our earnings and returns but also provides cost savings to our other retail customers. Currently, our average retail customer receives an approximate $70 per year credit on their bill from this approach, and we anticipate this credit to increase to potentially over $200 per year when all volumes are fully online. We do continue to pursue additional discussions with potential data center customers, and we will provide further updates when we reach executed electric service agreements. Depending on the structure of future agreements, we would consider investing capital into new generation, substation, and transmission assets to serve the increased load. Aside from data center load, we also continue to evaluate other potential capital projects related to safely and reliably meeting existing customer demand as well as grid resiliency. On the regulatory front, we are continuing to execute on our plan of filing three to five rate cases annually and working to achieve constructive outcomes in all jurisdictions. At our electric segment, our Wyoming rate case was approved with rates effective April 1, 2026. In our Montana case, interim rates were approved for an annual increase of $10.4 million, with rates also effective April 1, subject to refund. We also anticipate filing a general rate case in North Dakota yet this year. On a slightly separate but related note, during the quarter, the South Dakota legislature approved legislation enabling utilities to reduce wildfire risk through the submission of wildfire mitigation plans and providing associated liability protection. With this action, all four states in which we provide electric service now have wildfire mitigation and liability relief frameworks in place. Moving on to our natural gas regulatory update, new rates from our Idaho case were effective January 1, reflecting an annual increase of $13 million. In Washington, year two rates under our approved multi-year rate plan, representing an annual increase of $10.8 million, were effective March 1, 2026. In April, we filed a revision to decrease revenue by $2.1 million annually due to forecasted capital investments that were not placed in service as of December 31, 2025. Our Oregon rate case is still pending before the Commission, where we requested an annual increase of $16.4 million. As we look ahead, we anticipate filing another multi-year rate case in Washington this year and also plan to file a general rate case in Minnesota later in 2026. Moving on to our pipeline segment, we filed our FERC Section 7(c) application in March for our Align Section 32 expansion project, marking an important regulatory milestone in this project's development. This expansion will provide natural gas transportation service to an electric generating facility being constructed in northwest North Dakota. The project is dependent on regulatory approvals, with construction targeted to be complete in late 2028, with a total capital investment of approximately $70 million, which is included in our $3.1 billion capital plan. We also extended the signed agreement to support the early-stage development of the potential Minot Industrial Pipeline project through late 2026. This project would be approximately a 90-mile pipeline from Iola, North Dakota, to Minot, North Dakota, and would provide incremental natural gas transportation capacity for anticipated industrial demand should we decide to proceed. This project is included in the outer years of the $3.1 billion capital plan, and we will continue to provide updates as the project progresses. Looking ahead, continued strong customer demand at our pipeline segment and progress in our utility regulatory schedule should provide opportunities to meet our long-term EPS growth rate target as we move forward. In addition, our utility experienced combined retail customer growth of 1.4% when compared to this time last year, which is within our targeted annual growth rate of 1% to 2%. This demand and growth provide investment opportunity for customer-driven growth projects at our pipeline and in our utility infrastructure. I am proud of our employees whose dedication to our core strategy continues to drive our business to deliver exceptional performance and positions MDU Resources Group, Inc. with compelling long-term growth prospects. Despite the mild weather headwinds experienced in the first quarter, we are affirming our 2026 earnings per share guidance range of $0.93 to $1.00 per share. We remain confident in our ability to execute our long-term growth strategy and believe our operational focus and financial strength continue to position us well for delivering safe and reliable energy, customer value, and strong stockholder returns. We also continue to anticipate a long-term EPS growth rate of 6% to 8%, while targeting a 60% to 70% annual dividend payout ratio. As always, MDU Resources Group, Inc. is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering value as a leading energy provider and employer of choice. I will now turn the call over to Jason for a financial update. Jason? Jason L. Vollmer: Thank you, Nicole. This morning, we announced first quarter earnings of $80.8 million, or $0.39 per share, compared to first quarter 2025 earnings of $82 million, or $0.40 per share. As Nicole mentioned in her opening comments, milder weather had an approximate impact of $0.03 per share on a consolidated basis for the quarter. Turning to our individual businesses, our electric utilities reported first quarter earnings of $14.5 million compared to $15 million for the same period in 2025. The first full quarter of the Badger Wind Farm being in service was a benefit in the quarter but was more than offset by lower retail sales volumes from 10% to 30% milder weather across our service territory, which impacted earnings results by approximately $2 million when compared to 2025. Our natural gas utility reported earnings of $44.2 million in the first quarter compared to $44.7 million in 2025. Similar to our electric results, warmer weather impacted volumes for the quarter, resulting in approximately a $5 million impact to earnings compared to last year, including temperatures 20% warmer in Idaho, 30% warmer in Montana, and 10% to 30% warmer across the rest of our service territory when compared to the prior year. Weather normalization mechanisms in certain states helped offset the warmer temperatures experienced in the quarter. Largely offsetting the lower volumes was rate relief in Washington, Idaho, Montana, and Wyoming. The pipeline reported earnings of $15.3 million compared to first quarter record earnings of $17.2 million last year. The decreased earnings were driven by lower interruptible natural gas storage withdrawals, along with higher operation and maintenance expense primarily due to increased material costs and payroll-related expenses. Higher Montana property tax accruals also contributed to the decrease in earnings. Partially offsetting the impacts was strong customer demand for short-term natural gas transportation contracts as well as contributions from the Minot expansion project placed in service late last year. Finally, MDU Resources Group, Inc. continues to maintain a strong balance sheet and has ample access to working capital to finance our operations through our peak seasons. In connection with the company's December 2025 follow-on equity offering, a portion of the related forward sales agreements were settled in March 2026, resulting in the issuance of 4.3 million shares of new common stock for proceeds of approximately $81.3 million. That summarizes the financial highlights for the quarter. We appreciate your interest in MDU Resources Group, Inc., and we will now open the call for questions. Operator? Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open. Please go ahead. Julien Dumoulin-Smith: Hey, team. Thank you very much for the time, and, again, congratulations. Just really great outcomes here of late, so kudos to you. If I could kick it off here, it is just a remarkable backdrop. I wanted to talk a little bit more about this 40% signed in a precedent agreement relative to the remaining 60%. I know you talk about a $3 billion-plus number here now, but just kind of backing that with customers, investors have been really focused on that today. Can you talk a little bit about the timeline to really zip that up, if you will? Nicole A. Kivisto: Yes, and thank you, Julien, for the question. As we think about where we are today, maybe we will just take a step back. When we entered into the binding open season from the start, what ended up showing up, and what we reported today, is what we expected. We feel really encouraged in terms of where we are and our initial expectations on the overall project. In terms of the 40%, we are very encouraged that we have 40% of that under signed precedent agreements as of this date. As we mentioned on the call and in the earnings release, we are in active negotiations on the remaining interest. We believe we have agreed in large part to many of the key business terms with these remaining customers, but we will continue to work through those. In terms of the overall next steps following that, as we move forward with executing the remaining agreements, the next step is to finalize design based on what shows up there, and then work with our board on a final investment decision. As you know, we did pre-file this project with FERC in December. In that filing, we laid out a schedule that would indicate that we would file the Section 7 application in the third quarter of this year. I am comfortable with the schedule to date. Certainly both WBI and our potential customers hope to reach an FID as soon as practical. Julien Dumoulin-Smith: Got it. So you feel pretty good about getting it done if you are still on track with that third-quarter target timeline, I suspect. Maybe if I can follow this up real quickly here. How do you think about laterals here, whether it is Ellendale or, frankly, other potential customers? And related to that, as far as laterals go, how do you think about the gas strategy perhaps leading an electric or electric gas generation strategy on the utility side as well? I appreciate what you are doing and the expanding scope with this pipeline, but how do you think about that marrying up with what you have on the utility front at the same time? What do you think about the laterals or actually building gas generation? I will note your comments in the remarks about being capital light thus far. How do you think about that being more capital intensive, prospectively? Nicole A. Kivisto: There are a couple of questions packed in there. I will take them in the order that I heard them. On the utility, our method has really been to come forward to the market when we have signed ESAs. We did talk today that we continue conversations with others. Noting those conversations, we also leaned into the fact that we may consider changing that strategy a bit and leaning into some investment. More to follow in terms of those final decisions being made, but we are continuing to discuss with potential customers the ability to serve them from a large-load perspective. As it relates to the pipeline, one of the things we have talked about that is beneficial for our company is, as we think about the data center theme and that buildout, whether our utility can serve that or not is obviously some upside, but the pipeline has the opportunity to serve that whether the utility would be the provider of that data center or not. So, as you are referencing our proposed Bakken East pipeline, we continue to think about how to serve some of that data center load, but even if we do not, it still is a benefit to the overall potential project at large. The theme of data center development is certainly a benefit on both sides of our business, whether that be the utility or the pipeline. On laterals, as we finalize our precedent agreements with our customers, we will keep those in mind. What we have seen across the country is once these pipelines become announced, to the extent we get to a final investment decision, other opportunities may come forward. We will be thinking about that also. It looks like, Jason, you might want to add something here. Jason L. Vollmer: Thanks, Nicole, for that lead-in. You mentioned specifically the Ellendale lateral, Julien, as part of your question. If you look at the updated map, you will not see that lateral built into that map. As we think about the open season process, we did not get interest at that location. We are delivering gas to that site, but the volumes we are seeing on the initial pipe compared to what we had expected going into the open season showed up along the mainline and get us to the same point along the way. We will see additional laterals develop over time off of this pipe, should we decide to proceed. It is a good growth platform going forward, but that Ellendale lateral is currently not contemplated in the design and the new map you would see today. Julien Dumoulin-Smith: Right. So the current CapEx budget does not necessarily include, and could be upsized yet again in the context of any laterals, it would seem. But quickly, Jason, while you have the mic, with respect to financing this, this is an incredibly big bite now that you are contemplating. How do you think about financing this? Are there partnerships? Are there sell-downs to get this done? Jason L. Vollmer: I appreciate the question, Julien. We have been clear with the market that we would provide a range once we had more clarity around the size, scope, and design of the project. By coming out with a range today, we have a much better view. It is a very large number, especially considering our current capital plan of $3.1 billion without this project included. This would be a significant addition. All options are on the table as we look at ways to finance this. A FERC-regulated project with contracted demand for a long period of time will have a lot of ways of getting financing done, whether that is doing it ourselves, incorporating partnerships, or various other structures. Our primary focus is to find an option that provides the best return for our shareholders over the long term, and also gives us the ability to have a majority stake in this project that will be connected to our existing system. It is very important that we would sit in a majority partnership if we go down the partnership path. Julien Dumoulin-Smith: Absolutely. Thank you very much. Best of luck. Operator: As a reminder, if you would like to ask a question, please press 1 to raise your hand. Your next question comes from the line of Ryan Michael Levine with Citi. Your line is open. Please go ahead. Ryan Michael Levine: Regarding the Montana rate case, any color around if you are still pursuing a settlement there given the deadline is coming up later this week? Jason L. Vollmer: Thanks, Ryan. I can take that one. On the Montana rate case, we are encouraged that interim rates were approved and went into effect on April 1, subject to refund until we get through the actual rate case process. As of right now, we have a hearing scheduled for July, or later this summer, for the next steps. Typically, we look for potential settlements along the way where we can, and we will continue to be in discussions on that. Nothing further to state here other than that a settlement would be something we would be open to, but we are proceeding to the next hearing date and will continue to update once we find out more. Ryan Michael Levine: In terms of the Bakken East more broadly, given crude price evolution as negotiations continued and the potential increase in associated gas production from the region, how is that impacting your contracting conversations from the supply side, and any incremental opportunities that could enable? Jason L. Vollmer: Great question. Market dynamics are interesting right now in the commodity space. All of the interest we have talked about with the Bakken East project has been demand pull. This is industrial customers, power generation, and LDCs—not driven by supplier push. I certainly think this is a project that will have interest from suppliers once it is in service, but we are not relying on supplier push to get to the volumes we are talking about here today. This is all demand pull. Ryan Michael Levine: In the cost estimate outlined in your slides, what are the key variables that push you to the higher or lower end of that range? Jason L. Vollmer: The construction period is in the 2029–2030 timeframe for the first in-service in late 2029 and the second phase in late 2030. We have not reached our final decision yet, so we have not locked up contractors. There could be variability in labor as we progress. Steel prices have been moving a bit. We wanted a range that could encapsulate some of that. We now have a better view from the customer demand side regarding where facilities would be located and interconnect with their projects. We have approximately 97% of the route with permission to survey. We are in a good spot from that perspective. The remaining uncertainty is around locking in steel prices for the pipe itself, ordering compression to understand costs, and finalizing labor for construction. There are variables until we get those locked down. We wanted a range to help the market understand the size and scope of how exciting this project can be, while being thoughtful that things can move around a bit before we lock it down. Ryan Michael Levine: Great. Thanks for taking my questions. Nicole A. Kivisto: Thank you. Operator: Your next question comes from the line of Aiden Kelly with JPMorgan. Your line is open. Please go ahead. Aiden Kelly: Hey, thanks for the time today. I want to pick up on the Bakken East project from a different angle. Could you talk about the data center opportunities on top of what you have already been discussing on the pipeline—specifically, the power plants to be built off laterals in certain towns? Are conversations occurring with large-load customers around this opportunity? Nicole A. Kivisto: Yes, certainly. One of the things to think about, as Jason mentioned, is the scope of what showed up in the binding open season and those with signed precedent agreements is demand pull. What is in that number? Some of that is power generation. A piece of what is showing up is power generation to serve potential data centers. Your question goes beyond that, in terms of the utility working with some of these customers or whether there could be additional power generation that shows up after we make a final investment decision on this pipeline. That is yet to be seen in terms of where those things land. Where we are today, this is a demand-pull project, and there is power generation showing up within the binding open season. Aiden Kelly: Separately, on the equity side, it is a big CapEx project and you mentioned potential partnership opportunities. Could you comment on the extent you see that as a possibility? And if so, how should we think about that—another utility or a private equity arrangement? Any thoughts on your appetite to partner up? Jason L. Vollmer: Thanks. As I mentioned earlier, all options are on the table as we think about financing a project of this size and scope, given how significant this project could be for the company. Right now, the team is focused on getting to a final investment decision. That is the primary focus—getting the remaining precedent agreements executed and getting to a position where we can get in front of our board on an FID. If we decide to go down the partnership path, we will step back and look at what makes the most sense for shareholders over the long term. A strategic partner could have a fit, and financial partners would likely have appetite too. We will analyze it carefully to determine what makes the most long-term sense for our shareholders for what would be a very long-lived and important project for the company, should we decide to proceed. Aiden Kelly: Great. Appreciate the insight. Thanks for the time. I will leave it there. Nicole A. Kivisto: Thank you. Operator: There are no further questions at this time. I will now turn the call back to Nicole A. Kivisto, President and CEO, for closing remarks. Nicole A. Kivisto: Thank you again for joining us today and for your thoughtful questions. We appreciate your continued interest in and support of MDU Resources Group, Inc. As we move through the remainder of 2026, we remain focused on disciplined execution of our capital plan, constructive regulatory engagement, and delivering safe, reliable, and affordable energy for our customers. Finally, I want to thank all of our employees for their dedication and commitment. We look forward to staying engaged with you throughout the year. Operator, you may now conclude the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Inspired Entertainment First Quarter 2026 Conference Call.[Operator Instructions] Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the first quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. This also applies to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead. A. Weil: Thank you, operator. Good morning, everyone, and thanks for joining our first quarter conference call. Once again, we've prepared a slide deck to help focus the conversation, and Brooks and I will be using that for the balance of the program. So beginning with Slide 3. We continued in the first quarter to see the benefits of steps taken in 2025. As been reported previously, we took 2 important actions in 2025 to alter the balance of our portfolio. We sold the holiday park business, which we've discussed a number of times, and we restructured the pubs business to significantly reduce both capital and labor requirements. Overall, we've reduced company headcount by about 1/3 from over 1,500 to around 950 and cut our annualized capital spending from the mid-$40 million to the low $30 million. Adjusting for the onetime impact of the holiday park and pub restructuring, which I'll discuss a little bit more in a moment, our continuing revenue grew by 15% year-to-year, driven in large part by 38% revenue growth in Interactive. Our Q1 reported EBITDA grew by 29%. Our EBITDA margin expanded by 1,100 basis points. We paid down $13 million in debt, and we bought back close to 400,000 shares. So it was a very busy quarter. Slide 4 illustrates a little more clearly what's going on with revenue. The actions taken in holiday parks and pub together had the effect of reducing revenue in the first quarter of 2025 by about $10 million from $60 million to $50 million, as illustrated in the slide. And then driven importantly, but by no means exclusively by Interactive growth, discontinuing revenue of $50 million grew by 15% to a little more than $57 million in the first quarter of 2026. Interactive is certainly the primary growth driver, but as Brooks will discuss in more detail in a minute, our retail business has been performing very well in all its worldwide markets. The sustained interactive growth illustrated in Slide 5 has in turn been driven importantly by superior content development as has the retail business, though obviously to a lesser extent. In the retail business, the markets themselves are growing less quickly and particularly in the U.K. and Greece, our market share is much higher. In just a moment, Brooks will elaborate on our content strategy, including the bringing on stream of the new studio. But along with the focus on content development, we've been entering new markets, winning new customers, strengthening our accounts management team in order to maximize the benefit of our content. And with that, I'll hand it over to Brooks. Brooks Pierce: Okay. Great. Thanks, Lorne. And moving to Slide 6 and to build on the points you made. Our core strength and focus is on developing the best content and delivering it wherever it's consumed, including retail, online or in any number of geographies worldwide. One of our key markets is North America, which is now over 30% of our interactive GGR overall and continuing to grow. And as you can see on Slide 6, we continue to climb the ladder in the Eilers U.S. online report, moving up to fourth in the April report from #8 just a year ago. We're continuing to increase our share in both North America and the U.K. This is not-- is driven not just by content alone, but by a consistent road map of high-performing new game releases -- we've also enhanced our account management teams to work more closely with our operator partners on securing prime placements and supporting promotional activity for exclusives as a key part of our offering. On Slide 7, you can clearly see that we've built a portfolio of high-performing content across the last few years with growth accelerating since January of 2025. We've seen these trends continue into April, where we ended the month on a high note with our highest ever single day total value played. These continuing results validate our strategy, and we're excited to bring an additional studio online in the second half of the year to continue to feed our operator partners with more great content that they've come to count on. Turning to the U.K. As of April 1, the increased tax rate from 21% to 40% came into effect in our Interactive business. With just over a month of data, the impact we are seeing tracks exactly with what we had forecast. Importantly, despite the step-up, we saw our U.K. Interactive revenue grow in April, driven by our continuing share gains. Our U.K. GGR in April was more than 40% higher than a year ago, offsetting the tax increase and net-net resulting in our revenue growing by more than 10%. Where we see others retrenching in the U.K. market, we see opportunity to continue to grow our share, and we're committed to the resources to leverage this opportunity. Even with the tax headwind, the U.K. continues to demonstrate strength and resilience of this segment. Moving to Slide 8. We're seeing the benefits of both strong content and the rollout of new machines across several key customers and geographies in our Retail Solutions business, proving that this phenomenon exists beyond Interactive. In the U.K., William Hill, in particular, but frankly, our entire U.K. LBO business showed positive momentum in the first quarter, and we expect that to continue. We also added 2 new customers, Jenningsbet and Corbett's and signed a multiyear contract extension with Paddy Power early in the second quarter. In Greece, our win per unit per day increased 11%, led by our recently introduced Valor Slant top machine, and we will continue upgrading over the rest of 2026 and into 2027. We believe that this machine refresh will continue to drive growth in the Retail Solutions segment. In North America, we're cautiously optimistic about the expansion into Chicago and see the broader Illinois market as a good opportunity for us over the next 12 to 18 months. And combined with our growing footprint across several Canadian provinces, we're starting to see the beginning to -- of the--providing the scale that we really need in North America. So moving to Slide 9. As we've talked about over the last year, we've seen stabilization in Virtual Sports despite the ongoing headwinds in Brazil, which remains a key market for us. Unfortunately, growth we are seeing in other regions is currently being offset by performance in Brazil. However, we see a clear path to growth supported by additional key customers and upcoming product releases as well as the tailwind from the World Cup. Moving to Slide 10, which I think really validates what we've been talking about for some time, optimizing our portfolio is delivering the outcome we expected, divesting the lower margin, more capital-incentive -- Lorne keep your phone off -- Divesting the lower margin, more capital-intensive and less strategic holiday parts business, along with the restructuring of our pubs estate to be less capital and labor-intensive which had the exact impact we are expecting. As a result, the shift to higher-margin digital businesses, combined with improved retail performance is leading to overall growth in EBITDA, margin expansion and significant improvement in cash flow. And all of this is underpinned by our continued focus on delivering the best content to support this strategy. So I'll turn it back over to Lorne. A. Weil: Thanks, Brooks. Just to refocus a little on the numbers, Slide 11 is once again a snapshot of where we were at the end of the first quarter. Year-to-year growth in EBITDA was 29%. Digital accounted for about 60% of our EBITDA and our leverage had declined to 3x. More importantly, Slide 12 analyzes what happened with cash. We generated about $16 million in free cash flow, which we used to both repurchase stock and repay debt. Obviously, this won't occur every quarter because every other quarter, we have a semiannual cash interest payment to make. But over the course of the year, with cash generation being fairly steady and annual cash interest in the mid-30s and declining as we deleverage, our leverage free cash flow conversion as a percent of EBITDA is comfortably in the 20s and hopefully growing. Cash flow conversion and other key metrics are summarized in the targets on Slide 13. As we move through this year, we're projecting the underlying trends we've been seeing will continue. We expect to see steady sequential growth in EBITDA from Q1 onward now that most of the seasonality has been removed with the holiday park sale. And in parallel, we're targeting strong cash flow conversion and declining leverage driven by both the paydown of debt and growing EBITDA. In terms of asset allocation, we will look to continue to both debt repayment and share repurchase. And with that, we'll open the program up to questions. Operator: Your first question is coming from the line of Barry Jonas of Truist Securities. Barry Jonas: Thank you for all the helpful color so far. Just a couple for me. I think we've heard from some competitors about macro and geopolitical issues impacting the top line and perhaps the cost environment. But just -- I think I asked this last quarter, but I wanted to see if you had any updated thoughts there you could share. Brooks Pierce: No. I think we're probably aligned with pretty much everyone else, and it's something that we're watching very closely. We're not seeing the impact of it thus far, but we're obviously mindful of it. And I think the first quarter is kind of positively reinforcing that. But as we all know, you kind of have to keep your head on a swivel about this stuff. Barry Jonas: Got it. Okay. And then I think the ramp of Interactive has been fairly impressive over the past few years. But the Virtual business is one where I think years ago, we maybe had higher expectations. And maybe just wanted to kind of get your thoughts. I think before we saw some of the near-term challenges, we were thinking kind of like a mid-teens percentage of OSB handle was a decent long-term target for Virtuals. But curious if you have any updated thoughts about the longer-term opportunity here. Brooks Pierce: Yes. I think it's an interesting question. I think I would say that we're probably a little frustrated in the growth that we would have expected from Virtual Sports. Just to put it in a little bit of context, at least as it relates to North America, obviously, online sports betting is in 39 states. And right now, we're technically only allowed to go in a couple of states. So obviously, one of the things that we would hope is to add both additional states, but also additional operators. I think we have some product initiatives that are coming out that will help. We obviously expect to get some tailwind from the World Cup. That might have been aggressive to think that it was going to be a mid-teens percentage as a part of online sports betting. It's probably more like maybe mid- to high single digits is probably the right number to think about. A. Weil: I think there's another issue that I think is very important, Barry, too, which is that the opportunity for virtual sports is certainly in North America is not limited to basically a companionship with online sports betting. And that is in the lottery space. Without going into a lot of detail right now, I can tell you that we're seeing some very interesting developments with some of the most important lotteries in North America regarding the opportunity for virtual sports there. And I think definitely, as we move through this year, we'll see a couple of very meaningful developments that I think will be a tipping point for the virtual sports. Operator: Your next question is coming from the line of Ryan Sigdahl from Craig-Hallum Capital. Will Yager: This is Will on for Ryan. First wanted to ask on the guide. You reiterated adjusted EBITDA but increased the margin. So it implies that revenue a little bit lower than you expected. Curious what's the main factor going into that? Is it mostly U.K. iGaming taxes, Virtuals? Or is it something else entirely? Brooks Pierce: I think it's -- I guess, how I would characterize it is just a slight tweak. We're seeing the margins continue to increase. And obviously, you've done the math on the revenue, but I think that's it's just a guide. But we certainly feel very confident, and that's why we've upped the EBITDA margin targets. But I don't see this as a big fundamental shift of it by any stretch of the imagination. Will Yager: That's fair. And then just a quick follow-up. I wanted to ask sort of on the Interactive expansion you ended up launching in South Africa, Fanatics and West Virginia. Curious what the future expansion opportunities look like and how much more you think you have to run? Brooks Pierce: Yes. Sure. I think we've talked about this a number of times, and Lorne may want to add to my commentary because I know he talks about it a lot is look, we're going into the regulated markets where we think it makes sense, expanding in markets like West Virginia and South Africa. But I think what we feel over the longer term is there's going to be a large opportunity for expansion of iGaming in North America. Particularly with everything that's happening in terms of the states not getting the kind of support from the federal government that they've gotten in the past, and we think that there's going to be an opportunity for more and more states. Obviously, there was a whole big thing about this in D.C. recently. Virginia has talked about it. So I think it's an underappreciated -- no one knows what the timing of that is going to be, but we feel like there's going to be more states that will come on board. And frankly, if that were the case, that really takes no more for us from an infrastructure or cost standpoint to deliver these additional states other than a little bit of bandwidth cost. So we see that -- we don't know when, but we see that as a huge opportunity to be transformative for us. Operator: Your next question is coming from the line of Chad Beynon of Macquarie. Chad Beynon: Brooks and Lorne, I wanted to stick on Interactive, just given the -- how important this is and the growth that you highlighted here in the first quarter. Just thinking about the new studio, new game launches and how AI can build upon that. Could you help us think about maybe some of the tried and true games that have done well? And then with this new studio, will that all be incremental and how we use AI to just get games quicker to market for your partners? Brooks Pierce: Yes. No, thanks, Chad. That's a great question. And I think the reality is, yes, I think the single biggest thing from the Interactive side that we've been talking about for a while, and I think we've talked about this. We've looked long and hard for potential acquisitions in the space as a tuck-in to add more capacity and didn't find anything that made sense for us and finally decided that we were going to build the studio ourselves, and that's well down the path, and we'll start producing games in the second half of the year. And on your comment on AI, yes, I mean, for sure, the utilization of AI across the business, but certainly in the game development side of things accelerates the ability for us to deliver games faster, which is something that I think is going to be important for us as we go forward. So adding capacity, adding kind of different types and styles of games to broaden our portfolio and getting more games out faster through utilizing AI is clearly a big strategy of ours. Chad Beynon: Okay. Great. And then on the Retail business, focusing on units in North America. I know there were a few bills to grow the distributed gaming markets in a few states that didn't get across the end line, but you mentioned Chicago, which I think is coming in the fourth quarter. Where else can you go in the U.S.? Are you looking to get licensed in other markets? I know Louisiana, Georgia, Nebraska, et cetera, have similar types of markets that are growing on a same-store basis. But just wanted to know if you could help us on the TAM in that market. Brooks Pierce: Yes. I think what we've consciously tried to do here is to build at the right pace for us. We obviously mentioned in the release, we've got multiple Canadian provinces that are now kind of ordering machines on a yearly basis, and that's very important for us. Illinois and in particular, Chicago, assuming everything goes as expected, we will start in the fourth quarter and then will be a bigger part of next year. And I think we mentioned on a prior call that we had done or at least in a press release that we've developed in concert with Gaming Arts, a game that will go on their Class III cabinet. So we think that should be a proof point for us that our content will work in Class III. And then obviously, that opens up a number of opportunities across Class III and Class II. And then specifically, on the distributed question that you had, we kind of have to take it on a market-by-market basis. So each one has its own nuances. Montana, Nevada, Louisiana, each have their own kind of unique attributes. So we went with what we thought was the best and most likely place for success first, but we certainly are looking at not only the North American market for distributed gaming, but frankly, distributed gaming on a worldwide basis. At this time, there are no further questions. Operator? Operator: Your next question is coming from -- it's coming from the line of B. Riley Securities. Matthew Maus: This is Matthew on for Josh Nichols from B. Riley. I guess just on the Virtual Sports side, I was wondering, how should we think about the Playtech deal alongside the World Cup? Is the timing going to allow you guys to have content live on Playtech's network ahead of the tournament or maybe during it? Or is that more of like a second half and 2027 revenue driver? Brooks Pierce: Yes. I'd say it's more of a second half. We look -- we think this is a great opportunity for us to get our product into the Playtech network. I think our first customer should go live here shortly. But I would say it's much more of a second half and going into 2027 opportunity for us. Matthew Maus: Got it. And then also, I guess, in terms of like BetMGM Sportsbook tab integration in New Jersey, I mean pretty sure it's been live for a couple of months now. I'm wondering like is there any early reads that you see there on player engagement and how that can possibly lead to future operator signing with you guys? Brooks Pierce: Yes. I mean I think it's probably a mixed bag. I think the results from BetMGM in Ontario have been very good, probably not quite as good as we had hoped so far in New Jersey, but we're working with BetMGM in particular, about where we're positioned on the site and some promotional stuff. So I think it's a little early. I think maybe it's 4 to 6 weeks that we've been out with them. So it doesn't happen overnight, but we certainly feel very bullish, and we're having some conversations some of the other big sports betting operators, I think, that are looking to broaden their portfolio. And to just add on to Lorne's comment, we do think both on an online basis and importantly, in a retail basis that virtual sports or monitor gaming, as they call it, in the lottery industry is a very big opportunity for us that's underappreciated. So we would expect over the next kind of 6 to 12 to 18 months, having some pretty meaningful contribution coming from that as well. So even though the Virtual Sports business is relatively flat, there's a number of opportunities that we see that we think can get that business back to growing. Matthew Maus: Last question for me, just on the Interactive side. Maybe on the hybrid dealer pipeline, -- if I remember correctly, I think DraftKings and Betfred were expected soon to be signed. I'm wondering like where that stands and how the rest of the funnel is shaping up. Brooks Pierce: Yes, you're right about both of those. I would have expected that we would have them live at this point, but it's probably going to be June for that. So we'll start. And as we talked about before, this is the games that have the combination with our slot content that has done very well. The Wolf it Up game is the first one that will go out. And we'll be rolling it out to a number of customers starting in June. So when we have our next call in August, I guess, we'll be able to talk about that in a little bit more detail. Operator: There's no other questions in queue at this time, and that concludes our Q&A session. I will now turn the conference back over to Lorne Weil for closing remarks. Please go ahead. A. Weil: Thank you very much, operator. And again, thanks, everyone, for joining the call this morning. I think you can tell we're feeling very positive about where the business is. The one issue that had been a concern had been this issue of the U.K. tax, but at least so far in the second quarter, we've been able to more than offset the impact of the tax by our growth in gaming revenue in the U.K. So the business is really in very good shape. We're buying back stock. The leverage is coming down. The margins are going up, all the things that have been our objectives for a while. So hopefully, this will continue through the second quarter. And we'll look forward to reporting in 3 months. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to the Aemetis, Inc. First Quarter 2026 Earnings Conference Call. Joining us today are Eric McAfee, Chairman and Chief Executive Officer; Todd Waltz, Chief Financial Officer; and Andy Foster, President of Aemetis Advanced Fuels. I will now turn the call over to Todd Waltz. Todd Waltz: Thank you, and welcome, everyone. Before we begin, I would like to remind you that during the call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risk and uncertainty that could cause actual results to differ materially from those expressed or implied. Please refer to our earnings release and SEC filings for a discussion of these risks. For 2026, revenue grew 27% to $54.6 million compared with $42.9 million in 2025, with growth across each of the three reportable operating segments. Gross profit was $2.8 million in the quarter, a year-over-year improvement of nearly $8 million from the gross loss of $5.1 million in 2025. Operating loss improved approximately 60% to $6.3 million compared with $15.6 million in the prior period. Net loss improved to $21.7 million compared to $24.5 million in 2025. Production tax credits under 45C contributed $4 million of operating income during the quarter, $1.4 million in dairy RNG and $2.6 million in California ethanol, representing our first quarter of ongoing credit generation tied to quarterly production since 45z eligibility was established in 2025. Adjusted EBITDA for the quarter was negative $1.3 million, reflecting typical winter seasonality with stronger revenue and margin performance later in the quarter. Adjusted EBITDA and a reconciliation of EBITDA to net loss are described in our earnings release issued earlier today. Cash and cash equivalents at the end of the quarter were $4.8 million, comparable to year-end 2025. Capital investments in carbon intensity reduction and dairy digester construction totaled $6.5 million during the quarter. With that overview, I will turn the call over to Eric. Eric McAfee: Thank you, Todd. I want to highlight three key takeaways from 2026. First, Q1 was a financial inflection point. We grew consolidated revenue 27% year-over-year, posted positive gross profit, and improved operating loss by more than $9 million. All three of our reportable operating segments contributed to this result. Second, we benefited from the California Air Resources Board approval of seven new Low Carbon Fuel Standard pathways for our renewable natural gas business at an average carbon intensity score of negative 380 compared with a negative 150 default, which has been providing additional revenue at the higher LCFS value each quarter since Q3 2025. Six additional biogas digester pathways are nearing approval. These LCFS pathway approvals substantially expand the LCFS credit generation per MMBtu of RNG produced and will continue to drive meaningful revenue increases as we scale production. Third, our capital projects are advancing. We received the initial deliveries of dairy biogas pretreatment skids in April under our $27 million fabrication contract. Major equipment for the $40 million mechanical vapor compression project at our Keyes, California ethanol plant has arrived on-site and construction has begun. In dairy RNG, we sold 110 thousand MMBtus in Q1, a 55% increase over the same quarter last year. With H2S cleanup and biogas compression equipment contracted for 15 additional digesters, and four of the equipment units already delivered by the vendor, we are on track to double our operating dairy network with construction into 2027. At our ethanol plant, the MBR project is on track for completion later this year. The system will use on-site solar and grid electricity to displace approximately 80% of the fossil natural gas consumption at the plant. We expect MBR commissioning later this year to add approximately $32 million in annual cash flow from operations, including additional 45z and LCFS uplift from the expected reduction in the carbon intensity of the ethanol produced by the plant and cost savings on natural gas. In India, biodiesel revenue rebounded to $10.5 million in Q1 with the resumption of Oil Marketing Company shipments under new contracts. This revenue growth supports our planned initial public offering of the India subsidiary, Universal Biofuels Private Limited, for which we have retained legal, accounting, and IPO advisers. Looking ahead, our focus for 2026 is scaling production, monetizing the stacked credit value of our renewable fuels platform, completing the India IPO, and the refinancing of existing debt into long-term financing. The principal catalysts we are tracking through the year include the publication of the updated 45z GREET model by the Department of Energy to significantly increase revenues and margins, commissioning the MVR at the Keyes Ethanol Plant, rising LCFS credit prices caused by continued quarterly credit deficits, and progress on the India IPO. Thank you to our shareholders, analysts, and partners for your continued support. Operator, let us take some questions. Operator: We will now open the call for questions. Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if you are listening on a speakerphone to provide optimum sound quality. Please hold for just a few moments while we poll for any questions. Your first question is coming from Matthew Blair with TPH. Please pose your question. Your line is live. Matthew Blair: Thanks, and good morning, Eric. Certainly a lot of things going on at your company, but I was hoping you could talk about the possibility of the RD and SAF plant that has been on the table for a few years now, just in light of the very robust 2026 and 2027 RVO that materially increased the biomass-based diesel requirements. How are you thinking about that RD and SAF project? And maybe you could refresh us on how much it would cost and what kind of capacity it would provide. Thank you. Eric McAfee: Thank you, Matt. The capacity is 80 million gallons a year of SAF, or if we run it only in renewable diesel mode, it is 90 million gallons. And as you know from previous reports, we have 10 different airlines we signed definitive agreements with, etc. We got full permitting approval for construction to begin in 2024. However, market conditions in renewable diesel and SAF were hampered by a new president being hired that, of course, happened in late 2024. That caused the financing markets to take a delay in looking at SAF and RD. You have done a very good job covering margins at renewable diesel producers. Just yesterday in California, Phillips 66 announced they are running above their nameplate capacity on their renewable diesel plant. And certainly, the events since March 1 have driven the price of the molecule up substantially. LA quotes SAF in neat form at $9.80 a gallon as of yesterday. So the market conditions have moved in our favor significantly compared to where we were in late 2024 with a new president being hired who certainly had a policy position that needs some clarification. We are definitely in a position right now in which there is frankly a lot of interest in new SAF production. I would say that the uncertainty in the last few months has given a new certainty to the need for domestic production of renewable fuel and a clarity that airplanes are not going to fly on hydrogen, batteries, nuclear power, or any other sort of energy source other than liquid fuels for the foreseeable number of decades. So we positioned this project specifically for the conditions we are in right now: high price of crude oil alternatives and, frankly, coalescing enthusiasm for the renewable version, which is sustainable aviation fuel. So we are definitely making progress on the financing; that is actually the only remaining part of this. We have the authority to construct permit in place for the facility, and market conditions continue to be in favor of that. That 80 million gallons, of course, if we are selling at $9.80 a gallon, is almost $800 million additional revenue. And I think the industry today is reporting roughly $1.60 a gallon of operating margin. So, obviously, a very positive improvement in our company’s overall revenue and EBITDA growth. But I am going to wrap this up by saying that there are actually four different sources of revenue for that plant, and 45z, the clean fuels provision, is still an unknown. We do not have the updated 45z. It is absolutely expected anytime soon, certainly before June, that the Republicans need to post it. And since there are four revenue streams—you sell the molecule, you sell the California credits, the federal credits, and then receive the 45z production tax credit—that is having an impact on the timing of our financing. Most lenders especially are interested in knowing what the 45z revenue is for this project. Federal law is passed. Treasury adopted their guidance in February 2026 for 45z, but the actual calculator on the Department of Energy website is going to be—that spreadsheet needs to be posted with the updated rules in the spreadsheet in order to finalize that fourth leg of the stool. I want to put that note on the table that that is having an impact. Of course, right now, the business works great without 45z, but people are curious to know what your total revenue is if we are doing a project of that size. Matthew Blair: Sounds good. And then the India biodiesel operations—nice to see them restarted in the first quarter. It looks like profitability is essentially breakeven, maybe a little bit below. Could you talk about your expectations for the second quarter? Do you think volumes will be in a similar range as the first quarter? And I think we typically see some margin improvement in the second quarter as you are able to shift different feedstocks. Do you think that will happen in the second quarter this time around? Thank you. Eric McAfee: Thanks, Matt. Let us talk about the overall trend in India, because it is very important for investors to understand that India is a socialist country, and they have elections that occurred in May. In order to support the existing government, a decision was taken by the government to set the price of diesel at the same price in March and in April as it was in January and February. There is no change in the price of diesel. I think most people on this call would understand that the price of diesel and crude oil dramatically increased in both March and April, but in India, it did not. So as of today, when you go to the pump in India, you do not know that the Iranian war happened from the price of the diesel at the pump. That means that the government is running a very large negative from their expected tax collections from diesel, and the Oil Marketing Companies are losing a very large amount of money every single day on selling diesel because they are buying crude oil at high prices and then selling it at prices below cost in India. That is about to change, and it should happen in the next few days that the price of diesel in India dramatically increases. The Oil Marketing Companies and the Ministry of Petroleum have known about this for two months and have been proactively meeting with the biodiesel and renewable diesel and sustainable aviation fuel producers—or to-be producers—in the country in order to come up with a much more solid program for us to be able to utilize all of our production capacity. We have an 80 million gallon plant that has been operating recently at 10% capacity. There has been a renewed focus on domestic renewable fuels in India. With the policies already in place, the National Biofuels Policy is 5% blended biodiesel in a 25 billion gallon market. That is about 1.25 billion gallons. Unfortunately, they are not at 5%; they are at a 0.5% blend right now, and that is rapidly changing. So you asked about second quarter. I would put it in the context of the trend of this year. We are seeing dramatic increases and, frankly, signing larger contracts and going back to the cost-plus contract model, which is what is in process right now in India. During the course of the next few months, I think you will see that kind of certainty come into play. Our IPO is really being built around us working on that reality that those policies need to be known and need to be adopted. We are setting up our IPO to be directly correlated with when those policies are adopted. I think it will have a very positive impact on not only the valuation of our business but how much money we raise. We are seeking for the IPO in India to be truly a breakout opportunity. We are looking to build the first global diversified renewable fuels business ever to go public in India and certainly anticipate that that will be the positioning we have and that the events of the last two months are having a very significant impact on India and focusing them on redirecting themselves to these policies that they have already got in the books but they have not been fully enforcing. Matthew Blair: Sounds good. Thanks for your comments. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Nate Pendleton with Texas Capital. Please pose your question. Your line is live. Nate Pendleton: Morning. Do you provide more color around the financing commentary from the release? Just looking to better understand some of the options that are available to you on addressing the debt broadly. And then more specifically, what are you looking at with regard to Keyes and then the status of the refunding for the dairy RNG projects? Eric McAfee: The improved margins and, frankly, now recovery of confidence in the need for domestic renewable fuels is directly expanding our refinancing opportunities. We have been funded and supported for the last 18 years by roughly a $3 billion fund out of Toronto that holds our senior debt, except for the $50 million of U.S. debt that we have, and our expectation is that we will continue to have very positive trends toward having municipal bond financings available to us. Municipal bonds have been used by the renewable fuels industry for a variety of basically greenfield projects. We, of course, are not greenfield; we are expansion. We are actively in the market right now working on a municipal bond type refinancing of our existing bridge financing we got from Third Eye Capital. The Renewable Energy for America Program at USDA is active, but they have slowed down their expansion in renewable fuels in a portfolio review process. The timing of that seems to be changing on a regular basis. As they make a review of their portfolio goals, they will be expanding or not expanding—it is really quite uncertain, to be frank with you. The rapid expansion of interest in the municipal bond and even commercial credit markets, certainly private credit markets, all of which we have had active discussions with, I think are going to overshadow our Renewable Energy for America Program funding. I think we will be seeing much larger financings and moving much quicker than what the USDA program currently looks like for our company. Nate Pendleton: Understood. Thanks, Eric. And then I just wanted to get your perspective on LCFS prices for a moment. While the market has flipped to deficit generation recently, prices have broadly remained quite muted. Can you talk about your expectations for that market going forward? Eric McAfee: I think we are going to see a rapid price increase during the summer and early fall. What muted the deficit—that is, we had our second quarterly deficit on April 30, and that was for the fourth quarter of last year. So there is a trailing deficit announcement. It is literally four months after the end of the physical quarter when the announcement happens. But the price being muted was an expectation by traders that people would not drive as much with high gasoline prices. Interestingly enough, on a formulaic basis, gasoline currently represents roughly 2% of the income of the average American, and I think traders over-traded on this one. They were not anticipating that the Iranian war would actually not be as big of an impact on driving as what it has—or they thought it would have a bigger impact than what it really did. It did not have as big an impact, especially in California. LCFS credit deficits, however, are not driven just by consumption of gasoline. It is also driven by how many credits come from renewable diesel. Renewable diesel is the reason we got such a large 40 million credit bank, and renewable diesel has underperformed in Q4 last year and the first part of this year. I expect it to underperform in credit generation. So if you have fewer credits being generated, quite frankly, it was a lot more of a deficit than what was expected because there were fewer renewable diesel credits generated. We think the LCFS price trend is absolutely upwards. The question of pace has been impacted by the Iranian war. That play did not quite work out, and so we do expect increases to continue. There are plenty of credits in the market; it is not that issue. The issue is: do you want to pay $200 for it 18 months from now when there are very few in the credit bank? So it is a question of major oil company traders over the next 18 months at some point in time reaching a tipping point at which they decide they do not want to have to be buying $200 credits. They might as well get out there and buy whatever they can on the market. When that happens, you will see a very rapid price rise. I would not be surprised at all to see $150 in 2027 as traders see the cap as $268, and they want to get their book filled up as soon as possible. Nate Pendleton: Got it. Thanks for the color, Eric. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Sameer Joshi at H.C. Wainwright. Please pose your question. Your line is live. Sameer Joshi: Hey, good morning, good afternoon, Eric. Thanks for taking my questions. On the MBR, I understand it is going to be deployed before the end of the year. Are there any additional certifications or verifications needed to be done before you can start generating that $32 million annualized return from it? I know some of it will be immediate because of lower natural gas consumption, but for the other incentive-based cash flows, do you need to do anything? Andy Foster: Thank you for your question. No, there are no additional certifications necessary. We received an authority to construct from the air district, which is really the big number that we have to get crossed off before we can proceed with the project, and that was received last year. We have some local permits that are sort of ongoing as you do construction, but we do not have any requirements for additional permitting or authorization in order to proceed. Construction has begun. We have begun demolition on existing concrete structures. As Eric mentioned in his comments, we have received most of the major equipment stateside now. We received the turbofans from Germany last week. The main evaporator was received from PRASH in India about a week ago. It is currently in transit to the Keyes plant. All of the big-ticket items that take a long time to fabricate are either on-site or will be on-site within the next week or so. Sameer Joshi: Got it. Thanks for that, Andy. Moving to the India OMC activity there—thanks for the color that you provided, Eric, to the previous question. But in terms of pricing that will be available for you, do you expect it to be premium pricing relative to what you got in the last year, for example, or are getting currently? Eric McAfee: Yes, there is definitely premium pricing, actually. The next contract is already being discussed. The structure of a cost-plus contract—which we did $112 million of revenue and about $14 million of positive cash flow last time we had a cost-plus contract—is being strongly considered as a replacement for what they have done in the last couple of years, which was this uncertain sort of pick-a-number-and-see-what-happens kind of structure. We covered this a couple of years ago with investors, but just a reminder: the cost-plus structure was after many years of working with the government to come up with something that was going to expand capacity utilization in India. It worked very well. Then the India government passed a 20% tariff on the feedstock that was being used by the industry, and therefore the price of the formula went up 20% after they had issued us a contract. The Oil Marketing Companies did not want to take a loss, so they just did not take delivery. That created confusion in the market. That confusion has now gotten more clarified because of the very high-cost diesel and the need for them to start getting utilization in the biodiesel industry, and that is the resolution that is being worked out right now. We do expect to return to better conditions for full capacity utilization. India imports over 90% of its crude oil and really needs to expand its domestic production of renewable fuels. Sameer Joshi: Understood. Thanks for that. And then just one last one. You did mention you got seven LCFS pathways approved for the negative 380. Six are being worked on. Should we expect those to occur in the first half, or is it a second-half event? Eric McAfee: There is a strange delay in the process. We expect the approvals to occur, but then they are a look-back a couple of quarters. If we get an approval, for example, at the end of the fourth quarter, it is a look-back to the beginning of the third quarter. So an approval by December is actually effective July 1. Strange situation, but the reality is, yes, we do expect by the end of the year to see appropriate progress here with a look-back that looks like a six-month look-back because they do it the quarter after the closing of the quarter. We will keep the market apprised of progress here, and of course, we are focusing on moving it through the process as quickly as possible. Sameer Joshi: Understood. So that would potentially be a lump sum that you get if it is approved in the fourth quarter for the previous quarter? Eric McAfee: Yes, there might be a one-quarter catch-up, but in essence, it is just the delayed approval for the previous quarter—the way the government looks at it. Sameer Joshi: Thanks a lot. Thanks for taking my questions. Eric McAfee: Thank you, Sameer. Operator: Your next question is from Dave Storms with Stonegate. Please pose your question. Your line is live. David Joseph Storms: Good morning, and thank you for taking my questions. I wanted to stick with the dairy digesters. I believe you mentioned on the call you are expecting another 15—doubling your digesters by 2027. Can you just remind us when you actually get the investment tax credits related to those investments, and maybe just your thoughts around the monetization of those net credits? Eric McAfee: Good question. We get the tax credits upon the completion—the what they call in-service date—for each single digester. So we do not have to build all 15 of them and then add six months to that or anything. As we build each digester and it goes in service, we generate the section 48 investment tax credits. We have sold about $95 million of these tax credits. We tend to sell them in $5 million or higher increments, though that is not absolutely required, and we do expect to have a single party this year acquire each one of the investment tax credit projects that we generate. We will be seeking to do at least once a quarter. There is a potential to do it more than once a quarter depending on how many new units are completed. We expect this to be probably a third-quarter contribution but could be quicker than that. The market is moving quickly, and we have some refinancing activities going on that certainly are very positive for the business. We have already fully financed the construction of $27 million of H2S and compression skids. The process is going on; we have received four of them already and have more coming. We are rapidly executing on portions of this project right now. The investment tax credit delay is a month or so after the in-service date if we were doing it in the ordinary flow of business, so not a whole lot of delay between when the project is completed and when we get the cash. David Joseph Storms: Understood. That is very helpful. And then just sticking with those potential new digesters, do those come online at the negative 380 qualification status? Or how does that process look? If they do not come on at the negative 380, what do you think the current timeline is from the negative 150 to the negative 380? Andy Foster: Are you speaking about the new digesters that are not built? Correct. Given the temporary pathway score of negative 150, then once we go through the process with CARB—which hopefully now that they have moved to a Tier 1 approval process will be significantly shorter than what we have experienced in the last few years, which is this kind of 24- to 36-month approval process—it should be more like nine months. Then we would get the benefit of that higher—or lower, however you want to look at it—CI score. So initially it is a negative 150, and as you work your way through the approval process, then you go to the blended rate of the negative 380. David Joseph Storms: That is perfect. Thank you for taking my questions. Eric McAfee: Thank you, David. Operator: Your next question is coming from Ed Woo with Incendiant Capital. Please pose your question. Your line is live. Edward Moon Woo: Yeah. Congratulations on all the progress, guys. My question is, as we are getting closer to the India IPO, what are your priorities, or what have you allocated in terms of what you are going to do with the capital raised? Eric McAfee: The India IPO is primarily designed to support the expansion of the existing projects in India and in California. Our existing projects in California, specifically focused on dairy RNG, would be a use of some of the proceeds of our India business. That is one of the reasons why it will be the first global diversified—not just biodiesel, but multiple different fuels—company to go public in India that offers the India investor access to a very well-established incentive environment here in California called the Low Carbon Fuel Standard. The federal government support of the Low Carbon Fuel Standard in California is matched by the Renewable Fuel Standard at the federal level and the 45z production tax credit and the value of the molecule. So the Indian investor has access to arguably one of the best markets in the world for renewable fuels, and that is a diversification of the growth in the India business. Another point we have made publicly is that as the largest biodiesel producer in India, we happen to be very well-positioned to build the conversion of a biodiesel facility into sustainable aviation fuel. So our India IPO not only is biodiesel and dairy renewable natural gas, but also a conversion into a SAF producer in India in addition to expanding biodiesel. It is a diversified business. The India market is very deep and wide and right now is about to have the shock of its diesel life with an incredible percentage increase in diesel costs as a result of what has been going on in the world. It is a perfect storm in favor of us as a producer in India who has been there for 18 years to open our opportunity to the public markets. We are making excellent progress, and certainly market conditions will determine the actual timing of what we do, but market conditions are trending in our direction. Edward Moon Woo: Great. Well, thanks for answering my questions, and I wish you guys good luck. Eric McAfee: Thank you, Ed. Operator: There are no further questions in queue at this time. I would now like to turn the floor back over to Eric McAfee for closing remarks. Eric McAfee: Thank you to Aemetis, Inc. stockholders, analysts, and others for joining us today. We look forward to talking with you about participating in the growth opportunities at Aemetis, Inc. Todd Waltz: Thank you for attending today’s Aemetis, Inc. earnings conference call. A written and audio version of this earnings review will be posted to the Investors section of the Aemetis, Inc. website. Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to the Gladstone Capital Corporation's Second Quarter Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Erich Hellmold, General Counsel. Thank you. You may begin. Erich Hellmold: Good morning, and thank you for that nice introduction. This is the earnings conference call for Gladstone Capital for the quarter ended March 31, 2026. Thank you all for calling in. We're always happy to talk to our shareholders and analysts and welcome the opportunity to provide updates on our company. Now I'll have Catherine Gerkis, our Director of Investor Relations and ESG provide a brief disclosure regarding certain regulatory matters regarding this call. Catherine Gerkis: Thank you, Erich, and good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecapital.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. Now I will turn the call over to Gladstone Capital's CEO and President, Bob Marcotte. Robert Marcotte: Thank you, Catherine. Good morning, all. I'll cover the highlights for the quarter and conclude with some comments on our near-term outlook for the company. Beginning with our last quarter's results. Fundings last quarter totaled $44 million and included 3 new private equity sponsored investments totaling $34 million and $10 million of additional advances to existing portfolio companies. Exits and prepayments declined relative to what we experienced in 2025 and came in at $46 million, so assets were largely unchanged for the quarter. Interest income for the period declined slightly to $23.2 million, with a 30 basis point decline in the average SOFR rates compared to last quarter as our weighted average debt yield was 11.8% for the period. Other income for the period came in at $2.8 million, which was up $2.2 million from the -- on prepayment fees and dividends. Interest and financing costs declined with lower SOFR rates and reduced unused commitment fees. Net management fees rose $875,000, with the lower origination fee credits. However, net interest -- net investment income rose $574,000 to $11.8 million for the period. Net portfolio appreciation came in at $4.2 million, largely driven by the unrealized appreciation of 3 of the larger companies in our portfolio, which continued to scale. With respect to the portfolio, the portfolio growth for the period did not have a material impact on our investment mix or spread profile as first lien debt and total debt investments came in at 70% and 90% of the portfolio cost, respectively. Our healthcare-related industry concentration declined and is expected to fall further in the short term with a pending exits as we do not -- and we do not have any existing software-related exposures. As of the end of the quarter, our 3 nonearning debt investments were unchanged with a cost basis of $28.8 million or $13 million or 1.6% of debt investments at fair value. In addition, our PIK income for the quarter declined to $1.7 million or 7.4% of interest income. Since the end of the quarter, we funded 2 new portfolio companies representing a total of $44 million of senior secured debt. And while earning assets have increased since the end of last quarter, we are expecting a couple of exits in the near term and are actively managing a healthy pipeline of investment opportunities, which should more than cover any repayments and support our continued modest asset growth. The strength of our investment outlook represents a combination of the resilience of the growth opportunities within the lower middle market and add-on financing opportunities within our existing portfolio. In particular, we're seeing strong demand for precision manufacturing businesses where customers are looking to move sourcing back to the U.S. or scale in support of building defense-related backlogs. We ended the quarter with a conservative leverage position and net debt at a modest 92% of NAV and expect to continue to leverage our floating rate bank facility to support our floating rate assets thereby mitigating the impact of short-term rate decline. Our current line of credit facility totals $365 million. And as of the end of the quarter, borrowing availability is more than $150 million which is ample to support our near-term investment activities. And now I'll turn the call over to Nicole Schaltenbrand, Gladstone Capital's CFO, to provide some details on the fund's financial results for the quarter. Nicole? Nicole Schaltenbrand: Thanks, Bob. Good morning all. During the March quarter, total interest income declined $700,000 or 2.9% to $23.2 million as the average earning assets rose $21.7 million or 2.8% while the weighted average yield on our interest-bearing portfolio declined 40 basis points to 11.8% for the period. Total investment income was $26 million as dividends and fee income rose $2.2 million from the prior quarter. Total expenses rose $900,000 or 6.8%, driven primarily by $900,000 of higher net management fees due to higher average assets and lower closing fee credits versus the prior quarter. Net investment income for the quarter rose $11.8 million or $0.52 per share or 116% of cash distributions per common share. The net increase in net assets resulting from operations was $15.5 million, or $0.68 per share for the quarter ended March 31 as impacted by the valuation appreciation mentioned by Bob. Moving over to the balance sheet. As of March 31, total assets rose to $925 million, consisting of $907 million in investments at fair value and $18 million in cash and other assets. Liabilities declined $3 million quarter-over-quarter to $442 million as of March 31, with the decrease in LOC borrowings. The remaining balance of our liabilities consist primarily of $149.5 million of [indiscernible] convertible debt due 2030, $50 million of 3.75% notes due May 2027 and $35 million of 6.25% of perpetual preferred stock. As of March 31, net assets rose $5.3 million to $483 million, and NAV per share rose from $21.13 to $21.36. Our gross leverage as of March 31 rose to 91.8% of net assets. Monthly distributions for May and June will be $0.15 per common share, which is an annual run rate of $1.80 per share. The Board will meet in July to determine the monthly distributions to common stockholders for the following quarter. At the current distribution rate for our common stock and with a common stock price at about $19.21 per share yesterday, the distribution run rate is now producing a yield of about 9.4%. And now I'll turn it back to Bob to conclude. Robert Marcotte: Thank you, Nicole. In sum, it was another solid quarter for Gladstone Capital. The team continued to deliver strong earnings performance bolstered by prepayment fees and portfolio distributions which more than cover the current shareholder dividends. The team is doing a good job managing the portfolio, sourcing attractive private equity-backed lower middle market investment opportunities. The company is also in a very strong balance sheet position with ample borrowing capacity to prudently grow our investment portfolio and deliver the earnings to support our shareholder dividends and now we will -- operator tell our callers how to submit their questions. . Operator: [Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question, just thinking a little bit about the future path of the portfolio yield. If the Fed funds futures curve is right, there shouldn't be -- market is not expecting any changes. So base rate should be more stable. But wondering if you could talk a little bit about the spreads that you saw for your April activity as well as what's in the pipeline and how those compare to the weighted average spread for the existing portfolio? Robert Marcotte: Thank you, Erik. Good question. The activity on the quarter, we really didn't see any compression in spreads what we were closing essentially is on par with our prior quarters. So we really don't see any degradation, and that's really coming from a couple of things. One, it's a disciplined approach and an added value approach in the lower middle market. We've never seen quite the same competition as upmarket transactions. Obviously, in the last quarter, there's also been a bit of a selloff with spreads backing up upmarket from us. And so we've seen less competitive pressure from larger transactions, which are probably backed up 50 to 75 basis points. So we really don't see, at the moment, much in the way of degradation on the outlook. So with closing spreads in the range of roughly 7% on average last quarter, I wouldn't expect much to impact there. We do have some impact as companies get larger, there is some trade-off, but for the most part, it's pretty stable. The other thing is I do expect that we will be funding add-ons to existing portfolio companies in the next quarter, which tend to be consistent with the existing spreads on those transactions. So I think you're correct that in the near term, the pressure on margins are going to be fairly limited. When we originally reset the dividend, we were anticipating a curve where we might have 2 or 3 rate reductions over the course of 2026. Obviously, that's not happening. And the combination of lower upmarket pressure is part of that process, which is one of the reasons why we feel pretty confident in where we stand today with respect to dividend coverage. Erik Zwick: That's great. And good to hear. Looking at just the dividend income in the most recent quarter, it was up quarter-over-quarter. I'm curious if that was driven by kind of one large dividend or if there were multiple companies that contributed to it, whether you view those more as kind of onetime or if they'll be recurring? Robert Marcotte: There are really 2 components of the income. One was the prepayment fee which we broadcast at the end of last call, last quarter. The second one was a fairly large dividend, a single transaction of a company that had been scaling and we owned a slug of the business. I would expect that there may be some additional distributions coming, but they do tend to be onetime events. So I think we do have some companies that are deleveraging that are performing well. And if the private equity sponsor feels so compelled and there aren't good acquisition opportunities, distributions is something that they will look to do. We should expect that we'll see more of those in the future, but I would not -- I would continue to characterize them as onetime events, but we are monitoring that and expect some of that to be realized over the course of 2026. Erik Zwick: And last one for me. I know you addressed this a little bit last quarter, but just your thoughts on kind of repurchasing shares at this point, whether you view that as a good use of capital, certainly, the stock has come back a little bit from the lows a couple of months ago, but trading at a 10% discount to NAV today, curious how you view that opportunity. Robert Marcotte: Erik, we are seeing tremendous opportunities to continue to execute our plan and strategy. And based upon where that returns are being generated, scale is important. So I don't think you'll likely see us buying shares in. I think we are going to be looking to scale the capital base to capitalize on our market position in the lower middle market. The long-term returns on our portfolio have been pretty good. We think it's best interest of the shareholders to continue to scale that opportunity and this is, frankly, a good time. Turmoil, the uncertainty and the issues in the marketplace provide a nice window for us to continue to execute against our long-term strategy. We've been doing this for 25 years. I think the idea is we can continue to grow it and produce good returns for our shareholders. Operator: Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Bob, congratulations on the promotion. And please pass our best wishes to David Gladstone. On the nonaccruals, it stepped up a little bit and your asset quality is good. Can you share with us some observations you're seeing in the market? I mean is higher fuel prices just generally creating increased stress in lower middle market, middle markets? Is it less sponsor support? Because I'm seeing increased nonaccruals across multiple BDCs, incrementally, nothing huge yet, but I'd like to get a little broader perspective, if possible. Robert Marcotte: Sure. The only reason that our nonaccruals went up in fair value is because one of them, in particular, is performing very well. And so we're optimistic that it will be turned to a cash paying and go off nonaccrual. It's been a while for that Xcel situation to turn around, but we're feeling very good about it, given where it's executed. So it's not bad that it went up. It's actually good in a weird way. In terms of your specific question around energy, we don't tend to have a lot of energy-related businesses or energy-impacted businesses. I will say that we do have businesses that might provide services and there are energy costs in delivering their products. And certainly, the delivery companies, the FedExs of the world, were very quick in adjusting their rates. And so passing through surcharges has been something that I think we've encouraged and our portfolio companies have been pretty adamant on and that's really been kind of a neutral event. It's not necessarily negatively affected their business, and it's well understood cost of doing business. In terms of other energy-related matters, I would say we're seeing a little bit of slowing or uncertainty as we've said in the past we do have 1 or 2 investments that are related to the auto market. And energy and auto is a little bit up in the air right now. Certainly, whether it's electric vehicles or whether it's transitioning model years or general auto sales, they're soft. So we are closely monitoring some of those. We feel the business is on the right programs, but the volume in that market is relatively soft. Beyond that, obviously, one of the benefits is we have zero software. So some of I think what you're seeing is just momentum and decision-making in the software side of things. I don't think anybody is making any fast moves to grow the revenue or to expand their software investments at the moment. I think we're all pretty impressed at the relatively low cost and incredibly efficient AI-related tools that we're all toying with. So I think that's affecting a significant number of others, and we really don't have that exposure. So right now, I would generally say we don't see a ton of slowing. We don't see much in the way of direct impact of energy. I would almost argue it's the other way around because we do have some precision manufacturing businesses. They are seeing huge inbound order requests and frankly, we're being asked to fund capital expenditures to grow those businesses. So we kind of feeling like it's a decent opportunity for us if we're close to our businesses to take share and scale some of our opportunities. Christopher Nolan: And just as a follow-up, in general, are you seeing private equity sponsors being a little bit more hesitant in general or any equity providers or is it just sort of pretty stable? Robert Marcotte: I definitely think that private equity sponsors are being very diligent. Deals are not closing at the same pace. I think there's a lot of making sure the numbers are real, and there's no ambiguities. I think there's a fair bit of being cautious. But most of the businesses that we see, it's really about the long-term growth, not the financial structure, not the financial timing. Most of the lower middle market businesses on average are trading plus or minus 7x on EBITDA. That is a business that you can buy and grow and absorb some variability and headwinds and still make good money. If you're trading a large-scale business at 9.5, 10, 12x, you don't have the cushion to be able to absorb that. So I suspect you're seeing much more caution upmarket because the window of growth and equity appreciation is far narrower and the exit multiple that you can get to is going to be harder to achieve. For us. the idea of trading at that lower multiple in the lower middle market, you've already got 2 to 2.5 turns of potential appreciation just from scaling the business. And that drove one of -- a couple of our marks on the quarter. When we go into a business and trades at a lower multiple, and next thing you know it's $25 million or $30 million of EBITDA and the multiple for those businesses is 2 to 3 turns higher that's a natural appreciation that we as well as the private equity sponsors are able to achieve. So I guess it's just a much more forgiving entry point that is part of the process as long as the numbers are solid. Sorry to take so much on it, but that's a fundamental value to the lower middle market. Operator: Our next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Yes, congratulations, Bob. Just kind of sticking with that point, I mean, the color on strong demand from precision manufacturing, I mean, it sounds for me saying that's primarily for add-ons to those already in your portfolio. And then if we step back, I mean, to your point, the upper market valuations are tighter, spreads seem to be showing maybe -- not just precision manufacturing maybe widening, certainly widening in software, but you don't have any of that. . But to your point, is -- are you starting to see any spread expansion in your end of the market, I mean I would think if something like precision manufacturing, where the demand dynamics, like you say, onshore defense et cetera, are so good. But might be increasingly crowded from a competitive perspective for new deals, right? Obviously, the ones you already have. I mean, so do you think those markets that you're in are going to be more resistant spread expansion even if it moves in the upper market? Or any thought on how the pricing for those kind of -- the kind of businesses you do might evolve even if the upper market moves on a pricing front. Robert Marcotte: I would not expect spread to be widening in our market. Just for broad strokes, the upper markets were dipping down sub-5 over LIBOR and that ROE at the leverage point was starting to get tight. The fact that the funding costs have backed up has probably pushed those spreads up to 5.5% or 5.75% or something like that. We've always been, let's say, mid-6s and I don't think that I would expect that to expand much. It's more of a relative play at 150 basis point spread to a upper market deal, the sponsor is going to say you're way too expensive. I'd rather continue to shop it at a 50 to 75 basis point spread, they're not going to say it's not worth my time given the size of the transaction. So I think we will see less competitive spread pressure because the sponsors understand smaller deals are going to be more expensive and on a relative basis. I think the other point that I would make is, once these large platforms are as large as they are, it's very hard to go back down market, right? Once you're as big as you are, and there's not a ton of capital coming into the lower middle market. I mean, look at where the BDC equities are trending, look at who the brand names are that are raising the new funds. The only people that are actually accessing the capital markets or accessing funding sources that might compete with us would be the SBICs. And they are, by definition, somewhat constrained in their overall size. And government SBA financing is not exactly cheap these days either. So we find ourselves particularly well positioned to compete with those folks, and we obviously have a scale advantage over them. So I don't think it goes down, but I think the pressure is less and the opportunities are going to be as -- continue to be relatively positive for us to see modest asset growth within our desired balance sheet leverage constraints. Operator: Our next question comes from the line of Sean-Paul Adams with B. Riley. Sean-Paul Adams: It looks like the quarter was quite solid. Nonaccruals kind of went up in fair value, but it looks like they could be on the decline. So those legacy 3 positions might go down to 2. You guys experienced NAV accretion in a quarter where there's just been a wave of NAV losses. And the zero software exposure usually means materially less impact to this widespread market repricing. You talked a little bit about spreads. And besides potentially that auto exposure, is there just any concern about just future declines in net origination volume potentially from any other partners trying to come downstream and operate in this lower middle market segment. Robert Marcotte: Sean-Paul, it's hard. I think I would make 2 observations. One, we spend a lot of time focusing on the underlying businesses. What's the long-term growth story? What's the market position. We don't look at these as financial transactions, we look at these as businesses, what is the organic growth of this company and what's the ability of the sponsor and our ability to support and be a partner in growth of the business. . It's a very different view in looking at the business than a financial transaction that somebody is looking to invest their capital and it's a spread and a leverage decision that they make when they buy that paper. That's a different mindset, and we've always had that business orientation and focus and that's where we align ourselves with the underlying sponsor. I think that's relatively unique. And the larger transactions, the larger funds, it's about putting money out and scaling and taking advantage of the opportunity, not necessarily as focused on the underlying business. So you add the fact that it's a lot more efficient to raise capital in $1 billion increments, I mean what's the math? Last year, in 2025, more than 90% of the private capital raised were in funds bigger than $1 billion. $1 billion fund is not going to come down market to compete with us. It just -- it doesn't make economic sense. They can't put out the money fast enough to be able to achieve their investment opportunities. We may see -- we have -- there are plenty of guys out there that are in our ZIP code. It's 4 or 5 folks, but we're also talking about a market that's broad and deep. And if we're looking at [indiscernible] deals a year and all we need to do is 20, that's a good flow of opportunities that we can cherry-pick to make our investments. I don't think the big guys think that way. They think about they need to get a certain percentage share, they need to get a certain investment, they need to make a certain investment scale and they're going to continue to stay up market. I think it's going to be very difficult for them to come down market and think and focus on the lower middle market the way we are. Thank you, all. I appreciate the time. Do you want to wrap it? David Gladstone: We're going to take a minute. This is David Gladstone. [indiscernible] maybe poor. Accident in our area, so it kind of clogged up everything. There is no accident at this company. It's very straightforward. We've watched all the private lending companies go over to the high technology area and God bless them. I hope they make it. We're just going to continue to do what we've done for the last 20 years, and that is look at solid small businesses and midsized businesses and finance them where they need it. So since there are no other questions, we'll see you next quarter. That's the end of this call. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's Results Conference Call for the First Quarter of 2026. [Operator Instructions] With us today are Francis Dufay, CEO of Jumia; and Antoine Maillet-Mezeray, Executive Vice President, Finance and Operations. We'll start by covering the safe harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our annual report on Form 20-F as published on February 24, 2026, as well as our other submissions with the SEC. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I will hand the call over to Francis. Francis Dufay: Good morning, everyone, and thank you for joining Jumia's first quarter 2026 earnings call. 2025 was the year we demonstrated the resilience and scalability of our model and '26 is the year we plan to demonstrate our path to profitability. Q1 '26 showed that our momentum towards profitability is continuing and in several important ways, accelerating. Over the past few years, Jumia has been building an e-commerce model designed specifically for Africa, adapted to the unique structural supply, logistical and consumer realities of our markets. In 2025, we proved that this model delivers scale with improving economics and Q1 '26 confirms that the flywheel is turning. This foundation drove our strong operating momentum in the first quarter. GMV grew 32% year-over-year adjusted for perimeter effects. Growth was broad-based across our core markets, reflecting the continued strengthening of our marketplace fundamentals and efficient execution. Profitability metrics continue to move in the right direction. Adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. The business absorbed higher volumes with increasing efficiency while maintaining a disciplined approach on costs. Excluding the onetime costs related to our Algeria exit in February '26, adjusted EBITDA loss would have been $9.7 million, reflecting an underlying improvement of 38% year-over-year in our core business. Based on the progress we made in '25 and the momentum continuing into Q1 '26, we remain focused on achieving our target of adjusted EBITDA breakeven and positive cash flow in the fourth quarter of '26 and delivering full year profitability and positive cash flow in '27. I should also note that we are monitoring the broader macro environment, including cost increases in memory chips and the ongoing geopolitical tensions in the Middle East as well as the potential effects on global supply chain, shipping costs and commodity prices. While we have observed limited impact on our business to date, we remain attentive to downstream risks, including potential pressure on smartphone components availability and transport costs. We believe the resilience of our model and the diversity of our supplier base positions us well to navigate this uncertain environment. Notwithstanding these external matters, we reiterate our guidance for 2026. Let me walk you through the key highlights of the quarter. Usage trends remain strong across our platform. Adjusted for perimeter effects, physical goods orders grew 31% year-over-year, driven by expanding in-country geographic coverage, improved assortment and sustained consumer demand. Our focus remains clearly on physical goods, which accounted for nearly all orders and GMV this quarter. Digital transactions through the JumiaPay app now represent a residual share of our orders as we continue to prioritize transactions with stronger economics. Relatedly, TPV and Jumia Payments gateway transactions have become less meaningful as indicators of our operating performance and effective as of the first quarter of '26, we will discontinue the quarterly disclosure of these KPIs. Adjusting for perimeter effects, quarterly active customers increased 25% year-over-year, reflecting continued traction in both acquisition and retention. Repeat behavior continued to improve with 47% of new customers from Q4 '25 making a repeat purchase within 90 days, up from 45% in Q4 '24. Demand was broad-based across electronics, home & living, fashion and beauty and consistent across most countries, reflecting a similar quality of execution and inputs across our markets. Adjusted for perimeter effects, GMV grew 32% year-over-year in reported currency. Average order value for physical goods increased to $36 from $35 in Q1 '25. Revenue totaled $50.6 million, up 39% year-over-year, driven by higher usage and improved monetization. First-party sales represented 46% of total revenue, supported by continued strength from international partnerships, including Starlink in Nigeria and Kenya. Now turning to profitability. The progress made over the past 3 years continues to translate into measurable operating leverage. Cost improvements across general and administrative, technology and fulfillment are structural. In addition, we renegotiated third-party logistics contracts in February and March and implemented increases in commissions and take rates across most countries in mid-January '26. This reflects the scale of our platform and improved service levels delivered to sellers. Importantly, these commission increases had limited impact on growth, validating our strategy of progressive monetization increases on the back of greater volumes and better seller experience. We also drove meaningful growth in higher-margin revenue streams with marketing and advertising revenue up 44% year-over-year and value-added services revenue nearly tripling, which both reflect improved platform monetization. These changes are consistent across markets and reflect stronger marketplace fundamentals. Fulfillment cost per order was $2.06, flat year-over-year on a reported basis or down 10% year-over-year on a constant currency basis. This reflects productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Most fulfillment operating expenses are incurred in local markets and denominated in local currencies. Technology and content expenses declined 8% year-over-year, reflecting ongoing headcount optimization, automation, platform simplification and the benefit of renegotiated seller agreements, including cloud infrastructure. As a result, adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Quarterly cash burn increased to $15.3 million in Q1 '26 compared to $4.7 million in Q4 '25. The shift from the previous quarter is consistent with typical seasonal dynamics. This compares favorably to the $23.2 million decrease in liquidity in Q1 '25, demonstrating the improvement in our financial trajectory. Now turning to operational highlights and execution at the country level. Q1 '26 demonstrated continued execution strength across our markets. Supply fundamentals remain solid with improvements in both local and international sourcing. Growth was supported by strong performance across multiple categories with fashion and beauty among the top contributors to items sold growth year-over-year and with international items continuing to gain share. Efficient marketing deployment, including CRM, paid online, SEO channels, supported customer acquisition at attractive unit economics. In the first quarter, we sold 4.9 million gross items internationally, up 87% year-over-year adjusted for perimeter effects. This reflects the continued scaling of our Chinese seller base as well as growing volumes from our supply base from affordable fashion in Turkey. Operationally, we continue to extend our reach beyond major urban centers. Orders from upcountry regions accounted for 62% of total volumes, up from 58% in the prior year quarter, both adjusted for perimeter effects. These regions are delivering strong growth while benefiting from a cost structure that scales efficiently with volume. In secondary cities, we are addressing clear customer pain points, including limited product availability and elevated prices from local traders. As a result, our value proposition continues to resonate strongly, driving both adoption and repeat purchase. Now at the country level. Nigeria delivered a strong quarter. Physical goods GMV increased 42% year-over-year. Sustained growth was driven by a broad range of categories with home & living performing particularly strongly alongside continued traction from a country expansion, where a large part of the addressable market remains untapped. We opened over 80 additional pickup stations during the quarter, further extending our delivery network. I should note that Nigeria experienced a significant increase in local fuel prices during March, which created headwinds in our 3PL cost negotiations. However, consumer demand remains sustained and strong. Kenya performed strongly with physical goods GMV up just below 50% year-over-year. Performance was driven by continued strong supply fundamentals and efficient marketing despite similar headwinds to other countries in the phones category. Strong performance in home & living driven by local suppliers and in fashion, driven by international suppliers more than offset the tighter supply in phones. Kenya remains a relatively underpenetrated market for Jumia with vast opportunities up country and we continue to invest in expanding our reach. Ivory Coast growth gradually moderated over the course of the quarter. Physical goods GMV was up 16% year-over-year. Growth was affected by 2 converging headwinds. First, supply disruption in appliances, which is market specific and in smartphones, which is a global dynamic, both felt directly in the market where we have our highest penetration levels. And second, a sharp decline in regulated cocoa farm gate prices down nearly 60% effective in March '26, which reduced the purchasing power of a large share of the upcountry population. Cocoa is the primary export of Ivory Coast and approximately 6 million people depend on it for their livelihoods. This is a meaningful demand side headwind that we expect to persist in the second quarter. However, we remain confident in the fundamentals of our business in Ivory Coast, where we hold a very strong position with a trusted brand and healthy monetization. Egypt's performance this quarter confirmed sustained recovery. Physical goods GMV grew 3% year-over-year, excluding corporate sales, which were still material in Q1 '25, but has since been deprioritized. Physical goods GMV grew 56% year-over-year, confirming genuine market level recovery. Very strong dynamics on the supply side of our marketplace are driving top line acceleration, supported by improved assortment and seller engagement. Our buy now, pay later offering continued to gain traction with strong penetration in high-value categories. Egypt experienced a fuel price increase in March as well, which we are monitoring. However, core marketplace dynamics remain positive. We are also expanding our delivery network through pickup stations in more remote regions, which are poorly served by physical retail. Ghana delivered an exceptional first quarter with physical goods GMV increasing 142%, driven by a country expansion, the scaling of local marketplace and strong supply from international sellers. Ghana was largely unaffected by the disruption in the electronics segment. Our current focus is to continue building logistics capacity to sustain this rapid expansion with stronger customer experience and cost efficiency. Our other markets portfolio also performed well, collectively delivering 10% physical goods GMV growth. Uganda experienced a nearly 1-week internet blackout during the quarter, temporarily impacting volumes, though the market still delivered growth for the period. In February '26, we completed our exit from Algeria, which represented approximately 2% of GMV in '25. The winddown resulted in total onetime exit costs of approximately $1 million, reflecting employee termination benefits and asset impairment, which were all recognized in our Q1 '26 results. Over the medium to long term, this decision simplifies our footprint and improves operational focus, allowing us to allocate resources more efficiently towards markets with stronger growth and profitability profiles. We have not seen significant changes in our competitive environment in Q1 '26. The softening of competitive intensity trends observed in the second half of '25 has continued with competitive intensity remaining subdued across our core markets. The recent disruption of air freight going through the Middle East is expected to create headwinds for non-resident platforms that rely on direct international shipping, contributing to a more level playing field for locally embedded operators like Jumia. Most of our supply comes via sea freight, which was not impacted. We are also seeing increased regulatory scrutiny on cross-border platforms across several of our markets, further reinforcing this dynamic. We are navigating an international environment that is evolving quickly with 2 main developments having the potential to impact our business. First, the memory chips and CPU price increases. We saw a delayed impact on entry-level phone prices and the availability of components for products like smart TVs taking place gradually over Q1. Phone prices increased by approximately 20% between late '25 and early April. We do not see this as a fundamental long-term shift, but it is impacting our business in the near term as supply chains reorganize. Distributors remain temporarily reluctant to release fresh inventory, while prices may increase further and older, cheaper inventory in some markets is still temporarily competing with our more recent supply. We are mitigating this by diversifying our supplier base for smartphones and scaling our marketplace across both local and international sellers. Second, the war in the Middle East. The most immediate impact was the disruption of air freight through the UAE from Asia, which affected some smartphone distributors. Supply routes have since reorganized through other hubs. There are also delayed effects. Disruption to helium supplies creates additional uncertainty for chip production and the majority of our markets have seen fuel prices begin to rise from March, which is expected to weigh on local logistics costs, particularly for middle-mile trucking operations run by our local partners. The impact on our Q1 P&L has been limited with extra costs primarily in Nigeria. If high fuel prices persist, we should expect greater pressure in Q2, potentially partially offsetting the savings from our 3PL rates renegotiations. That said, our strategy of building pickup stations throughout countries is very helpful in this regard as it means that we have already decorrelated a significant share of our delivery costs from fuel prices. In particular, 74% of our ship packages are fulfilled through pickup stations rather than door delivery in Q1 '26, up from 67% in Q1 '25, both adjusted for perimeter effects. We have also taken steps to electrify our last-mile delivery fleet in Uganda and we are looking to replicate this successful pilot in more countries as we continue to reduce our dependence on fuel in logistics operations. '25 was the year when we showed that our business model is on the right track. It delivered growth and improved economics at the same time. '26 is the year when we intend to show that this model will take us to profitability. In this regard, Q1 is a strong data point that is consistent with Q4 '25 trends. We see sustained growth despite an uncertain environment, continued operational leverage and improved unit economics across the whole P&L, resulting in significantly reduced losses. We are committed to delivering trajectory to breakeven by chasing more scale in a disciplined way, improving operational execution and further streamlining our fixed cost base. While we are currently navigating an uncertain international environment, we believe that our business fundamentals, which were rebuilt from '22 to '25, mostly in much tougher times than this are strong. We do expect some temporary disruption, but it does not change our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. With that, I will now turn the call over to Antoine to walk you through the financials in more details. Antoine Maillet-Mezeray: Thank you, Francis, and thank you, everyone, for joining us today. I will now walk you through our financial performance for the first quarter. Starting with revenue. First quarter revenue reached $50.6 million, up 39% year-over-year or up 28% on a constant currency basis. Results reflect sustained customer demand and consistent execution across our platform. Marketplace revenue for the first quarter totaled USD 27 million, up 50% year-over-year and up 35% on a constant currency basis. Third-party sales were USD 23.2 million, up 45% year-over-year or up 31% on a constant currency basis. Growth was driven by solid performance in the marketplace, including healthy usage trends and higher effective take rates. Marketing and advertising revenue was USD 2.2 million, up 44% year-over-year or up 31% on a constant currency basis. The improvement was driven by continued growth in sponsored products, supported by strong tools rolled out in mid-2025 that increased seller adoption, improved return on ad spend and drove greater density and competition on our marketplace. With advertising revenue currently representing roughly 1% of GMV as we are improving this figure, we see meaningful opportunity to scale this profitable source of revenue. Value-added services revenue was USD 1.7 million in the first quarter of 2026, compared to USD 0.6 million in the first quarter of 2025, driven by strong growth in warehousing fees, reflecting higher volumes flowing through our storage infrastructure, largely driven by demand from Chinese sellers and improved monetization of our warehousing services. Revenue from first-party sales was USD 23.1 million, up 30% year-over-year or up 21% year-over-year on a constant currency basis, driven by strong momentum with key international brands. Turning to gross profit. First quarter gross profit was USD 29.4 million, up 48% year-over-year or up 33% year-over-year on a constant currency basis. Gross profit margin as a percentage of GMV increased by 160 bps to 13.9% for the quarter compared to 12.3% in the first quarter of 2025, reflecting continued progress in marketplace monetization. As we enter 2026, we implemented broad-based increases in commissions across most countries, leveraging the scale and improved service levels we have built with sellers. Q1 2026 was already tracking the expected impact with gross profit margin expanding by 160 bps year-over-year, marketing and advertising revenue up 24% and value-added services revenue nearly tripling. We expect these trends to continue supporting gross profit growth going forward. Now moving to expenses. We continue to see the benefits of our cost initiatives in the first quarter with additional improvements expected to materialize over the coming quarters. Fulfillment expense for the first quarter was USD 12.2 million, up 29% year-over-year and up 17% in constant currency, primarily due to higher volumes. Fulfillment expense per order, excluding JumiaPay app orders, was $2.06, flat year-over-year or down 10% year-over-year on a constant currency basis, reflecting productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Sales and advertising expense was USD 5.1 million for the first quarter, up 64% year-over-year and up 54% in constant currency. We view this increase positively. We are scaling high ROI marketing investment on the back of stronger product fundamentals, improved quality of service and higher platform reliability, driving not only top line growth, but also better unit economics as higher volumes and improved customer retention contribute directly to operating leverage and margin improvement. Technology and content expense was $8.9 million for the first quarter, representing a decrease of 8% year-over-year or a decrease of 10% on a constant currency basis, driven primarily by continued headcount optimization and ongoing renegotiated seller contracts. First quarter G&A expense, excluding share-based compensation expense, was $16.8 million, up 4% year-over-year and down 3% on a constant currency basis. The year-over-year increase was primarily driven by staff costs with general and administrative expense, excluding share-based compensation expense, which increased by 16% to USD 9.1 million, driven by approximately USD 0.8 million in onetime termination benefits related to our Algeria exit and the appreciation of local currencies against the U.S. dollar compared to the first quarter of 2025. We continue to streamline the organization. The total headcount has declined by 8% since December 31, 2024, with just over 1,980 employees on payroll as of March 31, 2026. At the end of the fourth quarter of 2022, when current leadership was installed, we had 4,318 employees. We are actively working to further reduce headcount, continue process automation and leverage AI tools. We expect to reduce our headcount by at least an additional 200 full-time employees over the next 2 quarters. More broadly, AI and automation are becoming meaningful drivers of efficiency across Jumia. We are deploying AI tools across our operations, finance processes, headcount efficiency programs in our technology organization, encompassing cybersecurity monitoring and software development, which supported the net FTE reduction and drove efficiency gains year-over-year. Importantly, AI is also helping us solve problems on the ground. In logistics, it improves routing and reduces failed deliveries. In customer services, it enables faster resolution with fewer agents and in sellers operation, it streamlines onboarding and compliance monitoring. This is not only reducing cost but also improving the quality of service we deliver to customers and sellers, reflecting our ongoing commitment to structural cost efficiency. Turning to profitability, adjusted EBITDA for the quarter was negative $10.7 million or negative $10.9 million on a constant currency basis. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Turning to the balance sheet and cash flow. We ended the first quarter with a liquidity position of $62.6 million, including USD 61.5 million in cash and cash equivalents and $1.1 million in term deposits and other financial assets. Our liquidity position decreased by $15.3 million in Q1 2026 compared to a decrease of $23.2 million in Q1 2025. Net cash flow used in operating activities was $12.5 million in the quarter, including a broadly neutral working capital contribution. The improvement reflects the continued strengthening of our marketplace flywheel driven by higher volumes, improved payment flows and stronger bargaining power with large third-party accounts. In summary, we delivered another quarter of solid execution and strong top line growth while continuing to improve cost efficiency. Progress on structural cost reductions, automation and cash discipline reinforces our confidence in meeting our near-term objectives and moving closer to profitability. Looking ahead, we remain focused on operational discipline, margin expansion and prudent and informed capital allocation, positioning Jumia for sustainable growth and long-term value creation. I now turn the call back over to Francis for a discussion of our updated guidance. Francis Dufay: Thank you, Antoine. Let me now turn to our expectations for 2026. Our focus for '26 remains on accelerating growth, driving further operating efficiency and continuing our progress towards profitability. We are seeing continued strong momentum validated by our Q1 results, which give us confidence in reaffirming our full year '26 outlook. We are navigating an evolving international environment. While we expect some temporary disruption from memory chips and CPU price pressures and the ongoing conflict in the Middle East, our business fundamentals are strong. Our Q1 '26 results demonstrate continued execution and we have not changed our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. For the full year '26, we anticipate GMV to grow between 27% and 32% year-over-year adjusted for perimeter effects. On profitability, we expect adjusted EBITDA to be in the range of negative $25 million to negative $30 million. We confirm our strategic goal to achieve breakeven on an adjusted EBITDA basis and positive cash flow in the fourth quarter of '26 and to deliver full year profitability and positive cash flow in '27. Looking specifically at the second quarter, GMV is projected to grow between 27% and 32% year-over-year adjusted for perimeter effects. Thank you for your attention. We will now be happy to take your questions. Operator: [Operator Instructions] Your first question for today is from Jack Halpert with Cantor Fitzgerald. John Halpert: I just have 2, please. So on the memory chip inflation, are you maybe able to quantify this at all in terms of the impact in the quarter? And maybe how much of this has been resolved already versus expected to continue in 2Q and beyond? And just is it more about consumers like deferring purchases trading down? Or is it more of a supply availability issue? That's the first question. And then the second question, just on the AI efficiency you guys mentioned and I think the planned 200 reduction in headcount. First, just how much of this headcount reduction is tied to the Algeria exit, if at all? And then maybe on the AI side, what are a few examples of areas you're seeing the most efficiency in the business from AI currently? Francis Dufay: Let me take the 2 questions and Antoine will also comment on the AI impact across our business. Starting with memory chips, CPU prices inflation. So to quantify the impact, you can look at our presentation where we show the share of smartphones category in our mix. You'll see that the whole smartphones category, I mean, is directionally roughly 10% of our sales in GMV. This is usually a category with lower unique contribution. It's lower margins than, let's say, fashion, for example. So it definitely has -- I mean, it's not 10% of our gross profit, as you can imagine. It's not the whole category that's in danger. Obviously, it can impact the growth of the category and it has in the first quarter. It's likely to continue in the second quarter. But we're not talking of a major impact over the whole top line of Jumia, okay? It's something that we have to flag because it's global trends and it's relevant for our business, but we're talking impact on a fraction of our total business and it will not wipe out like half of the sales, obviously. It's limited. And most importantly, we see it as temporary. The timing here is that we had delayed impact really. A lot of people asked us questions, sorry, late 2025 and in the first month of '26 and really not much was changing on the market at this time. And then prices -- the price increase of directionally 20% that we've mentioned on entry-level smartphones was mostly felt in the month of March across key countries. So that's directionally what happened. We believe it's a matter of timing. I mean we're used to those kind of supply disruptions and market reorganizations. So it doesn't last forever, but we know that for a couple of months, supply may be disrupted. Some brands may be doing better and some brands may be more disrupted, which we've seen in the market. Some brands will be running out of stocks. Some brands will still be available with sometimes lower price increases. For example, we see that Samsung has had lower price increases because they have much better integration of the whole supply chain. But basically, we see it as temporary disruption as the supply chain reorganizes. And when it comes to consumer impact that you were asking, we see a mix of both, right? We see a mix of, of course, prices increasing, so consumers are trading down. When people are still buying smartphones, that will never change, but they are buying lower specs with the same amount of money in their pocket. And on the other hand, we also see supply -- I mean, pure supply availability issues on very specific brands in very specific markets. So as we mentioned in the -- earlier in the call, we've been more impacted in the Ivory Coast, for example, than in Kenya in terms of pure supply availability. So all of that is having an impact, some level of impact, but we see it as clearly temporary. It's not -- I mean, it's not a long-term challenge. We will keep on selling smartphones and the market will reorganize. And what matters is that we have access to the best supply, the best prices and our distribution is a huge advantage when it comes to selling smartphones across Africa. And then to your second question about headcount, the 200 target is not tied to Algeria. So most of the impact on Algeria is already behind us. So the 200 headcount reduction that we mentioned has nothing to do with the exit from Algeria. Antoine, do you want to comment on the use of AI across our team? Antoine Maillet-Mezeray: Yes, I can take this one. Thank you. Obviously, we're using AI in tech, be it in cybersecurity or coding. We are able to be much, much more productive thanks to the different tools that we are using. We pay a lot of attention to be agnostic in terms of tools so that we don't end up with 1 or 2 suppliers that will change pricing policy overnight. But we are going much further than pure tech. We're using AI in accounting, for instance, to automate bank reconciliations. If you want a very pragmatic example, we're also using AI in HR. Basically, we have a lot of database, which are very structured and ready to be used consumed by AI, allowing us to produce smarter reporting in a much faster way and being able to share the information across our very large footprint, resulting in better efficiency. Operator: Your next question is from Brad Erickson with RBC Capital Markets. Bradley Erickson: Just a couple of follow-ups on that first question. I guess with maintaining the full year guide, it looks like maybe a little bit of deceleration built in there through the year. I guess would you say that outlook kind of reflects this idea that some of these headwinds you're talking about are sort of dynamic and adjusting and reflected in Q2, but then sort of stabilize through the year? Or is there any contemplation in the range that maybe things get worse? Francis Dufay: Well, in the current international environment, if you -- Brad, if you know for sure what's going to happen, please tell me. We could make a lot of money. Well, more seriously, we acknowledged some level of uncertainty in the international environment with very specific aspects that can have a negative impact on our P&L. We mentioned chip prices and fuel prices. We remain confident in the range that we have given as guidance for the full year and for the second quarter. It accounts -- I mean, it covers, it includes some level of uncertainty. But I think it reflects -- I mean, the fact that we stabilized that range reflects our opinion that most of the disruption we're seeing is temporary. So we're seeing real headwinds like the demand side headwinds in the Ivory Coast due to cocoa prices is real and can be felt on the ground. Smartphone price increases and supply disruption is real and can be felt on the markets. But we all see that as quite temporary and really not disrupting the fundamentals of our business, neither the midterm or long-term opportunity. So we -- and we're also seeing continued strength in the trends in several countries, especially Nigeria, which is still growing over 40%; Ghana, which is growing over 100%. So in short, those headwinds and that level of uncertainty is not structurally challenging our business and it's not something we expect for the long run. So this range of 27% to 32% top line growth that we're giving for the second quarter as well is our best assessment in the current environment based on the early results of the quarter that we're already seeing and reflects the level of confidence in our business model. Bradley Erickson: Got it. And then you called out marketing and being a strong point in your prepared remarks. I guess just within your outlook, how much kind of flexibility do you think you have on marketing given some of these other headwinds you're talking about? And I guess how much kind of like offense do you feel like you can play here in 2026 in terms of putting your foot down on marketing? Or is it still fairly measured given how some of the macro factors you're talking about? Just kind of the upside, downside considerations there with marketing spend. Francis Dufay: Yes. I think 3 things on the marketing side. So first of all, I think we remain at spend ratios that are very reasonable for an e-commerce company of our size, right? Our ratio of spend is slightly lower than much, much bigger peers in emerging markets, which shows frugality and efficiency in that field. So we were very -- I mean we're confident in our ability to spend very efficiently our marketing budget and driving strong returns. Second, we still have major improvements coming over the year in terms of efficiency and the better use of our marketing channels, especially online. And third, we are very reactive as well. A large part of those budgets are spent on online channels where it's very easy to pilot on a monthly, weekly, daily basis. So we are able to make decisions if needed, if we see lower traction in a given market. We're very dynamic in reallocating budgets when we need to on a daily or weekly basis. At this stage, we believe we still have -- I mean we do have sufficient traction and that justifies the amount that we're spending. But we are very flexible and we can be extremely reactive if we see different trends. Bradley Erickson: Got it. And then one last one. Just when you think about the journey to cash flow positive in the next year, you talked about the headcount reduction here in the next few quarters. Besides that, just what are kind of some of the major pain points on reaching that goal that you still -- you feel like you still have to get through? Francis Dufay: You mean the goal of cash flow positive? Bradley Erickson: Correct. Francis Dufay: I would not talk about pain points. I mean I'll let Antoine comment as well, but I think the path is pretty clear, right? I mean if you look at our numbers, now it's just -- it's not just us talking. You have very clear verifiable numbers showing that we're able to scale, we're able to improve the unit economics, get operating leverage and further reduce the fixed costs. So that's a very clear trajectory that takes us to breakeven. It's mostly an execution game. It's mostly an execution game. I would not say we have blockers or pain points. We know very much what we're working on. We need to keep on scaling the top line and keep on delivering those improvements in the unit economics and further reducing in absolute terms of fixed costs. I think you can see a clear trajectory in the last 2 quarters. It's extremely consistent. It's all about execution unless there would be a major macro disruption that we're not seeing at this stage, it's really about execution. Operator: Your next question for today is from Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Very nice quarter and execution. Laundry list of, let's call them, crosswinds, some headwinds in Q1 into Q2. Outside of those, it feels like the business is actually outperforming because you reiterated the guide, you outperformed in Q1. Q2 guide is in line despite kind of all of those challenges. So I guess trying to take a step back and maybe normalizing for a lot of those outside factors, how you feel about the progress thus far in the year internally? Francis Dufay: Yes. Thanks, Ryan, for putting it this way. I mean we -- Antoine and I are very deeply in the business and we -- it's sometimes good to step back and realize the progress. I mean we have a tendency to look more at the problems than the successes, but it's how we managed to push it forward. But yes, I think there are very clear bright side this quarter. It's very clear and that's what you see in our presentation on the operating leverage. And we see that we, again, this quarter, just like in the fourth quarter of '25, we're able to show significant GMV growth. So the business model is working while clearly improving all the unit economics. So 31% GMV growth that translates into a significant improvement of 64% of all gross profit after fulfillment and marketing costs. So that's real operating leverage and we're able to further reduce our fixed cost, thanks to pretty hard work on tech specifically this quarter, but also a lot happening in G&A that will pay off in the coming quarters. You see the 1/3 32% improvement in adjusted EBITDA. So I think the bright -- I mean, the key message of this quarter is we're able to show very consistent improvement after Q4 with significant growth that's sustained in spite of the environment and continued progress on the unit economics and fixed costs. And we expect that to continue. There's no reason why the trend should change in the coming quarters. Ryan Sigdahl: Very good. We've noticed -- you mentioned Nigeria strength. We've noticed an expanded pickup station footprint there, particularly in secondary cities. Can you talk about Nigeria, but also you mentioned it in Kenya and others, but kind of the upcountry expansion, how you think about that strategy with pickup stations? And then if maybe that strategy has evolved or changed in recent kind of months as you guys have rightsized the cost structure, infrastructure and overall company? Francis Dufay: So I'll talk about Nigeria right afterwards. But overall, across countries, we keep on expanding our reach. So basically opening new pickup stations in new cities that we're not covering or densifying the network in existing bigger cities. This is a very important component of our growth plan because it basically increases the addressable market, right? We are building our distribution network and partnering with local entrepreneurs. And if we don't have -- I mean, if we do not build the distribution network in a given city, it means that city is outside of our addressable market. So by expanding this network of pickup stations, we are increasing our addressable market, which is arguably one of the easiest and cheapest ways to grow our top line. This is happening across all countries, but Nigeria is the most striking example. A few months back, Nigeria, we are still covering about 1/3 of the addressable market of the population. If we look at the cities where we had established distribution, the total population was about 1/3 of total population, which is massive room for improvement. In our more mature markets, we're close to 60% in Ivory Coast, for example. So it gives you an idea of the potential that's still untapped in a country like Nigeria. So we're very -- I mean, we're happy about the growth in Nigeria. We believe we can still get more than that. The growth in Nigeria is largely driven by up country. So distribution expansion, that's a big driver. But we're also seeing very favorable trends across categories and supplies. We mentioned home & living as a strong category this quarter in Nigeria. We're seeing strong engagement on our local marketplace. We're seeing increased supply from international vendors, mostly from China, but also from Turkey in Nigeria. So I think we have lots of tailwinds in Nigeria and the hard work of the past couple of years is really paying off, which is critically important in a market where, first of all, there's so much potential to address. Second, the competitive intensity has reduced around us. And third and quite importantly, it's a market where we have good unit economics after -- especially after the devaluations over the past few years, local unit costs are fairly low and while it's quite profitable to scale in Nigeria to put it this way. Operator: Your next question is from Fawne Jiang with Benchmark Company. Yanfang Jiang: First of all, your international seller growth appeared very strong. Just wonder how should we think about the merchant ramp-up and the typical lead time from onboarding to more meaningful GMV contribution, particularly considering you are opening a new sorting center [indiscernible] and how would that potentially impact your take rate going forward? Francis Dufay: Yes. So that's an important question, guess -- so how can I put it? So the growth we're seeing today in volumes items sold and the whole business from international sellers is actually the result of the last 3 to 4 years of work. Typically, the timelines when a supply -- when a new Chinese vendor is onboarded, we expect meaningful contribution after more than a year, sometimes 2 years or more to deliver volumes and margins. It's because we onboard vendors who don't always -- I mean, don't know very well our markets. They need to test the waters first, they send small supply to the countries. And then gradually, they will scale their inventory in our most important countries. So this process does take time. So they learn the market and they commit more and more working cap and inventory to our countries. And so what you see today is really the result of like 3 to 4 years of real hard work. What we see on the ground in China, I mean, since the whole tariff thing last year, we've seen that strong -- I mean, much stronger enthusiasm and strong engagement with Chinese vendors. We've seen more and more vendors willing to join our platform and sell on Jumia. The trend has been very well maintained over the past quarters and consistent now. And this increased -- this increased volumes of onboarding of vendors is going to reflect over time, but it's not yet fully felt in the numbers. So the good news here is that we really have a pipeline of vendors and the pipeline of supply coming to Africa that will get -- should get stronger over time due to the medium- to long-term structural nature of the work we're doing with our Chinese vendors. And in terms of margins, as we mentioned in the past, the rise of international supply is accretive to our margins. These vendors typically operate in categories that have higher -- sorry, gross profit ratios such as fashion, accessories, home & living and so on. They are also much better contributors to our margins when it comes to purchasing advertising services and using our storage services. So at the end of the day, it enables us to get higher monetization from those sellers and from the local marketplace. Yanfang Jiang: Understood. Another, I guess, topic I want to touch upon is actually your fulfillment leverage. You guys continue to show the leverage there. Just given you are going to very high growth momentum, especially in some of the countries, how sustainable is, I think, the fulfillment leverage? Are any logistic capacity constraints or upcoming investment we should be mindful? Francis Dufay: I'll spend some time on fulfillment. It's an important one because it's our biggest cost bucket. So first of all, I mean, we're still seeing some leverage on costs this quarter with the fulfillment cost per order that's declining 10% in local currency and it's almost all local OpEx. So the local currency view is relevant. But we're not happy with the progress, right? In dollars, we're flat year-over-year at $2.1 per gross order. We want to do better than that. So just to set the stage, we're not happy with the progress here, although there is some leverage that visible in local currency. We believe those cost per order should keep on going down going forward. And scale should play in our favor. There can be very specific temporary cases where like very high volumes lead to some level of inefficiency, but that's really not what should happen across countries and over the long run. So looking specifically at the improvements and the leverage we have on that fulfillment cost per order, we have a lot of work that has -- well, that has been ongoing over the past 2 quarters already. On the fulfillment -- so on fulfillment staff cost, which is about 1/3 of the cost here, we have a big push for higher productivity and more automation. We're rolling out at the moment, for example, new tools at the warehouse to increase productivity and tracking of the workforce. So we believe we have some potential to improve there. And on the transport side, which is around 2/3 of the fulfillment staff cost, about 60%. So on transport, which is basically all the money we're paying to our local logistics partners. We have recently implemented a renegotiation of all the fees, I mean, a reduction of all the fees. Some of that will be partly offset by the fuel price increases, which will lead to surcharges in some countries. But over the long run, as prices will normalize, we expect the surcharges to go away. And we are working to improve also the efficiency of our local partners for logistics, so we can renegotiate their fees. So we're working on new tools to make middle-mile trucking more efficient for our partners so we're able to split the savings with them. And this will be operational later this year. So we still have a lot to do and we still have a lot of efficiencies to capture there. It's a lot of hard work, right? We're using more and more AI to make it more efficient in supply chain as well. Part of it depends on tech progress, which we're seeing on the ground and scale should be a tailwind in this regard. Yes, I hope that answers the question. Yanfang Jiang: Yes, that's very helpful. Lastly, more on housekeeping. Can you provide some color on the FX -- latest FX trends for your key countries? Francis Dufay: Yes, Antoine, do you want to take FX? Antoine Maillet-Mezeray: Yes. So you can see that we've had a disconnect between the progress we made on the adjusted EBITDA basis and the net loss before tax. And this was driven by Forex exchange, which was noncash. If you compare to Q1 '25 last year, we had a net FX gain of USD 2.1 million. And this year, we have recorded a loss of $3.5 million. Again, that swing is not cash-based. There is no cash impact. And this reflects the impact of FX swing on intercompany balances that we have between the total holding and the operations. We are working actively on this one to reduce the impact of the Forex by accelerating repatriating cash and other restructuring operations. This was for the finance and accounting part. On the business side, before Francis comments, if you want, we see some impact, but what is important for us is that the movements are not too violent so that our vendors do not hesitate to import in the countries, which has been the case this year. So so far, we are able to handle properly the FX swing that we are seeing. Francis Dufay: Yes. I'll just add briefly on that. We've seen huge swings in FX over the past 4 years across our key countries like Nigeria and Egypt. There's no such thing happening right now. Local currencies have been behaving much more strongly even over the past few months. And as Antoine mentioned, the most important part here is that it's not impacting suppliers' confidence. It's not impacting customers' purchasing power in any significant way and we're not seeing any disruption in the business because of this. Operator: We have reached the end of the question-and-answer session and conference call. You may disconnect your phone lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Vontier First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. Replay will be made available shortly after. I'd like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Thanks. Good morning, everyone, and thank you for joining us on the call this morning to discuss our first quarter results. With me on the call today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Executive Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call, we will present certain non-GAAP financial measures. We'll also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to Slide 3, and I'll turn the call over to Mark. Mark Morelli: Thanks, Ryan. Good morning, everyone, and thank you for joining us on the call this morning. Let's get started with a few high-level takeaways from the quarter. Vontier delivered solid sales and orders growth to start the year as we continue to gain traction on our connected mobility strategy. We're expanding our integrated offerings to capitalize on strong secular tailwinds across our end markets. Core sales grew nearly 2%, slightly ahead of our expectations, driven by strong performance in our Environmental & Fueling Solutions segment. Orders were up approximately 5% on a core basis, including strong demand for fueling equipment and key wins in retail solutions. Adjusted operating margin declined 70 basis points below our expectations, reflecting unfavorable mix and timing of R&D expenses. Importantly, the underlying fundamentals of the business are intact, and we are confident in our full year outlook as well as our ability to achieve the $15 million in savings related to ongoing simplification and 80/20 efforts. We're seeing meaningful momentum in our convenience retail end market, which strengthens our visibility and reinforces our confidence in the growth opportunity ahead. We have market-leading technologies that optimize our customers' operations, unmatched domain expertise to solve high-value problems and best-in-class channels to market. Growth within this end market was led by Environmental & Fueling Solutions with double-digit growth in both dispensers and aftermarket parts. Dispenser demand is strong, supported by the ongoing build-out and modernization of retail fueling infrastructure. The pull-through from advanced payment technology is helping to drive replacement and upgrade demand. As an example of this, we launched the next-generation FlexPay6 outdoor payment terminal in the first quarter. While bolstering our cloud-connected industry-leading payment security, it features a larger flush-mounted touchscreen along with an integrated card reader and PIN pad. It also enhances our unified payment solution by offering a more interactive consumer interface that helps reduce transaction times and improves engagement at the pump. We're also seeing strong momentum for our innovative technologies inside the store. Retail solutions, part of Invenco brand delivered strong growth in payment, media and point-of-sale systems. The convenience retail end market is resilient even in uncertain economic backdrops. Over the last 25 years, this end market has consistently demonstrated durability through periods of volatility. Higher oil prices have historically been a net positive as higher fuel margins drive improved profitability for C-store operators, enabling them to prioritize modernization, food and beverage offerings and invest in the consumer experience. Industry data suggests high retail fuel prices typically result in more frequent visits, which creates an opportunity for greater conversion for in-store sales as consumers place more emphasis on value. In prior cycles, higher fuel margins, combined with the trade-down effect as consumers shift toward lower-cost C-store options have created tailwinds to generate more cash flow for C-store operators. In turn, we see robust capital expenditures for multiyear storefront build-outs and retrofits. This is particularly true of larger regional and national C-store chains where we have higher share and they focus on delivering an elevated consumer experience. We're seeing this play out today. A good example is 7-Eleven's recently announced intention to remodel 7,000 stores across North America through 2030, standardizing around their more modern food and beverage focused format. This is in addition to the 1,300 new sites they expect to build over that same time horizon. This kind of long-term investment reinforces the strength of the category and the opportunity for Vontier. This morning, we also announced an important step in our portfolio simplification strategy. We've announced an agreement to sell our global fleet telematics business, Teletrac, for a total purchase price that values the business at $220 million. The purchase price consists of $80 million in cash proceeds and a $100 million seller's note, and Vontier will retain an approximate 30% equity stake in the business. We've outlined those details for you on Slide 4. The sale marks the completion of a successful multiyear turnaround of this business. At the time of our spin, Teletrac was churning out about 25% of customers with declining profitability and negative free cash flow. Since then, the team has meaningfully improved the business by launching a new platform, significantly reducing churn, accelerating ARR growth to mid-single digits, improving profitability and generating positive free cash flow. This has been a major effort for the Teletrac team, and we're grateful for their contributions. We believe Teletrac is well positioned for its next chapter of growth with better focus and access to capital under its new ownership. We expect this transaction to close in June, and we'll deploy the cash proceeds consistent with our disciplined capital allocation framework with a focus on additional share repurchases and selective bolt-on acquisitions. Before I turn the call over to Anshooman, I want to reiterate our confidence in the full year outlook. While the geopolitical backdrop added some uncertainty, demand trends remain constructive. We're also strengthening the foundation of our business to drive more profitable growth over time through commercial excellence and innovation and a relentless focus on execution. As we finalize the remaining organizational changes and implement our cost actions, we still expect incremental savings to ramp in the second half of this year. Combined with disciplined capital deployment, we are confident in our ability to deliver double-digit EPS growth. With that, I'll turn the call over to Anshooman to walk you through a more detailed review of the quarter's financials and our outlook. Anshooman Aga: Thanks, Mark, and good morning, everyone. Please turn to Slide 5 for a summary of our consolidated results for the quarter. Total sales of $751 million and core sales growth of 1.7% were above our guide, driven by notable strength at Environmental & Fueling Solutions with Mobility Tech and Repair Solutions generally performing in line with our expectations. As Mark mentioned in his remarks, adjusted operating profit margin fell short for the quarter, reflecting unfavorable mix and timing of operating expenses within both Mobility Tech and Repair. We expect full year margins to be consistent with our previous guidance. Adjusted EPS was $0.80, up 4% year-over-year. Adjusted free cash flow was below our normal seasonal pattern and prior year. The timing of our semiannual bond interest payment of approximately $19 million was in Q1 this year versus Q2 last year. Additionally, Q1 had an extra payroll run compared to the previous year, along with higher incentive compensation driven by the strong performance in fiscal 2025. We expect several of these timing differences to level out during the year, and we expect free cash flow conversion of around 95%. Turning to our segment results, beginning on Slide 6. Environmental & Fueling Solutions started the year off strong, benefiting from solid industry demand and an innovative product portfolio, driving higher new equipment and aftermarket activity. Total dispenser sales increased low double digits on a global basis, led by strength in North America. We saw notable bookings and sales strength from large national accounts, evidence of stable CapEx budgets. Segment margin was flat at nearly 30%, with volume leverage and ongoing productivity actions offset by less favorable mix. Moving to Mobility Technologies on Slide 7. Core sales declined by about 1% as strong underlying demand for convenience retail technologies was offset by more than a $25 million headwind associated with higher shipments for our Vehicle Identification Solution, or VIS in the prior year. Our commercial pipeline is robust, and we continue to win new business for integrated solutions, including orders for our unified payment point-of-sale and VIS offerings. The consolidated Mobility Technologies segment margin declined 260 basis points, driven by unfavorable mix and higher operating expense. On the OpEx side, we incurred higher R&D expenses in order to accelerate new product launches. At the same time, our cost-out activities are ramping in Q2, giving us momentum for the back half of the year. On the mix side, product and geographic mix impacted margins in Q1, which we expect to recover in Q2 and the balance of the year. When you combine this with stronger volume growth and incremental benefits from our cost initiatives in the second half, we remain on track for solid margin expansion this year. Additionally, the divestiture of Teletrac will be accretive to margin performance for the segment and Vontier overall. Finally, turning to Repair Solutions on Slide 8. Sales performance was in line with our expectations with progress on our growth initiatives successfully offsetting pressure on technicians' discretionary spending. This was most notable in our Tool Storage, Diagnostics and Power Tools categories. Additionally, we are focused on quicker payback tools that improve technicians' productivity. The lower segment margin can be attributed to unfavorable product mix and a discrete bad debt reserve of about $2 million related to delayed collections caused by the implementation of a new financial system. We're making good progress in collections and would expect to recover a majority of this reserve over the next several months. Turning to the balance sheet on Slide 9. Adjusted free cash flow of $28 million was impacted by the working capital items I highlighted earlier. We accelerated share repurchase in the quarter, buying back $70 million given the market dislocation. While we will maintain some flexibility on cash, given an increasingly actionable deal pipeline at current valuations, buybacks remain a very compelling use of cash. To address the $500 million bond maturity at the end of the quarter, we used about $200 million in cash on hand to repay a portion of the bond and issued a new 364-day term loan for the remaining $300 million at a relatively attractive spread. We ended the quarter with over $200 million in cash on the balance sheet and net leverage at 2.4x. Please turn to Slide 10 to discuss our guidance for 2026 and Q2. Beginning with a look at our full year guidance. What is shown here is what our guide would have been prior to the Teletrac divestiture, the impact that divestiture will have on our P&L, landing on our official guide, which includes the removal of Teletrac's results in the last column of this table. Importantly, there are no changes to the underlying fundamentals of our previous guidance, and we are only adjusting our guide to reflect the removal of Teletrac. We are assuming the transaction closes in early June, which means we remove about 7 months of contribution. Following this adjustment, relative to our previous guide, we lose about $110 million in sales, bringing the midpoint of our new range to just over $3 billion. Teletrac has little to no impact on our organic growth, but will be accretive to our margin rate by about 50 basis points. We now expect operating margin to expand by about 130 basis points to approximately 22.5%, which includes the contribution from the $15 million savings initiatives over the balance of the year. On a gross basis, the transaction will be about $0.05 dilutive to EPS for the full year. However, the interest received from the seller's note and the benefit from share buyback offset that EPS headwind, so we leave our full year range unchanged at $3.35 to $3.50. Our outlook for adjusted free cash flow conversion remains at 95%, representing around 15% of sales. Looking at our guide for Q2 on Slide 11, we follow the same format. We expect sales in the range of $730 million to $740 million, with core sales down about 1% at the midpoint, which implies the first half at roughly flat, in line with the initial outlook we outlined for you on the Q4 call. As you may recall, shipment timing of the vehicle identification system in the prior year drove high teens growth in Mobility Tech, along with 11% core growth for overall Vontier. This compare issue starts easing in the third quarter. Margins will begin to accelerate in the second quarter, expanding approximately 80 basis points, reflecting lower operating expenses. EPS will be in the range of $0.78 to $0.81, including a $0.01 headwind from the divestiture. As we highlighted on our last call, the year-over-year organic growth rates will look better in the second half, accounting for first half compare issues at EFS and Mobility Tech and the timing of shipments on projects in backlog, which favor Q3 and Q4. As always, we've included some other modeling assumptions on the right-hand side of the slide, which have also been updated to reflect the divestiture impact on the top line and adjustments still below-the-line items. With that, I'll pass the call back to Mark for his closing comments. Mark Morelli: Thank you, Anshooman. We're encouraged by the start to the year and by the underlying momentum across our most important end markets. I'd like to thank the entire Vontier team for their hard work and dedication to delivering for our customers and each other. As we look ahead, one of the most important evolutions underway at Vontier is how we operate the business. Historically, we've operated largely through individual lines of business. Over the past 2 quarters, we've reorganized significantly from the customer back, streamlining operations, raising the bar on operational excellence and becoming a more integrated enterprise. Today, our go-to-market strategy is deployed around 3 core end markets: convenience retail, fleet and repair. This shift is simplifying how we operate and setting the foundation for greater scale over time. By aligning around our customers, we bring more depth and expertise to enable integrated solutions. We believe this customer-led model strengthens our competitive advantage, improves how we innovate and sell and positions Vontier to deliver more consistent growth, margin expansion and long-term value creation. We believe our connected mobility strategy is the right long-term strategy for Vontier, and we are focused on executing with discipline to convert that strategy into durable top line growth, stronger profitability and greater value for shareholders. We have strong leadership positions in attractive and resilient end markets that offer significant opportunities. That means we need to continue to drive commercial excellence while also maintaining a relentless focus on execution, simplification and disciplined capital allocation. As we do this, we believe we are well positioned to deliver on our commitments and create meaningful long-term shareholder value. With that, operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from David Raso of Evercore ISI. David Raso: Two questions. One about the mobility mix moving forward and also the use of the proceeds on the divestiture. On the margin mix, can you help us a bit how you're thinking about the various pieces within Mobility, the growth the rest of the year? Just the margin in mobility was a little bit lower than I would have thought. And you mentioned also some costs involved. So maybe if you can help break out that margin decline year-over-year and again, how to think about the mix for the rest of the year? And then lastly, on the repo, the share count for the full year, it looks like maybe you are assuming it depends on the, obviously, share price, but maybe another $75 million, $100 million of repo after the $70 million guide in 2Q. I just want to make sure I'm thinking about that correctly. Anshooman Aga: David, thanks for the question. So for Mobility Tech margins for Q1, there were really 2 items that impacted margins. One was mix and mix really was product, customer and geographic mix played out differently versus our expectations and also historical norms. The second piece is higher R&D expenses in the tune of a couple of million dollars. And this was really accelerated spend on launch of new products. In the prepared remarks, Mark talked about the next-generation FlexPay6 products, which brings a lot of customer benefits that we launched, but also the redesign of some of our printed circuit boards for the memory chip shortage working around that, that drove the higher R&D expense. Coming back to the rest of the year for Mobility Tech, we've already seen in April, the mix normalize back to what we would expect in our historical norms. And also on the OpEx, we're confident that we'll get our $15 million savings. Part of it is obviously in Mobility Tech, and we're seeing traction on some of those saving actions in Q2 as we speak. So we feel pretty comfortable that for the full year, our guide for Vontier is unchanged other than the change for the divestiture of Teletrac. In terms of share buybacks, we've assumed about $150 million of buybacks for the year in the guide. We did $70 million already in Q1. So you can expect majority of the proceeds from the Teletrac divestiture would go towards buybacks at the current share price, buybacks remain extremely attractive from a capital allocation perspective. And additionally, we'll be generating a significant amount of free cash flow for the rest of the year. So that does give us optionality that's not built into the guide. David Raso: Okay. So to be clear, the $150 million, you'll have $140 million done by 2Q. So there isn't much baked into the second half at the moment? Anshooman Aga: Correct. David Raso: I appreciate it. Operator: And your next question comes from Julian Mitchell of Barclays. Julian Mitchell: I just wanted to start with maybe a longer-term question. So if I look at Slide 4, you've done another divestment today alongside a bunch of portfolio changes that you put on Slide 4. But I guess if I look at just the overall kind of history of this since it's spun out, the PE, I think, the first year after the spin was about 13, 14x. Now it's kind of 9 or 10x. Operating margins for the company are about where they were 5 years ago. So just I wondered to what extent the management, the Board are thinking about more radical portfolio options perhaps than shaving off one brand a year, adding another brand? Because certainly, the multiple doesn't seem to be reacting based on the last 5 years to these types of changes. Just wondered, again, the appetite to do something broader. Mark Morelli: Yes. Julian, this is Mark. Thanks for the question. Look, I think the way we've internalized the strategy and the pieces of the portfolio, I think we -- as a good example from the Teletrac one, you get accretive margin, you're left with a growthier space with less spend on R&D and a better drop-through. So I think when you take each piece incrementally, the portfolio is getting stronger. And we constantly look at our strategy. I think it's a step-by-step approach. I think the work we put into Teletrac Navman enabled a good transaction here and a good -- a better positioning for the overall portfolio. And I think we constantly look at the portfolio. We constantly look at what are the next set of actions that we think will drive greater shareholder value. And I think what we've got right now with the connected mobility strategy and a good backdrop with secular tailwinds from the majority of our portfolio here that, that strategy is working, and I think there'll definitely be a payoff as we continue to focus on that and improve the results. Julian Mitchell: Great. And then maybe a short-term one. So I think the operating margins are guided to be up 80 bps or so sequentially, and you have the expansion in Q2 year-on-year as well. Maybe just kind of flesh out how you're thinking about the segment level there, particularly repair, I guess, it looked like some of the headwinds you saw in Q1 in terms of lower price point tools that may be something that persists over the balance of the year just because of consumer wallets and so forth. Anshooman Aga: Thanks, Julian. And that's correct. So when you think of Q2 margins, our overall Vontier margins will be up 80 basis points. 20 basis points of that 80 will be because of the Teletrac divestiture. So core business up 60 basis points. That increase will be driven by Mobility Tech, which will be at somewhere north of 120 basis points in terms of margin expansion. EFS will also have margin expansion, probably 80 basis points or so, maybe a touch higher. And then repair, I expect will be down year-on-year. Just as you mentioned, we're seeing a higher percentage of the portfolio on the lower price point, higher -- quicker payback items being sold. So there will be a little bit of margin pressure that will continue into Q2. That will start easing towards the back half of the year, where some of the mix really coming into Q3, Q4, especially Q4 last year was in line with what we're trending towards. Operator: And your next question comes from Andy Kaplowitz of Citigroup. Andrew Kaplowitz: Mark, just back to Mobility for a minute. I don't think the memory chip shortage under inflation has been getting better, but it sounds like you're comfortable around that issue for Mobility. I just wanted to sort of double-click on that. And then obviously, comps in Mobility get easier. I think last quarter, you mentioned a number of wins though that ramp up in the second half. Is that still the case? So you've got good visibility to ramp up? And maybe do you need DRB to ramp up as well? Mark Morelli: Yes. So Andy, I'll give a little bit of color on the second half ramp. So first of all, the end market mostly tied to convenience retail. And I think our remarks there on the call is pretty resilient, and that certainly helps the Mobility Tech segment as well. And when you look at it, it's not only a good compare or a better compare for second half, our seasonality is definitely the same. Sales at 48% to 52% as that's our historical average. And then good bookings clearly in the quarter were pretty solid. And when we go into April, we're also seeing really good bookings as well. So I think to your point, we're getting better leverage for the second half. And while we over got a little bit better in Q1 on the revenue side, and we've got cost takeout actions in place that will carry through to the second half, we feel pretty good about the setup. Anshooman Aga: Yes. I would just add, as you mentioned, the compare does get easier in the second half. If you go back to the prepared remarks, we had over $25 million headwind in Q1, and it's about the same in Q2 tied to the vehicle identification system, which eases into Q3 and has definitely gone by Q4. Importantly, bookings in Q1 were up 5% on a core basis at a Vontier level. A couple of those were larger projects combined for $15 million and majority of that revenue based on our customer schedule is in the second half. So we are feeling incrementally better for the second half as we continue to book and how our compares also play out. Andrew Kaplowitz: That's helpful color, guys. And then I think you explained the trade-down effect kind of from high oil and gas prices when you were talking about the potential duration of the cycle for C-store CapEx and your EFS growth and your EFS growth in general. But maybe you could give us a bit more color regarding how to think about EFS moving forward. I think growth was even higher than you thought for Q1. Does that higher growth actually continue given C-store behavior such as what you mentioned with 7-Eleven? I think any color would be helpful there. Anshooman Aga: Yes. With EFS, we're very pleased with our team's performance. We remain bullish on a multiyear CapEx cycle that's playing through, and it's really driven by our innovation and our channel strength, which are both reading through. Dispenser shipments were up low double digits in North America, leading the way with especially strong national account bookings that we had in the first quarter. We expect dispensers will continue to play out strong for the year. We also expect strength in the build-out of convenience stores in North America to continue. So overall, we're feeling pretty good about the business in EFS, and we'll continue to see growth in line with what we're projecting for the year. Andrew Kaplowitz: Appreciate the color. Operator: And your next question comes from Joe Ritchie of Goldman Sachs. Luke McCollester: This is Luke McCollester on for Joe. Just curious if you can share any early data points on customer reception from the new outdoor payment terminal. How is this product fit into the broader connected mobility strategy? And is this a replacement cycle product? Or does it expand the addressable market? Mark Morelli: Yes. Luke, this is Mark. So thanks for the questions here. I think one of the things we showed in NACS in October or the fall of last year was unified payment, and this clearly extends our addressable market by providing a payment kit with more capabilities, order at the pump is a great example of that. It is incrementally better than the FlexPay6 that we recently launched and the uptake from our customers has been quite favorable. I think this is an outgrowth of our Invenco acquisition, where we've been able to build off that through integrating that platform. So I think we're seeing this also as an excellent example of the connected mobility strategy at work and differentiation that we can provide through launching new products where we're getting really good uptake from it. Luke McCollester: Got it. Helpful. And then within convenience retail, are you seeing any change in the pace of consolidation activity or capital spending plans there in light of the current geopolitical and macro backdrop? And this consolidation kind of tend to be more of a net positive or net negative? Mark Morelli: Yes. I think consolidation tends to go in our favor. The people that are doing the consolidators is where we have higher share in the marketplace, and they tend to buy up some of the smaller players where we sort of split share in the market. And so we tend to get more out of that as our -- as the folks consolidating in the industry are consolidating off typically our technology platform. There's no real change to that. I think there's been a backdrop of consolidation that's been sort of ongoing, I would say, over the years. and would anticipate -- of course, some of the prices have changed with interest rates and other things are ebbing and flowing. But I think you could just look at it as a long-term trend where there's plenty of opportunity for consolidation over the next 5 years. Anshooman Aga: And on the CapEx trend, keep in mind, while our bookings might be shorter term from a book-to-bill perspective, our customers are really planning out 2 or 3 years in advance. They're going through their site acquisitions, permits, build-outs. So they're really looking out 2 or 3 years from a CapEx plan, and there aren't -- oil price volatility doesn't really change their longer-term CapEx plans. Operator: And your next question comes from Katie Fleischer of Key Capital Markets. Katie Fleischer: Can we talk a little bit about the progress on the internal cost initiatives? I know that R&D is a focus there. So just how to think about incremental savings within that and potential upside kind of balanced against some of those higher R&D costs that you saw in Mobility Tech this quarter? Anshooman Aga: Katie, thanks for the question. We are very confident on the $15 million in-year savings that we guided to last quarter. We're reconfirming that. About $1 million in savings played out in the first quarter. The Q2 number will be $3 million, maybe a little bit higher and then the balance of it coming in the back half of the year. We're already through some of the savings plans, but I think we're progressing really well to our plans. Q1 was a little bit higher in R&D, timing of the launch of some products. We talked about the new FlexPay6 launch, but also the redesign on some of the printed circuit boards related to the memory chip. We're trying to stay ahead of the supply chain issues on memory chips. And as a result, there's some redesign work out there. But again, we're pretty confident in hitting our $15 million in-year savings target for the year. Katie Fleischer: Okay. That's helpful. And then on Matco, when we think about those customers recovering, what's really driving the spend there? Is it just delayed CapEx purchases? Is it more customer activity that's driving higher in days? Just help us think about what it will actually take to see a flow-through of spending from customers in Matco. Mark Morelli: Yes. So Katie, the backdrop on Repair is relatively attractive. The car park continues to age. It's about 12.8 years going to 13 years. So a lot more used cars out there in the market changing hands. That's good for Repair. The complexity for Repair is good. And the demand for tech and the wages are also strong. So we know from last year, actually, shop visits were up. So we -- that's a great underlying backdrop for Repair. I think the issue that has been underfoot is that the consumer has represented the working class for the shop technicians that buy our tools has had a harder time with their pocketbook. But the areas that we're getting traction is in the areas of diagnostics and toolboxes, and we had a good run of that in the quarter, which is indicative there can be strength there. And then also more value-added items where they can get more productivity. The technician gets paid based on a standard hour of work if they can be more productive and we say, well, how does the toolbox help with these are these productivity cards that help them on the job site. And so those type things, there's good payback for them. And as we continue to introduce and be more effective at selling those kind of things, even in a fairly rough backdrop, then we can have decent performance out of Matco. Operator: The next question comes from Andrew Obin of Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. Just sort of thinking about the full year guide here, did your expectations on Mobility Tech, have they shifted a little bit? What are you thinking for organic growth for that segment for the year? Anshooman Aga: Yes. Mobility Tech, their growth for the year will be low to mid-single digits versus the mid-single digits we said, but it's really on lower intercompany sales. If you look last quarter, we guided to north of $90 million of intercompany sales, and we dropped that down to $80 million. Part of it was every year, you update the transfer price, and we did that in Q1, where the transfer price intersegment came down a little bit, and then there's a little bit of mix between FlexPay4 and FlexPay6 products also that we updated for. So the underlying core business, no change to that. David Ridley-Lane: Okay. And I'm surprised I'm going to be the first person asked this, but the changes to Section 232 tariffs, IEEPA tariffs, can you just give us around the world on what the impact of Vontier is going to be inside 2026 as you see it? Anshooman Aga: Yes. The tariff remains a very dynamic environment. And there's -- we're continuously evaluating both where we are the importer of record and where our suppliers are the importer of record. We also are taking into account other dynamics that are playing out, for example, the memory chip pricing, oil and gas price and the impact on transportation costs, transportation routes. So net of all of this, while a lot of pluses and minuses, puts and takes, there's no material change to our view for the year, just playing out on aggregate as we'd expected. David Ridley-Lane: Got it. And just since it's been mentioned a few times on the conference call, can you quantify just in broad brush strokes, sort of memory chips like 1% of your total cost? Or is that -- do you have that number handy by any chance? Anshooman Aga: Yes, I'll give you last year's price or cost on memory chips because I think that's a little bit easier. The market is pretty dynamic. We -- it's in the mid- to high single-digit million dollars. So it's not material from an overall cost perspective, but it's -- every cost we control and manage to the best of our ability. David Ridley-Lane: I know there's -- when you have a small item that's doubling or tripling or quadrupling in price, it sometimes catch you up. Operator: And your next question comes from Rob Mason of Baird. Robert Mason: I wanted to see if you could just relative to the second quarter expectations on core growth in the down 1%. Kind of discuss how you think that may play out across the segments? Anshooman Aga: Yes. The EFS business will continue to grow. We expect that will be up low single digits for the quarter. Mobility Tech will be down low to mid-single digits on the compare issue. Just keep in mind the $25 million in shipments for the vehicle identification system order last year, both in Q1 and Q2. And then on Repair Solutions, we expect there will be also low single-digit growth, maybe low to mid-single-digit growth for the quarter in Repair. Robert Mason: Very good. Just a follow-up. Mark, just any quick thoughts on the decision to retain a minority stake in the telematics business and how we should think about how that plays out in the future as well? Mark Morelli: Yes. Thanks for that question, Rob. Look, we're pleased on the transaction. It's the result of a multiyear turnaround, launching a new product technology into the space. I think we're getting real momentum in that space. I think retaining a minority ownership there also gives us some upside on the trajectory they're on. They ended the year with strong bookings. They got past the 3G to 4G transition in Australia, which was a big headwind for them as well, and that's now in the clear. So we're optimistic also with more focus with the new owner and our partial ownership here and legacy knowledge of that business that we can unlock further value. Operator: Thank you. And there are no further questions at this time. I'd now like to turn the call back over to Mark Morelli, Chief Executive Officer, for closing comments. Mark Morelli: Yes. Thanks again for joining us on the call today. We're off to a solid start in '26. We're confident we can deliver above-market growth and in our ability to drive margin expansion and free cash flow. We're proactively managing the portfolio and staying disciplined on capital allocation, all through the lens of creating shareholder value. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward-looking statements and non-GAAP financial measures contained in the earnings materials or made on this call. John, please go ahead. John Ciroli: Thank you, and good day, everyone. Welcome to Montauk Renewables earnings conference call to review the first quarter 2026 financial and operating results and developments. I'm John Ciroli, Chief Legal Officer and Secretary of Montauk. Joining me today are Sean McClain, Montauk's President and Chief Executive Officer, to discuss business developments; and Kevin Van Asdalan, Chief Financial Officer, to discuss our first quarter 2026 financial and operating results. At this time, I would like to direct your attention to our forward-looking disclosure statement. During this call, certain comments we make constitute forward-looking statements, and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed in or implied by such forward-looking statements. These risk factors and uncertainties are detailed in Montauk Renewables' SEC filings. Our remarks today may also include non-GAAP financial measures. We present EBITDA and adjusted EBITDA metrics because we believe the measures assist investors in analyzing our performance across reporting periods on a consistent basis excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide presentation and our first quarter 2026 earnings press release and Form 10-Q issued and filed on May 6, 2026. These are available on our website at ir.montaukrenewables.com. After our remarks, we will open the call to investor questions. We ask that you please keep the one question to accommodate as many questions as possible. And with that, I will turn the call over to Sean. Sean McClain: Thank you, John. Good day, everyone, and thank you for joining our call. I am pleased to announce that we have commissioned our Montauk Ag renewables project in Turkey, North Carolina and are producing gas. We expect the production and sale of renewable electricity from our syngas to commence in May 2026 with revenue generation triggered upon the calibration of the sales meter from the interconnection utility. We have operated the full production line as part of the commissioning process and expect to be able to produce our targeted first phase of 47,000 megawatts, and 120,000 recs annually with approximately 50% of our installed reactor capacity. Our capital investment expectation for this first phase of the project remains unchanged at $200 million. We expect a ramp up in production volumes throughout 2026 directly related to additional feedstock collection. Our joint venture, GreenWave continues to address the limited capacity of R&G utilization for transportation by offering third-party RNG volumes, access to exclusive, unique and proprietary transportation pathways. During the first quarter of 2026, GreenWave's matched available dispensing capacity with available third-party R&D volumes, separated RINs and distributed RINs to the partners of GreenWave. We received approximately $1.4 million in separated RINs and distributed from GreenWave in the first quarter of 2026. In April 2026 we sent a letter confirming termination of our contract with European Energy North America, EENA, for the delivery of biogenic carbon dioxide. The termination was due to EENA failure to provide certain contractual assurances and notices related to the construction of their Texas-based methanol facility. We are currently exploring alternative offtake arrangements with interested parties at our [indiscernible] location. The timing of capital expenditures will be [indiscernible] with the finalization of replacement offtake agreements. We continue to anticipate a capital investment of between $30 million and $40 million. While we continue to diversify the company, our production of renewable energy from landfill feedstock remains a priority focus. The U.S. EPA issued the final rules for the 2026 and 2027 renewal fuel standard on March 27, 2026. The 2025 cellulosic volume requirement was reduced from $1.376 billion to $1.210 billion D3 rents with cellulosic waiver credits also having been made available for 2025 compliance. Hinocellulosic biofuel volume requirements for 2026 and 2027 were established at $1.360 billion and $1.430 billion D3 RINs, respectively. These volumes also represent an increase of $60 million and $70 million, respectively, from the preliminary RVO previously issued by the EPA. These volumes reflect the EPA's assessment of expected regeneration capacity and the related pathway and strengths of the end-use demand for CNG LNG transportation fuels derived from biogas. The EPA did not provide reallocations of D3 RINs as part of the 2026 and 2027 RVO in the final rule. This is primarily due to the statutory conditions on cellulosic biofuel volume requirements which do not allow the EPA to set the total applicable volume of cellulosic biofuel at a volume that is greater than the projected volume available, which necessarily excludes carryover cellulosic rents. And with that, I will turn the call over to Kevin. Kevin Van Asdalan: Thank you, Sean. I will be discussing our first quarter 2026 financial and operating results. Please refer to our earnings press release Form 10-Q in the supplemental slides that have been posted to our website for additional information. Our profitability is highly dependent on the market price of environmental attributes, including the market price for RINs. As we sell market a significant portion of our RINs, a decision not to commit the transfer of their low RINs during a period will impact our revenue and operating profit. . We sold all of our 3.9 million RINs generated and available for sale from our 2025 RNG production in the first quarter of 2026 at a realized price of approximately $2.42. We will not be impacted by the EPA making available cellulosic waiver credits from 2025 production. We have entered into commitments to sell approximately 60% of our expected RIN volumes in the 2026 second quarter. Total revenues in the first quarter of 2026 were $46.4 million, an increase of $3.8 million or 9% compared to $42.6 million in the first quarter of 2025. The increase is related to environmental attribute revenue of approximately $4.2 million from RINs sold related to RINs distributed from Green Wave and the RINs related to pathway dispensing. We had no such RINs in the first quarter of 2025. Our first quarter of 2026 RNG volumes sold under fixed floor price contracts decreased approximately 82.1% as compared to first quarter of 2025 as a result of the expiration of fixed-price pathway contracts. Our RNG commodity revenue decreased approximately 49.3%, which was offset by an increase in RINs sold of 25.5%. Total general and administrative expenses were $8 million in the first quarter of 2026, a decrease of $0.7 million or 8.4% compared to $8.7 million in the first quarter of 2025. The decrease was primarily driven by vesting of certain restricted share awards in 2025. Turning to our segment operating metrics. I'll begin by reviewing our renewable natural gas segment. We produced MMBtu during the first quarter of 2026, flat compared to 1.4 million MMBtu during the first quarter of 2025. Our Galveston facility produced 41,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of 2025 as a result of the landfill host assuming responsibility of wellfield operations and maintenance beginning in the first quarter of 2026. Our [indiscernible] facility produced 43,000 MMBtu more in the first quarter of 2026 compared to the first quarter of 2025 as a result of landfill host well food operational and collection system enhancements. Our Apex facility produced 37,000 MMBtu more in the first quarter of 2026 as compared to the first quarter of 2025 as a result of the June 2025 commissioning of our second Apex facility and increased feedstock gas from improvements we are making to the landfill collection system. Our McCarty facility produced 88,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of as a result of landfill host well-filled bifurcation and changes to the wellfield collection system. Revenues from the Renewable Natural Gas segment during the first quarter of 2026 were $38.1 million, a decrease of $0.4 million or 1% compared to $38.5 million during the first quarter of 2025. Average commodity pricing for natural gas for the first quarter of 2026 was 38.1% higher than the first quarter of 2025. In the first quarter of 2026, we self marketed 12.4 million RINs, representing a $2.5 million increase or 25.5% compared to 9.9 million RIN self marketed during the first quarter of 2025. Average pricing realized on RIN sales during the first quarter of 2026 was $2.42 compared to $2.46 during the first quarter of 2025, a decrease of 1.6%. This compares to the average D3 RIN index price for the first quarter of 2026 of $2.41 being approximately 0.6% lower than the average D3 RIN index price for the first quarter of 2025 of $2.43. At March 31, 2026, we had approximately $0.4 million MMBtu available for RIN generation, 0.2 million RINs generated but unseparated to 79,000 RINs separated and unsold. At March 31, 2025, we had approximately 0.3 million MMBtu available for RIN generation, 1.5 million RINs generated but unseparated and 3.9 million RINs separated and unsold. Our operating and maintenance expenses for our RNG facilities during the first quarter of 2026 were $14.4 million, an increase of $0.3 million or 1.8% compared to $14.1 million during the first quarter of 2025. Our Rumpke facility operating and maintenance expenses, operating and maintenance expenses increased approximately $0.4 million, primarily related to preventive maintenance media changes. Our Apex facility operating and maintenance expenses increased approximately $0.3 million, primarily related to increased utility expense, which was partially offset by decreased preventative maintenance media changes. Our Itasca site facility operating and maintenance expenses increased approximately $0.2 million, primarily related to wellfield operational enhancements. Our Dowerston facility operating and maintenance expenses decreased approximately $0.6 million, which was primarily related to the timing of maintenance of gas processing equipment and preventative maintenance media changes. We produced approximately 43,000 megawatt hours in renewable electricity during the first quarter of 2026, a decrease of approximately 3,000 megawatt hours or 6.5% compared to 46,000 megawatt hours during the first quarter of 2025. Our PECO facility produced approximately 2,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to the decommissioning of one of our engines in the second quarter of 2025 due to the shift towards boiler heat digestion process. Our Bowerman facility produced approximately 1,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to original equipment manufacturer required life cycle maintenance of 1 hour engines beginning in the first quarter of 2026. Revenues from renewable electricity facilities during the first quarter of 2026 were $4.1 million, a decrease of $0.1 million or 0.8% compared to $4.2 million in the first quarter of 2025. The decrease was primarily driven by the decrease in production volumes. Our renewable electricity generation operating and maintenance expenses during the first quarter of 2026 were $4.5 million, an increase of $1.1 million or 33.8% compared to $3.4 million during the first quarter of 2025. The increase is primarily driven by an increase in noncapitalizable costs of $0.8 million at our Montauk Ag renewables project. Our [indiscernible] facility operating and maintenance expenses increased approximately $0.4 million, which was related to the timing of gas processing preventive maintenance. We recorded approximately $4.2 million in the first quarter of 2026 related to the cost of RINs distributed from GreenWave when sold and the cost related to pathway dispensing associated with the dispensing of R&D. There were no such expenses incurred during the first quarter of 2025. During the first quarter of we recorded impairments of $0.4 million, a decrease of $1.6 million compared to $2.0 million in the first quarter of 2025. The decrease primarily relates to the first quarter of 2025 impairment of an R&D development project for which the local utility no longer accepted RNG into its distribution system. We did not record any impairments related to our assessment of future cash flows. Operating loss for the first quarter of 2026 was $1.6 million compared to operating income of $0.4 million in the first quarter of 2025. R&D operating income for the first quarter of 2026 was $8.7 million, a decrease of $1.7 million or 15.7% compared to $10.4 million for the first quarter of 2025. Renewable electricity generation operating loss for the first quarter of 2026 was $2.2 million, an increase of $1.2 million compared to $1 million for the first quarter of 2025. Other income in the first quarter of 2026 was $1.3 million, an increase of $2.5 million compared to the first -- compared to other expenses of $1.2 million in the first quarter of 2025. In the first quarter of 2026, we recorded approximately $3.3 million in income related to our joint venture investment in GreenWave. There was no such income reported during the first quarter of 2025. We received approximately $1.4 million in RINs distributed from GreenWave in the first quarter of 2026, of which approximately $0.4 million remain unsold. We sold approximately 1 million RINs in recorded revenues from those RINs sold of approximately $2.4 million. Additional information on GreenWave can be found in the supplemental slides that have been posted to our website. On March 9, 2026, we entered into a 5-year new security credit facility with a wholly owned subsidiary, Hannon Armstrong Capital LLC, HASI that consists of up to $200 million in senior indebtedness. These proceeds were used to repay all our outstanding debt. We expect to have an additional $45 million in proceeds drawn upon the conclusion of certain engineering review and operational requirements of our Montauk Ag renewables project in North Carolina. As a result of this refinancing in the first quarter of 2026, we recorded debt extinguishment cost of $1 million. We are only required to make interest payments during the first 2 years of the agreement, which matures in March 2031. We expect to work with has in the future to secure additional project-based financing for our current and future development projects. Turning to the balance sheet. On March 31, 2026, $155 million was outstanding on our new security credit facility with [indiscernible]. For the first 3 months of 2026, our capital expenditures were $38.6 million, of which $33.1 million and $1.8 million, respectively, were related to the ongoing development of Montauk Ag Renewables and our Bauerman-RNG facility. We had approximately $19.6 million in capital expenditures included within our accounts payable at March 31, 2026. As of March 31, 2026, we had cash and cash equivalents net of restricted cash of approximately $25.9 million. Our new senior credit facility with [indiscernible] requires us to meet liquidity and have quarterly minimum cash balances as defined in the agreement. We had accounts and other receivables of approximately $5.2 million. We do not believe we have any collectibility issues within our receivables balance. As of March 31, 2026, we held approximately [indiscernible] distributed from GreenWave in inventory on our balance sheet. Adjusted EBITDA for the first quarter of 2026 was $10.8 million, an increase of $2 million or 22.8% compared to adjusted EBITDA of $8.8 million for the first quarter of 2025. EBITDA for the first quarter of 2026 was $9.4 million, an increase of $2.7 million or 40.3% compared to EBITDA of $6.7 million in the first quarter of 2025. Net income for the first quarter of 2026 was $5,000, an increase of $0.5 million as compared to a net loss of $0.5 million for the first quarter of 2025. The difference in effective tax rates between the first quarter of 2026 and the first quarter of 2025, primarily relate to the change in our pretax book loss for the first 3 months of 2026 as compared to the first 3 months of 2025. I'll now turn the call back over to Sean. Sean McClain: Thank you, Kevin. In closing, and though we don't provide guidance as to our internal expectations in the market price of environmental attributes, including the market price of D3 RINs we would like to provide a full year 2026 outlook. We are reaffirming our RNG production volumes to range between $5.8 and $6 million MMBtu with corresponding R&D revenues to range between $175 million and $190 million. We are reaffirming our renewable electricity production volumes to range between 195,000 and 207,000 megawatt hours, with updated corresponding renewable electricity revenues to range between $33 million and $37 million. that reflects our current expectations of production at our Montauk renewables facility in Turkey, North Carolina. And with that, we will pause for any questions. Operator: [Operator Instructions] Our first question comes from Matthew Blair at TPH. Matthew Blair: I was hoping you could talk a little bit about this fixed price contract that appears to have rolled off. And I think there was a mention of that in the release is there any prospects for renewing that contract? And can you say if that contract was above current market rates? Like should we think of that roll off as being dilutive to your ongoing margins? Kevin Van Asdalan: Thanks, Matthew. In short, if you -- I'm going to point you to our operating highlights table within our 10-Q the rolling off of the fixed price contract is consistent with our moving and our ability to find homes for our RNG volumes in the transportation market. It's in concert with a quarter-over-quarter reduction in RINs that we're sharing with counterparties through our pathway. That has come down in the first quarter of 2026 yielding increases in RINs sold in 2026 over 2025. That's sort of a general understanding of a product mix moving away from fixed pricing into a more commodity and merchant availability of RINs generated from the production that we're getting as we are dispensing volumes in the transportation space and retaining more RINs and able to sell more RINs related to the roll-off of those fixed price contracts. Operator: Our next question comes from Betty Zhang at Scotiabank. Y. Zhang: Can you talk about the Montauk ag renewables? It looks like the revenue generation seems to be pushed out by about a month and that's also factored into your annual guidance. Can you just speak to what may have contributed to that? Sean McClain: Yes. Thanks, Betty. The adjustment to the revenue guidance is solely attributed to the timing of the commissioning that was completed at the end of April as opposed to the end of the first quarter with revenue commencement activity starting in May instead of April. So that's the month shift that's reflected in that updated guidance. Operator: Our next question comes from [indiscernible] at UBS. Unknown Analyst: With the North Carolina project coming online and production expected to begin this month. Can you help us think about the ramp profile from here? I know you mentioned in your opening remarks and in the press release that you expect ramp up in production volumes throughout 2026. But can you give us additional color into that? Kevin Van Asdalan: Thanks, Richard. As we've alluded, we have a certain amount of hog spaces that we're targeting to support our production expectations under a first year. We had announced that there were some weather delays on our call in our first -- at the end of the year in March. Some weather delays have delayed some installation of the own arm collection equipment as well as delaying some of our ability to timely assemble our dewatering equipment related to those sort of weather delays in installment of our feedstock collection and dewatering equipment. Our ramp throughout 2026 is contingent upon us getting caught up and meeting some internal expectations associated with our own farm installation related to feedstock collection and transportation to our production facility. Operator: Okay. I'm showing no further questions at this time. I would now like to turn it back to Sean for closing remarks. Sean McClain: Thank you, and thank you for taking the time to join us on the conference call today. We look forward to speaking with you again when we present our second quarter 2026 results. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fluence Energy, Inc. Q2 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Shelton, Vice President of Investor Relations. Please go ahead. Unknown Executive: Good morning, and welcome to Fluence Energy's Second Quarter Earnings Call. Joining me on this morning's call are Julian Nabrita, our President and Chief Executive Officer; and Ahmed Pasha, our Chief Financial Officer. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, along with supporting statements, schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website at fluenceenergy.com. During the course of this call, Fluence's management may make certain forward-looking statements regarding various matters related to our business, including, but not limited to, statements related to our future financial and operational performance, future market growth and related opportunities, anticipated growth and business strategy, liquidity and access to capital, expectations related to pipeline, order intake and contracted backlog future results of operations, the impact of the -- on e Big Beautiful Bill Act, projected costs, beliefs, assumptions, prospects, plans and objectives of management and the timing of any of the foregoing. Such statements are based upon current expectations and certain assumptions and are, therefore, subject to certain risks, uncertainties and other important factors, which could cause actual results to differ materially. Please refer to our SEC filings for more information regarding these risks, uncertainties and important factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. Also, please note that the company undertakes no duty to update or revise forward-looking statements for new information. This call will also reference non-GAAP measures that we view as important in assessing the performance of our business, including adjusted EBITDA, adjusted gross profit and adjusted gross profit margin. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is available in our earnings materials on the Investor Relations website. Following our prepared remarks, we will conduct a question-and-answer session with our team. Thank you very much. I'll now turn the call over to Julian. Julian Jose Marquez: Thank you, Chris, and welcome to everyone joining us today. Turning to Slide 4. Since our February call, we made meaningful progress on order intake, our U.S. domestic supply chains and our product road map as we position Fluence to capture expanding global demand for energy storage. Our business model keeps us close to customers so we can anticipate their needs early and respond quickly with the right products, applications and commercial structures. This morning, I'll highlight our momentum across the business, and then Ahmed will review our financial results for the quarter and our current fiscal '26 outlook. Here are the key highlights for the quarter. First, order activity is accelerating versus fiscal '25. As of today, we signed approximately $2 billion of orders this year, which is double the amount signed through the same period last year. Our record backlog was $5.6 billion at the end of the second quarter, and we expect it to grow further based on execution so far this year. Second, second quarter adjusted gross margin was 11.1% which is within our full year expectation of 11% to 13%, a meaningful improvement versus Q1 and more reflective of the disciplined execution we delivered historically. Third, based on our first half performance and visibility into the remainder of the year, we are reaffirming our fiscal '26 guidance for revenue, ARR and adjusted EBITDA. And fourth, we ended the quarter on March 31 with approximately $900 million of total liquidity, reinforcing our strong financial position. Please turn to Slide 5 for more details on order intake. Our expanded commercial effort is translating to stronger conversion into signed orders. During the quarter, higher lithium prices temporarily slowed some customer decisions, but momentum reaccelerated as prices stabilized. For third quarter to date, we have signed over $600 million of additional orders. For the first 7 months of this fiscal... Year order intake totals approximately $2 billion, and we expect the total for all of fiscal '26 to significantly exceed the level from fiscal '25. Most of the orders this year have come from our core customer segment, developers and utility. It is important to note that 50% of our orders this year come from new customers, a signal of the early results from our expanding commercial app. Please turn to Slide 6, as I detail our progress with new customer segment. Since our February call, we executed master supply agreements with 2 major hyperscalers. The selection process for both of these MSAs was subject to multiple rounds of review, and in each case, Fluence was chosen after meeting criteria specific for each customer. In 1 case, the customers process began with 26 different best vendors, -- and Fluence was the first to complete all qualifications to sign a global MSA. In the other case, the customer had requirements which made it hard for many competitors to comply with. In both cases, we believe Fluence understanding of customer requirements, rapid response time and the peretiated products were key in driving this engagement. These MSAs established Fluence as a qualified supplier, positioning us to build on expected near-term data center projects for both hyperscalers with additional progress with 1 of these customers over the past few months, we expect to find the initial order from 1 of the data center projects within the third quarter. In addition, since our prior call, we have successfully developed a proprietary solution to handle the extreme power usage fluctuations experienced in data centers. Fluence excels at this based on our deep experience with advanced controls and track record managing fast response systems. Based on our discussion, we believe these capabilities will be an important differentiator for data center customers concerned with quality of power. Finally, we're seeing increase in interest in Smartstack for applications requiring longer duration energy storage. Smartstack density provides a competitive advantage for these applications because of its smaller footprint. Please turn to Slide 7, as I discuss our growing pipeline. A key piece of our commercial strategy have been the growth of our pipeline, which has increased by 35% in so far this fiscal year. We are seeing opportunities in the U.S. market beginning to outpace our other market with projects concentrated in California and Arizona, as well as the MISO market in the mid 1. Most of the growth is from our core customer base, as I mentioned earlier, but also in part by new customer segments, including data centers and other large energy users increasingly adopt historic solutions. Since our last call, our data center pipeline has increased by over 30%, including projects from both major hyperscalers, I just discussed. We expect data center projects to make an increasing contribution to order intake during the fourth quarter of this year, building on the initial order we expect in the next few weeks. Fluence business model is intended to keep us close to customer, which we believe puts us in a previous position to stop evolving needs early and to respond quickly. That insight informs our product design, the applications we support and the technical operational and commercial terms our customers require back by a sales organization with deep long-standing relationships. In short, we have positioned Fluence to be on the leading edge of best. We view the components with use as commodities, which we integrate into finished products to meet customer needs. Combined with our long-standing technical expertise, and hands-on experience and our deep understand of different markets around the world, we believe Fluence is uniquely positioned to deliver and help our customers maximize the benefit of invested in battery projects. We have evolved our product to accommodate a growing number of customer demand, including market-leading density, digital solutions, optimizing operations and profitability, reduce total cost of owners, large-scale fire testing and industry-leading reliability. Fluence was also the first to offer a complete U.S. domestic supply chain and important advantage for our U.S. customers. We offer a one-stop solution primarily project development through delivery and installation and continuing over the full operating life of each project. We combine in-house EPC expertise with a dedicated service organization that optimizes performance and extend asset life resulting in industry-leading operational net. Please turn to Slide 9 for an update on Smartstack. Product innovation remains another key differentiator for Fluence. Smartstack set the industry standard for energy density, enabling customers to feed more than 500-megawatt hours of storage per acre with additional improvement plan. With a science Smartstack to lower total cost of owners through modular architecture, easier maintenance accidents and more than 98% reliability delivering more electricity and more value to our customers. And a flexible design supports a broad range of cell types across multiple manufacturers, including pouch cells, commonly used in electric vehicles. Importantly, smart packaging and modular architecture addresses the density challenges. Typically associated with pouch form in stationary stores. I'm pleased to report that our first Smartstack has reached substantial completion and commence commercial operations. Our growing Smartstack backlog reflects this market's strong interest in our product. Please turn to Slide 10 for an update on our domestic supply strategy. As I just mentioned, we recognize the importance of a U.S. domestic supply chain early. Today, we have U.S. production for all major components, including battery cells from our supplier in Smyrna, Tennessee, which has been operating since '25. Building on our existing U.S. supply, as we announced in February, we signed an agreement with another source of domestically produced battery health beginning in fiscal '27. We believe this incremental capacity strengthened our supply position and supports delivery against our growing order book. We're also evaluating additional supply options to help support Fluence growth beyond '27. Our current position gives us flexibility as additional proposed U.S. supply comes online. Based on our experience, converted EV battery production to best cells can take a year or more. When exploring additional proposed supply lines, we plan to evaluate each facility stand line to first production, is run speed. It's technical characteristics and how its location could strengthen and optimize our core in U.S. domestic supply network. Let me also update you on PFE compliance for our cell supply in Smyrna, Tennessee. ASC closed a deal to sell a majority interest of its facility to fixed energy, a subsidiary of Lombard Capital. Ownership changed on March 31, 26 and the facility continues to produce sales that qualify for tax credits under the 1 Big Beautiful Bill act. We moved quickly to establish a relationship with a new owner and have signed a new supply agreement covering the next few years. We are confident in their plan to sustain the strong production level we see this year. Looking ahead, we believe we are well positioned to benefit from growing diversity in U.S. sales supply and the impact additional capacity may have on battery price internationally, we competed in markets that have seen meaningful declines in average sales prices for several years. And those lower prices expanded demand by enabling new applications. It's reasonable to expect similar dynamics in the U.S. Importantly, we have executed successfully through the inflationary pricing cycles before. With an approximate 50% decline in ASPs over the past 2 years we more than doubled adjusted gross margin. Although we expect ASPs to continue to decline for the balance of fiscal '26. We are forecasting approximately 50% revenue growth with adjusted gross margins in the range of 11% to 13%, reflecting the strength of our execution and operating mode. To conclude, we are seeing accelerating demand improving execution and expanding opportunity across both our core and emerging customer segments with a record backlog, a strengthening U.S. domestic supply position. and a differentiated product platform, we are committed to delivering for customers and creating long-term value for shareholders. With that, I'll turn the call over to Ahmed to discuss our financial results. Ahmed Pasha: Good morning, everyone. Since our previous earnings call, we have continued to capitalize on strong demand trends in our industry while maintaining our disciplined focus on delivering on our fiscal year 2026 commitments. We also maintained a strong liquidity that provides us flexibility to execute on our growth petitions. More specifically, starting with Slide 12. We generated Q2 2026 revenue of $465 million, up 8% year-over-year. Approximately $80 million of revenue was pushed into Q3 due to 2 issues. Specifically, roughly half was attributable to a customs issue in Vietnam, with the remainder due to shortage of loading equipment in Spain, both issues have self been resolved. The delayed shipments have been received, and we are current on the quarter's deliveries with no further delays. Also to confirm, we do not have any material exposures to the Middle East conflict as none of our shipments utilize the Strait of Hormuz. Our adjusted gross profit for the quarter was $51 million, representing an adjusted gross margin of 11.1%, this result is within our full year expectations of 11% to 13% and reflects a meaningful improvement from the first quarter level as well as comparable quarter for fiscal 2025. The primary driver of the improvement was consistent execution and operational discipline across our portfolio. Adjusted EBITDA for the second quarter was negative $9 million an improvement of $21 million compared to the second quarter of last year. The improvement reflects higher gross margin, lower operating costs and $6 million gain from unwinding and FX derivative. This offset a $6 million loss on the same FX derivatives recorded in the first quarter of 2026, with no net year-to-date impact. Turning to Slide 13 for an update on our adjusted gross margin progression and how disciplined execution translates to returns for our stakeholders. As you can see, our rolling 12 months adjusted gross margin is 12.4%, marking 2 full years of consistent double-digit returns. We believe this progression underscores the durability of our margin profile. -- even in the dynamic pricing environment. Importantly, it reflects the product, commercial and supply chain actions we have taken across the portfolio. These actions position us for continued margin improvement beyond this year. Turning to Slide 14 for an update on our liquidity position. We ended the second quarter with total liquidity of approximately $900 million, which includes approximately $430 million in total cash. During the quarter, we invested $220 million in inventory to support deliveries that underpin our second half fiscal 2026 revenue. In addition, we will invest approximately $100 million in inventory during Q3 to support second half deliveries. Liquidity is expected to return to $900 million levels by the fiscal year-end, driven by execution on our backlog and new orders. Bottom line, our lability position fully supports delivery of our fiscal 2026 commitments. Turning to Slide 15 for our fiscal year 2026 guidance. We are reaffirming our guidance ranges for revenue, ARR and adjusted EBITDA reflecting our strong visibility into the year and continued momentum we see across our business. More specifically, we expect revenue in the range of $3.2 billion to $3.6 billion, with a midpoint of $3.4 billion. We expect approximately 70% in the second half, consistent with the rating of revenue last year. We expect roughly 30% of second half revenue in Q3 and the remainder in Q4, again, consistent with last year. With all equipment ordered and production tracking as planned, we are confident in delivering on our customer commitments and our full year revenue goals. We expect annual recurring revenue, or ARR, to reach approximately $180 million by the end of fiscal 2026, up from $148 million in fiscal 2025. And we continue to expect adjusted EBITDA in the range of $40 million to $60 million for the full year. In summary, we are submitted to achieving core revenue and profitability outlook for fiscal 2026. We remain rather focused on ensuring disciplined execution for our customers and delivering value to our shareholders. With that, I will now turn the call back to Julian for his closing remarks. Julian Jose Marquez: Thanks, Ahmed. Let me close with a few key takeaways. First, strong execution. Our second quarter performance, record 5.6 billion backlog and on track production levels support our content in our fiscal '26 guide. We ended the quarter with approximately $900 million of liquidity, which we believe provides always the flexibility to fund growth. Second, all the momentum accelerated. Order intake has doubled year-to-date, led by orders from both new and existing customers, an indication of strong demand in the U.S. and the positioning of our business. And third, expanding customer base. We are in an excellent position to capture a portion of the rapidly expanding data center demand with the signing of MSC with 2 major hyperscalers after meeting all of their commercial and technical requirements. We expect to execute the first purchase order with 1 of these customers within the third quarter. In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders. With that, we are now prepared to take your questions. Operator: [Operator Instructions] Our first question comes from George Gianarikas from CG. George Gianarikas: My first 1 is on the competitive landscape. How are you viewing the recent trend of some cell manufacturers vertically integrating? And specifically, how are you looking at their push for market share and any impact on pricing? . Julian Jose Marquez: We have seen both CATL and BYD become common and integrate particularly we have not worked in the past would be way, but we have worked with the CAPL. It hasn't really changed the intensity of the market, if you talk the truth. The value the ability to meet customer needs at a reasonable price that hasn't changed effectively. So we continue -- we're growing our backlog. We're growing our winning projects the same as we are. And so we feel confident we haven't really made a big difference in the competitive American. So we attracted 50% of our new sales are new customers. So we are -- I don't see it as a challenge. It's not new, by the way. I mean, it has happened in the past. The change of CTL was they bought, but not a major change in the competitive landscape from our point of view. George Gianarikas: And maybe as a follow-up, first, congrats on the 2 hyperscaler MSAs. If you could -- you did this a little bit, but if you could pull back the curtain a bit on the mechanics of those wins? What did specifically what did the validation process look like? And what do you think was the primary differentiator for you that larger win theres? Julian Jose Marquez: Yes, two things. We went through a very strict commercial and operational and technical evaluation. In 1 of the cases, there were 26 players, I would say the majority would not make it -- so there's a limited number of people or companies that could meet this very stringent requirements. Our ability -- our deep knowledge, our deep experience managing fast response systems in Europe as special. And having the infrastructure and the technology capability to prove their case to them very, very quickly is a negative. We have the lab, we have the termination we do this every day. We know how the applications work. We understand how the critical work globally. And that made a big difference as we were the first one. So I think that we believe that will continue to be what will keep us ahead of the market because we are now -- some of our competitors are still trying to figure out how to meet the criteria. We're thinking how to exceed their what they need and trying to offer them more value and more capabilities, and that's what we bring to the table. Operator: Our next question comes from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: I got to hand it to you guys really kudos here, I'm seeing it through. In particular, look, I wanted to ask you, in particular here, as it pertains the hyperscale orders, what specific product are they following up with you guys with? I know there's been some ambiguity in the marketplace as to whether or not you have the right product and the product positioning for the hyperscalers to get this kind of confirmation with 2 as you guys have flagged, in particular, is quite notable. Can you speak to the specific deployment permutation that they're using you guys with. Is it a BTM FTM, -- is it a capacity support load shifting? And then also, how do they think about the domestic content or fiat compliance. Is that another nuance that we should consider? Just can you speak to the product and more broadly in these wins? And whether this is a leading indicator for further orders like this in coming quarters? Julian Jose Marquez: Yes. So in terms of what they're asking for different what I said in the last call, when we had, we're looking at a portfolio that was a little bit more mixed. Now that we concentrated in the hyperscalers, their main need is quality of power, helping them manage the fluctuation of the data centers and happen so quickly and effectively. So -- and that's what they need, and that's what we proved with our advanced controls and our products, we can prove very, very quickly to them that we can do it. I will say, if I can brought better than anyone else. And that's what is driving this. If you go beyond the hyperscalers into kind of the developers of the world, it seems to be that -- or seems to be what we have experienced more of speed to power and meeting great calls and and is a little bit more mixed, but when it's too hyperscale, it has been quality of power they may ask. In terms of domestic content, it wasn't a requirement from them or something that we're specifically looking at we clearly are selling it. And I think that as we have explained to them the competitive position of domestic content, the value it can create. And the tremendous branding opportunity of having a product that is built here by American for America here especially as this to hyperscalers most of the businesses in the U.S. I think they have -- they are seriously considering as -- but their objectives were meeting the quality of power, meeting their technical commercial objective, and that's where they concentrated on, and that's how we move it. In terms of these 2 MSAs, they have behind a significant pipeline, that we expect that within the next year, will convert into the orders. We won't necessarily win them all, but it will be a significant amount of demand that we see behind this that we will convert having these MSAs gives us puts us in a very, very good position to capture. This is the hard in order to compete. Now many people can do it. And I think this was a stop of approval that when we make an offer, they know that we will deliver what we are promising. Julien Dumoulin-Smith: Awesome guy. And quickly, Ahmed, can you speak to this slide has this interesting commentary that says you're going to invest additional inventory during the third quarter. but you're going to rebuild liquidity towards $900 million by fiscal year-end. When you say rebuilding liquidity, is that going to capitalize in some ways? Or is that just kind of cash flow? Ahmed Pasha: I would not. Julien, I would not read too much in between the lines there. I think it was more as we invest because we have roughly $2.5 billion of revenue in the second half. So we will be delivering that. We're building up the inventory. But as we deliver the inventory, we will be collecting -- so at the end of the day, our liquidity will be back at $900 million levels by the end of the year, consistent with what we told you when we gave our guidance for the year. So that was the intent there. Julien Dumoulin-Smith: Awesome. And just to clarify from earlier, how many other supplied MSAs with you guys? Julian Jose Marquez: I mean, very, very selective, Julien, they all fit in my hand, I think, and have fingers left. We don't know we have the significant information, but we understand they are very, very selective, very few people. I've been able to go to it, they might -- they're probably working on it, but let's see if they get it. Operator: Our next question comes from Brian Lee from Goldman Sachs. Brian Lee: Congrats on the strong backlog here in the hyperscaler updates. I had a couple of questions, I guess, on the hyperscaler MSAs. I'm not sure how much you can provide, but would love to maybe get some detail around quantification of the size of the deals, how many megawatts over what years -- and is it over multiple sites that are already identified? Maybe just if you could elaborate a bit more on kind of the scope of these 2 MSA deals and how meaningful they are in terms of quantitative impact? Julian Jose Marquez: SP1 Yes. So I'll tell you, the majority -- or the great majority of our pipeline is supported by deals that are behind these two MSAs, and these deals will -- and those -- that pipeline is several different data centers around that they have around the U.S. mostly. So that's what it is. In terms of financial -- and our current paper is 12 giga, so that'll give you a sense. We're not providing the financial numbers around it. As it's too early, and we are competing, as you know. So we are not providing those numbers today, but -- my expectation is that as we end the fourth quarter and bring hopefully, a good number of these projects, and I can offer numbers in included in everything and do not necessarily be providing commercial, I will provide you more financial metrics of this. Brian Lee: Okay. Fair enough. Yes, we'll look forward to that. And then maybe just zooming out a little bit because this is a new business for you, and obviously, very, very high growth potential. What's sort of the deployment schedule, I guess, can you help us kind of visualize as you go into some of these, whether they're RFPs or bake-offs -- what's the time line for submitting your design and your proposal to when 1 is finalized? And then when you get a PO to when you're going to deliver to sit kind of what are the the sequence of events and how long is that. Julian Jose Marquez: They are in a hurry, generally. Most of these projects, as I said, that -- I don't know if I mentioned about the pipeline we have, we believe will convert into orders during the year, evening a year, so quicker than generally, we're in a pipeline that comes into our things. And very, very tight schedules for delivery that we commit because we've been working on our speed for some time. So I cannot give you today a specific rule. This is the one. But generally, I will say a lot faster than the conversion rate we have for our order from pipeline to orders and a lot faster on the conversion rate for orders to revenue, than what we do in our normal utility developer to, especially with these 2 hyperscalers. The case of the developers, and it's a little bit different as those are more project tied they are looking for pyramids and stuff. So those will probably take a little . Brian Lee: Okay. Understood. Maybe last one, if I could squeeze in just on the gross margin bounce back. I know that's been a focus for you guys for a little while. So nice to see it back to the range, even on the lower volume here in 2Q, that was a pretty impressive gross margin rebound. What does that maybe entail for the back half of the year? Is there volume leverage and some of the efficiencies from this quarter that can spill over? And is there any potential upward bias to margins as you kind of move through the rest of the year? Ahmed Pasha: So in terms of the gross margin, you're right, an 11% gross margin we earned, which is higher than what we had in Q1. In year to go, we just reaffirmed our guidance where we said 11% to 13%. So we will be somewhere in the middle of that range a year to go. I think at least that is our goal is about 12%. So we will definitely be better than what we earned in Q2. Operator: Our next question comes from Dylan Nassano from Wolfe Research. Dylan Nassano: Just wanted to check on the broader data center pipeline. Any updated thinking there in terms of how much of that kind of fits your previous criteria of pipeline versus leads? And then I noticed there's this 6 gigawatt hour kind of target for what gets included -- just how did you come up with that number? Any thinking around there would be helpful. Julian Jose Marquez: I'll tell you that there a number for our pipeline it. Our pipelines went up like 30% from last quarter. we concentrated a lot on the hyperscalers. And so a good driver of that has been the hyperscalers who are roughly at 12 gig. And our leads are 3x generally the same as close to where essentially the same as we had last quarter, we come to some into pipeline and we were able to replenish as a rule. The 6 gig, I don't know what the you're referring to Dylan, sorry,. Dylan Nassano: It's on Slide 6 at the bottom, and just classified the system 6 gigawatts hours or more. Julian Jose Marquez: Let me check. But in any event, strong growth great opportunity here. And I think that by concentrating on hyperscale extra, we get the point on this. we are in a market segment that we expect will test faster and that we will convert into execution quick. Unknown Executive: Yes. Dylan, that's 6 gigawatt hours. That's -- it's not a pipeline, how we classify an LDS project. So anything over 6 gigawatt hour. Sorry. . Julian Jose Marquez: Yes, for long duration storage, yes, those are loan duration stores, so they need to be more than 6 hours, in order to be long duration as a definition of loan duration for 6 and more. Dylan Nassano: Yes, my mistake. And then just a follow up on the quarter. I mean, it looks like revenue was kind of lower than analyst expectations even kind of including this $80 million. So I just wanted to check, was there any other seasonality in the quarter beyond or other disruptions beyond the shipping stuff some guys noted. Ahmed Pasha: No, there was none. I think if you recall, when we gave our guidance in Q4, we did see about 1/3 of our revenue in the first half and the rest given fact that we don't give quarterly guidance, I think that was the only reason what is the difference. But overall, from an internal perspective, as I mentioned, the $80 million of this shipping delay was the only reason why we were lower on the revenue for Q2, but that we have the shipment we have already received. So we feel pretty good on year to go. . Julian Jose Marquez: And if I can add 1 point, our indication of where we see revenue divided among quarters more indicative, so you can model it and so, but we don't run the company on a quarterly basis to be very clearly. We'll run it on a yearly basis. That's why we intend to meet our yearly numbers. We try clearly to what we indicated to me about is not -- we do not provide quarterly guidance. I know it creates some confusion, but -- it's a way of try to help you model and at the same time, keep the flexibility to manage things effectively and efficient within the company. . Operator: Next question comes from Joseph Osha from Guggenheim Partners. Joseph Osha: I wanted to drill down a little bit on 2 product details. Julian, you said that hyperscalers and data center more broadly, tends to be more about product quality or power quality. So is the implication then that we're seeing shorter duration configurations, say, an hour or 2 as opposed to 4? That's my first question. And the second question, just to confirm, thinking about the inverters, are you generally being asked to deliver a response time of 10 milliseconds or less. Those are my 2 questions. Julian Jose Marquez: Yes. On the first one, they tend to be shorter duration, you're right. So they are -- I'll say, we don't provide anything smaller than 2 hours or 2 hours is what we and general that's where the market is trading, but they tend to be shorter than even though our main point to the data centers as we engage with them and the developer have test the great beauty of that our technology compared to other technologies that are trying to resolve is that we can stack business models on top. And we can do quality of power, help them with to some of the work of resolving some of the efficiencies of interconnection or backup. We can help them on solve them voltage. We can help them on many, many fronts. So -- that's -- I think that as we're looking at the assets, they are expanding also their view of what is on that was on that point. On the second one, generally, I will say that -- sorry, the second 1 can. We need to -- we're not providing the actual number, but it's very short, not the way over it. So we're not providing the actual number because it is proprietary to the solution and to the people we're working with, but it is very, very short, significantly shorter than 100 milliseconds, we tend to do for transmission systems and European Valifications. Joseph Osha: And just to follow up on that very quickly. That would probably assume create the need for inverters with wideband gap MOSFET you've got it off SP-5. Julian Jose Marquez: Yes. You need inverters. I can provide that. That capability is very much dependent on the inverter you use. We work with inverter companies that -- we have done this in Europe for many years, so we're not exactly who leave, how they do it and their strategy very well. So we have that. And our advanced controls work very well with these Abertis and have the processing time to ensure the whole system, response on that, not behind the inverter as healthy suppose. Operator: Our next question comes from Jon Windham from UBS. Jonathan Windham: Nice result. I was wondering if you could talk about the U.S. storage market continues to grow at a rapid pace. Where are you -- are you able to provide us sort of where you are on being able and sort of capacity in gigawatt hours to provide over the next 12 months? And then just sort of thoughts on the road map to keeping up with the market growth over the next 2 or 3 years. Julian Jose Marquez: Yes. Yes, we see the U.S. market growing expanding significantly. So that's right. What we have, we have, as you know, our domestic products, our flagship solution in the U.S. We have the ASE capacity, we enter with another supplier for additional capacity, and we are looking at additional capacity for the '28 going forward. So we have enough capacity to forward the pipeline we see and the conversion rate we affected we don't provide specifically the numbers, but we -- it's multigigacapacity, and we have seen no problems getting the -- and we are putting the whole infrastructure that delivers that multidealer the U.S. with our domestic content offer. We can also import equipment if we need to, but our preference is to do the domestic content solution. Jonathan Windham: Perfect. And maybe just a quick follow-up. There's been a lot of commentary on the gross margin. But historically, some of the issue has been that operating OpEx as a percentage of revenue has basically been offsetting the positive gross margin. So just your thoughts on internal initiatives to get the OpEx number down to drive bottom line profitability and free cash flow. Julian Jose Marquez: Yes. The operating costs are percentage of revenue is essentially a function of growth or growth of the top line. So if you follow it carefully, you'll see that our operated revenue goals it's very much vital. Our costs are very, very stable and how much of our cost represents that of our revenue depends on how much we can grow revenue. So we have seen -- and we have an operating leverage that we believe that we can grow this company that we can keep our costs down and half the rate of growth of our top line, which will be -- which adds tremendous value. And you'll see when you look at the numbers, it's very, very clear. It's an operating leverage formula. Unfortunately, as you know, last year, we didn't grow. So that's where the operating revenue -- the percentage of revenue of cost of revenue was a little higher than what we had parted. Ahmed Pasha: Our goal is that we basically create the operating leverage and we do have that as the revenue grows, our costs, we will maintain that cost discipline and cost will be reduced -- increasing less than half of the growth in our revenue as Julian just mentioned. So I think that's our key focus from my perspective. Operator: Our next question comes from Ameet Thakkar from BMO Capital Markets. Ameet Thakkar: It looked like ASPs, if we'll get revenue and kind of your revenue recognition megawatts for the quarter were up nicely quarter-over-quarter. And I was just wondering, was there a lot more EPC work this quarter? Or is this kind of maybe the level we should be thinking about for the balance of the year for modeling purposes? Julian Jose Marquez: This number, as you said, it moves up and down quarter after quarter based on the mix of the cells. So I wouldn't read too much on it. We are designed to meet our financial objectives independent of where the ASPs go up or down. And our planning assumptions that they will continue coming down. And we are deciding to make money and make it successful. And I'll say even more every time we have seen ASPs come down, what happens that demand is plans at a rate that is much bigger. -- the reduction in revenue at on the lower ASP. So we -- I wouldn't read too much on it. I know that something that you care about a lot, I mean, the analysts care a lot about, but -- it is not a big driver of our business financial results. . Ameet Thakkar: Great. And then I know you had mentioned earlier in answering 1 of the kind of questions before about kind of your long -- and I think you said that the vast majority of that is data center related. Is that right? Is it a little bit over half? Or is it substantially all of that 1 gigawatt pipeline is data center related. Julian Jose Marquez: Yes. Now we have a 12 gigawatt pipeline of data -- all of its data center related. What I said that a great majority was connected to the 2 MSAs that we just signed. So the 12 gigawatt hours are -- all of it is data center related, of which the great majority of more than 1 or been a good portion of it. I want to give a number come from the -- supports these 2 MSAs, which is high. Operator: Our next question comes from David Arcaro from Morgan Stanley. David Arcaro: I was wondering, are there other MSA opportunities that you're currently working on? Is that something that you would expect most hyperscalers to be pursuing on the storage front. Julian Jose Marquez: Yes. We're looking at it. These are the 2 that we have more urgent needs. And so -- but we're looking to work with all of them. So we believe the problems are similar and that we can meet their needs with our capacity. So we hope to work with all of them. David Arcaro: Yes, makes sense. Any -- are there any active now or any sense of timing as to when those opportunities might pop up? It seems like they're all very active on the data center side of things, and I imagine looking at storage. So is that also a near-term opportunity? . Julian Jose Marquez: I think that -- well, I cannot give you a real sense of time when it will happen as it would depend on where they are and what they do. I mean, -- the tool that we have signed are people are very clear what they need. They are in a hurry to win, and they seem to be ahead of the market if you ask -- so -- but we're working with everybody. We are contacting all of them, working with them, and the chassis to are ahead. David Arcaro: Got it. Okay. Great. And then the 50% proportion of new customers, I thought was notable. I was just wondering, could you give any characteristics of kind of who those customers are? What type of customers they are? Is it the traditional profile of developers and utilities that you would see or any specific locations? Curious if it's a new profile. Julian Jose Marquez: This is a result of the great work that Jeff Monde, who joined us as our VP of Growth has done since he arrived. It really had invested significant business development identify all these customers, which are -- I would say, we're not a typical we used to work before, for our deal developers or utilities, that we have not contacted in the past and now we have made significant progress. And this is a global effort that we're doing, not only in the U.S. but outside of the U.S. So -- but I would say that, as we said during the call, these are customers that are within our normal or core customer segments, utilities and developers growth. But great calls to our sales organization that has really invested into developing and bringing these new customers and into the mix. . Operator: Our next question comes from Ben Kallo from Baird. Ben Kallo: Could you just talk a little bit because of the specific product they're looking for in the size. If you could talk about just pricing and margin, how we should think about that all these better deals? And then also my second question just outside the U.S. where you see pockets of demand and then just remind us how margin compares internationally versus the U.S. Julian Jose Marquez: In terms of data center, I will say, as we said, duration shorter term. And I'll say the margin is in line with our guidance of 10% to 15%. That's what we'll say. So generally, that's what it is. And both of their needs are quality of power, which we do this for grades globally, we're doing for them here, and I think it worked well and versus -- so in terms of margins, margins changed market for market depends on the competitive environment. As we go in our 10% to 15% range, but there are markets that are a little bit more -- they go through more competition than us. I will say that markets like the U.S. and the U.S. is probably a little bit on the high side, the U.K. on the lower side. And so it changes a little bit on changes market per market. But our 10 to 15 range works for all these markets. . Operator: Our question comes from Maheep Mandloi from Mizuho. Maheep Mandloi: A question on the MSAs with the hyperscalers. Do they have any special requirements on the battery types is like the general batteries you have for the best industry? Or is it high searate? Just curious if -- on the supply side, if you need to make any changes on the sales sourcing of that. Julian Jose Marquez: We make any battery grade. We make any battery grade. So the battery is a commodity whatever they need. I think the main driver is Nitsure, and that comes our packaging, our capabilities. So no real need on -- clearly, the LFP to nobody as to the M&C for many reasons, but a brand or supplier is not relevant for them. Whatever battery we put in our systems, we can make it to [ Gen 6 ]. Maheep Mandloi: And then separately, like we saw some battery deployers proposing high ceded batteries, which go inside the data center for 800 volt TCs? Is that something of interest are you exploring? Or your're looking at outside that did so. Julian Jose Marquez: Yes, yes. We're looking at our product road map includes not only these many other elements that we're looking at to continue improving our offering to data centers and to our solutions, 1 option is this high seed rates batteries that will go into that. And they don't have some limitations, but it's part of our program that we have for the will happen or not, we'll see, but it's not any time soon. . Operator: Our next question comes from Moses Sutton from BNP Paribas. Moses Sutton: Congrats on the great update. Have these data center opportunities convert into reality, how do we think about the ratio at for what, meaning the loss of load to the watts of storage. We've seen examples out there of gig data center might need 800 megawatts of batteries and examples that could be of that, right, depending on their need. So what do these projects start to look like right now as we're connecting sort of a data center TAM in gigawatt terms do the storage opportunity that you're converting against? Julian Jose Marquez: Too early to give you a rule of thumb that we can calculate clearly have some views, but it's too early to give you -- too premature to give you a rule of thumb. How do you think a gigawatt would take this amount of battery. So we we will -- over time, I think that we'll be able to develop that as it becomes more clear, but today, we -- that we cannot do. What we have, as I said, 12 giga pipeline ahead of us, which we want to convert into orders a good portion of it within the next 12 months. So -- that's what we're concentrated on. And as we learn more about this and we see how the industry develops, we'll provide you a rule of thumb that will give you a better sense of the whole market. Moses Sutton: Got it. Got it. That's helpful. We'll look forward to that. And then on the MSAs, what's the nature of the exclusivity from what you've won? Are there multiple vendors? I couldn't tell if you were answering that in some of the earlier questions. So for those hyperscalers, are you 1 of the few players? Are you exclusive? Is that a geographic exclusivity... Julian Jose Marquez: One of a few players, 1 of a very, very limited number of players. But this is a competitive process. These are not directed at least not yet. I may be able to take them there and so forth very limited players and a competitive process as we moveforward. Well, thank you, everybody, for participating today, and we'll be available. Chris will be available, I also will be available to answer any questions you may have. Bye-bye. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Hello, everyone, and thank you for standing by, and welcome to Great-West's First Quarter 2026 Results Conference Call. [Operator Instructions] It is now my pleasure to turn the conference call over to Mr. Shubha Khan, Senior Vice President and Head of Investor Relations at Great-West. Welcome, sir. Shubha Khan: Thank you, Jim. Hello, everyone, and thank you for joining the call to discuss our first quarter financial results. Before we start, please note that a link to our live webcast and materials for this call have been posted on our website at greatwestlifeco.com under the Investor Relations tab. Turning to Slide 2. I'd like to draw your attention to the cautionary language regarding the use of forward-looking statements, which form part of today's remarks. And please refer to the appendix for a note on the use of non-IFRS financial measures and important notes on adjustments, terms and definitions used in this presentation. And turning to Slide 3. I'd like to introduce today's call participants. Joining us today are David Harney, our President and CEO; Jon Nielsen, our Group CFO; Ed Murphy, President and CEO, Empower; Fabrice Morin, President and CEO, Canada; Lindsey Rix-Broom, CEO, Europe; Jeff Poulin, CEO, Capital and Risk Solutions; Linda Kerrigan, our Appointed Actuary; and John Melvin, our Chief Investment Officer. We will begin with prepared remarks, followed by Q&A. With that, I'll turn the call over to David. David Harney: Thanks, Shubha, and good morning, everyone. Please turn to Slide 5. We delivered a strong start to 2026 with double-digit earnings growth for Great-West in each of our operating segments. These results reflect the structural progress we've made over the past several years, including our shift to a more capital-light business mix, the operating leverage across our platforms and disciplined capital deployment. This quarter, we delivered 20% year-over-year growth in base earnings and 23% growth in base EPS, driven by strong underlying business performance and the continued execution of our capital return strategy. Q1 marks another important milestone for Great-West as it is the first time we have achieved all our potential objectives we set out at our Investor Day last year. This is the direct result of our focused strategies and disciplined execution, and we are confident in the medium-term outlook for our business. Our strong cash generation and balance sheet continue to provide significant financial flexibility with over $2 billion in Holdco cash at quarter end, even after nearly $600 million of share buybacks during the period. Please turn to Slide 6. As I mentioned, we delivered base earnings per share growth of 23% year-on-year primarily owing to strong growth in our capital-efficient businesses. Notably, Empower base earnings grew 23% year-over-year in U.S. dollars, driven by strong retirement and wealth growth and operating leverage. While Capital and Risk Solutions saw 41% growth with continued momentum in its capital solutions business, highlighting our position as a leader in retirement services and wealth management. Great-West saw a 10% year-over-year growth in total client assets to $3.3 trillion, of which more than $1.1 trillion represents higher-margin assets under management or advisement. Robust capital generation continued to reinforce our strong financial position this quarter. Despite continued share buybacks, we ended with a solid capital base including a LICAT ratio of 129%, Holdco cash of over $2 billion and a stable leverage ratio. Please turn to Slide 7. At our Investor Day last year, we reiterated our objectives for base EPS growth and dividend payout, introduced a new objective for base capital generation and raised our base ROE ambition. Our first quarter results were in line with all our medium-term objectives with base ROE exceeding 19% for the first time this quarter. Our success can be attributed to the market-leading strength of our businesses, the continued shift towards capital-light growth and disciplined capital management. I am very pleased with the progress we have made as an organization over the past several years to drive stronger returns. While market conditions have been supportive in recent quarters, the structural progress we've made puts us on course to deliver 19% plus base ROE on a sustainable basis. Please turn to Slide 8. Each of our segments delivered against their growth ambitions in the first quarter. As I mentioned, Empower grew base earnings at a double-digit pace year-over-year with strong operating margins and net flows in Retirement as well as impressive growth of 65% in the Wealth business. Canada saw growth across all lines of business with double-digit growth in both retirement and wealth assets. In Europe, Retirement and Wealth and insurance earnings growth were propelled by strong client asset flows as well as strong retail annuity sales. In Capital and Risk Solutions, there continues to be solid demand across geographies and product lines for capital solutions, which coupled with strong insurance experience, drove 41% year-over-year base earnings growth. Overall, I am very pleased with the strong start to 2026. Double-digit growth across all four. business segments drives continued confidence for the remainder of 2026. Before Jon covers our first performance in more detail, I will pass it over to Ed to talk more about Empower's results and the work done by his teams this quarter to meaningfully strengthen the long-term growth profile of the Empower business. Edmund Murphy: Great. Thank you, David, and good morning, everyone. Please turn to Slide 10. Empower delivered another strong quarter with double-digit base earnings growth reflecting continued momentum across our Retirement and Wealth lines of business. This drove Empower's base ROE to 20.8%, a key contributor in achieving Great-West 19% ROE objective. In our workplace business, strong equity markets drove double-digit year-over-year growth in client assets. Net plan flows exceeded net participant outflows in the quarter and we continue to expect positive net plan flows for the full year 2026. Operating margins also improved by over 300 basis points from a year ago, helped by improved credit experience and underscoring the strong operating leverage in the business. Empower Wealth continues to see outstanding growth with base earnings up 65% year-over-year. Operating margins held steady at 39% despite increased brand investment in Q1, further demonstrating the scalability of our wealth platform. With significant momentum in our underlying businesses, we are increasingly confident that Empower can capitalize on the growing demand for Retirement and Wealth solutions in the United States. We were encouraged by recent policy developments to expand access to retirement savings and support long-term financial security, including new Department of Labor safe harbor guidance, the administration's April 30 executive order and growing momentum around solutions such as Trump accounts. Together, these efforts highlight the importance of public-private collaboration and helping more individuals build confidence in their financial futures. Turning to Slide 11. Empower has built a very strong foundation as the second largest retirement plan provider with $2 trillion in client assets and as a leading wealth manager. We are still in the early stages of deepening the relationship with our 20 million customers. A key theme at Empower is building customers for life. That means being there for our customers throughout their financial journey. We have previously highlighted the value we provide during client rollovers, and it continues to be an important lever of growth for the business. We expect nearly $1 trillion to roll off the platform over the next 5 years. A significant portion of that money in motion will be eligible for rollover, and we are the #1 destination for those assets. As we look ahead, the opportunity to create value for our customers is much broader. Customers hold roughly 3x more assets off platform than on-platform. We are increasingly focused on building trust with our customers to earn the management of those assets as well. Workplace, rollover and crossover represent highly complementary mutually reinforcing channels. For example, by strengthening engagement, while customers are still in plan and before life events occur, we can increase the likelihood that they stay with Empower when they roll their assets into an IRA or seek out additional financial solutions. Meanwhile, customers that are more actively engaged with our workplace platform are more likely to aggregate their other assets with us. Please turn to Slide 12. Our strategy is simple, engage customers earlier and more proactively, make it easier to do business with us and then earn their trust and the right to serve them across their entire financial journey. To advance our strategy, we have embarked on our journey to realign the organization to strengthening our offering for customers while ensuring the durability of Empower's growth profile. In the last few months, we established greater organizational alignment between our Retirement and Wealth businesses and started realigning teams to encourage earlier conversations with customers, drive deeper relationships that support better outcomes. These efforts position us to better serve our customers long term. Looking ahead, we're focused on executing across several levers to drive continued growth. First, we have built out our product offerings into new areas such as stock plan services and consumer directed health savings, making Empower even more relevant across a broader set of customers and needs. Secondly, we are expanding access to financial solutions through continued investment in digital and AI tools to support greater personalization and a seamless end-to-end customer experience. We are also building deeper partnerships with plan sponsors and their advisers to drive advocacy, increase engagement and do more for participants to build greater trust. We are highly confident in the outlook for the business and our ability to continue delivering on our growth agenda in the years ahead. I'll now pass it over to Jon to talk through the broader financial results for the quarter. Jon Nielsen: Thank you, Ed, and good morning. Please turn to Slide 14. Great-West delivered double-digit base earnings growth across all segments in the first quarter, demonstrating continued execution against our strategic priorities. The first quarter results were driven by strong performance across our Retirement and Wealth businesses, continued momentum in new business volume and favorable insurance experience at CRS as well as improved credit experience across our investment portfolio. These results were achieved despite heightened market volatility, underscoring the strength of our diversified, increasingly capital-light business mix as well as the benefits of disciplined capital deployment. Our capital position remains strong with stable leverage and ample liquidity to support both organic growth and capital deployment. During the quarter, we repurchased approximately $567 million of common shares contributing to the 23% growth in base earnings per share year-over-year. Great-West also delivered base ROE of 19.1%, an increase of 190 points from the prior year. As David highlighted, we achieved our medium-term objective of 19% plus for the first time. The results this quarter reflect high-quality earnings with close alignment between net and base earnings. Turning to Slide 15. We are pleased that total credit losses for the first quarter were down year-over-year and lower than our expected range of 4 to 6 basis points on an annualized basis. As a reminder, total credit experience is the aggregate of credit experience shown in our drivers of earnings disclosure as well as in our Retirement and Wealth P&L statements, all of which are included in the supplemental information package. We continue to expect under normal conditions, credit experience would be at the lower end of the range. Turning now to our results by segment, starting with Slide 16. Base earnings in our Canadian operations increased 11% year-over-year, with robust growth across all lines of business. Retirement and Wealth results were driven by higher fee income as well as improving retirement flows. Group Benefits earnings were driven by strong operating leverage and were impacted by modest insurance experience gains. Finally, insurance and annuity results were supported by higher sales than a year ago, favorable mortality experience and higher net investment results. Turning to Slide 17. In Europe, base earnings increased 10% year-over-year in constant currency, primarily driven by higher global equity markets, trading gains and strong growth of the Group Benefits in force book. Bulk annuity sales, which tend to be lumpy, did not contribute significantly to the base earnings growth this quarter. However, the second quarter pipeline is very strong, and we expect this to translate to higher insurance earnings in the coming quarters, augmenting solid underlying momentum across all the other lines of business. Turning now to Slide 18. Capital and Risk Solutions delivered another strong quarter, with base earnings up 43% on a constant currency basis. We continue to see strength in demand for our capital solutions business globally. The pipeline for these solutions remains robust, and we expect new business volume to remain strong through the remainder of 2026. The strong CRS results this quarter were also driven by favorable U.S. mortality experience. Overall, this business will likely exceed our medium-term base earnings objective in 2026. Turning now to Slide 19. As we've highlighted previously, organic capital generation remains a key strength of our businesses. In the first quarter base capital generation exceeded 80% of base earnings, while free cash flow was 85% of base earnings. We expect both these measures to continue to be strong over time, as the relative earnings contributions from our capital-light businesses grows, while attractive organic growth opportunities in our more capital supported businesses may impact capital generation in any given quarter, we expect Great-West to remain highly cash generative. Turning to Slide 20. Great-West's strong free cash flow generation continues to support ongoing share repurchases and provides capacity for further capital deployment through the year. During the first quarter, we repurchased $567 million of common shares. We expect the return of capital to shareholders to be at least in line with 2025, especially if compelling strategic M&A opportunities do not materialize in the near term. Turning to Slide 21. Our LICAT ratio stood at 129%, up from 128% at the end of the fourth quarter, driven by strong capital generation and favorable seasonality in our Reinsurance business. Looking ahead, we expect to maintain the LICAT ratio above 125% and under normal operating conditions, even with elevated Reinsurance new business volume. The robust capital position, combined with the leverage ratio that remained steady at 28% and a Holdco cash balance of $2.1 billion provides a foundation for continued growth and capital deployment. Overall, we're off to a great start to 2026 and are very excited about the continued strong performance across all of our financial metrics. With that, I will turn it back over to David for his concluding remarks. David Harney: Thank you, Jon. Please turn to Slide 23. The momentum we built in 2025 has continued into 2026, and our first quarter performance reflects the strength and durability of the portfolio we've built. We've achieved our 19% base ROE objective for the first time this quarter. And based on the structural progress we've made across the business, I'm confident in our ability to sustain strong returns in normal market conditions. Looking ahead, we remain well positioned to deliver against all our medium-term objectives. Empower is on track to again deliver double-digit base earnings growth this year as it continues to expand its leadership position in U.S. Retirement and Wealth. CRS continues to outperform its growth ambitions with strong demand for its capital solutions expected to persist through 2026. At the portfolio level, our continued shift towards capital-light businesses supports our expectation to generate 70% or more of base earnings from these businesses over the medium term. This, combined with strong organic capital generation provides us with significant flexibility to invest in the business, pursue strategic opportunities and to continue returning capital to shareholders. We've built a well-diversified, capital-efficient organization with strong growth platforms, disciplined capital management and experienced teams across all our businesses. I'm confident in our ability to continue executing on our strategy and creating long-term value as we move through 2026 and beyond. Thank you. And with that, I'll turn it over to Shubha to start the Q&A portion of the call. Shubha Khan: Thank you, David. [Operator Instructions] Jim, we are ready to take questions now. Operator: [Operator Instructions] We'll hear first from Doug Young at Desjardins. Doug Young: Question on CRS, I guess for Jeff, can you remind us what's driving the improved outlook for Capital Solutions business? And in the same vein, can you remind what percent of CRS' earnings are from Capital Solutions? I think it was 50% not long ago. I would assume it's kind of tilted more towards that. So -- and I've got a follow-up. Jeff Poulin: Thanks, Doug. To answer your last question first, the percentage has gone closer to 60% Capital Solution, 40% Risk Solution. And it's the nature of the Reinsurance business, sometimes some products are more in demand than others. And we have seen a lot of demands for products on the capital solutions side. And it's coming from different products in different jurisdictions. So we're seeing a strong demand in Asia right now because they've got new regulations that are putting more capital demand on the companies. We're seeing it in Europe, where I think the companies are a little strained and then we're seeing it in some segments of the U.S. market. So it's demand across the board, which is a good, a perfect storm from our perspective, that everybody is looking for the types of products we're offering. And it's -- 2025 was an absolute great year from a new business perspective for us and '26 is starting the same way. So the outlook is really good from a new business perspective. Doug Young: Yes. And we talked on this before. Maybe just -- when I see something growing in the insurance world really, really fast and I somewhat get a little nervous. And we've talked about the risk controls that you have internally. But what's the like simple answer that you would get for someone that would look at this and say, man this is growing really, really fast. And this is a fairly complex business. Like how are you managing this risk so that there isn't any surprises? Jeff Poulin: Yes. We've got pretty strong controls. There's lots of levels of risk management within our operation. And I think that's what made us very successful over the years. We've got at every level of a transaction, we have a review and we decide to proceed or not proceed not more than 10% of the transactions we look at get closed. So we have a very, very stringent process to look at that. We try to be flexible with the clients, but at the same time, we're very disciplined at the risk reward needs to make sense, hence the great returns we're seeing. So I think it comes in lumps, this business is like that. We've seen that before. We've wrote a large book of longevity business in the past relatively quickly, and we're still benefiting from it now. I think that it's the nature of the Reinsurance business. Sometimes the demand on a given product is really, really strong. And other times, it's not. So you need to be patient and disciplined. Doug Young: Okay. And then, Jon, can you define -- I think you did this last quarter, but can you define what you believe Great-West Life's or what you calculate Great-West Life's excess capital to be? And how much is at the Holdco because I know you've got an amount there, but I think you want to hold some liquidity. How much is that the Opco and how much is the U.S. sub? And specifically in the Canadian Opco, when you think about binding constraints, what is that binding constraint there? Jon Nielsen: Yes. Thanks, Doug. Let me walk you through the different components. First, as you rightly call out, we have about $2 billion -- $2.1 billion of cash at the holding company. We typically like to have a few hundred million of liquidity there through the cycle, but most of that cash would be readily deployable. We didn't have the regulatory excess capital across the regulated entities. I call that about $2 billion. So you're at $4 billion. In terms of the minimum, I would say you'd kind of look at it as 120%, but we typically like to operate north of there in most transactions, but we could go down to 120% for the right opportunity. So then the other thing I think that we should point out is right now, we're running below kind of a normalized 30% leverage level. So that's another, call it, $1.5 billion, so around $5 billion of capacity there. And then as you're aware, Doug, and special situations for M&A, we have in the past managed to take our leverage ratio up given the exceptional cash flow and capital generation that we have, and we've used that cash flow generation not just from the acquired business, but from our ongoing operations to quickly pay down the leverage, we could see that as another lever to pull and that would be around, call it, $3.5 billion of capacity. So we have got a lot of capacity. But I wouldn't just look at the balance sheet. Look, I would also look at the point out how strong our capital generation is. It continues to be above 80%. All of our segments are throwing off free cash flow. Our free cash flow was over 85% this year. We're exceeding kind of continue to meet and exceed that medium-term objective. It's fungible cash. You can see it come into the liquidity of the holding company. So we're in a really strong position. Operator: Our next question will come from Tom MacKinnon at BMO Capital Markets. Tom MacKinnon: Yes. The -- when we look at CRS and you see insurance experience gains aligned or that hasn't -- that's kind of just hovered around 0 and then we see $47 million in the quarter. Have you done anything different with respect to your terms and conditions with respect to what you're reinsuring here to, I guess, increase the volatility or what you might get from mortality gains, U.S. mortality gains? In other words, when you see a $47 million U.S. mortality gain, that's kind of outsized, could we get a $47 million U.S. mortality loss? Or have you -- is there anything to read in here that you've changed anything to increase the volatility associated with that line? Jeff Poulin: Thanks, Tom. I don't -- I mean, your question is pertinent, but we we've announced last year that we're not in the mortality business anymore. So we really haven't changed the contracts. It's a runoff block at this point. So I think we feel very confident about our assumptions and they should hover around zero. Having said that, I think we had an exceptional quarter from a mortality perspective. It's been very good. We saw another reinsurer -- strong reinsurer in the U.S. announcing the same sort of results yesterday. So I guess mortality was good in the U.S. overall for the quarter and trying to explain volatility on mortality is a difficult thing to do. It will happen. And -- but you should assume that I think our assumptions are legitimate. I think they -- we feel pretty strongly they are. In the last two years, we're running at about 100% of expected. So we feel pretty strong about that. So it is -- it's big volatility, but it's within the range that we estimate it could be. So no real variance there. And of the $47 million, it's only -- I think it's $35 million that is associated to mortality. There was another $12 million there that is due to our longevity block that we onboarded that have been in the books for a while, but that we have booked to expected. And so we had transacted with the company and they paid us expected cash flows for a while. And then once we trued up to the real cash flows, we got the benefit of that. So it shows that we had strong pricing on that transaction. And it was significant enough that it made a difference for $12 million this quarter. But I mean that's unusual so we don't expect that to happen again. Tom MacKinnon: Okay. And then just with respect to Empower Wealth, Jon, in the -- in your fourth quarter conference call, you had highlighted that the fourth quarter margin for U.S. Wealth at 39.4% was higher than normal on seasonality of marketing expenses. And you said an operating margin of 35% better reflects the near-term margin expectation for U.S. Wealth. So why was it not 35% here that you had sort of guided to in your last conference call? Why was it up at 39%? Was there any more marketing expense timing issue there? Jon Nielsen: I think I'll hand it over to Ed, but I think we were a little bit lighter on first quarter marketing, and we expect a little bit to come through the fourth quarter. It's not that significant terms. But maybe, Ed, do you want to give some details? Edmund Murphy: No, I think that's right. It's more deferred spending. We had -- we're embarking on a new campaign and we pushed that out somewhat. I mean I think in terms of the full year expectation will be closer to where we are today, certainly above last year. But it's more timing, Tom. Operator: [Operator Instructions] We'll go to Gabriel Dechaine at National Bank. Gabriel Dechaine: I have a couple of questions here or lines of questions rather. First, on the bulk annuities business in the Europe segment, it sounds like you're similarly bullish there on the sales outlook for Q2 anyhow. I'm just wondering how do you factor in or what comments do you have about that competitive environment where there's been a lot of write-ups about the private equity players getting into that business, and you would think that would maybe dampen your outlook, but doesn't sound like it? And sticking to that topic, just to get a sense for how important it is in that insurance and annuities piece of the pie, how much of that is comprised of bulk annuities versus payout? Lindsey Rix-Broom: Thanks, Gabriel, for the question. And as you say, there is -- there has been increased competition coming to the market over the last 12 months. However, there are still really only 11 players in the market and there's significant demand for bulk annuities, both now and for the future and for the outlook. So we are kind of pleased with where we are. The pipeline, as you say, for Q2 looks very strong and indeed for the rest of the year. So we're optimistic in the outlook for us. I think we remain disciplined in our pricing, as we've said before, and look to continue to be able to make good returns in this area going forward. In terms of individual annuities and bulk annuities, we've had a continued strong performance in individual annuities, particularly in the U.K. market. That outlook remains strong and positive as well. So looking for a balanced performance across both bulk annuities and individual annuities for the future. Jon Nielsen: I'd just add -- just a comment to add on Page 34 of the SIP, you'll be able to see the split of the two categories, individual and bulk. We've done that to be able to monitor the lumpiness of the folks. Gabriel Dechaine: Okay. Great. I was looking at the slide deck, but -- yes. So moving over to the Empower and, Ed, you were talking about the regulatory changes, the Trump IRA accounts and all that. And I mean, I don't know how -- if you could size that opportunity, if that's possible? But on the flip side to that, I'm just wondering because this is another topic that's come up is the suitability of some investment classes for retail investors, private equity and private credit, whatever. What sort of guardrails do you have in place or responsibility even for what you offer to the customers such that if there ends up being some sort of an issue with the suitability that doesn't affect you? Edmund Murphy: So your first question, we see it as a tremendous opportunity. There's different numbers that get referenced, but somewhere between 40 million, 50 million Americans don't have access to workplace savings. So clearly, under the Trump administration, there's been this bipartisan focus both in Congress, but also from a regulatory standpoint to try to drive access and improve coverage. We're right squarely in the middle of that. So we're very active in advocating for those policies. It's hard to size it because at least initially, those are going to be smaller accounts. But as you think about the matching and the compounding effect, it will grow over time. So I'm pretty sanguine about where we are in terms of coverage and expansion, I think it's very constructive. And as I said, we're very much a part of that. The second question you had, I think, is a very important one. I do want to make it clear that the role that we play is not a fiduciary role as it relates to the relationships that we have with alternative managers that are on our platform. We don't act in a fiduciary capacity, we essentially are giving access to these investments. But ultimately, the decision as whether to include any investment for that matter, whether it's public equity, the 40-Act mutual fund or whether it's an alternative asset class, that decision is ultimately being made by the plan sponsor and their adviser. And the other thing I would just add is we are not advocating for -- at this point, we're not supporting stand-alone alternative investments inside the defined contribution plans at Empower. These are all structured as a multi-asset class vehicle through a collective investment trust, and it's supported within our adviser managed account program where there is an adviser, a financial adviser that's attached to each one of these offerings and the typical cap of what might be allocated to that collective investment trust is somewhere around 15% to 20% of the assets. So there's plenty of liquidity, both inside the product itself and then outside where people would be investing in public equities and public debt. And then I would just add that we have about 1,000 plans right now that are in some form of implementation, either they have implemented a vehicle or in the process of implementing a vehicle. So it's still sort of in a nascent stage. But obviously, the directive that came from the Trump administration, I think gave some sponsors comfort that if they follow ERISA standards that and take a thoughtful and practical approach that they're comfortable in going forward. So that's what we're seeing. Gabriel Dechaine: And what about the Individual Wealth business? Are you not a fiduciary there? Is there a similar discussion to be had or differently? Edmund Murphy: Yes, in the individual wealth business, those investors have to be accredited investors. And yes, so they have to meet the credit investor standards. And in doing so, we do act in advisory capacity. We do offer products through a relationship we have with a third party. That too, I would say, is very much in its nascent stages. And the reason is that the preponderance of our client base tends to fall into that mass affluent category. So many of them don't necessarily meet the credit investor standard. So we haven't seen, at this stage, we haven't seen much in the way of adoption of alternatives inside our wealth business. I think that will change over time for sure, as people look to diversify. But at the moment, that's not the case. Operator: Our next question will come from Darko Mihelic at RBC Capital Markets. Darko Mihelic: I just wanted to revisit Empower's flow situation because it does -- it sort of does change my model when I think of it. I mean you had positive flows, which is great. But the way you had described it earlier was that just the general nature of the business is one that would typically have outflows. Maybe I think the number you used previously was like 2% and then some of your efforts and work would maybe grind away at that, but generally, you end up in a place where maybe 1% kind of outflows is like the long-term expectations. So I realize you're doing a lot of work there. Has anything changed and how I should think about the flows and how I should put that into the model? Edmund Murphy: Yes. I think -- let me start with -- I think what you're referring to is flows in our workplace business, specifically participant flows. Obviously, we saw net plan flows for the quarter, and we expect net plan flows for the full year as we experienced last year. With respect to participant flows, you do have a lot of seasonality in that first quarter because that's when you see very high contributions coming into defined contribution plans. You're seeing profit-sharing contributions and the like. So that's not unusual to see a more favorable result in the first quarter. That being said, I think as you look out to Q2 and beyond, you're going to see more normalized participant outflows consistent with the guidance that we've given you in the past. In fact, if you look at what the equity markets have done, particularly in the last 30 or 40 days, you've got higher balances. And so disbursement dollars will probably be higher, right, due to market appreciation, you'll have higher balances in those accounts. So underlying all of this is the sort of demographic dynamic that's playing out in the U.S., where you are seeing net outflows on the participant side across really every provider in the marketplace. We obviously have built what we think is a pretty compelling hetero-s-mid on the wealth side. So we aim to capture some of that money in motion for sure. But the way you should think about this is that there will be a consistent in roughly 1% or so in participant outflows. And I think that will -- you'll see that play out in Q2 and beyond. And then finally, I would just say we continue to grow the business. So we're adding billions of dollars on to the platform through our institutional sales efforts. Our year in 2026 will look very similar to what we accomplished in 2025 on that institutional side. And then when you layer in the market appreciation, you've seen what's happened to our AUA. In fact, since 2021, our assets under administration in our workplace business has grown at a compounded annual growth rate of 11.5%. I think that may be the highest in the industry. Darko Mihelic: That's a great answer. And it is -- I mean I think it's 13% year-over-year this quarter in terms of AUM growth, but the revenue growth lagged. Maybe can you touch on that? Jon Nielsen: Maybe I'll start and then hand it back to Ed. This is Jon. in the quarter, there was a refinement that we made to some data that impacted the classification of certain of the transactional fees so we implemented that in the third quarter. So what it did is it was basically a reallocation between the asset-based fees and the non-asset-based fees. It didn't impact total fees or our financials. But it did reduce asset-based fees and increase the non-asset-based fees. It was about $14 million during the quarter. This had about a 5% impact on the growth rate because we didn't adjust the prior periods. That, Darko, had we applied it. It was about the same amount in the previous -- most recent quarters. I'll hand it back to Ed to kind of give the business context of the fees as well. Edmund Murphy: Yes. Thanks, Jon. The other dynamic, and we've talked about this in prior calls, is just what I would call the mix dynamic and how the business is playing out. So if we have a disproportionate amount of large mega corporate clients, those tend to be fixed fee. They're not asset-based pricing with those plans. And that's what we've seen more recently, when we're winning these large mandates, the pricing is a fixed fee pricing versus down market, call it, plans under $50 million in assets or $75 million in assets, those tend to be asset-based fees in terms of the -- how we get paid for the services is being paid through asset-based fees. I will say in that $75 million space and below, we're #1 in the market, and we have -- we're growing 20%, 25% a year in that pace -- that space. So we're taking business away from the competition. But it does get overshadowed a bit because of the mix issue, as I say, when you win these large corporate and government mandates, which we're winning. Darko Mihelic: I see. Okay. But your sweet spot is still actually the smaller mandates. So I should be thinking of it as more or less growing in line with AUM with the occasional quarter or two where you get a massive mandate. Is that the way I should think of it? Edmund Murphy: Well, I guess the one caveat I would say is, so we're competing in all markets, the government market, the large corporate market, the mega corporate market, the small market, the Taft-Hartley Union. So you're going to see some balance there because if you win a $15 billion, $16 billion, $17 billion mandate, that's going to skew and that's a fixed fee arrangement. That's going to skew the mix, if you will, right? So it adds to your AUA, but it's not generating asset-based fees. Now there are other ways we generate asset-based fees which we can get into. But with respect to the record-keeping administration piece of it, that would be a fixed fee type arrangement. So disparity, if you will, because of the fact that we're a diversified player and we're competing in all segments of the market. Operator: And next, we'll hear from Mario Mendonca at TD Securities. Mario Mendonca: Ed, maybe I'd just stick with you for a moment. Thoroughly the goal here, which I think you've described is to move that rollover rate up to something more in line with where the leaders are, what is your -- and this may ask you to take a kind of a wild guess here, but can that rollover rate for Empower approach the mid-20s over the next couple of years? Or is this a much longer-term endeavor to get it to that level? Edmund Murphy: I'm not sure over the next couple of years. And I'll tell you why. I mean, I think -- we have 20 million customers. But one of the things that we -- there are several things we need to do. One of the things we need to do is to raise aided awareness and raise consideration to a level of some of the more entrenched players. And that's why we've made a concerted effort to invest in the brand and to invest in advertising, but also to create awareness among those 20 million installed base of clients on the workplace side because there's obviously a meaningful subset of those customers that are not necessarily fully aware of our wealth capability. So it's a work in progress. There's the branding, there's. The awareness element of it. I think in terms of the offering itself, it's very competitive vis-a-vis the competition. So it's just -- it's something that, obviously, we need to continue to work on -- but as we've said at Investor Day and we've said at other times, the opportunity here is immense. If we build the trust with the sponsors, if we serve those individual investors well while they're an active participant in the plan, they will think about us and they will give us consideration to be their adviser hopefully in perpetuity. So I think the high 20s -- in the mid- to high 20s in the near term is probably too aggressive. Mario Mendonca: Okay. And then -- and again, this might -- I'm not sure how much you want to get to this. I clearly don't expect you to name names when we're talking about potential acquisition targets and -- but the question is this, is that file sort of active? Like are there active -- are you actively looking at potential acquisitions in this space? Because there are -- there's just so much speculation around the space right now. Is it -- would you call it actively looking? Or is it dormant right now? David Harney: Yes. Maybe I'll take that question, Mario. Like yes, you're dead right, we don't comment on individual opportunities. Like obviously, we're alert and very keen on any opportunities to come to the market, and we look at all opportunities. And maybe just to take a step back, and this answer won't surprise anybody we've said it many times before. But just to reiterate, again, our sort of growth targets, our medium-term growth targets are not dependent on acquisition activity. And you can see that just in the very strong performance of the business this quarter and the growth in all of the segments, which is achieving those targets. But we have firepower as well. And if opportunities come to the market, we will certainly look at them. We've executed very well just on recent acquisitions, both in workplace retirement and on wealth acquisitions. And we're very confident of our capability to execute there again if the opportunities come along. And again, we've been very clear just on the requirements for our acquisition activity. It has to hit our return targets on where we can execute synergies, I think that makes that very possible. And then it has to sort of -- we have to be very confident on execution capabilities. And then the right targets will add scale and will add capability to our businesses, and we're keen to look for opportunities that come along. Mario Mendonca: Okay. And I'll be really brief on this one. Going back to CRS. There's mortality risk, there's CAT, there's longevity. Those are the three big ones I can think of that you're exposed to in CRS. Am I missing anything? Like is there any concentration that concentrated risk that I'm not picking up on? Jeff Poulin: I think those are the main risks that we have on the risk business. Yes. Operator: And at this time, we have no further signals from our audience. Mr. Khan, I'm happy to turn the floor back to you, sir, for any additional or closing remarks that you have. Shubha Khan: Thanks, everyone, for joining us today. Following the call, a telephone replay will be available for one week, and the webcast will be archived on our website for one year. Our 2026 second quarter results are scheduled to be released after market close on Tuesday, July 28, with the earnings call starting at 9:30 a.m. Eastern Time the following day. Thank you again, and this concludes our call for today. Operator: Ladies and gentlemen, we'd like to thank you all for joining today's Great-West First Quarter 2026 Financial Results Call. You may now disconnect your lines. We hope that you enjoy the rest of your day.
Scott Cartwright: Good morning, and welcome to Whirlpool Corporation's First Quarter 2026 Earnings Call. Today's call is being recorded. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer; Roxanne Warner, our Chief Financial Officer; Juan Carlos Puente, our Executive President of North America and Global Strategic Sourcing; and Ludovic Beaufils, our Executive President of KitchenAid Small Appliances and Latin America. Our remarks track with a presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we will be making forward-looking statements to assist you in better understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K, 10-Q and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures outlined in further detail at the beginning of our earnings presentation. We believe these measures are important indicators in our operations as they exclude items that may not be indicative of our results from ongoing business operations. We also think the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for reconciliations of non-GAAP items to the most directly comparable GAAP measures. [Operator Instructions] With that, I'll turn the call over to Marc. Marc Bitzer: Thanks, Scott, and good morning, everyone. During today's call, you will hear free message from us. First, we finished a tough quarter in our North American business. The month of March, which typically carries the quarter in North America, was exceptionally weak due to these 4 drivers, which I will discuss in further detail in the following slides. Second, we are taking decisive and bold actions to restore North American margins back to a healthy level. We have issued the largest price increase in more than a decade that raised prices by more than 10%, and we're doubling down and accelerating our cost actions despite higher inflationary headwinds. Third, our equity offering and a renewed revolver credit line, which we expect to finalize in Q2, puts our balance sheet in a strong position to weather this difficult industry cycle. Before we get into the numbers, I want to provide a bit of background about the macro environment in North America, not as an excuse, but as context for what happened in the second half of the first quarter. Turning to Slide 7. We can see that consumer sentiment has dropped to its lowest level in 50 years. The consumer sentiment was already on a very low level by any historical standard, but the war in Iran amplified consumer concerns about the cost of living. As a direct result, a consumer sentiment index in the U.S. plunged reaching the lowest level on record in March. Now while our view is that consumer sentiment is unsustainably low and should rebound from here, these events clearly pressured our industry and particularly discretionary demand. Turning to Slide 8, you can see the resulting impact on the U.S. appliance industry. The U.S. appliance industry demand declined 7.4% in the first quarter, with March being down 10%. This level of industry decline is similar to what we have observed during the global financial crisis and even higher than during other recessionary periods. Keep in mind that we are operating in an environment where the rest replacement demand drives more than 60% of the industry, and this part of the demand is relatively stable. So this gives you a sense about how dramatic the impact on [indiscernible] demand was. While we do believe that the negative industry demand in March was somewhat of an outlier, we do not anticipate a full recovery and are now forecasting the U.S. as the demand being down by 5% on a year basis. Turning to Slide 9. I want to share a snapshot of industry pricing over the past 15 months. This picture represents an aggregate view of literally thousands of price points which we collect weekly. It is based on publicly available retail sellout data. While it may be 100% accurate, it is, in our view, directionally correct. In 2025, the multiple changes in tariff policy, delays and [indiscernible] exemptions as well as the effect of inventory preloading by Asian competitors created significant volatility and promotion behavior. However, immediately after Black Friday, pricing improved slightly above pre-Black Friday levels. While the price changes were still below the level needed to fully offset the accumulated inflation and cost of tariffs about a positive development in line with our agitation coming into the year. As you can clearly see the small chart on the top right of the page, after the IEEPA ruling by the Supreme Court, promotion pricing reverted back in the following weeks. We believe the Supreme Court ruling, the broader skepticism about the durability of tariffs and the anticipation of refunds related to the tariff resulted in a resumption of an aggressive promotional environment. It is also obvious that price changes of 1% to 2%, as we've seen in February and March by the competition did not even remotely covered the cost of inflation and tariffs. You can also see that after the price changes, which we announced on April 17, Whirlpool set out prices, as determined by our retail customers have moved up by 10% compared to January 2025. At the same time, the behavior from our competitors has shifted more favorably. The key development for U.S. appliance industry this quarter was with change in Section 232 tariffs which brought clarity and predictability to the tariff landscape. We will later discuss these changes in detail. But what might appear as a small change in the 232 tariff has significant and lasting ramifications of the entire industry. Essentially, every imported appliance into this country, irrespective of where it comes from, will have to pay a tariff of 25% on full product value. And in the case of China, even more. The combination of drop in consumer sentiment, decline of consumer demand and the irrational industry pricing created an almost perfect storm during this first quarter. But we are taking decisive and bold pricing and cost actions we expect will bring our North American business back on its path towards healthy margins. With that, let me hand it over to Roxanne, who will discuss the first quarter results in more detail. Roxanne Warner: Thanks, Marc. Turning to Slide 10. I will provide an overview of our first quarter results. As Marc mentioned, our results in the first quarter were negatively impacted by the ongoing macroeconomic and geopolitical events that have developed since late February. We delivered an ongoing EBIT margin of 1.3% and an ongoing earnings per share of negative $0.56. Our earnings per share, in particular, was negatively impacted by approximately $0.32 from the noncash loss associated with our minority interest in Beko Europe B.V. Looking at our segment performance, MDA North America was severely impacted by a sharp decline in consumer sentiment and the costs associated with our inventory reduction actions. MDA Latin America margin was pressured by the intense promotional environment. This was partially offset by the gains associated with the [ default ] tax ruling in Brazil. Conversely, the SDA Global segment continued to perform exceptionally well. Our free cash flow was negative $896 million as the benefit from our inventory reduction efforts was more than offset by lower earnings. Finally, we returned cash to shareholders and paid a $0.90 dividend per share in the first quarter. Turning to Slide 11, I will provide an overview of our first quarter margin walk. Price mix unfavorably impacted margin by 275 basis points. This was driven by 2 key drivers. One, collapsing consumer sentiment further reduced discretionary demand and negative impacted mix. Two, the encouraging industry pricing progress we observed in the first few weeks of the year was heavily disrupted by the Supreme Court's IEEPA tariff ruling and the anticipation of refunds, which created further external volatility and the return of an intense promotional environment. Our net cost was negatively impacted by volume decline and onetime costs associated with the planned inventory reduction, resulting in 175 basis points of margin contraction year-over-year. We executed our originally planned inventory reductions and executed incremental reductions due to the unexpected industry decline. Overall, we drove 20% year-over-year volume reduction. Raw materials unfavorably impacted margins by 50 basis points, driven by inflation of steel, base metals and resins. The current and projected steel costs are now putting us at the maximum pricing of our long-term steel agreements. We experienced a neutral impact from tariffs in the first quarter as the incremental cost from changes to Section 232 implemented in the second half of 2025 were offset by tariff recovery and mitigation actions. Marketing and Technology was favorable 50 basis points versus prior year, driven by reduced transition costs and a pullback in spending as we saw consumer sentiment shifts. Currency was also favorable by 50 basis points, driven by the appreciation of the Mexican peso and Brazilian real. Lastly, transaction impacts was unfavorable 50 basis points to the noncash loss associated with our minority interest in Beko Europe B.V. It is important to note that based on the current carrying value of this investment, Whirlpool will no longer recognize any further losses from Beko Europe B.V. Now I will turn the call over to Juan Carlos to review our MDA North America results. Juan Puente: Thanks, Roxanne. Turning to Slide 12, I will provide an overview of our first quarter results of our MDA North America segment. In the first quarter, net sales decreased 8% year-over-year to $2.2 billion. Consumer sentiment collapsed into record lows due to the war in Iran prevented the recovery of the volume loss during the winter storms resulted in recession level industry contractions with discretionary demand down approximately 15%. The segment delivered breakeven performance with EBIT margins negatively impacted by the sharp decline in demand, higher-than-expected cost to reduce inventory and the return of an intense promotional environment after the Supreme Court IEEPA rule. . While we experienced high cost from the actions to reduce inventory levels and higher tariff costs year-over-year, these were partially offset tariff recovery and mitigation actions. As over 3 years of accumulated inflation continues to pressure our business, we have announced the largest price increase in a decade in conjunction with acceleration of critical initiatives to drive cost reduction. We expect these aggressive actions to put MDA North America profitability back on track. We'll share more details of those actions shortly. Now I'll turn it over to Ludo to review the MDA Latin America and SDA global results. Ludovic Beaufils: Thanks, Juan Carlos. Turning to Slide 13 and review the results for our MDA Latin America business. Excluding currency, net sales decreased approximately 4% year-over-year. This is the net impact of an aggressive promotional environment in the region and volume increases from a growing in share gains. Due to the promotional pressure, the segment's EBIT margin was 6%. This margin was supported by a favorable Brazil tax ruling and our ongoing cost takeout initiatives, which partially offset the unfavorable price/mix. Turning to Slide 14, and I'll review the results for our SDA global business. This business continues to perform exceptionally well, delivering approximately 10% net sales growth year-over-year, excluding currency. EBIT margins expanded an impressive 250 basis points year-over-year to 21%, driven by continued growth in our direct-to-consumer business, solid execution of cost takeout initiatives and some marketing investment timing changes versus prior year. We are proud to celebrate the sixth consecutive quarter of year-over-year revenue growth, clearly underscoring the strength of our product portfolio and our value creation strategy. On Slide 15, we showcase a few exciting new products that we're bringing to the market this year. We're proud to bring meaningful consumer-centric innovation to the stand mixer while maintaining our iconic design and heritage. The new Artisan Plus stand mixer is now featuring an integrated bold light and precise speed control. In our compact fully automatic espresso machine with iced coffee gives consumers the option to brew at a lower temperature, while also delivering a space-saving design that fits effortlessly into many kitchens. Now I will turn the call back over to Juan Carlos to review the critical actions we are accelerating to recover profitability in MDA North America. Juan Puente: Thanks, Ludo. Turning to Slide 17, I'll review some of our bold actions to restore MDA North America margins. On April 17, we announced the largest price increase in more than a decade. This price change is being executed in 2 steps. First, we executed a promotional price increase, which is already in effect of more than 10% relative to the first quarter prices. This is the most impactful change and is expected to start driving price/mix improvements in Q2, ramping up throughout the year. Secondly, we announced a lease price increase effective on July 9. The second wave represented an additional price increase of approximately 4%. This multistep plan is designed to offset the cost inflation accumulated over the last 3 years that has not yet been reflected in prices. the anticipated cost inflation in 2026 and some residual impact of tariffs. In addition to these pricing actions, we will continue to deliver product innovation and expand our mass premium and premium product [indiscernible]. The 30% incremental foreign gain on the back of the record year of product launches in 2025 is largely installed. And we are seeing the results of each major appliances continue to deliver strong sell-through performance year-over-year despite the softer industry. Our robust innovation pipeline was further validated by the outstanding award win performance at Cadis, where Whirlpool Corporation secured an impressive 23 awards. Turning to Slide 18. I will highlight the successful launch of our Whirlpool branded UV laundry tower, which we presented in our last earnings call. The national rollout of this product featuring the industry-first UV cleaning technology that reduces bacteria in the wash while keeping Fabric Care in mind has been exceptionally well received and is exceeding expectations. This innovation is driving rapid share gains, capturing approximately 5 points within weeks and increasing our balance of sales with trade partners who have floored the unit. This confirms the competitive advantage of our game changer, UV clean technology. Turning to Slide 19. I'm pleased to showcase the new kitchen intelligent wall oven, which earned the prestigious Best of Show Award, the highest owner at Tavis. This new wall oven is one of the many products available in our new KitchenAid suite, which began shipping late last year. This product allows consumers to experience cooking through a new lens with the intelligent cooking camera that identifies food, monitors [indiscernible] and remembers your preference for your favorite recipes. We continue to see strong sell out through our market share gains to trend towards the highest level in over the decade. Turning to Slide 20. I'll highlight exciting innovation coming to our incinerator business. The new LED Defense order fighting in flung features the UV-free LED light that kills 99% of common terms include an odor causing bacteria. These innovation features addresses one of the biggest consumer pain points of bacteria order. This is yet another product that we see recognition at Kabi this year and as the next-door neighbor to the dishwasher continues to position us well for the eventual housing recovery. Turning to Slide 21. Let me provide an update on the initiatives we are accelerating to bring our business back on track. As we navigate the current macro pressures, we maintain our commitment to deliver our $115 million in cost saving account in 2026, which will be fundamentally supported by our ongoing design to value engineering efforts. Given our current EBITDA margins, we're taking decisive structural actions across several key levers to accelerate our cost actions. First, we are heavily leaning into the vertical integration, automation and the optimization of our manufacturing and logistics footprint. As part of these initiatives, we announced 3 key products: one, our new strategic investment in Peres Group, Ohio. Two, the ongoing modernization of our Amana, Iowa plant; three, shifting production from Pilar Argentina to Rio Claro Brazil. Together, this footprint and integration moves are expected to unlock approximately $40 million in savings in 2026, while significantly improving our product quality, speed of invent and overall supply chain resiliency. Additionally, as we shared previously, we are renewing our strategic sourcing initiatives. We have already completed the first phase of this project, and we're making good progress on the second phase. We expect to capture roughly $15 million in savings in 2026. Finally, we're introducing a new measure which encompass targeted fixed cost actions within our corporate center. We expect to generate approximately $20 million in sales, which we will plan to share more details about it in the near future. Collectively, these actions will have a carryover benefit into 2027, ensuring that we are actively managing the element with our control to offset external headwinds and restore our profitability. Turning to Slide 22. Let me detail the accelerating of our vertical integration and how we significantly strength our U.S. manufacturing footprint. We recently announced that we are making a $60 million investment in our new state-of-the-art production facility in Perrysburg, Ohio. This represents our 11th factory in the U.S. and our sixth in the state of Ohio, reinforcing the legacy that we are incredibly proud of, we started in America and we stayed in America for over 100 years. The strategic investments will drive greater efficiency and is expected to deliver approximately $30 million in annualized EBIT benefits. Turning to Slide 23. We are executing critical factory footprint changes to unlock greater operational efficiencies within our regional manufacturing network. First, in Armada, Iowa, we are undergoing a multiyear modernization effort. This modernization will refocus our manufacturing of bottom on reiteration and optimize our card production and subassemblies, generating an expected annualized EBIT benefit of approximately $70 million. We're also optimizing our Latin America operations by shifting our [indiscernible] washer production from Argentina to our Rio Claro facility in Brazil. This strategic shift drives valuable manufacturing cost efficiencies and logistic cost optimization, which we expect to deliver an additional $20 million in an annualized EBIT benefit. Turning to Slide 24. Let me provide an update on Section 232 tariffs. While the Supreme Court overturned IEEPA tariffs in late February, the administration took significant actions in early April to strength Section 232 steel tariffs on home appliances. The UPDATE 232 framework represents a significant win for the U.S. manufacturing and lasting structure advantage for work. As a reminder, Section 232 steel tariffs were first implemented in 2018 and have proven the durability by remaining in effect throughout multiple administrations. While home appliances were officially covered under the framework in the mid-2025, the recent updates in April have increased the overall tariff rate on Home Appliances and greatly simplify both compliance and enforcement. Because we proudly manufacture the vast majority of our products domestically and continue to invest in [indiscernible] manufacturing, this trade policy strongly supports our position. We estimate that a 25% tariff impact on our competitors will now be between 10% to 15% of our competitors to a U.S. major appliance net sales. By contrast, the impact of our MDA North America business is estimated to only be about 5%. Ultimately, these changes bring much needed predictability to the industry and deeply strengthen our competitive advantage as by far the largest domestic appliance producer. Now I will turn the call back over to Roxanne to review our revised expectations for 2026. Roxanne Warner: Thanks, Juan Carlos. Turning to Slide 26. I will review our updated guidance for 2026. Given the rapid deterioration of the macro environment since late February, we have revised our expectations for our 2026 results. On a like-for-like basis, we expect revenue growth of approximately 1.5% in 2026 due to our revised expectations for the North American industry. Even though the industry has seen substantial degradation of a new product launches are expected to continue delivering growth in MDA North America. We expect our MDA Latin America business to regain momentum and expect continued strength in our SDA Global business. On a like-for-like basis, we expect approximately 70 basis points of ongoing EBIT margin contraction to a full year EBIT margin of approximately 4%. Free cash flow is expected to deliver more than $300 million or approximately 2% of net sales, driven by significant structural inventory optimization. We expect full year ongoing earnings per share of $3 to $3.50. This includes approximately $1 impact due to the recent equity offering alongside an additional $1 impact due to an adjusted effective tax rate of approximately 25%, which is an increase compared to 2025. Turning to Slide 27, we show the drivers supporting our 2026 ongoing EBIT margin guidance. We have updated our expectation of price mix to 150 basis points reflecting the current impact of collapsed consumer sentiment, offset by the impact of our Board pricing actions announced in April. We expect to substantially improve price/mix and as we progress through the year with the benefits starting in May and ramping throughout the year. Net cost takeout reflects the expectation of delivering more than $150 million supported by our accelerated cost actions. While we have long-term steel contracts in place, the current and projected costs are putting us essentially at the maximum pricing of those contracts. This has a minor impact on our full year RMI expectations. However, combined with the inflation of base metals on resins, we have updated our expectations to approximately 75 basis points of negative impact from raw materials. We expect approximately 175 basis points of negative impact from the tariff announced in 2025 and updated in April 2026. We expect the benefits seen in Q1 from the tariff recovery and mitigation actions to be more than offset by additional tariff costs due to the Section 232 tariff changes announced in April. It is important to note that these impacts represent currently announced tariffs and do not factor in any future or potential changes in trade policy. Our expectations for marketing and technology currency and transaction impacts remain unchanged. Turning to Slide 28, I will review our segment guidance. Starting with industry demand, we expect the global industry to be down approximately 3% in 2026. In North America, given the drastic decline already seen in Q1 and the anticipated prolonged inflationary environment, we now expect full year industry demand to decline by approximately 5%. Our industry expectations for MDA Latin America and SDA Global remain unchanged. For MDA North America, we now expect to deliver a full year EBIT margin of approximately 4%. The Board pricing actions we've taken and accelerated cost takeout initiatives are expected to drive profitability recovery in MDA North America. Margin expectations for MDA Latin America and SDA Global remain unchanged. Turning to Slide 29. I will provide the drivers of our free cash flow guidance. We have updated our cash earnings and other operating accounts, consistent with full year EBIT guidance. We have not changed our expectations for capital expenditures and continue to focus on delivering product excellence and investing in our U.S. manufacturing footprint. We have taken necessary actions to optimize our inventory and are updating our expectations to improve working capital by approximately $150 million to support cash generation in 2026. As seen in our first quarter results, our working capital initiatives are off to a very strong start and we expect these structural changes to improve our day-to-day inventory levels. Our expectations for restructuring cash outlays related to our manufacturing and logistics footprint optimization efforts are unchanged. Overall, we expect to deliver free cash flow of more than $300 million or approximately 2% of net sales. Turning to Slide 30. I will review our capital allocation priorities, which have been updated to reflect the current business environment. Investing in organic growth through product innovation remains critical to our business, and this will continue to be one of our top priorities. We will continue to invest in product innovation, digital transformation and cost efficiency projects with approximately $400 million of capital expenditure expected this year. Secondly, we are committed to reducing our debt levels no more than ever. We expect to pay down more than $900 million of debt in 2026, continuing our commitment to deleverage. Lastly, after careful consideration with our focus on ensuring financial flexibility during this challenging operating environment, we have made the prudent decision to pause our quarterly dividend starting in the second quarter. This decision is critical to ensure that we create the capacity on our balance sheet to pay down debt and fund organic growth. Turning to Slide 31. I will review how we are taking additional actions to manage our debt maturities and ensure liquidity in an uncertain macro environment. We recently executed a strategic equity offering that successfully raised approximately $1.1 billion in capital. The use of these proceeds was focused on debt paydown and accelerating our vertical integration and automation efforts. The proceeds were used as expected. We paid down more than $900 million in debt and began to invest in vertical integration with the acquisition of our Paris burg, Ohio facility. We are in the process of moving to an asset-based lending facility. As we transition, we entered into an amendment to our existing credit facility reducing our available line of credit from $3.5 billion to approximately $2.25 billion effective in May. This amendment provides us with a valuable near-term flexibility and ample borrowing capacity. We have strong lender support on the asset-based lending facility and are tracking well to closing the next credit facility over the coming weeks. These decisive actions demonstrate our continued focus on debt paydown as we work to drive our long-term debt below $5 billion. Now I will turn the call back to Marc for closing remarks. Marc Bitzer: Thanks, Roxanne. Turning to Slide 32. Let me summarize what you heard today. As we discussed, our first quarter results were heavily impacted by severe external volatility and onetime events. The sudden macro pressures from war in Iran, result in plant in consumer sentiment and the disruptions to industry demand and pricing all masked the underlying operational progress we have made. However, we're actively managing what is within our control. We have announced significant pricing and structural cost actions that are firmly in place to restore profitability to our MDA North America business. By driving over $150 million in cost takeout initiatives and executing our largest price increase in the decade, we're aggressively addressing our margin pressures. More importantly, our ongoing U.S. footprint optimization and the recent Section 232 tariff update meaningfully strengthened our competitive advantage as a domestic producer. Because we probably built approximately 80% of the products we sell in the U.S. here in America, we're structurally positioned to win in this new tariff landscape. Additionally, our SDA Global business continues to perform exceptionally well, remaining a bright spot in our portfolio, consistently delivering revenue growth and margin expansion. [indiscernible] in small appliances or our major domestic categories, we continue to hold a leading position supported by our portfolio of iconic brands and innovative products. Looking further ahead, we know the U.S. housing market drop will be over at one point, and the March read of housing starts may be an early indication of a more positive trend. The eventual tailwind from an inevitable recovery will be strongly catalyzed by our leading established position in mobility channel as well as the strength of our in since rate business. Now we will end our formal remarks and open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Michael Rehaut from JPMorgan. Michael Rehaut: I want to take a step back and just kind of -- my question is really just on the consumer. And you highlighted the all-time low in confidence impacting results. So far this earnings season, we've heard from other building product companies where volumes are down, but not to the extent that we're seeing in appliances and many have kind of reported that while the consumer confidence is shaky, demand trends have been somewhat more stable, perhaps than what you've seen in your own industry. So I was wondering if you could kind of contrast what the drivers are that maybe has created that greater amount of volatility in appliances as you see it from the consumer's perspective compared to other products like power tools, flooring, paint, plumbing, et cetera. Marc Bitzer: Yes. So Mike, obviously, I mean, just to repeat the numbers, we saw minus 7.4% industry demand in Q1, of which March was minus 10%. So that is even in our industry, as a point at a very, very unusual low level. I mean that's why we pointed. The last time you've seen minus 10% was during the global financial crisis. I think one of the key elements, which makes our category may be slightly different for other categories at the end of the day for the majority of U.S. households, appliances or the purchase of appliance or a significant portion of our disposable income. So ultimately, it's a decision against the confidence the consumer has about the financial future. So it's just a big ticket item. It's not a $50 purchase. And that, I think, explains a little bit what it's been seen right now in Q1. And while we're just a little bit more anecdotes, one of the strongest businesses, which we had in Q1 was actually our spare parts and repair business, which just as an indicated by even consumers are holding back, replacing products and rather repairing it. We've seen that also [indiscernible]. Now the flip side is consumer confidence is on a 50-year low, but we've seen in other phases, consumer confidence actually moves pretty fast. And I wouldn't expect that level of confidence, but also that level of industry demand being that much down for the rest of the year. So we do anticipate a recovery. But I mean the first 3 months already in use so much down, no matter how you do the math, if you anticipate kind of a more flattish environment going forward, that's why ended the minus 5%. So I do consider and I agree with you, March was probably an exceptionally low outlier, which we didn't expect. Will that be the same going forward? No, but it's not going to be an immediate recovery in consumer environment. Michael Rehaut: Right. And I guess Secondly, obviously, big price increases by yourself, and it looks like from Slide 9, the industry as well in the most recent couple of weeks. How are you thinking about second quarter EBIT margins for North America? And if your assumptions hold, what are you thinking about the trajectory for the back half as well? Marc Bitzer: So Michael, as you know, we're not giving specific Q2 margin guidance. But let me give you a little bit broader perspective on the pricing and what we're seeing and how it flows through our bottom line. So first of all, and I want to refer to a slide which we presented, this is the biggest price increase. I think we'll refer to decade, honestly, 3 decades in the company, I have not seen that level of price increase. Keep in mind, there's basic essentially 3 components of that price increase. One, a very significant promotional price map or PMAP increase of more than 10%. That's already out there, and you see that already reflected in the retailer pricing towards the consumer. . Two, we significantly reduced our participation in promotions. So for example, July 4, we're going 2 weeks as opposed to 3 weeks. And when participating in all house formation and promotions. And three, we have a list price increase also kicking in July on the vast majority of our products. So it's kind of a multi-tiered approach. I would say the first 2 weeks of what we've seen in consumer visible prices have been very encouraging. So you could use the term in the first 2 weeks, yes, the pricing is sticking. Needless to say, that is key to everything going forward on the EBIT margin. And if that holds, then we will be in a good place. Now keep in mind also, and this explains a little bit Q1, I mean you anticipate in Q2, that chart shows you consumer pricing. That is not exactly how it exactly immediately flows to our bottom line. What I'm referring to, for example, in Q1, you still pay the former promotional investment on Q4 because it's a delayed or trailing effect. So even more April price and consumer starts, you're still partially paying for the large promotions out there. So there's a little delay effect, which also will flow through Q2. But again, if the pricing holds, as we've seen in the 2 weeks, I think you will absolutely see the gradual recovery of our EBIT margin as we'll be kind of pretty much laid it out. Operator: Your next question comes from the line of David MacGregor from Longbow Research. David S. MacGregor: My first question was just on the guidance. And I guess a few parts to this, but can you explain why you're calling out the improving price environment at the same time taking down your full year price/mix guidance? And would you tell us how much of the price improvement you're including revised guidance. It looks like you've got kind of partial inclusion with the reduced PMAP, but maybe none of the July increase? And then how much are you specifically assuming for mix? And then I have a follow-up. Marc Bitzer: Yes. So David, first of all, the full year number, which you've seen on Page 27, keep in mind, we basically have 3 months of negative pricing. And you saw that in the earlier pricing margin walk. So you first have to overcompensate on a full year base of what you already lost in Q1. So put it differently, yes, on a full year basis, it looks like it's kind of 25 points down actually on the Q2 to Q4 point is significantly up. Did we factor in the full amount of a price increase? No, which also means the success of a stickiness of price will determine a lot, but we took, of course, there's a certain assumption, which we took into account here, but maybe not a full amount. But let's see how these things develop. The big uncertainty, and this is why we were still a little bit cautious, and you alluded to this one is mix. And let me explain that a little bit because that's probably on everybody's minds. I know some people will ask or may ask about what happens to price elasticity. Actually, in all previous years, we've not seen so much an impact on consumer price elasticity. For a simple reason, last time consumer board [indiscernible] of 10 years ago, by and large, the prices are very similar. So we don't see the big elasticity from a pure demand, particularly in replacement market. What you do see, however, that in particular in a distressed environment, that consumers enter the store with a budget in their mind. So what I mean is we have a budget like $600, and we're basically going to stick by that price point. So what you see as opposed to a product with used to cost $599 is now fixed for $599, but stick to a $599 price point. What it means is for us a mix down to [indiscernible]. So we saw in other circumstances, not necessarily impact on volume of demand, but you do management mix very careful. And that's what we -- but obviously, that's the kind of biggest uncertainty. That's why we didn't fully factor in what happens to mix, how much can we compensate? How can we mitigate? We have tools in place, in particular with our new products to manage the mix in the right direction. But that is really the consumer uncertainty about what happens to mix when you go out in an environment which from a consumer perspective is distressed. David S. MacGregor: Got it. Okay. Just as a follow-up, I guess this is maybe a higher-level question, but can you just update us on the path from where we are now to your 9% target for EBIT margins longer term? How does that 500 basis point bridge look in terms of price/mix, net cost, volume leverage, RMI, the framework you typically employ? Marc Bitzer: Yes. I mean, David, the first big step is actually what will have to happen in '26. I mean, as you can -- obviously -- and I know you're probably already did that. That guidance which we've given on 4% this year implies when basically you have an exit rate, which is very different from where we are today. And without getting into the details of quarter-by-quarter margin. And you're basically talking about an exit rate of, whatever, 6% plus for North America. That is the fundamental step on everything. So the question on your 9% starts with exit rate of Q4 this year. The pricing actions together with the cost actions will put us on the right trajectory. Olmocost actions and a lot of things which we talk today about, obviously, as you can imagine, have a lot of carryover benefits. . So all the manufacturing footprint, the vertical integration, the numbers for '26, as you could tell, are yes, they're okay, that gives some benefits, but the real benefits start '27 going forward. That's when you see a lot of these benefits. So we carry the exit rate into next year. We have additional cost actions. That puts us on a path towards the 9%. I'm not saying that's a '27 number, but it puts us on the right path. Operator: Your next question comes from the line of Sam Darkatsh from Raymond James. Sam Darkatsh: So the two questions. First off, around the RMI guide, I think you raised it by about $100 million versus prior. Does that contemplate current market prices for PVC and resin and base metals? Or does that contemplate some give back from current market prices in the second half of the year? And then I've got a follow-up. Marc Bitzer: Sam, the short answer, it does. Let me give you a little bit of context. So as you know, you know it very well. Our #1 purchase product is steel to Roxanne's point. We're kind of getting to a cap of our loan agreements. We were hoping maybe a little bit below the cap, but that's fully factored in, but it's not volatile going forward for us. On the resins, it does not reflect the current spot because the current spot and the way how we buy the steel be okay. But it anticipates that Q3 and Q4, we have some headwinds on our plastic components. It just ultimately results of what we're seeing on oil prices. There is another element which may be on a relative case, maybe a little bit more favorable for North America as opposed to Asia. I think there might be some supply constraints in plastics, in particular, for Asia, which ultimately will also drive prices on plastics. Sam Darkatsh: But they do -- the second half does contemplate like current market prices for resin and oil throughout the year, and then it just hits you in the back half, just clarifying that. Marc Bitzer: Yes, it implies an increase of plastic prices in Q3, Q4 versus where we are today. Sam Darkatsh: Got you. And then my follow-up, you cut out a lot of production, obviously, you get the inventories in better shape during the first quarter. The rest of the year, are you anticipating production and shipments to largely match? Or is there -- are there more production cuts to come? Marc Bitzer: Yes. So Sam, first of all, to clarify Q1, we already planned and we alluded to this one in January, but we want to bring down inventory to the right levels. Obviously, with industry being what it is, we had to cut even more production than we ever had in mind. That caused us in the quarter around $60 million. So it was massive. But the good news is right now in [indiscernible] And North America are what we call on a really good on a healthy, sustainable level. Now having said that, we are anticipating also on a full year base that the industry demand will not fully recover. So also going forward, we will produce less than we, for example, produced last year. But we know that now we can adjust accordingly. So there's not going to be a big onetime reduction in inventory, but it's just more we want to keep production in line with what we're seeing in the industry demand. Operator: Your next question comes from the line of Mike Dahl from RBC Capital Markets. Michael Dahl: I wanted to ask first about tariff dynamics of 2 parts. First is you didn't record a material tariff impact. And in first quarter and you're still lapping the tariffs from last year. So curious if there was any booking of refunds or anything other onetime in nature there? And then when you think about then the net tariff impact going up for the full year kind of despite that. Can you just help us parse out like what the -- like obviously, your competitors are more impacted by 232, but what your net puts and takes are around kind of the current guide? And what's contemplated and how much is specific to 232? Marc Bitzer: So Mike, so let me first talk about how it impacts us and then maybe broader 232 tariff and I'll read into this one. So first of all, as you know, we as a company, we pay 3 different types of tariffs. That's the 232 with 301 in the past was the IEEPA and now to some extent to 122. So it's always going to be a stack player of this one. In Q1, we had a number of favorable tariff mitigation actions. That's a combination of post-summary corrections. It's on tackling sales and tariff refunds on IEEPA piece, not only 301 or 232. So in Q1, there was actually a pretty neutral guy or put it differently, it pretty much helped offsetting the cost of inventory reductions. So it's a wash. . On a full year basis, we do anticipate, and that's now effective for 232 and also with 122 changes, but the tariff costs on a fully base go up 0.5 point. That's fully factored in. Now again, that's from today's environment, if something changes, when something will change, but that's pretty much we expect on a fully base. But keep in mind, in every given quarter, you may have ins and outs, that depends on shipment patterns, but it depends on what happens on the 3 different tariffs. But on -- at the current state, if the tariffs not stays able, I think 1.27% that's pretty much what you should expect. Now the broader comment I want to make on 232, Juan Carlos in his comments earlier already alluded to this one. I know we may feel to be outside, like this is a small change of 232. It is actually big in viremication thus for our industry. And let me just explain it once again. It's before it was fairly complicated. But the appliance first time were included in 232 last year in April. The way how it was set up with cleared steel value declared weight was very complicated. And I would say, left many doors on for maybe not a full declaration of real cost. What changed now is a flat rate of 25% against the full declared product value. That brings a lot of stability and clarity to the equation because the [indiscernible], which are very competent, they have a lot of history and understanding of full product declaration. So we built to kind of circle that are very limited. And 25% on every single imported appliance in the country is massive. Nobody can escape that. So -- and of course, with our domestic production footprint, that what I would call is finally the environment which allows the level playing field. Honestly, we've been waiting for this one essentially for a year. It's now as of April 6, finally in place. And I personally believe it will drive a lot of positive changes for us. Michael Dahl: That's helpful. My second question is more demand related and specific to North America MDA. The understanding March was kind of an acute weakness. What are the trends that you've seen kind of since March and April and midway through May, especially as you and others have tried to implement the price because I know you're saying that you're not assuming full recovery from a demand standpoint, but it still seems like to get to your full year revenue guide in trends in addition to price mix has to improve through the year. And it also seems to imply still some share gain while your own charts kind of show you trying to take at least at this point in time, more price than your peers. So I'm just hoping to get a better walk for kind of the more recent dynamics you've seen and how you're envisioning the balance of the year. Marc Bitzer: Yes. So Michael, obviously, Q1 was really rough from the industry demand and March, in particular, that March was just a fall off the cliff on demand. April slightly improved, but still a negative trajectory. And honestly, that's pretty much what we expect. It's -- as long as the consumer sentiment is that much down, I don't think you will see strong market demand patterns, but not to the level of obviously in March. March was just a shock to the system. So April is slightly improving. What we do see, again, the basic trends of this replacement market continues, what do we see is still mix being under pressure. Consumers are budget constrained. It doesn't impact necessarily volume of appliance sales sold, but it impacts the mix. That's what we've seen in Q1. That's what we're also seeing in April, and that relates back to my comments is we do go very aggressively on the overall pricing, but we've got to manage mix in the meantime. So that's a market trend, which I think you will see much Q2 and Q3, i.e., volumes being soft to slightly negative and mix being under pressure. Operator: Your next question comes from the line of Eric Bosshard from Cleveland Research. Eric Bosshard: Just a clarification of 2 things. One, the March and April, the demand -- this is an industry shipments, is that correct? Marc Bitzer: That is correct, Eric. Maybe to elaborate on this -- keep on going. Eric Bosshard: Yes. I was just going to ask. I was curious on sell-through. Is the sell-through at what you're seeing at retail down 10% in March in the summer level in April? Or is this just a shipment issue? Marc Bitzer: Yes. So Eric, you're pointing out a good point. So what I'm referring to is industry shipment into the trade. In Q1, and of course, we don't have industry inventory levels. We know our own product inventory levels with retailers. So I would say, estimate in the 7.4% down, probably about 0.5 point to 1 point of inventory reduction of trade included in there, but not more. But that's just an estimate from our side. I think I would say on our products because we don't have industry sellout data. Our products in Q1 actually held reasonably good ground. So I would say the last 13 weeks what we've seen is pretty much a flat to slightly down sellout, so a little bit better when we sell in. And that's what we continue to see. Again, with respect to we feel good about our product range. Our products are selling and what [indiscernible] showed earlier, the KitchenAid products, in that market is still growing at double-digit rates. So we know our new products are selling, but the sentiment is just weak overall. Eric Bosshard: Okay. And so the dramatic change, the impact from the war is on the sell-in and the sellout has not changed meaningfully. Is that your point? Marc Bitzer: Well, just I need to clarify on our products. But even in March for sell-out was maybe 1 or 2 weeks overall sellout, which were really down. our products right now overall, we sell out a little bit better when we see from a sell-in on a broader market, but we now need to see what's going forward. But I mean, again, March also sellout was not the strongest. Eric Bosshard: And then secondly, just to make sure I understand that you talked through the strategy with promotions and last weeks that you're going to participate. And all of that is than reflected in the industry down 5%. Is that -- and I know elasticity's not an industry that responds a lot to price and price is not that important as what I've heard you say. But in terms of your expectation on volume. That's all captured in this industry now down 5% versus 0. That's the expectation of these changes. Is that correct? Marc Bitzer: That is correct. And just again, it's in a market which is strongly replacement-driven, again, more than 60%, it just does not make sense to have promotions on July 4, which are 3 weeks on. You're not going to increase market demand. You pull forward at best but you're not going to change market demand. That's what our decision, but retailers make their own decision. Our decision is we will only support the July 4, 2 weeks and not 3 weeks. And we're also not going to promote in every -- or participate in every single house promotion. Again, retailers may make their own independent decisions. That's what I'm referring to is what we are supporting because in such a market, you will not increase demand by excessive promotions. Operator: Your next question comes from the line of Rafe Jadrosich from Bank of America. Unknown Analyst: This is [ Sean Calman ] on for Rafe. Just first one, you guys are raising price a little more than your competitors despite the higher tariff impact for them. Are you expecting them to have to catch up on the price increases? And then with that in mind, what are you guys expecting for share gains this year? Marc Bitzer: Yes. So Sean, first of all, I really want to be clear to the audience. We're raising price not just because of tariffs. We have 3 years of pent-up of inflation, which we have never reflected. The entire industry has not reflected that. Many people could argue that you have 20 years of inflation which have never been passed on consumer. So we're passing on 3 years of pent-up inflation, which, at one point, we just have to pass on to consumers in addition to tariffs. Now that mix of inflation and at may be different to competitors and they make their own decision. We know what we have to do because of our cost base. We will reflect the cost of our products in the consumer prices, and that's -- and your question about are we slightly higher on competitors. It's more -- yes, we also have a lot of new products, which serve a higher value. Unknown Analyst: Okay. That makes sense. And then on the 10% to 15% impact from 232 to competitors. How does that compare to what you guys thought the IEEPA impact was? Marc Bitzer: First of all, the IEEPA impact, I think there was a lot of uncertainty in terms of how much were we paid and how much flow through. For me, the more relevant point is, it's very stable. It's hard to circumvent and bypass. There is no country hopping, which will happen because of different rates. So normally, it's probably slightly higher, but in terms of real effect, I think you could call that tariff has gripped, and I think that's a very, very different landscape than what we've seen a year ago, very different. Operator: Your next question comes from the line of Susan Maklari from Goldman Sachs. Susan Maklari: My first question is on the strength that you actually saw in SDA, which seems to be quite contrary to what is going on with the me and your overall comments on demand. Can you talk about how much of that strength is driven by your product specifically in the investments in innovation versus the exposure that you have there of the price point? And how you're thinking about the sustainability of that given the environment? Ludovic Beaufils: Susan, this is Ludovic. Thanks for the question. So in terms of the overall industry, we have not observed as much of a compression in consumer demand in SDA as what we just discussed in MDA, be it in North America or in other regions. It's probably a couple of reasons for that. And actually, some of you alluded to it, we're looking at lower ticket items and so the consumer resilience is a little stronger. In that context, we're gaining share. And I think that's based on the fact that we're selling at a more premium prices where the consumer also has more resilience, number one. Number two, we're doing really well with our new products. So whether that's the carryover effect from launches last year in blenders, for example, or just now the effects that are starting to show up in terms of stand mixer innovation and compact espresso we're seeing just really strong numbers all around. So really pleased with how that's shaken out so far. We're going to continue to monitor the industry going forward. And -- but with the strategy we have and the launches we've done so far, we're pretty upbeat about the rest of the year. Susan Maklari: Okay. That's helpful. And turning to the dividend. Can you talk a bit more about the decision to spend that what needs to happen to perhaps start to bring that back in? And then just more broadly, your thoughts on the current capital structure post the offering. And I know you talked about that path to deleveraging. But can you just give us a bit more color on how you're thinking about the future of the capital structure and what that will mean for uses of cash? Marc Bitzer: So Susan, first of all, to clarify the dividend decisions are made by our Board. But as the CEO, yes, to suspend the dividend is a very, very painful decision. I mean just what it is. And certainly, it's not something which I want to keep for very many quarters in place. So we would like to resume a dividend as quickly as possible, but it's -- clearly, it's a board decision. What has to be true is, basically, we need to have a better ongoing operating margin, and we want to continue to pay down our debt. That's basically has to be true before we resume the dividend, but it's really a reflection of we want to pay down our debt this year. You saw earlier, $900 million, that's massive. . And at the same time, we want to continue to invest in our future in products, but we did not want to cut back our capital investments. That's why we took the difficult decision. It's the right decision with cap allocation and we will reassess as the operating margins will improve. But again, it's ultimately a Board decision. Roxanne Warner: Susan, to tap into your question related to overall what we would do with capital allocation post the equity offering. We do have, at this time, ample liquidity to operate the business in the uncertain environment. As you do know, we have the $3.5 billion unsecured revolver. At the end of Q1, we moved to a $2.25 billion unsecured revolver as part of our covenant amendment. With that revolver, we, as I said, have ample liquidity. But with that said, given the uncertain environment that Marc just touched on, we will continue to look at all opportunities to bolster our balance sheet, whether it be continuing to evaluate asset sales, as we mentioned in the last earnings call and then also continuing to look at financial alternatives like tapping in to the capital market as needed with our focus on ensuring that our net debt leverage continues to improve. Operator: Your final question comes from the line of Kyle Menges from Citi. Unknown Analyst: This is Randy on for Kyle. Yes, I was just hoping you could talk a little bit about what you're seeing in the promotional environment in Latin America. And I guess your expectations around how you'd expect pricing behavior to shape up in that market from here? Ludovic Beaufils: Yes. This is Ludo. So in terms of our -- the promotional environment in America, first of all, the general background is one of pretty significant growth in the market at this point. We're seeing growth in Brazil. We're also seeing growth in a large number of markets around that America. With that said, we're I would say with the outlook for the rest of the year, considering the political environment, a number of elections coming up, just general volatility in the region. I think the promotional environment has been particularly intense in Brazil lately with foreign competitors, in particular, and imports being pretty aggressive on the back of a strong real. So we're responding to this. We have product launches in -- particularly in the premium side of the market where we've got a nice lineup coming through that's being very successful right now and [indiscernible] in refrigeration and laundry, number one. And then number two, we have a lot of cost actions accelerating in order to provide competitiveness in this particular market, whether it's vertical integration, whether it's the Rio Claro production facility expansion to taking the front load volume that was previously built in our Argentina plant. So we're confident we're being the competitiveness that will enable us to be successful in a highly competitive environment. Operator: Ladies and gentlemen, that concludes -- please go ahead. Marc Bitzer: I think that pretty much concludes today's questions and the earnings call. So first of all, I appreciate everybody joining. I'm not going to repeat all the commentary we made, but you obviously saw we had a challenge in Q1, which was driven by a very, very rough environment in North America. But even more importantly, we took right bold and decisive actions. And we're talking about actions, which are not just transactions or hope we're already in place. And you see also the pricing chart, we start seeing the effect of this one. So yes, the Q1 was challenging, but the actions are in place, and we have 100% focus on reverting the current profitability trends in North America, and we have full confidence behind that. So thanks for joining me, and we will talk to you in July. Thanks. Operator: Ladies and gentlemen, that concludes today's conference call. You may now disconnect.
Operator: Good afternoon, and welcome to The RMR Group Inc. Fiscal Second Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Bryan Maher, Senior Vice President. Please go ahead. Bryan Maher: Good afternoon, and thank you for joining The RMR Group Inc.’s fiscal second quarter 2026 conference call. With me on today's call are President and CEO, Adam Portnoy; Chief Operating Officer, Matthew Paul Jordan; and Chief Financial Officer, Matthew Brown. In just a moment, we will provide details about our business and quarterly results, followed by a question-and-answer session. I would also like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on The RMR Group Inc.’s beliefs and expectations as of today, 05/07/2026, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements made in today's conference call. Additional information concerning factors that could cause differences is contained in our filings with the SEC, which can be found on our website at rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call including adjusted net income per share, distributable earnings, and adjusted EBITDA. A reconciliation of net income determined in accordance with U.S. Generally Accepted Accounting Principles to these non-GAAP figures can be found in our financial results. I will now turn the call over to Adam. Adam Portnoy: Thanks, Bryan, and thank you all for joining us this afternoon. Yesterday, we reported second quarter results reflecting distributable earnings and adjusted EBITDA at the high end of our expectations, despite operating in what remains an unsettled economic environment. Our second quarter results were highlighted by distributable earnings of $0.44 per share and adjusted EBITDA of $18.5 million. Although we continue to navigate market volatility and geopolitical uncertainty, The RMR Group Inc. has been very active this year executing on our clients’ strategic initiatives. The markets continue to recognize our efforts as both DHC and ILPT remain among the best performing REITs in 2026 from a total shareholder return standpoint, extending the significant outperformance they each achieved in 2025. As a result, The RMR Group Inc. earned incentive fees for 2025 of $23.6 million, and we are on track to earn incentive fees again this year, as both DHC and ILPT accrued incentive fees this quarter. I would now like to go over some recent highlights at our managed REITs. Before turning the call over to Matthew Paul Jordan to provide an update on our private capital initiatives, at DHC, following the successful transition of 116 senior living communities to new operators in 2025, it has continued to focus on improving SHOP operating performance while also strengthening its balance sheet. In the first quarter, DHC generated normalized FFO of $33 million, or $0.14 per share, and adjusted EBITDA of $74 million, both exceeding analyst consensus estimates. SHOP performance showed positive momentum with year-over-year same-property NOI growth of 13.5% and occupancy increasing by 110 basis points. In March, DHC completed the sale of 13 unencumbered non-core communities for gross proceeds of approximately $23 million. Following an active 2025 in which DHC completed approximately $605 million of asset sales, we expect asset sales to decelerate in 2026 with management focused on improving NOI across the retained portfolio. Lastly, in April, Moody's upgraded DHC's debt ratings and revised its outlook to positive from stable, underscoring the company's improving operating performance and balance sheet. At SVC, we recently made significant progress improving its balance sheet and covenant ratios. The RMR Group Inc. was instrumental in helping SVC complete a $575 million equity offering, which accelerated its deleveraging strategy, eliminated near-term refinancing risk, and provided SVC additional flexibility to optimize its hotel performance and execute further asset sales. With the net proceeds, SVC eliminated all of its unsecured debt maturities until 2028. As it relates to SVC's equity offering, I would highlight that The RMR Group Inc. participated with a $50 million anchor investment, further aligning our interests with shareholders and demonstrating our confidence in SVC's business plan. Following several years of strategic capital investments to reposition the retained hotel portfolio, SVC is now transitioning toward an earnings recovery phase supported by new hotel leadership at Sonesta that is focused on improving operating performance. ILPT continues to deliver strong results with first quarter normalized FFO of $0.33 per share and adjusted EBITDA of $87 million, both exceeding the high end of management's guidance. ILPT also executed approximately 862 thousand square feet of leasing during the quarter at rental rates 26% higher than prior rents. Additionally, The RMR Group Inc. recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain joint venture, which replaces floating-rate and amortizing debt with interest-only fixed-rate debt at an attractive 5.7% interest rate while also extending ILPT's debt maturity profile. Seven Hills, our mortgage REIT, has been actively deploying capital from its December rights offering. During the quarter, Seven Hills originated three loans totaling $67.5 million and generated distributable earnings of $0.24 per share. Total loan commitments increased to approximately $776 million in the first quarter, achieving a record high for the portfolio. Originations thus far in 2026 are at the highest net interest margins achieved over the past four years, which reflects the benefits of our focus on middle market lending where there tends to be less competition for high-quality loans. Lastly, OPI recently received court approval for its plan of reorganization, and we expect it to emerge from bankruptcy by the end of the second quarter and for its shares to be publicly traded. We also expect The RMR Group Inc.’s contract with OPI to be consistent with our previously disclosed terms. More specifically, The RMR Group Inc. will continue managing OPI for a five-year term, with The RMR Group Inc. receiving a flat business management fee during the first two years of $14 million per year, and our property management agreement economics will remain unchanged. To conclude, we are pleased with the progress The RMR Group Inc. has made assisting our clients with their financial and strategic objectives. While there remains more work to do, we are encouraged that the markets recognize the significant improvements at both DHC and ILPT. It is important to remember that our publicly traded perpetual capital clients provide The RMR Group Inc. with stable cash flows, which we are using to pursue new growth initiatives in the private capital space. The private capital segment of our business has grown from essentially zero AUM in 2020 to nearly $12 billion today, and we anticipate this segment will be a key driver of our future revenue and earnings growth. With that, I will now turn the call over to Matthew Paul Jordan to provide added insights on our platform and private capital growth initiatives. Matthew Paul Jordan: Thanks, Adam. As it relates to our private capital initiatives, with a global in-house sales team firmly in place, we are spending the necessary time building The RMR Group Inc. brand awareness. As an example, I recently had the privilege of joining Peter Welch, who leads our international fundraising efforts in Southeast Asia, meeting with potential partners and participating in events where The RMR Group Inc. stood side by side with larger, more well-established international brands. In aggregate, our international outreach has resulted in our leaders meeting with almost 100 global investors representing almost $7 trillion in AUM. With that said, the ongoing conflict in the Middle East has disrupted fundraising. This disruption has played out in the global fundraising data, as fundraising in 2026 dropped 50% from the same time last year. The positive news for The RMR Group Inc. is that North American real estate still garnered 65% of all dollars raised and value-add strategies represented 56% of all fundraising. Within our residential business, which today represents over $4.7 billion in value-add residential real estate across 18.5 thousand owned and managed units, in April we closed on the acquisition of a multifamily portfolio in Greenwich, Connecticut for almost $350 million. The transaction was sourced off market and marks our entry into one of the most supply constrained and affluent housing markets in the country. The RMR Group Inc. Residential will assume property management and will execute a multiyear strategy focused on modernizing the communities, enhancing the resident experience, and unlocking embedded efficiencies. The acquisition is part of a joint venture where The RMR Group Inc. is a co-general partner and, in that capacity, made a $6 million investment for a 5% ownership interest. The remaining equity of approximately $120 million was raised from two institutional partners. The RMR Group Inc. will recognize revenues from this transaction of $600 thousand in our third fiscal quarter and, as general partner, we will earn ongoing operating fees of approximately $750 thousand annually. Longer term, the venture is expected to generate annual cash-on-cash returns of approximately 7.5%, and we expect to receive carried interest from the venture as certain investment hurdles are met. Finally, the venture will not be consolidated given our ownership is limited to 5%, and a portion of our GP interest may become part of The RMR Group Inc. Enhanced Growth Venture. As it relates to the Enhanced Growth Venture, which was launched last fall with the goal of raising approximately $250 million of third-party equity, there remains significant interest in both U.S. value-add multifamily real estate and our seeded portfolio of assets. This interest has resulted in ongoing diligence with a number of potential investors, with the hope that we can provide a more meaningful update on our next earnings call. As it relates to the operating performance within our residential business, we, along with our joint venture partners, remain pleased as occupancy approaches 94%, with resident retention currently over 70% and retained residents absorbing rental rate increases of over 3%. Operating performance at these levels will continue to help with the fundraising in the highly competitive residential space. I would like to also highlight a new disclosure we have made in our investor presentation that emphasizes the discount our shares trade at when looking at our business from a sum-of-the-parts perspective. As we illustrate, if one were to back out the cash and investments held by The RMR Group Inc., our shares are currently trading at only five times the EBITDA generated from the durable cash flows associated with our 20-year evergreen management contracts from our perpetual capital vehicles. This is materially below EBITDA multiples at which our peers trade. We are hopeful this new slide illustrates the significant upside embedded in our shares. In closing, it remains an active time for our organization as we continue to invest in our people, technology, and brand awareness. We are leveraging these investments to reinvent our operating structure, materially increase productivity, and ultimately drive down operating costs to deliver meaningful EBITDA growth. With that, I will now turn the call over to Matthew Brown. Matthew Brown: Thanks, Matt, and good afternoon, everyone. For our fiscal second quarter, we reported adjusted EBITDA of $18.5 million and distributable earnings of $0.44 per share, which exceeded or were at the high end of our guidance. I would also like to note that we reported adjusted net income of $0.11 per share, which fell $0.01 short of our guidance. Going forward, we will no longer provide guidance on adjusted net income, as our investments in leveraged real estate have significantly reduced the usefulness of this metric as we incur depreciation and interest expense on these investments. Recurring service revenues were $42 million, a sequential quarter decrease of approximately $1 million driven primarily by hotel sales, a decrease in the enterprise value of SVC and DHC as they strategically paid off debt, and the wind-down of Alaris Life's business. Next quarter, we expect recurring service revenues to increase to approximately $44 million, driven by approximately $100 thousand of revenue from the multifamily portfolio acquisition in Greenwich, Connecticut that Matt discussed, increased construction management fees, and enterprise value improvements at certain of our managed REITs. Turning to expenses, recurring cash compensation was $37.7 million, a modest sequential quarter increase driven by calendar 2026 payroll tax and benefit resets. Looking ahead to next quarter, we expect recurring cash compensation to remain consistent with the second quarter. Recurring G&A this quarter was $10.1 million after excluding $600 thousand in annual director share grants, which is a slight sequential quarter decrease driven by a reduction in normal course legal and professional fees. We expect recurring G&A to remain at these levels for the remainder of the fiscal year. It is also worth noting that this quarter's income tax rate was elevated at 22% driven by the impact of certain fair value adjustments that we recognized during the quarter, mainly our investment in Seven Hills, that are subject to different statutory rates than our income. For modeling purposes, we may continue to see fluctuations in our income tax rate each quarter as these adjustments impact the timing of tax expense recognition. However, these fluctuations are not expected to materially impact our full-year estimated tax rate of 17% to 18%. Aggregating the collective assumptions I have outlined, next quarter we expect adjusted EBITDA to be approximately $19 million to $21 million and distributable earnings to be between $0.48 and $0.50 per share. As Adam and Matt highlighted earlier, subsequent to quarter end we participated in SVC's equity offering by acquiring nearly 42 million shares for $50 million and acquired a $6 million co-GP equity interest in the Greenwich, Connecticut multifamily joint venture. Our investment in SVC will result in approximately $420 thousand incremental quarterly dividends. Accounting for these transactions, our current liquidity is approximately $133 million, including $75 million of capacity on our revolving credit facility. We continue to be well capitalized with a strong dividend and look forward to executing on our strategic objectives and taking advantage of opportunistic investments as they arise. That concludes our prepared remarks. Operator, please open the line for questions. Operator: Thank you. We will now open the call for questions. We will begin the question-and-answer session. Today's first question comes from Mitchell Bradley Germain at Citizens Bank. Please go ahead. Mitchell Bradley Germain: Thank you for taking my question. Adam, there is a whole bunch of multifamily assets that are owned in different syndications. I am curious, is the expectation of one transaction if you can lock in a larger fund? Is the expectation that this all kind of cleans up with that, or is there the potential for some of these to just continue to remain as one-off investments? Adam Portnoy: Hi, Mitch. Thank you for that question. It is a good question. I think you have to keep in mind part of the way you answer that question is how we put together the portfolio that is our multifamily portfolio. It is the only asset class that we manage that is 100% private. We do not have a public vehicle around multifamily. That portfolio was originally, well, mostly constructed as part of the acquisition of our residential platform about a little over two years ago. Most of those investments are in joint ventures, one-off joint ventures per investment. A few of them are small portfolios. That is how that whole business has been structured, similar to the way we bought it. I expect that we will continue to have many of those joint ventures be the form of the investments we make, especially over the short term. But I think what you are seeing in terms of the Enhanced Growth fund that Matthew Paul Jordan talked about and we have talked about on many calls is we are starting to try to put together a portfolio among the approximately $4.7 billion, which is mostly joint ventures, into, let us say, a fund that we can raise money around. So we are trying to do both. I do not think you will see a transaction that will suddenly, let us say, roll up all $4.7 billion into a new public vehicle— I am not sure if that was your question, but that is not where we are going with that. It is likely to all stay private, likely to continue to be joint ventures, one-offs, small portfolio joint ventures, and our hope is that we can start to build a more dedicated fund around that strategy as well. Mitchell Bradley Germain: Taking that a little bit further, I think the last couple of quarters you seemed a little bit more positive on a potential venture in, I guess we will call it commercial mortgage, as well as, I think, you have mentioned development. Are those two products just a little bit behind multifamily right now with regards to your priorities? Adam Portnoy: They are all top priorities. I will tell you, we are continuing to talk to investors and partners about development projects. I think in the current market environment, the returns required for development projects are pretty high. Development is always difficult when you have a lot of uncertainty, and it is hard to predict the next quarter, let alone 18 months from now, which is typically what you have to sign off on for development projects. So we are continuing to work on those. I expect we will, in the course of the year or so, have some joint venture development projects underway. It is just that today, in the multifamily space, with the portfolio that we have assembled, we are generating the highest amount of interest around that. One comment on the credit that you mentioned, Mitch. We are also very active in talking to investors around credit as well. I would not say it is less of a priority, but we have a lot of money to put out in our Seven Hills mortgage REIT right now, and I think the number is close to $500 million of capacity over the next year of new investments that we are going to be able to make between new money coming into that vehicle and expected loan payoffs. So we have a pretty good pipeline and capacity with our existing vehicles there. We are still talking to investors around credit. There has been a general pullback around credit, given what is going on in the marketplace around some other funds that are in the credit space, especially retail-oriented funds, and so there has been some hesitancy among investors to take those conversations further at the moment. But that is okay from our perspective because we can do a lot of work there anyway. We can put a lot of AUM to work otherwise. Mitchell Bradley Germain: Gotcha. Last one for me. I think at one point you might have had close to $300 million of cash on hand. I think that, obviously, that balance has come down a bit as you are buying some of these assets and warehousing them on balance sheet in anticipation of some of your fundraising. Where are you with regards to how much cash you want to keep on hand for some sort of rainy day? Are we getting close to an amount where you are starting to become a little bit more conservative with allocating capital, or are you still all systems go if the right opportunities are presented? Adam Portnoy: More the “all systems go” if the right opportunities present themselves. We have over $100 million of liquidity between cash on hand and undrawn capacity on our revolver. We are also fairly optimistic that we will be getting some cash back, especially as we are hopefully successful in syndicating the Enhanced Growth value-add fund that we have built up around the multifamily strategy. We have just under $100 million of capital committed to that venture, and if we are successful in syndicating that and getting that fund launched— and we are optimistic that we will get it done— a lot of cash will also be coming back to us, we think. Thank you. Operator: Thank you. Our next question today comes from Christopher Nolan at Ladenburg Thalmann. Please go ahead. Christopher Nolan: Hi, guys. Adam, is Seven Hills participating in the Greenwich project, providing debt financing? Adam Portnoy: Hi, Chris. No. Seven Hills is not providing any sort of financing with the multifamily acquisition in Greenwich. No. Christopher Nolan: And then, I guess, Matthew Brown, did you say adjusted EBITDA in the next quarter will be $19 million to $21 million, or did I mishear you? Matthew Brown: Adjusted EBITDA in the fiscal third quarter is expected to be $19 million to $21 million. Christopher Nolan: Great. I guess as a follow-up in general, Adam, how would you characterize the market for raising equity for commercial real estate as opposed to raising debt for commercial real estate? Adam Portnoy: It is a great question. First, I am going to let Matthew Paul Jordan answer that question. Go ahead, Matt. Matthew Paul Jordan: Well, in terms of the debt, there is a lot of debt available to lend against real estate. We have no lack of interest— just having done this on the Greenwich asset. Adam touched on fundraising around credit, which is very challenging right now for a number of reasons, including a lot of supply in the market in terms of organizations like ours going out with credit vehicles. Fundraising for equity is a very challenging effort right now. The volatility in the Middle East has taken a large number of folks that were putting a lot of money out and put them on the sidelines. Volatility is not a good thing for those that are fiduciaries of deploying capital. The money and the allocations to real estate will be there in the long term, but right now a lot of the conversations we have had are continuing but have slowed significantly. And to Adam's point on the Enhanced Growth venture, I just think it is elongating the fundraising cycle for what we are doing. But there continue to be significant allocations— as we highlighted, we have met with a significant number of global LPs. The RMR Group Inc. itself is still a new brand, so we are spending a lot of time getting our name out there. People are amazed at the capabilities we bring and the breadth of our organization. But things are just going to take longer until the Middle East settles down. Christopher Nolan: Okay. And then I guess as a final question, you are seeing with some private equity shops that they are setting up distressed commercial real estate funds. Is that a potential strategy that you would consider? In my view, that tends to be preparing for some sort of, you know, down cycle. Adam Portnoy: Chris, it is not something we are actively pursuing at the moment in terms of setting up a distressed real estate fund. We have limited pockets within The RMR Group Inc., in the different funds that we manage and groups, that if a really attractive distressed opportunity presented itself to us, we could seriously consider executing on it. But we are not building out a strategy around that today. Christopher Nolan: Okay. Thank you. Operator: Thank you. And our next question today comes from John James Massocca at B. Riley. Please go ahead. John James Massocca: Maybe sticking with the big-picture fundraising theme, you have seen some pullback in some other types of credit funds, private lending being the most notable. Are you seeing any indications of that capital potentially being reallocated to things that are a little more tangible like real estate, or is that just an unrelated phenomenon in your mind? Matthew Paul Jordan: Yeah. I do not think they are related. It is interesting— when you meet with LPs, lending may not even sit in the real estate bucket. It may be in fixed income and other pockets within these large organizations. So we have not yet experienced where credit allocations have been redeployed in a way that has benefited us on the equity side. John James Massocca: Okay. And maybe switching gears a little bit, going back to a little bit of Mitch's last question, what is the appetite today for more wholly owned assets, or at least consolidated assets on balance sheet, to help create the base for funding either the multifamily-focused fund or even maybe a retail fund going forward? Just kind of curious if you think you are at a good point in terms of the wholly owned assets you have today, or if there is more capacity to continue to add to that? Adam Portnoy: Yeah. I think there is a little more capacity to add to it. I do not think we will be adding— until we are successful syndicating the Enhanced Growth venture— wholly owned multifamily assets on the balance sheet. But you mentioned retail. Retail is an area that we could maybe add a couple more assets to the balance sheet if it was the right type of asset. So that is an area that you could see us do some more asset-level acquisitions on The RMR Group Inc. balance sheet to help get that retail strategy further along. John James Massocca: Okay. And then thinking about the quarterly financials, you predicted a little bit— construction supervision revenues were down pretty big, certainly quarter over quarter, but even year over year. How much of that is just the new normal, how much is maybe one-off, and how much is seasonality? Any color on how you would expect that to trend over the remainder of the year? Matthew Brown: Yes. When you look at our construction management fee revenue sequentially, it is really just driven by the start of the year generally being a little bit slower for us as budgets are reset. As we look year over year, at some of our managed public vehicles we had some pretty extensive capital improvement projects going on— mainly within DHC and SVC— that have largely wound down. Those REITs are now forecasting less capital spend in 2026 than they were. We do expect a little bit of a ramp next quarter as we progress throughout the year. John James Massocca: But maybe the year-over-year decline as you think about comparing it to the comparable quarter in 2025 is kind of a good way to think about it going forward? Matthew Brown: Yeah, I think that is a good run rate. Operator: Thank you. And that does conclude our question-and-answer session. I would like to turn the conference back over to President and CEO, Adam Portnoy, for any closing remarks. Adam Portnoy: Thank you all for joining our call today. We look forward to seeing many of you at our upcoming industry conferences, including NAREIT in June, and we encourage institutional investors to contact The RMR Group Inc. Investor Relations if you would like to schedule a meeting with management. Operator, that concludes our call. Operator: Yes, sir. Thank you very much, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Datadog Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Yuka Broderick, Senior Vice President of Investor Relations. Please go ahead. Yuka Broderick: Thank you, Lisa. Good morning, and thank you all for joining us to review Datadog's first quarter 2026 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's Co-Founder and CEO; and David Obstler, Datadog's CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the second quarter and the fiscal year 2026 and related notes and assumptions, our product capabilities and our ability to capitalize on market opportunities. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements and similar indications of future expectations. These statements reflect our views today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2025. Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ending March 31, 2026, and other filings with the SEC. This information is also available on the Investor Relations section of our website, along with a replay of this call. We will discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.data.hq.com. With that, I'd like to turn the call over to Olivier. Olivier Pomel: Thanks, Yuka and thank you all for joining us to go over a very strong start to 2026. Let me begin with this quarter's business drivers. I'm very pleased to say that our teams executed very well and delivered revenue growth of 32% year-over-year, accelerating from 29% last quarter and 25% in the year ago quarter. We showed broad-based acceleration of revenue growth across cohorts, including both our AI and non-AI customers. Our AI native customers cohort continue to grow and diversify rapidly both in the number of customers we serve and the scale of those customers. In this quarter, including new land deals with 2 of the world's biggest AI research teams, helping them improve and optimize their training workflows. I'll talk more about that in a bit. Even more impressive was the growth in our non-AI customers. non-AI customer revenue growth accelerated again this quarter to mid-20% year-over-year up from 23% last quarter and 19% in the year ago quarter. We think this is a sign of strong continued cloud migration, greater adoption of our products, and customers have all kinds accelerating their use of AI. Finally, churn has remained low, with gross revenue retention stable in the mid- to high 90s, highlighting the mission-critical nature of our platform for our customers. Regarding our Q1 financial performance and key metrics. Revenue was $9.1 billion, an increase of 32% year-over-year and above the high end of our guidance range. We ended Q1 with about 33,200 customers from about $3,500 a year ago. We also ended with about 4,550 customers with an ARR of $100,000 or more, up from about $3,770 a year ago. These customers generated about 90% of our ARR. And we generated free cash flow of $289 million with a free cash flow margin of 29%. Turning to product adoption. Our platform strategy continues to resonate in the market. For example, 56% of our customers now use for or more products, up from 51% a year ago. 35% of our customers used 6 or more products, up from 28% a year ago, and 20% of our customers use 8 or more products, up from 13% a year ago. So we are learning more customers and delivering value across more products. And our business continues to grow. Our total ARR now exceeds $4 billion, and our quarterly revenue exceeded $1 billion for the first time. This is a big achievement for all of us at Datadog and is a product of years of investment in building, innovating for our customers. But we are still just getting started. Of our 26 products, 5 are over $100 million in ARR and another 3 are between $50 million and $100 million ARR. We're working hard to build and deliver further growth in those products. And this leaves 18 other products, which are earlier in their life cycles. We believe each has a potential to grow to more than $100 million over time. Moving on to R&D. Our engineers enabled with the latest AI coding tools are building rapidly to help our customers confidently and securely deploy their applications. So let me speak to a few of our product launches this quarter. Let's start with AI. As a reminder, we're talking about our AI efforts in 2 buckets: AI for Datadog and Datadog for AI. So first, AI for Datadog. These are AI products and capabilities that make the Datadog platform better and more useful for our customers. In March, we launched our MCP server for general availability. With MCP Server, developers access live production data to debug their applications directly in their AI coding agent or IDE. We delivered this AI security agent, which autonomously triages Datadog Cloud SIEM signals, conduct in-depth investigations of potential threats, and delivers actionable recommendations. We've seen Bits AI security agent reduce investigations that could take hours to as little as 30 seconds. We also shipped Bit Assistant now in Preview, which helps customers search and act across Datadog using natural language [indiscernible] . Moving on to Datadog for AI. This includes Datadog capabilities that deliver end-to-end Observability and security across the AI stack. We launched GPU monitoring, enabling teams to understand GPU fleet utilization, workload efficiency, thermal and power behavior and interconnect performance. This drives higher GPU ROI and operational reliability. Our customers continue to move forward with their AI activities, and we can see that in their usage of the data platform. We now have over 6,500 customers sending data for 1 or more of AI integrations. Though this is only 20% of total customers, they represent about 80% of our ARR. And our customers usage of AI within that platform continues to grow rapidly. SRE agent investigations have more than doubled from December to March. The number of spans sent to our LLM Obeservability product nearly tripled quarter-over-quarter. The number of Datadog MCP server to calls, quadrupled quarter-over-quarter and the number of beef assistant messages increased by a factor of 1 in that period. While we are aggressively building weed, we also continue to expand the Datadog platform to deliver against our customers' increasingly complex needs to speak to a few of these efforts. Last month, we launched experiments for general availability. Experiments work hand-in-hand with our feature flagging product and combine best-in-class statistical methods with real time obeservability guardrail among alternatives so companies can test for impact, choose among alterbatives quickly and ship with confidence. In addition, our customers now benefit from APM recommendations by analyzing telemetry data from application performance monitoring, reader monitoring, profiler and database monitoring recommendations, APM automatically identified performance and reliability issues and most importantly, explain H2. And we announced our plans to launch our next data center in the U.K. We see a large opportunity to serve our British customers as cloud adoption accelerates in regulated industries. Last but not least, we are pleased to have received federal high certification from the U.S. federal government. With this certification, we can now move forward with federal agency customers that require FedRAMP High to handle sensitive workloads. Meanwhile, we continue to expand our product offerings, go-to-market teams and channel partnerships for public sector customers, both in the U.S. and internationally. So our teams were hard at work again. and we're looking forward to sharing many new products and future announcements at our DASH conference on June 9 and 10 in New York City. Now let's move on to sales and marketing and highlight some of the deals we closed this quarter. First, we landed 2 large deals, a 7 figure and an 8-figure annualized deals with the AI research divisions at 2 of the world's largest technology companies. These organizations are building and training the most advanced AI models in the world. It is critical for them to reduce engineering friction and increase selling velocity. But fragmented internal and protocol that it's harder to identify and solve issues and reduce engineering and research productivity. By using Datadog, both companies are accelerating their past of innovation on their hyperscale AI training workload. And this includes optimizing their workflows using GPU monitoring on large power GPU grades. Next, we signed a 7-figure annualized expansion for an 8-figure annualized deal with a leading online recruiting platform. This customer is centralizing on Datadog to reduce complexity, drive developer velocity and improve efficiency. With this expansion, they will replace a stand-alone tool with Datadog LLM Observability to correlate LLM signals with APM and user experience data. This customer will grow to 16 Datadog products, including Datadog and CP server. Next, we signed a 7-figure annualized expansion for an 8-figure annualized deal with a Fortune 500 bank. With this expansion, this customer will migrate the remaining log data into Datadog, fully replacing their legacy log vendor. Most notably, our Flex logs give them granular control over costs while meeting strict compliance requirements. This customer uses 10 Datadog products, including Bits AI [indiscernible] to accelerate incident response with AI. Next, we signed a 7-figure analyzed expansion with a leading global hedge fund. This customer operates thousands of on-prem host and network devices. At that scale, their open source monitoring stack has become operationally and sustainable impacting portfolio managers and investment analysts. With this expansion, they will replace their entire on-prem Obeservability layer with Datadog infrastructure monitoring and network device monitoring, and will have unified visibility across their cloud and on-prem environment. This customer will expand to 11 Datadog products. Next, we landed a 6-figure annualized deal with a Fortune 500 insurance company. This company's fragmented Obeservability stack led to long outages with incident supported first by their customers instead of their tooling. By using Datadog and consolidating 3 legacy APM tools, they expect to move from reactive responses to proactive incident detection. They will adopt 10 Datadog products to start, including all 3 pillars in LLM adorability. Next, we signed a 7-year annualized expansion with one of the world's largest travel groups in APAC. This customer was using Datadog on one business unit, but in 2 others, they were juggling multiple tools and lacked actionable insights. By consolidating 6 legacy open source and cloud monitoring tools, the customers save money and improve platform resiliency and performance. This multiyear commitment positions Datadog's strategic observative provider. And finally, we landed a 6-figure annualized deal with a leading Latin American fintech company. This customer serves tens of millions users across critical financial flows. Their rapid growth outpaced their fragmented front-end monitoring setup and outages exposed them to financial, operational and reputational risks. By adopting our digital experience monitoring suite including RUM, Synthetics and product analytics, they now have full visibility of our user activity with the cost control, they also previously act. This customer will start with 5 Datadog products. And that's it for our wins. Congratulations again to our entire go-to-market organization for upgrade Q1. Before I turn it over to David for a financial review, I want to say a few words on our longer-term outlook. We are pleased with the way we started 2026 as we support our customers inflection in AI usage and application development and as they lean into our AI innovations, including Bits AI SRE Agent, Bits AI Security analyst Bits Assistant, Datadog IT server, GPU monitoring and many more. There is no change to our overall view that digital transformation and cloud migration are long-term secular growth drivers for our business. But we now have an additional secular growth driver with AI as we help our customers deliver more value with this transformative new technology. Now more than ever, we feel ideally positioned to help customers of every size and every industry as well as all types of users, whether humans or AI agents so they can transform, innovate and drive value through AI and cloud adoption. And with that, I will turn it over to our CFO, David. David Obstler: Thanks, Olivier. This was a very strong quarter for Datadog. Our Q1 revenue was $1.01 billion, up 32% year-over-year. Our 6% quarter-over-quarter revenue growth is the highest for Q1 and since 2022. And our $53 million quarter-over-quarter revenue added is the highest ever for Q1. That included the strongest quarter of sequential usage growth from existing customers since the first quarter of 2022. We also delivered an all-time record for sequential ARR added to the quarter. ARR growth accelerated in each month of Q1, and we see a continuation of these healthy growth trends in April. We also achieved strong new logo bookings. New logo annualized bookings set a new all-time record by a significant margin and more than doubled versus a year ago quarter. These included wins in observability and included some of our newer products like security, data observability and Flex logs. And our new logo average land size also set a record and more than doubled year-over-year as we continue to land larger deals. Revenue growth accelerated with our broad base of customers, excluding the AI natives to mid-20s percent year-over-year, up from 23% last quarter and 19% in the year ago quarter. We saw robust growth across our customer base with broad-based strength across customer size, spending bands and industries. Meanwhile, our AI native customer growth continues to significantly outpace the rest of the business. This group continues to diversify and grow including 22 customers spending more than $1 million annually, and five, spending more than $10 million annually. This group includes the leading companies in foundational models, cogen tools and vertical-specific AI solutions. Next, regarding our retention metrics. Our trailing 12-month net revenue retention percentage was in the low 120%, up from about 120 last quarter and our trailing 12-month gross retention percentage remains in the mid- to high 90s. Now moving on to our financial results. Billings were $1.03 billion, up 37% year-over-year and remaining performance obligations, or RPO, was $3.48 billion, up 51% year-over-year, with current RPO growing in the mid-40s percent year-over-year. RPO duration increased year-over-year as the mix of multiyear deals increased in Q1. As a reminder, we continue to believe revenue is a better indicator of our business trends than billings and RPO given their variability. Now let's review some of the key income statement results. Unless otherwise noted, all metrics are non-GAAP, we have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First, Q1 gross profit was $807 million, with a gross margin of 80.2%. This compares to a gross margin of 81.4% last quarter and 80.3% in the year ago quarter. As we've discussed in the past, our gross margin varies from quarter-to-quarter with investments into innovations for our customers, offset by efficiency efforts. Our Q1 OpEx grew 31% year-over-year versus 29% last quarter and 29% in the year ago quarter. As a reminder, we continue to grow our investments to pursue our long-term growth opportunities, and this OpEx growth is an indication of our execution of our hiring plans. Q1 operating income was $223 million or a 22% operating margin compared to 24% last quarter, and 22% in the year ago quarter. Turning to the balance sheet and cash flow statements. We ended the quarter with $4.8 billion in cash, cash equivalents and marketable securities. Our cash flow from operations was $335 million in the quarter. After taking into consideration capital expenditures and capitalized software, free cash flow was $289 million and free cash flow margin was 29%. And now for our outlook for the second quarter and for the fiscal year 2026. First, our guidance philosophy overall remains unchanged. As a reminder, we base our guidance on trends observed in recent months, and apply conservatism on these growth trends. In addition, as with last quarter, we are applying a higher degree of conservatism to our largest customer. So for the second quarter, we expect revenues to be in the range of $1.07 billion to $1.08 billion, which represents a 29% to 31% year-over-year growth. This guidance implies sequential revenue growth of $64 million to $74 million or 6% to 7%, due to the strong growth of revenue in Q1 and into April. Non-GAAP operating income is expected to be in the range of $225 million to $235 million, which implies an operating margin of 21% to 22%. As a reminder, in Q2, we will be holding our DASH user conference which we estimate to cost about $15 million in which we have reflected in our operating income guidance. Non-GAAP net income per share is expected to be $0.57 to $0.59 per share based on approximately 369 million weighted average diluted shares outstanding. And for fiscal 2026, we expect revenues to be in the range of $4.3 billion to $4.34 billion, which represents 25% to 27% year-over-year growth. Non-GAAP operating income is expected to be in the range of $940 million to $980 million, which implies an operating margin of 22% to 23%. And non-GAAP net income per share is expected to be in the range of $2.36 to $2.44 -- $2.36 to $2.44 per share based on approximately 372 million weighted average diluted shares outstanding. Finally, some additional notes on the guidance. We expect net interest and other income for fiscal 2026 to be approximately $170 million. We expect cash taxes for 2026 to be approximately $30 million to $40 million. We continue to apply a 21% non-GAAP tax rate for 2026 and going forward. And we expect capital expenditures and capitalized software together to be 4% to 5% of revenue in fiscal 2026. To summarize, we are very pleased with our execution in Q1. We are well positioned to help our existing and prospective customers with their cloud migration, digital transformation, and AI adoption journeys. And I want to thank Datadog's worldwide for their efforts. With that, we'll open the call for questions. Operator, let's begin the Q&A. Thanks. Operator: [Operator Instructions] Our first question today is coming from the line of Mark Murphy of JPMorgan. Mark Murphy: Congratulations on an amazing performance. Olivier, is there any way to conceptualize the growth in the sheer raw volume of, code is being produced in the world today due to adoption of code generators such as Quad code and Codex and cursor, because they seem to be developing the capability to take on full projects and some of the charts are showing these capabilities are just exponentially exploding upward in a straight line. I'm wondering how much of that code is going into production and therefore, driving activity for Datadog. Olivier Pomel: Well, we definitely think and see that the there's many more applications being created. There's going to be way more complexity in production. We see some of that happening already today. Some of those new applications are getting into production, they're finding users. We see some signs of that at every layer of our platform. We quoted a few stats on the increasing data volumes. We see AI products that's definitely a reflection of that. So we see an inflection point there in consumption from customers. We see a move to production that is very real, and we see that across both AI native and non-AI companies. Mark Murphy: Okay. And as just a quick related follow-up. If we click down one layer, and I'm wondering how you might view the increasing heterogeneity of the environment at the silicon level, because the -- when you look across the Amazon with Trinium and Graviton and Google with TVs, Microsoft has launched the myosilicon. It looks like that is starting to explode. In our understanding is that trying to monitor the mixed environment is a lot more difficult than if you just have a uniform fleet of Intel and AMD chips, and we keep hearing all the traditional monitoring tools, they really fail on the custom silicon and Datadog handles it well. The -- and then all this new telemetry, including high-bandwidth memory and that type of thing. Can you speak to whether that trend is giving you some tailwinds? Olivier Pomel: Yes. I mean, look, broader market that's interesting here is if it's training, training used to be something only 2 or 3 companies were doing or maybe 4, 5 at a large scale. And it looks like training actually might democratize quite a bit more, and many companies will train models on a regular basis. So it becomes more of a viable category for service providers -- selling provider like us basically. I think the heterogeneity of the silicon is definitely a trend that plays in our favor there. The more heterogeneous, the more you need someone else to make sense of everything for you and title together and also title with the non-GPU aspects and the rest of the infrastructure, and the application, and the users, and the developers like basically everything we do for. There's only -- when you think of who is actually -- who actually has heterogeneous environment today, that is still a very small number of companies, Google barely just started selling their TPUs to the outside. So I think it's still a small number of companies that are there, but we see a growing opportunity there. Interestingly, last year, when we reported earnings, we said we're mostly interested in inference workloads and training is not a real market for us yet. Now we actually see training becoming a market. We started lending customers that are actually hyperscalers that have a whole host of homegrown technologies and that are using us specifically in their super intelligence labs to help monitor their workloads, accelerate the training runs, monitor the GPUs also. So we see that as a point of validation that there's going to be a fit for us Mark Murphy: That's amazing to think there's a whole need to mention, if you can move from inferencing into the training side. And I caught the reference in the prepared remarks of how you landed a couple of those very large labs. So congrats on everything. Operator: And our next question will be coming from the line of Sanjit Singh of Morgan Stanley. Sanjit Singh: I want to spin off with David on this guide to start the year is probably the best we've seen in several years, David, and laid out the underlying assumptions quite well. Just wanted to do a sanity check just on the sort of overall backdrop macro backup, we do have some geopolitical tensions and those types of things when we think about. Your Mid-East Base business and any impact from like in your e-commerce or retail business, where there may be some consumer discretionary impacts. I just want to get like how you're thinking about those parts of the business. And then I had a follow-up for Oli. David Obstler: Yes. We had a very strong quarter across the board. We have a multi-industry multi-geography type of quarter, and SMB was very strong. And that -- the source of our guidance and our raises are at the core, that type of performance. We haven't seen particular effect in the consumer businesses or e-commerce businesses yet. We basically have a continuation of trends in those businesses, travels and things like that. that are very similar to the other industry. So we haven't seen it yet. We obviously watch it and look at analytics, but we haven't seen it. In terms of our overall guidance, the trends that we have in organic, we discount across the board, and I think we mentioned our particular treatment of our largest customer. Sanjit Singh: That's very clear. And then Olivier, for you. I think we -- when we talk to investors about the debate in this category longer term is just what does this what does the category look like when agents are doing the triaging investigating versus human engineers and human SREs. And so -- what is your sort of vision of that -- how that evolves for Datadog, both from a product standpoint and an experience standpoint from a UI perspective, but also like is there going to be immune modalities in terms of pricing when agents are consuming the Datadog platform to a higher degree than engineers do today? Olivier Pomel: Yes. Look, I think one thing I'd say is it's hard to tell where we're going to be in 4 or 5 years. If you had told me 2 years ago that most engineers would go back to coating in the console. I wouldn't have believed you. And yet, that's one of the winning modalities today. Look, as far as we're concerned, we don't care whether most of the usage is humans, most of usages agents. Our business model lends itself to do pretty well like we are usage-based it doesn't really matter where the is coming from that perspective. The way we see trends up right now is, we see both stratospheric increase of agent usage. So we have a ton of usage on our MCP server. We see customers spending to automate a lot with their own agency using our agent combination of those. But we also see an increase of usage of the web interface is by humans. So right now, the 2 work hand-in-hand and we keep developing and pushing on those fronts. Operator: Next question is coming from the line of Raimo Lenschow of Barclays. Raimo Lenschow: One for Olivier, one for David. Olivier, if I listen to you in your prepared remarks, there's a lot of like consolidation that people try to do open source tooling and then realize they kind of needed to come to you and come back. On the other hand, in the industry, we still have a lot of like noise around that level. How do you see it in real life. To me, it seems a little bit like optionability is just very hot. And then there's different categories where you use certain items -- certain vendors and some open source, can you speak what you see in real life there? Olivier Pomel: I mean, in real life, most companies have open source in some capacity somewhere. When it comes to having a platform that unifies everything telecare everything does more of the problem solving for you, that's typically what customers use us. And the motion we see pretty much everywhere, these customers have 4 or 6, 7, 15, and 25 different things, and different pockets in the organization, and different business units, and it's a huge mass. And they come to us, they can unify all that. They get better results because all of the data is in one place, the workflows can be automated from time to end. [indiscernible] can get end-to-end visibility, you don't have blind spots. And also they save money because they don't have all these pockets in efficiency everywhere. So it's a win for everyone. The thing that's also interesting in particular this quarter is that we also landed some large parts of hyperscalers. And hyperscalers typically have a culture of building everything themselves. And the certainly have the balance sheet and the human capital to support some of that build-out. Like if there was ever a set of companies for whom it makes sense to do it themselves, and we do those companies. And yet, we see that they have the same issue. When it comes to going as fast as they can, being as efficient as they can with their resources, like they come to us to replace some of the things that we're using before. David Obstler: Two things, 2 metrics to look at that to make the points Oli, you're making, if you look at our platform adoption, and you see both the growth of the different categories and the extension of the categories out to lots of products that shows you that the consolidation on the Datadog platform has continued, and there's a very strong trend. And part of that is the movement solutions, as Oli mentioned, that are both open source, but also the competitive point solutions onto the platform. That's been a significant driver of the revenue growth for some time now, and that continued certainly in Q1. Raimo Lenschow: Okay. Perfect. And then, David, for you, last year, and we did a lot of investments around go-to-market, especially on sales capacity. If you think about now the non-AI category doing better, how much of that is like people like the cloud migrations again. So that's like an industry trend and how much of that is like you guys actually being broader positioned? David Obstler: Yes. It's a number of things, including one is the expansion of the platform, the consolidation, the successful ramping of sales capacity, which is while not jeopardizing productivity, which has resulted in ARR increasing and a good environment as well. And I think that's what we said last time, there are a number of factors. And certainly, what we're proving out here is the investments we've made in go-to-market and are continuing are paying off and we're the right decision. Oli, anything to add? Olivier Pomel: Yes. And look, we, at the end of the day, there's clearly some market tailwinds with the adoption of AI and -- but also, we are outperforming all of our competitors at scale, and we're taking share, and that relates to the structural platform to where we expand with new products, the way these products are maturing and starting to win in their respective categories in the way we've successfully grown the SES capacity. David Obstler: Certainly, the AI involvement trend has helped we're trying to do a separate that. So -- and AI investment is probably helping the overall as well. But when you really take that out, you still -- you see a very pronounced acceleration here. And that has to do with the factors that I mentioned and Oli talked about. Operator: Our next question is coming from the line of Gabriela Borges of Goldman Sachs. Gabriela Borges: Olivier, I find your comments on train versus inference, so interesting. Maybe just crystallize for us. Why do you think the training opportunity it's happening now or inflecting now? And then I had a[indiscernible] for yourself for David, -- how do we think about the attach rate on trading versus inference of observability? Is there a way to benchmark observability spend as a percentage of inference spend, does that number change given the new data that you're seeing on the training site as well. Olivier Pomel: So on the training side, training was very new a couple of years ago. It was something that was only done by very few companies, and it was in a way, very artisanal, like it was not a production workload. It was something that researchers were building, and that was very one-off and ongoing in ways. And now it's turning into production. It's turning into something that many more companies are doing. It's scaling by orders of magnitude, and it's becoming something that has to be on all the time, reliable and every minute you lose is or whether every fellow you have in your training around is a week you give away to the competition. And so as a result, it becomes way more interesting as the market for a company like us. And we see some signs of that. Again, we didn't have a lot of it. We didn't see a lot of it last year. Now all of a sudden, we're starting to see quite a bit of activity there and demand, then we have success landing with large customers with those products. David Obstler: Yes. I think going back to the metrics that Oli talked about in terms of attach, we said that 6,500 customers are using our integrations and 20% of the customers and 80% of the ARR. So there is attach. I think it's earlier days for the training. That looks like it will be a contributor. But I think we -- that's early, and I would sort of look at the larger attachment at this point as the evidence of inference, but also some training. Operator: Our next question is coming from the line of Karl Keirstead UBS. Karl Keirstead: Okay. Great. I wanted to start to Olivier and David, and you congratulating all of you and the team on reaching that $1 billion milestone well done. David, maybe the question is for you and to hone in specifically on the 2Q guide. Even if you put up a modest beat on that guide, it's going to be by order of magnitude, the largest sequential dollar at I think, in the company's history. And I just wanted to unpack what's giving you that confidence? And in particular, is there anything interesting to call out, David, in terms of the ramp of a couple of the larger research labs, one of which renewed with you guys in the fourth quarter, another one just landed. I presume they're ramping nicely in 2Q, but would love any color. David Obstler: Yes. Let me unpack this in a couple of ways. As you know, we're recurring revenue model. So the biggest indication of in the near term of the next quarter is the ARR growth in the previous quarter. And when we said we had a record. So essentially, at the bedrock of this is sort of the run forward of ARR that we've already signed. The ARR add was very broad-based and was not very concentrated. So whereas we pointed out some very significant adds I would say that the first quarter and that ARR add was really diversified and from lots of different places. So the -- and I think Oli will come in here, but the confidence that we have is you're right, we essentially take what we already have. We discount the growth trends that we've seen. And that produces what you exactly said, which is whatever your assumptions are on beat a very impressive sequential really due to what happened in Q1 and the rate of business accumulation by Datadog. Oli, do you want to add? Olivier Pomel: Yes. I mean if you want to dive on what David just said, ads we are broad-based. I mean look, when you look at why do we have a great Q1, we also let get customers in Q4. We had talked about it a quarter ago. But even if you take out the customer we land in Q4 that added the most revenue in Q1, we still had a record quarter in terms of ARR add. So this is really broad-based. And we landed a few more customers in Q1 that don't contribute any revenue yet, but we expect to be big contributors in the future. So when you put all that together, we feel very confident about Q2, hence the numbers you've seen. Operator: And our next question will be coming from the line of Fatima Boolani of Citi. Fatima Boolani: Oli, I wanted to double back on a question that was asked earlier with respect to telemetry volumes essentially going parabolic, and you are accessing a brand-new demand in the foray into training and monitoring and observing training model environment inside some of the world's largest frontier labs. And so I wanted to ask you about the structural changes to the capital intensity of the business. I mean your CapEx levels are still pretty respectable and pretty muted. So I wanted to get a better understanding of what sort of extrinsic or intrinsic engineering efforts you're undertaking to keep a very efficient CapEx envelope in spite of the fact that it seems like that would increase because of the torrent of telemetry we're seeing on the platform. And then as a related matter, we've seen a rise of sovereign data and data residency requirements kind of ramp as AI models move into the territory of national security and things like that. So just wondering if you can kind of talk to some of the engineering horsepower internally that you're leveraging to be able to keep a really tight command on capital intensity, and frankly, your gross margins? Olivier Pomel: Yes, I mean, look, sort of the investments we're making right now, you we run most of our workloads on cloud, meaning you'll see all of that in OpEx, nothing CapEx. So we have low CapEx. If it changes, we'll tell you, like if for some reason, we decide to make different kinds of investments and some of it more front some it more CapEx, we'll tell you, but that's not the case today. We are definitely ramping up our investments in particular in R&D and in the scale of the models, we train ourselves and things like that. But right now, there's nothing that you can actually see in the numbers that move any needle but if that changes, also we'll tell you. We don't expect any change to [indiscernible] So that's on the CapEx side. We are very different businesses in that way from the AI lab. On the subject of data residency and sovereignty of AI and things like that. We definitely see more push for that more demand for that in the customer base. And for us, that means investment into areas One is in deploying into more geographies and having more certifications to sell to the public sector and to the highest level of the public sector. So we mentioned today data center in the U.K., for example, and our [indiscernible] certification, we're not stopping there in terms of the certification we're going after with a sell government. So that's an area of investment. Another area of investment is our bring you on cloud products and where we can actually run on our customers' infrastructure. And so we announced that, we read some products there, and we have heavy investment in that area. So we can support customers that want to operate in a slightly separate way from the rest of our customer base. Operator: And our next question is coming from the line of Curt of Evercore. Unknown Analyst: Congrats nice start. Oli, I was wondering if you could just give some thoughts on the idea of sort of security for agents. I think one of the big issues in terms of getting agents into production is sort of the security aspect of that? And how do you see Datadog plugging into that opportunity? And then just a quick one for David. Congrats on the FedRAMP reaching a milestone. Are your partner relationships in place to take advantage of this? I realize it will be a long-term opportunity, but just kind of curious how well established you are down there to start seeing some maybe bookings in that area. Olivier Pomel: Yes. So on the security of agents, we interfere with that in 2 ways. So first, there's the agents will build ourselves because we are building a lot of automation inside of our products for our customers and agents that automatically identify but also resolve issues without you having to do anything. And there -- a lot of it has to do with understanding what permissions to apply, what kind of guardrails to apply, what kind of put to interface with the humans and how to make that the trust worthy and visible in the right way. And so that's pretty much the whole product surfaces to during data. The automation itself actually can work already. So you should expect to hear more about that at our conference. This is definitely one big area of investment for us. On the security aspects of our agents. Look, we believe in securities that you need to integrate, you can't just have point solutions that look at one sliver of the whole security posture. You need to look at everything all together. And that's one of the areas that we are also covering with our security efforts. So that's part of the whole platform action. David Obstler: On the FedRAMP, we've been working on both the different certifications, but at the same time, we've been investing in the go-to-market function, both in terms of reps and channel partners for a number of years. Certainly, there's more investment to be done, but we invested ahead of the certifications because in this sector, building pipeline, et cetera, it takes time. And certainly, the channel partner relationships are a very important part of this. and we have been investing, but also have more investment to do. Operator: Our next question is coming from the line of Patrick Colville of Scotiabank. Patrick Edwin Colville: I guess, Olivier and David, you guys are very deliberate in your messaging on the prepared remarks. And I guess, I want to double check the kind of wording of one of the comments. I think, David, you had a higher degree of conservatism to the largest customer. I guess, did I hear that right? And then does the higher degree of conservatism reference versus the other customer cohorts? Or does it reference versus your guidance philosophy in prior quarters vis-a-vis this customer? David Obstler: It's both. It's the same guidance we used, and we're being very explicit. For all the business, except for the largest customers, we've always taken the drivers and discounting them. We -- for this particular customer, we took a higher degree of conservatism than the other part of the customer base. and discounted it more. And we were, I think, in the remarks and you interpret it correct, very explicit, and you're correct. Olivier Pomel: I wouldn't give that much weight to do a very specific word. We deliberate but not all that deliberate. Similarly, both David and I have a rusty voice today, but there's a man. David Obstler: But I will remind everybody we did not change. So if the question also, I think you asked, is did we change? Or is this a different methodology of both the overall and the large customer, then the guidance the last quarter or the previous. The answer is no. It's the same methodology and that we've had. So no change, but that's has been what we've always been doing. Patrick Edwin Colville: Okay. And Olivier, can I ask about your comments about the hyperscalers because I thought that was particularly interesting. And the reason why is, I don't think you called them out previously before, and they are so prevalent in the modern tech stack. To your point, they could do this themselves. So I guess how are they using Datadog? Is it for more kind of traditional obeservability? Or is it for these newer areas like GPU monitoring that Datadog has performed so well of late. Olivier Pomel: Well, it's both actually. When you look in general at large AI customers, they use Datadog at the way other companies are largely with a fairly broad set of our products to cover the full circuit of liability. What's new is we now have a product for GPU monitor. It's a very new product. And we see the hyperscaters that are coming to us for training workloads in particular being very interested in that. So again, it's too early in the product life cycle and the customer life cycle for these specific customers to go definitive victory there, but we see that as a very encouraging sign of where the market might go in the future. Because we think this might be a bellwether of what the next 10, 100, 500 companies that are going to start training workloads are going to want to do. We have some signs that go beyond the customers we signed this quarter that point that way too. Operator: And our next question is coming from the line of Peter Weed of Bernstein Research. Peter Weed: And I'll echo others on the momentum. Great to see One of, I think, the great successes you talked about was landing a couple of the AI labs for the hyperscalers. Although I think on the other hand, you've talked in the past around hyperscalers are typically building observability in-house. What is it really about the AI workloads that are making it more attractive for them to use Datadog? And what might give you confidence that Datadog might be more persistent with them in these types of workloads and that's kind of a signal for maybe how other customers might use Datadog around AI differentiated from things that they might be able to bring in house to other places? Olivier Pomel: The December all of our customers, it's high stakes, high complexity and not core. They have to be most differentiated. They're going afford to be late, and it's a really hard job to do to do that. So what we built our whole business on, and it's also very true for -- at the highest level for the largest companies. Peter Weed: Yes. No, I was just going to say it. But I guess, the point is you've emphasized that those largest customers have been able to go in-house on some other things. Is there something unique about AI that prevents them from doing that here? Olivier Pomel: Well, I think the urgency of the their development efforts focuses the mines. That's what I would put it. I would say, it forces you to figure out what's core and what's not core and what's the -- who you want to get to the -- what you need to do to maximize your chances of success. And again, it's is the same thinking all of our customers have all the time. I think the equation for hyperscalers has often been say different because they have, let's call it, unlimited access to staffing. And they sort of set their own time horizons for the developments they wanted to make. I think the situation is a little bit different with the ARRs maybe. Operator: The line of Gregg Moskowitz of Mizuho. Gregg Moskowitz: And I'll add my congratulations on a terrific quarter. Just one for me. Oli, I know it's not GA yet, but curious if you have any early feedback on your new cloud prem offering. As you noted earlier, providing the ability of potato to run on customer infrastructure. Could this be another yet another, I should say, incremental growth opportunity for Datadog? What are your expectations for this? Olivier Pomel: Well, definitely, we think -- I think there was a question earlier on data residency and leaving customers environment, we definitely see a great opportunity there. It is chance that a good portion of the market means this way in the future. Today, it's not the largest part of the market, but we definitely see a potential for that. So we're investing heavily in that sort of our product. We're trying to see some interesting customer traction there. So we think this can be another growth lever differently. We also think that it can help us getting into some extremely large-scale workload where customers would not have considered SaaS offering before, where we can be in the running. So that's very exciting. All right. And I think that was our last question. So I want to thank you all for attending the call. And I remind you that we have our conference in just a bit more than a month, and I hope to see many of you there. So thank you all. Operator: This concludes today's program. You may all disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Honest Company's First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to Chris Mandeville, Interim Head of Investor Relations at the Honest Company. Please go ahead. Chris Mandeville: Good afternoon, and thank you for joining our first quarter 2026 conference call. With me today are Carla Vernon, our Chief Executive Officer; and Curtiss Bruce, our Chief Financial Officer. Before we begin, I will remind you that our remarks today include forward-looking statements subject to risks and uncertainties. We do not undertake any obligation to update these statements, and actual results may differ materially. For a detailed discussion of these factors, please refer to our safe harbor statements in today's earnings materials and our recent SEC filings. We will also discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in our earnings release and accompanying presentation, which are available at investors.honest.com. Finally, please note that all consumption data included in our discussion today, unless otherwise noted, will reflect Circana MULO+ measured channel data for the 13 weeks ended March 29, 2026, as compared to the prior year. With that, I'll turn it over to Carla. Carla Vernon: Thank you, Chris, and hello to everyone joining us. Today, I will provide a high-level look at our first quarter performance and offer insights into how we are successfully executing our strategy to profitably scale the Honest brand. Following my remarks, Curtiss will provide greater detail on our Q1 financial results and discuss our reaffirmed full-year outlook. We are pleased with our start to 2026 as our recent actions to optimize our portfolio are bearing fruit. Our Q1 results demonstrate that Powering Honest Growth is leading to an enterprise that is more strategically focused, growth-driven and structurally profitable. Let me begin with our first quarter results. By bringing a sharpened focus to our right to win categories and channels, we delivered organic revenue growth of 3.9% Delivering this growth on top of double-digit growth in the prior year underscores the momentum across our portfolio. As we continue to increase the availability of Honest products, we are also expanding our business across a broader set of households. Over the last 3 years, we've been disciplined in our focus on driving shareholder value through top line scale and bottom line expansion, and in Q1, we did exactly that. In addition to delivering organic revenue growth, our adjusted gross margin of 43.5% was the strongest in our history. This year-over-year gross margin expansion of 480 basis points demonstrates the impact of our Powering Honest Growth initiative. By streamlining the focus to our right to win categories, we have ignited a virtuous cycle that allows our teams to successfully execute against our 3 strategic pillars of brand maximization, margin enhancement and operating discipline. In Q1, our brand maximization strategy of growing revenue scale and consumer strength of the Honest brand was evident. We delivered 8.3% consumption growth significantly ahead of our comparative category average growth of 2.6% and a notable acceleration from the 3.4% we delivered in Q4 2025. Best of all, our momentum continued to be volume-led with unit consumption up 20%. As I shared last quarter, the Honest brand benefits from 2 powerful dynamics. The first and most foundational is the growing consumer interest in cleanly formulated and effective products for people with sensitive skin. The second dynamic is the unique competitive advantage of the Honest brand, which drives our commitment to upholding the highest standards in everything we do. This gives us the ability to build deep consumer trust and loyalty across a diverse range of households. This spans families with babies and toddlers to those with big kids and teenagers and even households with no kids at all. In the United States, 89% of U.S. households do not have any children under the age of 6, while 75% of U.S. households have no children at all. This is why we are purposeful in designing a growth strategy that provides a broad range of products developed with a wide range of ages in mind. As a reminder, according to Numerator, over half of Honest's current buyers are for no kid households. Across all household types, the love for our cleanly formulated and sustainably designed personal care products continues to grow. At Honest, every product must meet our industry-leading Honest standard, which is a set of guiding principles that includes a list of over 3,500 ingredients we do not use and that shapes every step of product innovation and development to ensure our high expectations for safety, efficacy and design. This appeal is evident in our growth. In Q1, our total household penetration reached a new all-time high of 8.1%, up 50 basis points from year-end. We're proud to have welcomed 1.6 million new households over the past year. As we look at the opportunity in household penetration, we still have significant runway ahead. For example, in Baby Personal care, key branded competitors hold household penetration anywhere from 2x to 6x greater than ours. In all purpose wipes, larger brands have as much as 5x to 7x the household penetration of Honest. This considerable market opportunity presents a clear line of sight to our next phase of growth with a focus on transitioning existing category buyers to Honest and welcoming entirely new households into these categories. Now allow me to share more on each of these portfolios, beginning with wipes. In Q1, our total wipes portfolio delivered consumption growth of nearly 25%. With a wide and growing array of formats, Honest wipes are expanding throughout the store and across household types with products ranging from adult flushable wipes and hand sanitizing wipes to toddler flushable wipes and all-purpose baby wipes. The consumption of our all-purpose baby wipes grew 14% this quarter, reflecting just how much our community loves having a stylish pop of design on their changing table, countertop or in their bag for those everyday cleanup moments. This quarter was the national rollout of our updated more shopper-friendly packaging for our all-purpose wipes. With this new bolder, more shoppable package design, it is much easier for people to discover these wipes on store shelves. We introduced our largest packaging format to-date, a mega pack that allows parents to maximize value and stay fully stocked on our wonderful sensitive skin safe wipes. Our Honest flushable wipes are a clear standout in our portfolio, delivering Q1 consumption growth of more than 200% off of a still emerging base. These plush moist and plumbing safe flushable wipes have now grown at more than 10x the category rate for 3 consecutive quarters. As a result, we are now the #4 flushable wipe brand in the category, up from the #5 spot in Q4 2025. This momentum illustrates how our growing Honest community loves the unique combination of fashion, function and flushability we bring to the category, and we're just getting started. A few weeks ago, we adopted a very stylish and thoroughly modern new approach to our marketing of flushable wipes. We kicked things off with a high-profile social media campaign in March, partnering with mega influencers specifically chosen to resonate across our target households. Whether you love an intimate conversation with Tia Mowry, a besty moment with Kat Stickler or a freestyle wrap by Hannah Berner, we had something for you. The response from followers was immediate and the algorithm did its thing. In fact, 1 post amassed 1.5 million views across Instagram and TikTok in just its first 12 hours. Building on that incredible digital engagement, we launched a national campaign in April across a broad media landscape of video, social, out-of-home, festivals and more. The ads, posts and videos put the spotlight on the moments when even the most stylish and glamorous women get honest about why they love our flushable wipes. We didn't stop there. This quarter, we also refreshed our collection of hand sanitizing wipes. In Q1, we relaunched our Lavender and Grapefruit scent in updated counterworthy packaging and rolled out our pocket packs in those 2 fresh scents. For the quarter, we saw a consumption increase of more than 60% on our hand sanitizing wipes, maintaining our position as the #2 brand in the category. Now shifting to Personal Care. Our Personal Care collection delivered consumption growth of 16% in Q1. Our shampoo, body wash, bubble bath and lotion have long been a trusted choice in the 11% of U.S. households with children under the age of 6. In fact, with consumption growing 7x faster than the category, Honest has officially become the #2 brand across total baby personal care, jumping from the #4 position last year. Now to build on that momentum, we are expanding our reach. We are pleased to have introduced our new Pixar Toy Story collection, bringing the Honest standard to the 89% of U.S. households with big kids and kids at heart. Initially, we launched the collection, both in-store and online at Walmart. As of a few weeks ago, I'm excited to announce that we added the collection to Amazon, which will meaningfully expand our reach just in time for the Toy Story 5 movie release next month. Speaking of going to Infinity and Beyond, our brand literally reached new heights recently. During the live stream of the NASA Artemis II mission in April, astronaut Christina Koch radio Houston to ask Mission Control for help in tracking down the Honest lotion the crew had packed on board. It was incredible. It was an organic moment that highlights just how essential our products are to our community even in orbit. Not only was this an incredible affirmation that Honest products are for everyone, but because my own mother was a NASA hidden figure, this was a full circle moment in more ways than one. Finally, let me share an update on our diaper portfolio, where we have seen progress on our performance. Our consumption declines in diapers were nearly cut in half, moderating to negative 9.6% in Q1 from 18.3% in Q4 2025 as we lapped the distribution losses of gender-specific prints at a key retailer late in the quarter. However, our outlook for the broader diaper category remains cautious. We are navigating a highly competitive and promotional environment that we expect will continue to pressure the category. While diapers remain an important option for families looking for the Honest standard of clean, we will prioritize our growth in households with babies and families with little kids through our higher growth, higher-margin wipes and personal care platforms. Despite these localized category pressures, the broad strength of our portfolio is shining through. Our positive Q1 results show that we are financially stronger and on the right path with great possibilities ahead. With that, I will now turn the call over to Curtiss to provide more detail on our Q1 financial results and walk through our reaffirmed full-year 2026 outlook. Curtiss Bruce: Thank you, Carla, and good afternoon, everyone. As Carla mentioned, our first quarter results are a clear indication that the structural improvements we made to our business last year through Powering Honest Growth initiative are driving our growth and profitability today. We are pleased with our start to the year. Before diving into the financial results, I want to provide a brief update on this transformation. We are seeing the immediate accelerated benefits of a highly favorable margin mix, driven by our sharpened focus on our right to win categories alongside the positive impact of our rightsized SG&A. As we look to the balance of the year, we remain firmly on track to realize our expected supply chain efficiencies in the second half of 2026. As a reminder, we expect Powering Honest Growth to deliver between $10 million to $15 million in annualized savings, serving as a powerful catalyst to further fortify our bottom line health and generate the fuel needed to reinvest in our growth. Now turning to our first quarter performance. Revenue was $78.1 million compared to $97.3 million in the prior year period, primarily reflecting the impact of our strategic Powering Honest Growth category and channel exits. On an organic basis, revenue grew 3.9% to $78.1 million. This growth is particularly notable as it was achieved over a difficult prior year comparison, which was bolstered by retailer inventory buildup ahead of the 2025 tariffs. Our performance this quarter reflects strong momentum behind our higher growth, higher-margin wipes and personal care platforms, partially offset by moderating diaper sales declines. These diaper results were driven by the initial lapping of previously disclosed headwinds related to a key retailers transition to gender-neutral prints. Q1 reported gross margin came in at 42.6%, a 390 basis point improvement compared to the prior year period. On an adjusted basis, our gross margin of 43.5% was historically strong, reflecting favorable freight costs as well as mix from our higher growth, higher-margin wipes and personal care platforms, which was accelerated by Powering Honest Growth. These items were partially offset by tariffs. Total operating expenses decreased $1.2 million year-over-year, including a modest restructuring charge related to Powering Honest Growth. Excluding this transitional cost, our adjusted operating expenses declined by $1.8 million. This reduction was driven by our structural SG&A improvements, which more than offset our plan to drive double-digit increases in marketing investments directed specifically toward our higher growth, higher-margin wipes and personal care platforms. Coupling these structural cost savings with our meaningful adjusted gross margin expansion creates a powerful financial engine, underscoring our capacity to strategically reinvest in our brand while rightsizing our SG&A at the same time. Looking at our bottom line, we reported a net loss of less than $0.1 million for the quarter. Q1 adjusted EBITDA was $4 million, representing an adjusted EBITDA margin of 5.1%, down from $6.9 million and a 7.1% margin in the prior year period, largely due to lower reported revenue. Regarding our balance sheet and cash flow, we continue to be in an exceptionally strong position. We ended the quarter with $90.4 million in cash and cash equivalents and 0 debt, while Q1 free cash flow was $3.8 million, a substantial improvement compared to the negative $3 million in the prior year period. This year-over-year increase was primarily driven by continued working capital improvements stemming from Powering Honest Growth and our rigorous focus on operating discipline. During the quarter, we utilized $3 million of our newly authorized $25 million share repurchase program with an additional $8.3 million deployed subsequent to quarter end. In total, these repurchases were executed at an average price of $3.26 per share. These actions reflect our confidence in the structural improvements we have made to our business, the significant financial flexibility generated by our asset-light operating model and our commitment to balancing aggressive reinvestment in our growth initiatives with returning meaningful value to our shareholders. Moving to our outlook. While we are encouraged by our start to 2026, we are also mindful that it is still early in the year, and we are navigating an environment where several macroeconomic uncertainties remain. That said, the actions we've taken to optimize our portfolio have created a much stronger foundation for profitable growth. We have effectively shifted our resources toward the categories where Honest has the clearest competitive advantage, and our 2026 framework reflects both the early returns of that discipline and our prudent approach to the balance of the year. With that context, we are reaffirming our full-year 2026 outlook. We continue to expect the following: reported revenue declines of 18% to 16% due to our strategic exits, organic revenue growth of 4% to 6%, in line with our long-term algorithm, adjusted gross margins in the low 40s and adjusted EBITDA of $20 million to $23 million. As I wrap up, I want to emphasize how pleased we are with our start to the year. We believe our first quarter results clearly demonstrate that sharpening our focus on our right to win categories has built a resilient financial foundation. We are executing with strict operational discipline and maintaining a clear line of sight towards sustainable, profitable growth. With that, I will turn it back to Carla for final remarks. Carla Vernon: Thank you, Curtiss. As we shared last quarter, Powering Honest Growth was about unlocking the full potential of our business model by serving as a force multiplier to our strategic pillars. We believe that our Q1 results confirm that the heavy lifting we did in 2025 is paying off. I'd like to thank our team of Honest Butterfly for their commitment and diligence in building our shared vision for Honest. Now more than ever, Honest is well positioned to deliver strong value creation for investors, expand our Honest community and build the enduring strength and meaning of the Honest brand. With that, I will now turn it over to the operator to open the line for questions. Operator: [Operator Instructions]. Your first question comes from the line of Aaron Grey with AGP. Aaron Grey: First question for me, I just want to talk a little bit about the reiterated guidance. I can certainly understand the commentary in terms of wanting to have to take a prudent approach for the remainder of the year. Just given if you take the run rate for 1Q, that kind of takes you to the high end of your guide now. Curious if there's any shipment timing that hadn't impacted the Q or any type of seasonality we should be thinking about ahead just given some of the other top line initiatives we talked about right now -- earlier on the call that should obviously lead to some nice sales trajectory. Curtiss Bruce: Aaron, this is Curtiss. We are certainly pleased with the revenue growth in Q1. It represents a very good start to the year and in line with our expectation and I say we're equally pleased with the consumption of 8% growth as well, and that was on our higher growth, higher-margin portfolios in Wipes and Personal Care. As you think about the full-year, we're just reiterating our guidance, right? We are still expecting to be able to deliver on the 4% to 6% organic growth. We don't have any concerns coming out of the quarter that there was any dislocation in revenue performance and the consumption performance. Aaron Grey: Second question for me is in terms of marketing spend, some uptick there sequentially to about $14 million. Maybe talk about some of the strategy that you have. You talked about it a little bit, Carla, in your prepared remarks. I'd love to hear in terms of some of the initiatives you have to help support the growth for some of the brand launches and expansion there. Carla Vernon: Sure. Why don't I get started? Aaron, we really believe that marketing is a force multiplier here at Honest, and it has always been an important piece of the fabric of building this powerful brand. We think we've got a strategic advantage because ever since our beginning, we've been very brand forward, very consumer forward. We know that this investment we're making in marketing is going to be a very powerful driver of this improved awareness that's key to our growth strategy. As you know, we have -- the success we've demonstrated on household penetration gains have been very balanced across our products and our consumer types, and that's because we've been very intentional as we allowed ourselves to be more focused coming out of Powering Honest Growth. That degree of focus is allowing us to point our marketing dollars and our marketing strategies strongly towards our key categories. In this quarter, what you've already seen is we kicked off a fantastic marketing campaign against our flushable wipes business. You remember in my comments, we are now the fourth largest brand in flushable wipes, and we delivered more than 200% consumption growth in the quarter. We just about 4 weeks ago, started kicking off a very groundbreaking campaign. You can see some images from that campaign in our investor slide presentation, our social media feed as always. This campaign really takes a different approach than other flushable brands in the category. We are living up to our name of being honest, right? We've got these really glamorous, beautiful women talking about the role that a flushable wipes plays in their life and why they love our particularly soft and plush and cleanly formulated wipes. We've got that campaign off to a very strong start. It includes a social media lens where we've got mega influencers across different demographics. Also, what we have going now is, as I mentioned, our Toy Story 2 launch behind our new portfolio of kid personal care kicked off as Pixar began the early initial rounds of driving buzz against that movie. That movie launches in June. We're really just getting into the window where our own awareness driving of that portfolio is heating up as well as Disney's. We've got some other great stuff planned for later in the year that I look forward to coming back and talking to you about. Curtiss Bruce: Yes. Aaron, let me just reiterate and maybe add on to Carla's comments. We definitely believe that brand building is a strategic advantage for us here. We're going to continue to invest in marketing as we look to strengthen the business and create a sustainable growth platform. This is why it was so important for us to execute Powering Honest Growth. The gross margin acceleration, the gross margin expansion is really the fuel that we need in order to continue to invest in marketing to have a long-term sustainable business. Operator: Our next question comes from the line of Anna Glaessgen with B. Riley Securities. Anna Glaessgen: In the past, I think the classical brand discovery was talked about through diapers and then expanding through the broader categories that you guys offer. Now while we've seen diapers declining, we're also seeing continued nice gains in household penetration. Can you speak to how consumer discovery of the brand has shifted and how your go-to-market has shifted in response? Carla Vernon: Wonderful. I'll give that a try. You are right, Anna. We are at our all-time highest household penetration, which is such an affirmation that we have picked categories where consumers love what we have and where our portfolios are very expandable across demographics and across types. A few things drive that. I've talked a lot about the fact that the largest percent of households in America are not, in fact, the littlest baby households, but they are both those bigger kid households and the households like my own, my daughter ought to go off to college where maybe there was a kid in the household and there isn't anymore as well as households where maybe there were never any children in the household. What we found is that the benefit of Honest, which is that clean formulation, sensitive skin safe, that is relevant, not just for babies, right? That is relevant. We know that a degree of adults describing themselves as having sensitive skin is as high as 50% to 70% based on certain research. Honest products that we make have been relevant to a broader set of households for a while. We already sell more than half of our -- or excuse me, more than half of our consumers are already in these households. What we're doing now is really putting the strategy and product innovation road map together with that consumer base and making sure we talk to them. This Flushables wipe campaign that I just talked to you about is a great example. We are talking to adults about why they will love Honest products. That is really a new form of expanded investment, and we're seeing it work because, of course, those businesses are -- the growth of those businesses is outpacing the pressures we're seeing in the diaper category. We feel really good about what that shift in mix and shift in focus has done for our business model. Anna Glaessgen: Then one follow-up on marketing. Nice to see the investment in Wipe and the activation there, as you noted in the first quarter. Should we take that level of spend and assume that continues? Or was it elevated given the launch cadence that hit that quarter? Curtiss Bruce: Yes. I'll take that one. This is Curtiss. As we think about marketing, we -- you're correct, we did have an increased level of investment in Q1. That was behind the activity that Carla previously mentioned. Like I said in the earlier remarks or the earlier question from Aaron, we are going to continue to invest in marketing. We're not going to sort of guide expressly to that line item, but the investment in marketing is going to be fueled by Powering Honest Growth, and then our -- both the revenue guidance and the EBITDA guidance reflect that increased investment. Operator: Our next question comes from the line of Andrea Teixeira with JPMorgan. Andrea Teixeira: Amazing story about your mom. Carla, I was just hoping Curtiss to talk about like the competitive environment we hear in general. I guess you're above and beyond that in terms of like your premium positioning. But on the diaper segment, there has definitely been a more competitive stance from a lot of the players. If you can comment on that. Conversely, I know you've been getting a lot of new products in and distribution, and you clearly accelerated the delivery this quarter. I was just hoping if you can comment about like what are the learnings and what is the -- what are you seeing towards the back end of the year, as Aaron was saying in his question, right? I mean, you probably would have a potential to raise the guidance. I understand that, obviously, it's early in the year, but how we should be thinking of what's happening -- what has happened in the quarter and what it informs you through the rest of the year? Carla Vernon: Great to hear from you, Andrea. Let me begin with the diaper portion first, and then I'll move on to the new product and distribution learning and our approach to that. Yes, we agree. The diaper category is under an enormous amount of pressure. That pressure is multifaceted, as we know, with macroeconomic pressures facing consumers, along with just increased competitive landscape that is more heated up than we've seen it in previous years. For us, where we feel encouraged is that as we modeled our diaper business, we knew it was important to get past these distribution losses. Now that we are really lapping those distribution losses that we've been talking to you about, and we saw our own declines cut in half then that told us that as we've been looking at the category, things are playing out according to what we've built into the model and according to what we expected. With that said, we know that those baby households are important, and so we think we show up differently than most of the other brands in the baby aisle in the baby category because we have the power of a single brand that applies broadly across even when just in the baby set with great meaning because people trust our products to really do what they say. As we are seeing, there are places where people feel that is very important and worth it to them, right? That is because I think that's clean trust we've always had. We love to think it has to do with also our beautiful design. It just they're beautiful products to use as we know, as well as making sure that they deliver on their sensitive skin friendly benefits. We've got the power of a brand that can press multiple different ways in the aisle. That's why we're still seeing our growth is offsetting those declines that we're managing in diapers. When I think about new products and distribution, I guess I'll pick up on that same storyline, which is the Honest brand was always built broadly even from its beginning. What we have learned is that as we bring the brand into things like kid personal care, adult flushable wipes, hand sanitizing wipes, makeup remover wipes, trial and travel, we are finding the brand is a fit no matter where we take it to new spaces in the store, we take it to new rooms in anybody's household, we take it to new consumers. That does come with the need to invest in each of those categories. We have to show up and talk to that consumer group in that particular category against that job to be done. That's why you've seen that the team has built a financial model that allows us to go after these higher-margin categories while reinvesting. Curtiss Bruce: Then let me just add because we're talking about innovation, we're certainly pleased with the start to Q1, particularly around the innovation. Our 2026 plan and our 2026 guidance on organic revenue was really balanced. It was innovation, velocity and distribution, and so this was not a singular one driver plan. We are still very confident in our ability to deliver with the success that we had with innovation and the distribution that went into the market in Q1. Andrea Teixeira: If I can squeeze one about e-commerce and how you are potentially outperforming. I think it was always the case, but I just wanted to check in, in terms of a channel performance against Biggs? Carla Vernon: I think you're talking about broad national e-commerce. Is that right, Andrea? Andrea Teixeira: Yes. Carla Vernon: Yes, we are continuing to be very pleased. First of all, we're seeing that across the board, whether it's your traditional brick-and-mortar retailers as they continue to build out their own focus in e-commerce in AI-driven purchases and shopping behavior or where you're looking at the sort of original pure-play e-commerce brands. Our brands, they really fit those models. We know that everyday essentials and consumables do very well in e-commerce. We're seeing a lot of strength for HTC in e-commerce in general. Honest was -- we love to talk about this, right? We were born digital. We were one of the original DTC brands. We were built by the digital generation, and we were built for the digital generation. Our products really come to life very well in an e-commerce channel, and we're seeing that the algorithm plays out very strongly. with that being certainly one of the fastest places we deliver growth. Operator: [Operator Instructions]. Our next question comes from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey: Two questions. One, as you think of the tracked channel consumption, which is up, I think, 8.3%, a real acceleration from the fourth quarter. As you think about going forward, how do you see the levels of demand? Is it new product drivers? Is it category drivers? How would you -- how are you planning go forward? Then on the margin side, with the change in energy prices, how is it impacting your pricing, your customer? Any shifts that you've been seeing? How has it adjusted by channel? Carla Vernon: Dana, let's start with that consumption acceleration. As you noted, when we exited the previous quarter, Q4, we reported consumption growth of 3%. In this quarter, we reported consumption growth of 8%. That growth is very encouraging to see given all of the complexities we've been talking about in the macroeconomic environment. The way I think about the drivers and how that would play out for the rest of the year, this lapping of the distribution declines in diapers is certainly one of the components of why it is sort of more wind at our back on a consumption basis with regard to that piece of our portfolio. We should still see that in the year, but as we've talked about, the diaper category has a lot of pressures. That's why we want to make sure our guidance has got that consideration for the unknowns in the diaper category. We also -- well, let me step back and say, Curtiss talked about our growth based on 3 very balanced drivers, right? We've got innovation as a driver. That includes innovation we launched last year, like flushable wipes entering brick-and-mortar for the first time last fiscal year. That stuff takes a while to catch on and drive awareness. The fruit continues to pay out and grow. Now we've got the awareness driving campaign to act as continued wind in the sales for that type of business. Remember, I also mentioned last quarter, we did a considerable amount of our innovation launches for the year in the first quarter intentionally so that we have the ability to drive that all year. New items are a piece of our growth for the year. Then you've got the velocity and the continued availability increases. Those make out really the 3 ways we look at our growth: innovation, the velocity, velocity that consumers -- when they try our products, they love it. We have great repeat rates, and we are driving a lot of marketing to drive awareness. Then the distribution growth. There are a lot of drivers for us on distribution growth. Sometimes our brand is already in a retailer, but we might only be in the baby set. When we enter and step our way into the flushable lifestyle, that drives a lot of distribution for us even in a retailer we're already in. Think of the kid personal care business the same. We were already in Walmart. We were already in Amazon, but that was an entirely new sort of branch to our tree, if you will, that we are now able to get the benefits of as we launch innovation and expand even in retailers we're already in. Curtiss Bruce: Then I will take the inflation and fuel question here. We continue to monitor and evaluate the impact that the volatility in our macroeconomic environment could have on our business. This is where our asset-light model, our inventory position and the cost mechanisms we have with our suppliers enable us to manage risk in the short term. As we think about 2026, we are confident in our ability to still deliver against our expectations. Operator: Our next question comes from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Just quickly for modeling purposes, last quarter, you mentioned guiding to organic growth improving sequentially throughout the year. Is that still the right way to think about guidance right now? Curtiss Bruce: Yes. Owen, it's a good question. We are pleased with our start, both on net revenue and on consumption. That was the sequential improvement that we talked about, and so that's in line with our expectations. We are still very confident in our ability to deliver the annual guidance, but we're not offering any updates on the cadence. Owen Rickert: Then secondly for me, what early reads are you seeing from some of those newer product launches like the Sensitive Rich cream, Send Wipes and Hydro Rich cream just in terms of potential velocity and repeat? Carla Vernon: A lot of those items launched in Q1, and so often in my experience, Owen, it is still early to have a true velocity run rate on new items like that. What becomes important is making sure that the shelf sets are all settled in so that we really have a clean read on that data and then driving that awareness. What I would really anchor us on is that in almost any category where you look at Honest, our household penetration is so low that each of these new products really gives us an opportunity to reach into a new household and introduce the brand. For example, you brought up some of our baby items, Sensa Rich Cream, and that is in our Personal Care portfolio. Our Personal Care portfolio is still only at 2% household penetration, whereas what we see in brands that have been around the category longer, we see those with anywhere from 5 to 7x as much penetration as we have. As we continue to make our way in these categories, drive familiarity with the awareness that the Honest brand is there, we feel very, very confident that there is so much runway from our loyal consumers as we continue to drive that growth. Operator: I'm showing no further questions. With that, I'll hand the call back over to CEO, Carla Vernon, for closing remarks. Carla Vernon: Well, thank you, everybody, for joining us this quarter as we continue to go to Infinity and beyond. We look forward to talking to you next quarter. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Greetings. Welcome to Shake Shack's First Quarter 2026 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Alison Sternberg, Head of Investor Relations. Thank you. You may begin. Alison Sternberg: Thank you, operator, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Rob Lynch. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our shareholder letter. Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 26, 2026, and our other SEC filings. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our first quarter 2026 shareholder letter, which can be found at investor.shakeshack.com in the Quarterly Results section and as an exhibit to our 8-K for the quarter. I will now turn the call over to Rob. Robert Lynch: Thanks, Alison, and good morning, everyone. I want to start by thanking our incredible team members across the globe who continue to bring enlightened hospitality to life every single day. Your dedication to serving our guests with care and kindness is what makes Shake Shack special. I'm grateful for everything that you do. Turning to our results. I'm pleased to report that our first quarter performance showcases continued sales momentum in our company-operated Shacks and meaningful progress against our 6 strategic priorities for 2026, which are building a culture of leaders, optimizing restaurant and supply chain operations, driving comp sales behind culinary marketing and digital innovation, building and operating our Shacks with best-in-class returns, accelerating our license business and investing in long-term strategic capabilities. For the first quarter, we grew total revenue by more than 14% -- much of this growth came from same-Shack sales growth of 4.6%, including a 1.4% traffic growth. These strong sales and continued traffic growth were achieved despite significant weather impacts that contributed 240 basis points of negative comp in the quarter, negatively impacting our EBITDA for the quarter. Despite these headwinds, our sales and traffic momentum continued, and we have now delivered 3 straight quarters of traffic growth. At the core of our sales performance is, first and foremost, strong restaurant operations that deliver guest satisfaction. Secondly, is culinary innovation that differentiates our brand. And lastly, our investments in targeted digital media to create awareness of our guest value proposition. In Q1, we increased investments in delivering guest satisfaction, driving comp and opening new Shacks. And despite elevated beef costs that continue to persist, we were able to expand our restaurant-level profit margin by 50 basis points year-over-year to 21.2%. We continue to show our ability to grow both top line sales and operating margin, primarily through ongoing traffic driving programs and operational and supply chain productivity. We also delivered our largest first quarter of new units ever with 17 new Shacks. We continue to successfully bring Shake Shack to new and underpenetrated markets, many outside of our historical footprint. Given our strong current cash-on-cash returns and expected future returns, we will continue to accelerate our company-operated development efforts. Consistent with this strategy, we are now guiding to 60 to 65 new company-operated Shacks for 2026, an increase from our prior guidance of 55 to 60 Shacks. I would call out that opening this higher number of new Shacks in Q1 did increase our total preopening costs, which weighed on our adjusted EBITDA for the quarter. Throughout the quarter, we made strategic investments to support our sales driving initiatives and new unit openings, both of which support our multiyear growth plans. These investments allow us to bring Shake Shack to more communities and create awareness of what makes our food and hospitality so special. These investments continue to enhance our strong value proposition and drive traffic in this value-oriented environment. As we work to continue to enhance our value equation in a very competitive marketplace, we're focused on making the right investments in our food, our assets, our team members and our traffic-driving strategy. As a result of the weather headwinds that we experienced and our investments in additional new store openings, our first quarter adjusted EBITDA did not meet our short-term quarterly expectations. That being said, we are confident that the foundation that we are building today positions us for long-term growth, and we remain confident in our long-term strategic plan. Still, given the volatility in the global and domestic marketplace, we are broadening our 2026 adjusted EBITDA guidance to a range of $230 million to $245 million. Despite that volatility, I am excited to share that our sales momentum is building in Q2 and that we are reiterating our 2026 guidance for Shake-Shack sales, restaurant level margins and our long-term financial targets. After making the strategic decision to focus our traffic-driving investments in May and June, we're excited to see very strong performance to start May behind the launch of our Baby Back Ribs Sandwich and anticipate strong sales growth in June as we expect to leverage the incremental traffic in some of our largest markets driven by the World Cup. And despite a slower start in April, driven in part by the shift in spring break timing associated with the Easter holiday, we're confident in our guidance for Q2 at 3% to 5% comp growth. Over the last 2 years, we have built a best-in-class executive team. A performance-driven restaurant operating model, a sales engine that can consistently drive transaction growth, a supply chain that is increasing productivity and a domestic development capability that is profitably accelerating the growth of our restaurant count on our way to 1,500 company-operated Shacks. Shake Shack is well positioned for the balance of 2026 and beyond. Now I will discuss our progress against our strategic priorities. At Shake Shack, our performance is directly correlated to the quality of our team members. I've invested a significant amount of my time over my first 2 years cultivating an executive team that is uniquely positioned to achieve our ambitious aspirations. Today, I'm excited to announce the newest member of our executive team. Michelle Hook will be joining Shake Shack as our new CFO next week. When we set out on this search, I thought that it would be very difficult to find a new CFO that met every criterion that was important to us. I'm ecstatic that we found a candidate that does. Michelle comes to Shake Shack with over 25 years of public company restaurant experience, including the last 5.5 years where she has served as the CFO of Portillo's. Michelle's experience leading FP&A, accounting, treasury and IR, coupled with her long track record of leading teams with a commitment to building a strong culture will allow her to hit the ground running and make an immediate positive impact on our organization. I look forward to introducing her to our investment community over the coming weeks. As we look to the balance of 2026, our focus will be on delivering significant value to our guests, leveraging both the numerator and the denominator of the value equation to accomplish this objective. We will employ a balanced approach leveraging premium core ingredients, culinary forward LTOs and a focus on guest satisfaction through enlightened hospitality to drive the numerator of the value equation. For the denominator, we will continue to focus on decreasing our reliance on base pricing and employ strategic focused price pointed offerings like our 135 platform to profitably grow our transactions in a value-oriented macro environment. We continue to make strategic investments in marketing to drive traffic and frequency. These investments have been primarily focused on creating a foundation for long-term revenue growth as opposed to short-term traffic burst. We are accomplishing this by motivating new guests to enter into our app and digital channels. We have also seen a frequency increase amongst our current guests in these channels. This increase in the population of our digital community will support the launch of our loyalty program towards the end of this year, and the results of these investments have exceeded our expectations. We have grown both our digital channel guest count and app downloads by over 35% year-over-year. Even more importantly, the lifetime value of our digital channel guests has grown by approximately 20%, driven by an increase in frequency from this highly engaged group. These guests visit us more often and spend more on an annual basis. With these strategic platforms, we are offering an improved value equation across all household incomes, which we believe will result in a broader guest base, sustained loyalty and greater lifetime value. These are long-term benefits from our current investments. On the brand building front, our We Really Cook campaign is resonating. We are seeing significant quarter-over-quarter increases in guest engagement on key media platforms as we refine our targeting and creative execution. This campaign reinforces what sets us apart, our commitment to fresh premium ingredients, cook-to-order and true culinary craftsmanship. Our culinary team continues to deliver bold flavor forward innovation. Adding to our successful return of the Korean-inspired menu launch in January, we introduced our Clubhouse Pimento Cheeseburger and Pimento Chicken Sandwich in March, which was inspired by a Southern Classic and reimagined with a Shake Shack Twist. These items performed strong nationwide and contributed to our sales growth in Q1. In late April, we announced the return of our Smoky Barbecue menu platform, anchored by a first-of-its-kind barbecue boneless Baby Back rib sandwich, along with a new Mac & Cheese side. This premium protein innovation is indicative of our ability to successfully deliver more than just the best burgers in the business. The BBQ Rib Sandwich is made with 100% baby Back pork ribs that are hand deboned, slow cooked for 9 hours and marinated in a proprietary barbecue spice blend with apple cider vinegar. It's a perfect example of our ability to develop and execute innovative Shake Shack-only recipes at scale without disrupting our operations. I'm happy to report that both the Baby Back Rib Sandwich and the Mac & Cheese have significantly exceeded our expectations and are driving outpaced traffic and ticket growth in May. We're also expanding into new beverage occasions intended to increase relevancy in all dayparts. Our new sparkling cucumber basal lemonade, our first sparkling lemonade, provides a delicious refreshing offering to complement lunch and dinner, but also gives us a platform to drive more afternoon beverage occasions with expected strong guest satisfaction and strong margins. All of this innovation is supported by our disciplined stage-gate process that has resulted in a 12- to 18-month pipeline of innovation, which positions us to deliver a consistent cadence of high-impact menu items. Our innovation strategy is driving both near-term performance and long-term brand relevance as we continue to differentiate Shake Shack through culinary leadership. We will continue to drive sales and traffic growth while improving our productivity across the company, and we are confident in our ability to drive continued margin improvement in a competitive inflationary environment. Foundational to those objectives is the recently announced Project Catalyst. Our comprehensive technology initiative designed to make us more productive across our company, which will be critical to creating long-term G&A leverage. Through strengthening our digital, data and operational framework, we expect to improve restaurant execution, deepen guest engagement and unlock enterprise productivity, all while enhancing our ability to deliver enlightened hospitality. Let me walk you through the key components. First, we're modernizing our restaurant systems. We've partnered with Q, a cloud-native unified commerce platform to upgrade our point-of-sale and kitchen display systems. These new systems will improve throughput, order accuracy and consistency, particularly during peak periods. They'll also enable better orchestration across digital and in-Shack ordering channels, giving our team members faster, more reliable tools so they can stay focused on what matters most, delivering hospitality to our guests. Second, we're building Shake Shack's first-ever loyalty platform. This will be a very meaningful platform for our brand. Our objectives in launching this new platform are to drive frequency, retention and lifetime value while enabling more personalized guest communication and enlightened hospitality. It's not just about points and discounts. This capability supports our continued journey towards data-driven targeted engagement that resonates with our guests and creates deeper connection with the Shake Shack brand. It will help us to reinforce the core principles of enlightened hospitality that launched Shake Shack as a company and continue to differentiate us in the marketplace. Third, we're investing in a new generation of proprietary AI capabilities, embedded directly into daily operations. These AI tools will provide real-time operational insights, alerts and recommendations at the Shack level and for our above Shack operational leaders, enabling faster and better informed decision-making for our restaurant operators and support teams. This intelligent operating layer will deliver measurable productivity gains and form the foundation for ongoing performance enhancement over time. Finally, we're advancing a unified data and analytics platform that brings together operational performance, guest behavior and advanced analytics. This data backbone will support improved service speed and accuracy, more personalized guest experiences and the continued expansion of AI-driven capabilities at scale. We expect to begin rolling out these systems in the second half of 2026, and these investments position us to deliver an even better experience for our guests and team members. Turning to operations. Our operations have never been stronger, and I couldn't be prouder of our team. In March, we hosted our first ever Operations Leadership Summit, where we celebrated an outstanding 2025, recognized best-in-class leaders across our company and outlined our vision to meet both our short- and long-term goals. Our operational focus in 2026 centers on 2 things our guests value every single time they visit us, our hospitality and the accuracy of the order that we deliver. Over the past 2 years, we've driven meaningful gains in speed of service, and we are now averaging under 6 minutes on ticket times of cook-to-order food, a significant improvement. However, speed cannot come at the expense of accuracy, food quality or hospitality. With the tools that we are putting in place, we expect to not only get faster, but to also get better, delighting our guests, which will in turn drive frequency and loyalty over the long term. Our operations performance scorecard continues to serve as the backbone of how we drive continuous improvement, and we've updated the metrics to reflect the sharpened focus on hospitality and accuracy. Even as a growing share of orders flow through our kiosks and digital platforms, we refuse to let efficiency come at the expense of connection. We've intentionally redeployed labor toward guest engagement through our front-of-house hospitality champion role. It's a deliberate investment to ensure there's a human touch point in every Shack, regardless of how the order was placed. I'm also happy to report that our team member tenure and retention has continued to steadily increase. You might think that more rigor and operating discipline would create more turnover, but it's just the opposite. Our team members are experiencing a high-performance environment, seeing opportunities to advance their careers and they're staying longer. That tenure builds experience, which makes them better able to serve our guests, and that makes us a better operating company. It also allows us to develop the leaders of tomorrow, which will support our continued new Shack growth. This culture has led to improved guest satisfaction across restaurant cleanliness, friendliness and overall experience. And we're delivering these results by making sure that we have the right labor in the right Shacks at the right time. Supply chain optimization continues to deliver the highest quality ingredients in a more productive way. We've restructured our internal teams to unlock productivity across every node of the supply chain model. And we've built a strategic sourcing capability that is fully connected end-to-end, delivering the cost visibility that we need to make smarter, faster decisions. We're partnering in new ways with both new and current suppliers, optimizing our distribution network and leveraging our scale to drive efficiencies, all while maintaining the quality standards that define our brand. In Q1, we realized cost savings through strategic sourcing initiatives, successfully transitioning key ingredients to new suppliers who meet our rigorous specifications while providing better economics. Before making any changes, our culinary, quality assurance and operations teams test and validate that if there is any change in taste or guest experience, it is for the better. These improvements are flowing through to better unit economics and directly supporting our priority of building and operating our Shacks with best-in-class returns as we scale. Turning to our license business. Our license business continues to be a long-term strategic engine for EBITDA growth. However, the short-term results have been and will continue to be impacted by the ongoing conflict in the Middle East, driving some of our rationale for a broader adjusted EBITDA guide in 2026. The conflict has led to business disruptions ranging from temporary closures to reduced operating hours and delivery-only operations for periods of time. Beyond these impacts, inbound tourism has slowed substantially, which has further pressured sales, particularly at high-traffic locations. Despite these near-term headwinds, we stand side-by-side with our license partners and the long-term opportunity in these markets. We've seen some delays in opening time lines, but as of now, we still plan to achieve our target of 40 to 45 licensed unit openings in 2026. We will continue to monitor the situation closely and provide additional updates as we move through the year. Domestically, our company-operated development pipeline remains robust. As I mentioned, we had a momentous first quarter with a record 17 openings compared to 4 openings in the first quarter last year. We also opened new markets, such as Naples, Florida; Tucson, Arizona; Athens, Georgia and East Lansing, Michigan. This is the start of a record year of growth for Shake Shack as we march toward opening 60 to 65 new company-operated Shacks. We continue to see strong results from our cost containment strategies and see similar build costs for the class of 2026 as compared to last year. We also continue to invest in our existing Shack base through targeted remodels and refreshes that enhance the guest experience and improve operational efficiency. I'm energized by the momentum in our business and the opportunities that lie ahead. We have a clear strategy focused on driving same-Shack sales growth and transactions, expanding our footprint with disciplined development and improving profitability across the enterprise. Project Catalyst will provide the technological scaffolding that we need to scale efficiently while enhancing the experience for our guests and team members. Our marketing investments are building brand strength and driving consistent traffic growth. Our culinary innovation is creating excitement and brand affinity, which differentiates us in the marketplace. And our operational improvements are delivering better guest experiences and stronger unit economics. Most importantly, we have an exceptional team executing with discipline and passion. From our restaurant team members who serve our guests every day to our leadership team driving strategy and innovation, we have the right people focused on the right priorities. I've never been more confident in our ability to build Shake Shack into the best restaurant company in the world. Our premium quality enlightened hospitality and a focus on supporting our team members drives prosperity for Shake Shack and our shareholders. And with that, I'll turn it over to Alison to provide more details on the quarter. Alison Sternberg: Thank you, Rob, and good morning, everyone. Our first quarter results showed the resilience of our business in the face of a challenging macro environment and inclement weather. The quarter marks our 21st consecutive quarter of positive Same-Shack sales growth alongside continued year-over-year restaurant level margin expansion. First quarter total revenue reached $366.7 million, up 14.3% year-over-year, supported by the opening of 17 new company-operated Shacks and 5 new licensed Shacks, leading to 14.1% year-over-year growth in system-wide sales. Our licensing revenue was $12.7 million in the quarter, with licensing sales of $204.3 million, up 13.8% year-over-year, driven by continued strength in Asia, U.S. airports and the United Kingdom. Sales growth was partially offset by the ongoing conflict in the Middle East, where we had temporary closures in 17 licensed Shacks in Q1 with 3 locations at airports and a transit center remaining closed from the onset of the conflict through the end of the quarter. In our company-operated business, we grew Shack sales 14.3% year-over-year to $354 million. we generated roughly $72,000 in average weekly sales, flat year-over-year. We delivered 4.6% Same-Shack sales growth with 1.4% positive traffic and 3.2% price/mix. Our Same-Shack sales growth was driven by the success of our culinary and marketing initiatives despite a 240 basis point headwind due to inclement weather in Q1. Our pricing remained disciplined. And in March, we rolled off the price we took on our delivery channels last year, an approximate 1% impact. In-Shack menu prices for the first quarter came in at about 3%, while blended pricing across all channels increased approximately 4%. This compares to approximately 5% last year, demonstrating our ability to deliver positive Same-Shack sales with less dependence on price increases. April AWS was $75,000, down 2.6% year-over-year and Same-Shack sales decreased by 0.6%. The month Same-Shack sales were negatively impacted by approximately 200 basis points, largely due to the shift of Easter weekend spring breaks into March this year compared to last. Additionally, we continue to see declines in tourism in our largest urban markets, particularly in New York City. First quarter unit development was strong with 17 new company-operated Shacks ahead of our guidance for 12 to 14 new Shack openings. As a result of these Shacks opening earlier than planned, preopening costs were higher in the first quarter to support our strong opening schedule for 60 to 65 new Shacks in 2026. First quarter restaurant level profit was $75.1 million or 21.2% of Shack sales, expanding 50 basis points versus last year. Strong benefits from our labor management strategies alongside procurement-driven cost improvements and other items in our commodity basket helped offset higher beef costs and demonstrate our ability to sustain profitability despite beef headwinds. That said, restaurant level margins came in slightly below our expectations for the quarter due to higher other operating expenses, mainly due to the timing of investments in repairs and maintenance expenses to support our Shacks and some mix impact of our marketing initiatives. In the first quarter, food and paper costs were $100 million or 28.3% of Shack sales, 50 basis points higher versus last year. The increase year-over-year was mainly driven by the mix of promotional activities to support our culinary innovations during the quarter. Blended food and paper inflation was down low single digits with beef costs up low teens and paper and packaging costs down low single digits year-over-year. Through proactive procurement and cost mitigation initiatives, our teams meaningfully offset continued beef inflation without taking additional price. Labor and related expenses totaled $92.7 million or 26.2% of Shack sales, representing a 180 basis point improvement year-over-year, driven by more efficient scheduling and deployment through our labor management strategies. As we move through the year and fully lap the benefits of the implementation of our new labor model, the year-over-year improvement in the labor line will be more muted with our supply chain initiatives driving restaurant level margin expansion going forward. Other operating expenses were $57.5 million, or 16.2% of Shack sales, 60 basis points higher versus last year, largely driven by the timing of repairs and maintenance expense and the growth of third-party delivery. Our digital sales mix increased to 39.9% in the first quarter. Occupancy and related expenses were $28.7 million or 8.1% of Shack sales, 20 basis points higher year-over-year. First quarter G&A totaled $53.6 million or 14.6% of total revenue, reflecting incremental investments in marketing and technology as well as continued investments in our people to support growth and strategic initiatives. As we mentioned on our fourth quarter call, our marketing plan for 2026 is more evenly distributed across the year. As a result, our quarterly G&A expense is expected to remain relatively steady from an absolute dollar standpoint each quarter of 2026 and will be relatively consistent with what we spent each of the last 2 quarters to land within 12% and 13% for the year. This results in a higher year-over-year G&A step-up in the first half, tapering off in the back half of the year. As we discussed last quarter, we plan to deliver G&A leverage in 2027. Equity-based compensation was $5.2 million, 13.6% higher year-over-year with $4.6 million hitting G&A. Preopening costs were $6.9 million, up 113.5% year-over-year, reflecting 17 new Shack openings in Q1 2026 versus 4 in Q1 2025. We have approximately 37 Shacks under construction and the largest pipeline of new Shacks that we've had in our company history. Adjusted EBITDA of $37 million or 10.1% of total revenue declined 9.3% year-over-year, resulting from sales underperformance due to weather and macroeconomic factors alongside strategic investments to support our multiyear growth plans. Depreciation was $29.1 million. The increase in depreciation year-over-year, both in the first quarter and throughout 2026 is a result of more new company-operated openings, coupled with new technology investments. Net loss attributable to Shake Shack, Inc. was $290,000 or a loss of $0.01 per diluted share. Adjusted pro forma net income was $88,000 or earnings of $0 per fully exchanged and diluted share. Our GAAP tax rate was 33% and our adjusted pro forma tax rate, excluding the tax impact of equity-based compensation, was 25.5%. We ended the quarter with $313.7 million in cash and cash equivalents on our balance sheet. Now on to guidance for the second quarter and full year 2026. Our outlook assumes no major changes to the macro or geopolitical environment. For the second quarter of 2026, we expect system-wide unit openings of 24 to 27 with 16 to 19 company-operated openings and approximately 8 license openings. Total revenue of $424 million to $428 million with same-Shack sales up 3% to 5% licensing revenue of $13.5 million to $13.7 million and restaurant-level profit margin of 24% to 24.5%. Our pricing plans for this year remain modest, assuming no outsized macro changes. We plan to exit the second quarter with approximately 4% overall price and continue to expect price across all channels to be up approximately 3% for the full year. We will continue to evaluate the need for pricing as our dynamic cost structure continues to evolve, but our intention is to take a limited amount of pricing. On to our full year 2026 outlook. Given the impacts that we've seen in the first quarter, we now expect to open 60 to 65 company-operated Shacks this year as our new Shack openings are tracking ahead of plan and more heavily weighted to the first 3 quarters of the year. We continue to expect total revenue of approximately $1.6 billion to $1.7 billion, driven by low single-digit same-Shack sales growth year-over-year. Given headwinds in the Middle East, we now expect licensing revenue of $57 million to $59 million. We still plan to open 40 to 45 licensed Shacks this year. We expect restaurant level profit margin of 23% to 23.5%. We are planning for food and paper inflation to be down low single digit year-over-year after accounting for our own supply chain strategies. Beef inflation is expected to continue at the high single-digit levels. We expect labor inflation to be in the low single-digit range. G&A investments are expected to be toward the higher end of our guided range of approximately 12% to 13% of total revenue to support our strategic investments in growing the business and driving greater brand awareness. We continue to expect approximately $28 million of equity-based compensation expense with about $25 million in G&A. We expect full depreciation of $124 million to $128 million and preopening of approximately $26 million to $28 million. We expect net income of $50 million to $60 million. Altogether, we now expect adjusted EBITDA of $230 million to $245 million, representing 10% to 17% growth year-over-year. Thank you for your time. And with that, I will turn it back over to Rob. Robert Lynch: Thank you, Alison. I want to thank our teams again for their hard work and passion for Shake Shack, which is the engine behind our ability to achieve our long-term goals. Thank you to everyone on the call today for your interest in our company. And with that, operator, please open up the call for questions. Operator: [Operator Instructions]. Our first question is from Brian Vaccaro with Raymond James. Brian Vaccaro: So just on the first quarter comps, and can you elaborate on the underlying cadence that you saw through the quarter? Any changes in consumer behavior that you've seen more recently that might be tied to higher gas prices and the Iran conflict? But also maybe provide some more color on how the value initiatives like 135, Chicken Shacks on Sundays performed in the quarter. And just curious how that might be positively impacting value perceptions or frequency among certain consumers. Robert Lynch: Thanks, Brian. Great question. We had relatively consistent sales rates throughout the quarter. We didn't see significant changes. We did see a little bit of softening in the back half of March, but not at a significant rate. And so we were -- we made a lot of our investments in February behind the launch of our Korean launch and some of the innovation that we were planning. So most of the weather impact we saw was January and March. We had anticipated even higher sales heading into Q1. So we made a lot of investments heading into Q1 with a sales plan that we would have achieved had we not seen those weather impacts. So our app and digital channels continue to drive significant value for our guests and are growing rapidly. We've seen over 35% growth in our digital channel entrance rate, so 35% downloads of our app, and that is driving a lot of our traffic growth. And we feel great about that. We feel like that is a long-term investment that we're making. It is not a short-term promotion. These folks are coming into our digital community and they're staying. And their frequency is higher than our nondigital guests. And when you think about the value prop that we offer today in our app, you can get a Shack burger fries and a beverage, a Coca-Cola for around the same price as you can get a lot of our other competitors for the same thing. So on average, an $8 Shack burger, $3 fries and $1 drink, you're talking about a $12 combo meal, if you want to call it that, we don't call it that. That makes us really competitive. That puts us in the universe of other brands that can persevere through these value challenged and value-oriented times. So we feel great about level setting that value equation. We also feel great about launching very premium culinary innovation. I would tell you, and I highlighted in the comments, we launched a $12.99 BBQ Rib Sandwich a week ago, and we're seeing huge demand for that innovation at that price point. So we really feel that we can play at both ends of the barbell -- we can deliver great value on our core and continue to drive traffic through new guest acquisition and repeat, but we can also drive frequency and check growth with our most engaged guests through our premium innovation. So we feel like the sales engine is in place, and that's why we've stayed committed to investing behind it. Operator: Our next question is from Christine Cho with Goldman Sachs. Hyun Jin Cho: Rob, it's really encouraging to see 3 consecutive quarters of positive traffic growth and really appreciate the quarter-to-date color. But could you elaborate on the key factors driving your confidence in that Q2 same-store sales growth guidance of 3% to 5% as well as the sustainability of this momentum through the second half of the year? And I think you mentioned a potential lift from the World Cup. How much of that benefit is currently embedded in your guidance? Robert Lynch: Yes, you're welcome. So we are highly confident in our guide for Q2, driven by what we're seeing both on our core business with our app driving a lot of growth and strength in our digital channels, complemented by the success of our premium LTO innovation. So we are -- we saw last week with the launch of this innovation, we saw 8% comps and 5% traffic. So we are seeing huge demand for the culinary forward innovation that we're bringing while underpinning that being able to go out and also deliver a great value proposition for a different consumer and primarily a newer consumer, right? Our new guests, when they come to Shake Shack are going to want to try the best burgers in the world. Like that's what they come for. They come for the Shack burger fries and Coca-Cola. And when they get there, we have to have a value proposition that allows them to come in and feel great about the money that they paid for that. And so that's what the app is designed to do. And we're using that app as a guest acquisition tool. But we also need to continue to differentiate ourselves in the space. We are not going head-to-head with the likes of the QSR value players from a holistic business proposition. We are going to continue to offer premium ingredients and culinary innovation and the best hospitality in the business with great assets. So when our guests come, it's a different experience than you typically see in traditional QSR. So that balance is working, and we're going to continue to invest behind it. On the World Cup side, I mean, we're not going to get into specifics about what our model looks like. But our -- the markets where the World Cup is being played are all markets where Shake Shack has a high degree of penetration. And Shake Shack in markets where we have a high degree of confidence in our ability to drive traffic to our restaurants regardless of whether there's the World Cup or not. So that influx of traffic is just going to benefit and accelerate the business that we do in those -- some of our best markets. So we're really excited about Q2. As we look to the back half of the year, we have more innovation coming. We have great items across our shakes, beverages, core sandwiches, and we're going to continue to invest in the marketing fuel that is driving a lot of this traffic. Operator: Our next question is from Michael Tamas with Oppenheimer & Company. Michael Tamas: It seems like your same-store sales are implied to be a little bit slower in the second half of the year versus the first half of the year. So can you sort of speak to the confidence in hitting that full year margin guidance of 23% to 23.5% as sales moderate a little bit in the second half of the year? And maybe how you're thinking about that split between COGS, labor and other OpEx? I mean, is it about COGS deflation that's going to drive the majority of that expansion? Or how do you want to think about that? Robert Lynch: Yes. I mean I would tell you that the 50 basis points growth that we had in Q1 was a bit muted given some of the revenue shortfall that we saw from some of the weather. So just the leverage impact. As we look forward, we continue to be able to -- we continue to see the path to continue to expand those margins. We have a lot of supply chain work going on that is already flowing through in a big way. So obviously, beef prices are elevated, continue to be elevated, although the rate of growth on the beef pricing that we're seeing is less than it was last year. And we're actually seeing a lot of cost mitigation and other items in our basket. And some of that is the macro markets and a lot of it is the work that we've done in our supply chain. So from a cost side, we're doing a lot to mitigate the cost of the inputs into our business model. On the revenue side, you're right. We delivered 4.6% comp in Q1. We're guiding to 3% to 5% in Q2. We're guiding to low single digits for the year. So that does imply a softer comp in the back half. And the reason for that is we're going to start lapping some of the marketing investments that we made in the back half of last year versus being fully incremental. So we're accounting for that. We still have a lot of confidence in our ability to drive strong performance on the top line. We're seeing continued momentum build. So we want to make sure that both our broadening of our EBITDA guide as well as the reiteration of our low single-digit comp guide takes into account some of the macro risk. I mean the reality is none of us know what's going to happen tomorrow, much less what's going to happen 3 months from now. So there's consumer sentiment driven by a lot of the macro factors. There's cost in commodities driven by macro factors. So we really thought very carefully about our guidance for this call because we want to make sure that we're informing our investors that we are very confident in our organic business model, but we recognize that there is volatility in the marketplace, and we want to express our guidance and show the risk of that volatility in that guidance. Operator: Our next question is from Brian Mullan with Piper Sandler. Brian Mullan: Congrats on the CFO hire. Congrats to Michelle. Related to that, Rob, last call, you said the new CFO would, I think, share some sort of G&A plan when he or she begins. Just to better understand, has that plan already been largely formed? Or would the new CFO need to kind of undertake that work from scratch once she begins? And you talked about Project Catalyst in the prepared remarks. I just -- are these one and the same? Or are these kind of just 2 separate topics? Any color would be great. Robert Lynch: Project Catalyst will definitely be an asset for us as we create G&A leverage moving forward. we have built these tools that I highlighted in the comments, and we shared with our Board last week, and we rolled out to our team members 2 weeks ago. The technology -- we've made a lot of investments. Like I want to be clear. The G&A is up $13 million this quarter versus a year ago, all right? Like I don't think about that lightly. Some of that investment was the Operations Summit that we had this year, which we haven't had before. So we had to obviously pay for that. But we felt like it was important for -- to recognize the great job that our operators did last year and lay out our vision for the future. So that was incremental. We obviously are investing in marketing, but we're also investing heavily in tech and Project Catalyst is a big part of that. And the infrastructure that we're building is going to make us dramatically better. It's going to make us better from an operating standpoint. Our operators today don't have a lot of the tools that they need to make real-time decisions. Our above-restaurant operators are spending huge amounts of time pulling reports and sourcing data to be able to have conversations with our GMs about their business. All of that time is going to be significantly reduced. And our folks in the field are going to be able to have real-time information to make informed decisions. So that's going to improve the quality of those decisions. It's also going to reduce the amount of capacity necessary to build those conversations. So there is a huge amount of value creation in Project Catalyst for us. And so to your original question around Michelle, Michelle is going to come in and have a lot of great work on her plate. And she obviously has all the experience and all the capabilities to be able to contribute in a big way to the work that's going on here. G&A, we obviously have a plan. We have a road map. We have things that we're doing and how we're thinking about it for the balance of this year and moving forward. But Michelle is absolutely going to come in and weigh in on all of that and have a point of view. Michelle and I are committed. We had a big discussion about this. We're committed long term to growing EBITDA faster than revenue and making sure that we're continuing to enhance our operating margins as a company. So that's going to be the work we're doing. And in order for us to continue to do that, we have to get better on the G&A line, but we have to make sure that we're making the right investments to drive the long-term outcomes. And right now, it's all about battling for share in this marketplace. we cannot afford to lose guests right now. And so we are making those investments. And yes, none of us are super excited about the way the EBITDA showed up this quarter. There's a lot of moving pieces there. There's a lot of timing. Opening up a lot more restaurants this quarter cost us a lot more, but we wouldn't make the decision not to do it. So we made some decisions knowing that this was going to be the outcome, but we have the most confidence we've had on the path forward. Operator: Our next question is from Peter Saleh with BTIG. Peter Saleh: Rob, I did want to circle back on that last comment you made on the decision to pull forward some new unit growth. Can you guys elaborate a little bit on that decision and maybe the impact that you saw in the first quarter from pulling forward some new units? And then I had a quick follow-up as well. Robert Lynch: Got it. So it's not necessarily that we pulled them forward. We just built them better, faster. So we obviously guided to a range for the year and gave guidance on how many we would open in Q1. And we're just getting better at opening restaurants, frankly. We're getting better on the construction side, on the equipment procurement side and on the operations and preparation it takes to open up a restaurant successfully. So we're just moving faster, and that's why we're able to take our guide up for the year. It's not just pulling forward from 1 quarter into this quarter. It's actually building restaurants faster. So with the same quality. So that really -- it wasn't as much a pull forward. It's just we're accelerating. On the amount that it cost, I mean, we opened 4 more restaurants than the midpoint of our guide. So you can kind of do the math on historically what we -- our preopening costs are for those restaurants. And it's not exactly 1:1 because we have a lot of preopening costs that flow from quarter-to-quarter because we're incurring preopening costs right now for next quarter. And as you think about the rate of acceleration and the fact that we're opening up so many restaurants in Q2, some of those preopening costs actually hit Q1. So that acceleration is great. We wouldn't change it. We're going to continue to build more restaurants. We love the returns. But it is a different cost profile on a quarterly basis, which did impact our results in this quarter. Operator: Our next question is from Sara Senatore with Bank of America. Sara Senatore: I guess maybe just 2 questions on the margins. One is you mentioned that cost of goods were -- the inflation was negative low single digits, but you did see some margin pressure there. So is that promotions or the in-app value menu? And I guess the related question is, as you think about supply chain initiatives, and I think you said those will be the primary driver of margin expansion going forward versus labor. The dynamic was reversed in the quarter. So what -- I guess, what's still ahead of you? And how should I think about sort of the mix of those 2 margin components in the next few quarters? Robert Lynch: Yes. Great question. So we did grow the margin 50 basis points, right? So we did make improvements. It was -- when we say we missed on margin, it's just relative to our guide. So we did anticipate higher margins than we delivered despite growing the margins 50 basis points. And a lot of that was just sales deleverage relative to our plan that formed our guidance. So we came into this quarter with a significantly higher sales rate than what came -- what the outcome was. And that was primarily the weather. And if everyone recalls, we had some bad weather in 2025. Q1 2025 was not a great quarter for anyone. wildfires, blizzards, the whole thing. So we didn't plan for a huge negative weather impact in Q1. So if you add that 240 basis points to what we delivered, it's pretty strong comp growth. And so our plans were based on that. the investments that we made in marketing, the guidance that we gave on margin was driven by what we anticipated on the top line revenue. And when that revenue didn't come through, you saw some -- you saw less than -- it was 10 basis points. It's not like we missed it by 100 basis points, but we take it seriously, 10 basis points relative to being within the guide. And the supply chain is driving a lot of the margin right now in addition to continued operational improvements. We've done a ton of work, a ton of work. And that work has also required G&A investment. We had to rebuild a procurement team. We had to hire distribution people. But all of that work is why we have a very high degree of confidence in being able to deliver at least 50 basis points of margin enhancement throughout the rest of the year. Operator: Our next question is from Jeff Bernstein with Barclays. Anisha Datt: This is Anisha Datt on for Jeff Bernstein. As you prepare to launch a loyalty program by the end of 2026, what customer or behavioral insights have been most influential in its design? And how will the program differ from purely points-based or discount-driven offerings? Robert Lynch: Yes. So we've been thinking a lot about -- it's a great question. We've been thinking a lot about this. And we have a big decision to make on -- does the loyalty program, do they just kind of turn into one thing? And we made a strategic decision that, that's not going to be the case. So the app as it list today is going to be a continued way for us to drive value and acquire new guests. The loyalty platform is really intended to drive brand affinity, brand engagement and frequency amongst our most valuable guests. So those 2 objectives will drive a different approach to our app and our loyalty platform. Now the folks that are already in our app will all transition into our loyalty platform because they're current guests. But we will communicate and approach the promotions and marketing that we do on the app differently than the loyalty platform. So the loyalty platform will not just be a way to send discounts. It will actually be a way to drive brand engagement, giving loyalty members unique and special representations of hospitality to drive further engagement, drive affinity and drive frequency. So we're looking at all kinds of different opportunities to do that, whether it's through some of our partnerships with some of our things we've done with partnerships and collaborations in the past, whether it's offering first access to special things that we do. So all of those things will flow through our loyalty platform and the app will kind of stay as a new guest acquisition tool. Operator: Our next question is from Margaret-May Binshtok with Wolfe Research. Margaret-May Binshtok: Just a 2-parter here. I just wanted to ask a little bit about the paid media that you guys have done, the location targeted paid media, how you guys are seeing that tracking in some of your newer markets versus more established markets? And then just wanted to follow up on the remodels that you guys have mentioned are underway, I think, in New York City. Any early reads on what you guys are seeing and any sort of cadence for the rest of the year? Robert Lynch: Great question. So our media, we don't have big national market media budgets. So we have to be very choiceful on what and where we invest. And so right now, our media is invested in 2 ways. One is guest acquisition through delivering a value proposition that's compelling for new guests, and that's primarily marketing our app and our 135 platform. And then it is driving frequency and check benefit through our LTO innovation. So it's a balanced approach in different markets depending upon our market penetration, depending upon the number of guests that we have in the app platform today, which is how we kind of measure the number of current guests versus new guest potential. That will drive a lot of the decisions on how we make -- on how we invest our media. On the remodels, we've been really pleased. We're continuing to invest in remodels. We're 2-year-old company now, and we're starting to see some of these great restaurants that have been in markets like New York for a long time and continue to deliver great revenue and some of our best margins, they get a lot of traffic. We want to make sure that, that traffic is when they show up, they're getting hospitality. And so it's not about making everything brand new and fresh, but it is about making sure that the restaurants feel cared for, making sure that the restaurants are welcoming. And then in addition to that, we're also leveraging remodels as an opportunity to optimize the back of house, right? We've done a lot of testing on kitchen and equipment and kitchen flow. And so when we go in and we know we're going to touch the restaurants, we're going to make sure that those restaurants are set up for the most productivity possible. And so that also can be a revenue driver as we increase throughput because of optimized back-of-house flow. So we're making both of those investments, and we're really happy with where we're at there. Operator: We have reached the end of our question-and-answer session. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver First Quarter 2026 financial results conference call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Allison Pettit, Vice President, Investor Relations. Please go ahead. Allison Pettit: Thank you, operator, and good morning, everyone. Before we get started, I ask that you view our MD&A for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A and financial statements are available on our website at edrsilver.com. On today's call, we have Dan Dickson, Endeavour Silver's CEO; Elizabeth Senez, our CFO; and Luis Castro, Endeavor's COO. Following Dan's formal remarks, we will open the call for questions. And now over to Dan. Dan Dickson: Thank you, Allison, and welcome, everyone. Endeavour Silver delivered excellent results in the first quarter of 2026, setting new records in both production and revenue. The strong performance generated significant cash flow, underscoring the company's remarkable growth trajectory. With the [ Cubo ] plant expansion substantially complete and Terronera's operations performing near design expectations, we are entering an exciting phase for the company, and we look forward to building on this momentum as we progress throughout the year. In Q1, Endeavour produced nearly 2 million ounces of silver and 12,000 ounces of gold with base metals, totaling 3 million silver equivalent ounces. This represents a 78% increase compared to Q1 2025 with the additions of [ Copa ] and Terronera. We reported revenue of $210 million, an increase of 23% compared to prior year with cost of sales of $160 million, mine operating earnings of $94 million and mine operating cash flow of $115 million before taxes, a 400% increase from Q1 2025. Our all-in sustaining costs net of byproduct credits were $37 this quarter. This represents a 51% increase compared to Q1 2025 when [ Copa ] and Terronera had not yet joined Endeavour's production portfolio. It's also worth noting that these costs were 9% lower than Q4 2025 primarily due to the ramp-up of operations at Terronera with gained efficiencies throughout the quarter, and we anticipate further reductions in these costs as we continue to optimize operations throughout the year and capital expenditures become normalized. In Q1, Endeavor recognized adjusted net earnings of $59 million or an adjusted earnings per share of $0.21. Both direct operating cost per tonne and direct costs per tonne were elevated this quarter. To clarify how we define these costs, our direct operating cost per tonne include direct input costs associated with mining, milling and site level G&A. Our depiction of direct costs per tonne includes royalties, mining duties and purchase of third-party material. Changes in the metal prices have a meaningful impact on our direct cost per ton. For an example, a $1 increase in silver, cost per tonne rise by about $0.90 at Terronera, Guanacevi is $3.80 and $0.50 at [ Copa. ] Obviously, due to the higher royalties the mining duties, third purchase costs and federally required profit sharing. Our direct operating cost per tonne rose by 30% in Q1 compared to Q1 last year as a result of the inclusion of [ Copa ] and Terronera into our portfolio. Both assets carried higher operating costs in Q1 than what is expected going forward. During the first quarter, [ Copa ] installed and commissioned a new three-stage crusher in ball mill, increasing plant capacity to above 2,500 tonnes per day. It remains additional plant expansion expenditures. However, these will dissipate as we move through 2026, and we expect to see benefits on cost metrics starting this quarter. In Peru, we've experienced pressures on attracting and retaining skilled labor impacting labor costs, training costs and overall efficiencies. We expect this to continue, but the additional costs will be offset by the efficiencies of an updated and expanded operation. At Terronera, we're in the infancy of operations. In Q1, we made a significant transition from a construction and start-up team to an operations team, adjusting and reducing personnel. Mine and plant metrics have steadily improved through continuous measurement, review and adjustments. As the operation settles into consistent day-to-day rhythm, cost efficiencies are expected. As onetime capital investments are completed in the first half of the year, we expect operating cost metrics to decrease with higher ore grades expected in the second half. We also expect significant improvements on a cost per ounce basis. Exploration drilling has restarted at Terronera, and we expect to provide an update later this quarter. I should note, we have not transitioned our power generation to the LNG plant, but expect to before the end of this quarter. We have the necessary authorizations and plan to commission the LNG vaporization plant this month. At Guanacevi, cash flows were north of $20 million this quarter. The mine incurred higher operating cost per tonne, largely due to lower throughput with minor increases in our absolute costs. As an operation, the royalties, purchased ore mining duties and profit share is a significant part of that cost structure, and thus, we saw increases. Step-out drilling has commenced and also, we expect to provide results later this quarter. As of March 31, our cash position was over $232 million. Working capital was north of $173 million, which gives us a strong and stable foundation to drive our ongoing initiatives. We remain committed to advancing progress at Pitarrilla, where studies -- where steady investment in exploration, studies and economic evaluation continues to move forward with the expectation to provide economic evaluation in the third quarter. In closing, our strong financial footing and successful expansion of the Pulpa plant and the steady improvements at Terronera put Endeavour in an excellent position to meet our production targets this year. These achievements reflect our unwavering focus on operational excellence and our ongoing dedication to delivering long-term value for our shareholders. I would like to thank everyone for their continued support and engagement. And with that, I'm happy to open up to questions. Operator, let's proceed to the Q&A session. Operator: [Operator Instructions] The first question comes from Heiko Ihle with H.C. Wainwright. Unknown Analyst: This is [indiscernible] filing in for Heiko. He's on a [indiscernible] right now. First question, the great step up at Terronera. Next week, we'll be halfway through the second quarter. Any views of what you've seen with grades at site during this period so far? Dan Dickson: Yes. We have Q1 and Q2 grades a little bit similar. Q2, we expect to be slightly higher than Q1. Ultimately, the real step-up in grade in the back half of Q3 and into Q4. Unknown Analyst: Okay. Great. And second question, maybe a bit of a philosophical one. The Terronera approaches name plate capacity. Could you maybe talk about what you saw and learned during the ramp-up phase that maybe will be useful as you move other assets into production? And I guess, as a sweetener to that anything you expect to add to the Pitarrilla feasibility study that you may not have expected a year ago? Dan Dickson: Yes. I mean, how much time do you have on things that we learn during the Terronera build-out phase. I mean I think as an organization, it's our first build from scratch and there's a lot of learning. And I think we can apply a lot of that. And in fact, in Q4 and into Q1, we did a post mortem or post review of construction of things that we can improve. So we can take that over to Pitarrilla. Obviously, continuity is a very important part. And this year, Don Gray retired and we replaced Don with Luis Castro, who's been with the company for 21 years. But there are a lot of people that remain in the company that were involved with the construction in Terronera. If we can move Pitarrilla along in accordance with what we think is our time line sometime in 2027, starting that construction, we can benefit from it. From processes and protocols and procedures that would be put in place at Terronera, I think those will be stronger going forward. And a lot better positioned as a company to take on a second build, so to speak. And so we're well positioned. The biggest part of that is really understanding all the permits and permits that are required. I mean as we went through, we originally got our EMEA at Terronera about 2015, 2016, Pitarrilla already has MEA. There are some other permits that are required around MEA specifically around the tailings storage facility, and we're going through that process to try to obtain that by Q1 of next year. But behind all that, there's about 100 other 30-some-odd permit that you learn to go through and how to navigate that through the government. And I think we have the ability to do that a lot quicker than what we did at Terronera. So we're excited about what we gained from a knowledge standpoint at Terronera, and we think we can apply it up to Pitarrilla. And then for your second part of that question. At this point, there's nothing new that's surprising at Pitarrilla. There's a lot of work that was done. SSR and invested $145 million. They've done a pre-feasibility study on underground operation O9. They did a lot of work on an open pit operation in the feasibility study that was 2012. I mean we've been looking at this now for 3 years. And so there hasn't been anything, I'd say, in the last 6 months to 8 months have jumped out that's been surprising to us. We have a good indication of what the plant is going to look like, and what the capacity of the mine is, and that will come out in due course when we put out effectively the feasibility study or 43-101 feasibility study later this year. Operator: The next question comes from John Tumazos with John Tumazos Very Independent Research. John Tumazos: Congratulations on all the increased production and raining cash and all those good sense. Some other companies in Mexico have had bumps in the road, one company had their plane shot down a month ago. Another company has a very tragic incident in January. You've got at least four locations where you're operating, is there any particular secret to your operational success and good security results. I get to some parts in Mexico are so much better than others. Dan Dickson: Yes. But I think that's the specifics to it all is there are parts in Mexico that are more secure than others. And I mean it's hard to say that we haven't had our issues. In February, there was a code red in the State of Lisco, when one of the captains of the cartel was killed. And that on the Sunday following, they put blockades into 22 different states. And part of the State of Lisco and around Portovarta was significantly impacted with blockades of the highways. Now I don't think there is a lot of there is some unfortunate incidents with citizens. But generally, citizens weren't targeted. It was just the target to the government to show power, I guess, of that cartel. And for us, it impacted our supply chains, and we shut down operations for three days to make sure that if we had any safety incidents, so we could get to a hospital. So like I say, it's not to say that we have not been impacted. But I'd say, generally, our areas that we operate haven't had significant violence, but we're -- we've got a team in place, a security team in place provides us intelligence, and we make various decisions based on what's happening in Mexico and what's happening in various states. So again, we've been at Guanacevi for 20 years and very low impact to all that. We actually sold our Bolanitos operation in January. So we're no longer in Guanajuato. And then in Helisco, like I say, we're an hour in Porte Varta, which is considered a very safe area in that 2-day event. And there's about 3 million Americans and Canadians that visit that area on an annualized basis, and we're very happy to operate there, but we keep our eyes open and ears to the ground and just trying to understand what's all happening. John Tumazos: Are there any variations in cost between your locations due to logistical costs where you maybe avoid a bad neighborhood or anything like that? Dan Dickson: Yes. Nothing that would be significant I can recall back in '08 or '09, we made sure we didn't drive by a certain town, which added about 35, 45 minutes of driving time up to Guanacevi, which was about 4 hours away. But ultimately, the costs associated with our security between Terronera and between Guanacevi and ultimately also now at [ Copa, ] are very similar. I mean a lot of the same procedures and protocols are in place. So from a significant standpoint, I would say no. John Tumazos: And I apologize for even asking these questions, but... Dan Dickson: No, those were fair questions. John Tumazos: Investors' minds. Dan Dickson: Yes. No, it's a very fair question. We get them often in our meetings with investors. So happy to answer them. Operator: The next question comes from Soundarya Iyer with B. Riley. Soundarya Iyer: Congratulations on the quarter. Was with another call, so I don't know if this question has been answered. But so on Guanacevi, I mean the grades have come pretty low year-over-year. So -- and like third-party material purchase have also increased and its almost 1/3. At what point does this or economics change and start to dilute margins there to purchase in third-party or we continue doing that? Dan Dickson: Yes. I mean, with the higher prices, obviously, allows us to go after lower grade material. And the great thing is we mined Guanacevi now for 20 years, and there's areas of the old parts in the mines, North Provenir, and what we call Santacruz, South central propane that would have material left behind that would have been running 225-, maybe even 250-gram silver equivalent material that you can go back and and mine. And as prices go up, your cutoff grades come down. Some of the grades that we're pulling right now, where we had 275 grams more from the depth depth of El Curso, which is on Frisco ground. We pay significant royalty there, too. As we move through the year, we're going to be going into an area called Malache, which is 100% controlled by us. We've got an area near propane dose, which we mined up in 2015. We've been working in there. Some of that's on is ground, some of it's on ours. Obviously, as a management team, we continually look at grades and cut off grades and ultimately, margins. And has provided that Guanacevi is going to still continue to be profitable. And as I say, we did north of $20 million of free cash flow there this quarter. We're going to continue to operate it. So right now, we don't have a huge reserve base. We know we can get into and maybe into 2027 and maybe into '28, probably extend that. We're going through that work. We started some drilling and various areas. We start to go back into other areas and build out our resources, and we'll have a plan in place for the end of the year of how long -- much longer will be at Guanacevi. And I suspect we can get there for quite a while, especially at these prices. Soundarya Iyer: Got it. That's really clear. And just 1 more on Pitarrilla FS. So is it still on -- I mean, is it still targeted before 3Q 2026, I mean given that the spend -- $1.8 million spend in 1Q was pretty low. So how do we... Dan Dickson: Yes. We've made a lot of commitments. Our spend is a little lower in Q1 than we expected, but we've started to push that work. we would be probably a handful of weeks behind, not a significant amount. We're still hoping Q3 of 2026. Maybe it ends up being more of the back half of Q3 rather than the front half of Q3, but we'll see how all that progresses over the next couple of months. Operator: The next question comes from Craig Stanley with Raymond James. Craig Stanley: I think you indicated you expect grades to pick up a bit at Terronera in the second half of this year. Is that -- are you going to be mining a little lose? Dan Dickson: Yes, Craig, good question. We're actually drilling La Luz right now. As you probably know, it's about 150,000 to 250,000 tonnes in our mine plan -- in our feasibility mine plan. So right now, we're actually drilling a little bit to depth, so we can come up with a more efficient mine plan just because of the scale and trying to figure that out. So we took the rigs out. We were drilling Terronera this past quarter, and those rigs are going back to La Luz now that we have assays, and that will drill a loose probably until midyear and then start building a mine plan for that. So I suspect because of how things are going in Terronera that La Luz will get pushed to Q1 or Q2 of next year. But again, we'll have drill results out before this quarter is out at Terronera and maybe some La Luz as well. Craig Stanley: Okay. And then were you saying on Pitarrilla, you're sort of hoping to get the final permits in the first half of next year and then start construction later in 2027? Dan Dickson: Yes. Ultimately, we have a very good idea because of what Pitarrilla is and the resources that there in the underground sulfide resources that we'd be mining it from an underground standpoint, I don't necessarily think the economic evaluation is going to be that far off than what we've historically known. But really, the gating item is the permit to build the tailings storage facility, which is going to be a dry stack facility. We've been going back and forth with the authorities on that, hoping we can get through it relatively quickly. Now at the beginning of the year, we thought maybe Q1 2027, we could get that permit. Things have seemed to be still sticky when it comes to permits in Mexico. We've heard a lot of our peers expecting permits in Q1, and that never came to fruition, then it was going to be early Q2, and we're almost halfway through Q2. So I'm getting a bit nervous on time lines when it comes to permits, just because it still have -- we haven't seen a real floodgates open, so to speak. But that's what we were targeting. And then if we could start building in next year, that would be great. Now we are still continuing forward with our construction cap this year. So we have ultimately a plan of 800 beds. I don't -- I think we're putting in maybe a little bit less than that to start with 250 to 300 beds, and we're still making our movements to purchase mobile equipment and plant equipment, so we can do the basic and detailed engineering properly when it comes to the plant. So we're still pushing ahead, but the real kicker for a construction decision is that tailings and permit. Craig Stanley: Okay. And then just the last thing for me. When you're out talking to institutional investors, does M&A come up more in regards to Endeavour Silver being a potential target? And because when you look at the silver space, you have a lot of these companies with much larger market caps like Pan American core HACA First Majestic and then it sort of drops off and you're sort of in this sort of middle stage before you get that into sort of the real smaller producers. Just curious like Terronera has now ramped up. Is that something that's in discussion. Again, more with clients. Dan Dickson: Yes. I mean, with the investors, people always ask, like how do we want to grow? And we say we want to be a senior silver producer and Terronera has ramped up hitting criteria through the plant. I think once those grades really start coming through, and we get our costs down to expectations, I think there's a lot more value in our shares there. We want to build that value in our shares. Ultimately, we're a pretty young management team. I think we're pretty still hungry to grow and find things, never say never. But it's such a small space. There's only a handful of people that can actually look at us, and there's only a handful of things that we can look at. So we have a pretty good corporate development guy. Some days, he works hard. He's sitting right in front of me. So we are always looking at things and trying to figure out the right combination for Endeavour. Operator: We have a follow-up question from Soundarya Iyer with B. Riley. Soundarya Iyer: Sorry for just about getting another question. Just curious on the capital... Dan Dickson: No problems at all. Soundarya Iyer: Curious on the capital allocation part. You had $200 million -- $250 million in cash. And then this has been a record operating cash flow. Is it -- how are you thinking about like some dividend buybacks, not this year, maybe, but in the future... Dan Dickson: Yes, I think it's very clear -- yes, that's a fair question. I mean, for us, we're still on a growth trajectory. We're really excited about what we have at Pitarrilla. I think the market is going to understand that when a feasibility study comes out in Q3. The expectations, the cost to build is going to be somewhere between $500 million and $600 million. If we keep generating cash at this rate, we'll have a good chunk of that built into our balance sheet by the end of the year and then obviously, cash flows into 2027. Until Pitarrilla is built and operating and providing its cash flow is probably the time we'd start looking at dividends or share buybacks. But at this point in time, our -- we feel like the rate of return that we can get out of Pitarrilla will be very valuable for our shareholders, and that's what the cash that we're generating is going to be used for. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Dan Dickson for any closing remarks. Please go ahead. Dan Dickson: Well, thank you, operator, and thanks for all our listeners today. I think Q1 was a good quarter for Endeavor, but we still have more expectations going back to the year. As you say, Terronera's grade should pick up in the second half of the year, [ Copa ] will be operating close to 2,500 tonnes per day. And we'll get more rhythm at Guanacevi, Terronera and [ Copa ] that ultimately, we expect a very strong next 3 quarters and specifically the second half of the year. So we're excited with what we have. We're excited where we're going, and I look forward to getting the feasibility to say out of it in the second half of the year as well. So thanks for joining today. Operator: This brings to end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Hello, and thank you for standing by. I will be your conference operator today. At this time, I would like to welcome everyone to the AerSale Corporation Q1 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to withdraw your question, press 1 again. I would like to now turn the call over to Christine Padron, Vice President, Global Trade and Compliance. Christine, please go ahead. Good afternoon. Christine Padron: I would like to welcome everyone to AerSale Corporation’s first quarter 2026 earnings call. Conducting the call today are Nicolas Finazzo, Chief Executive Officer, and Martin Garmendia, Chief Financial Officer. Before we discuss this quarter’s results, we want to remind you that all statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements within the meaning of the federal securities laws, including statements regarding our current expectations for the business and our financial performance. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results. Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the Risk Factors section of the company’s Annual Report on Form 10-K for the year ended 12/31/2025 filed with the Securities and Exchange Commission, SEC, on 03/10/2026, and its other filings with the SEC. These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those indicated by the forward-looking statements on this call. We will also refer to non-GAAP measures that we view as important in assessing the performance of our business. A reconciliation of those non-GAAP metrics to the nearest GAAP metric can be found in the earnings presentation material made available on the Investors section of AerSale Corporation’s website at investors.aersale.com. After our prepared remarks, we will open the call for questions. With that, I will turn the call over to Nicolas Finazzo. Nicolas Finazzo: Thank you, Christine, and good afternoon, everyone. Thank you for joining us today. I will begin with an overview of our first quarter performance and key operational developments, and then discuss how we are progressing against our strategic priorities for 2026. I will then turn the call over to Martin to walk through the financials in more detail. This quarter, our team stayed focused on executing our strategy across Asset Management and TechOps: prioritizing (1) disciplined acquisition and monetization of flight equipment and used serviceable material—you will hear me say USM; (2) expanding and optimizing our MRO capabilities; and (3) building a recurring and more predictable revenue base through MRO services and leasing while maintaining our high standards for safety, quality, and on-time performance. First quarter revenue was $70.6 million, an increase of 7.4% from the prior-year period. Adjusted EBITDA also increased by $4.2 million, or 131.9%, to $7.4 million from the prior-year period. Excluding flight equipment sales, which tend to be volatile quarter to quarter, revenue increased 2.2% year-over-year, reflecting growth in leasing and increased demand across our [inaudible] compared to the prior-year period. We placed an additional Boeing 757 freighter aircraft into service, ending the quarter with three aircraft on lease and one additional aircraft under a letter of intent for lease. We continue to engage in discussions with potential customers, as increased demand for cargo continues to make us bullish on deploying the remaining four 757 freighters reconverted in 2026. We also expanded our engine lease portfolio, ending the quarter with 18 engines on lease compared to 16 engines in the prior-year period. Higher average lease rates and improved utilization contributed to stronger asset yields across both aircraft and engines, and reflect our continued progress toward building a larger and more consistent recurring revenue base. Partially offsetting the increased leasing revenue was a decrease in USM sales resulting from the internal consumption of engine material for our own engine builds. At present, we have multiple engines in work where most of the material required has come from our own inventory, and our decision to utilize this USM results from our determination that we will achieve a higher value and total dollar margin consuming this material rather than selling USM piece parts to third parties. Across our TechOps platform, we continue to make progress on several strategic growth initiatives. At our on-airport MRO facility in Millington, Tennessee, we commenced work under a recently awarded long-term, multi-line aircraft maintenance agreement for a fleet of CRJ700 and CRJ900 regional jets. In addition, operations began at our expanded facility located in Hialeah Gardens, Florida. Both initiatives contributed to higher TechOps revenue in the quarter. As expected when ramping up operations at new facilities, we incurred incremental training costs and early-stage operating inefficiencies that created margin pressure during the quarter. We view these impacts as temporary and expect margins and throughput to improve as volumes continue to increase and operations stabilize. TechOps was also impacted by lower MRO parts sales in the quarter. Lastly, our Roswell facility experienced revenue and gross profit declines due to fewer aircraft in storage during the quarter. Related to our Engineered Solutions products, AirSafe continues to remain strong in advance of a Federal Aviation Administration November 2026 compliance deadline for the Fuel Quantity Indication System airworthiness directive related to fuel tank safety systems. We closed the quarter with a backlog of $15.3 million, of which the majority will close in 2026. In addition, we continue to market our revolutionary enhanced flight vision system, AeroWare, to select interested customers. We are also continuing our efforts to educate our U.S. regulators and the agencies responsible for the safety of our air transportation system on how the unique features of AeroWare can improve safety and provide economic efficiency to the industry. During the quarter, we deployed $25.1 million in feedstock acquisitions to support future leasing and monetization opportunities. We remain disciplined in our acquisition approach and continue to focus on assets where we see strong long-term demand and attractive risk-adjusted returns. Our win rate in the quarter was 6.3% compared to 10.4% in 2025, which shows our commitment to discipline on pricing as we continue to evaluate opportunities to redeploy and monetize inventory in ways that improve velocity and cash conversion without compromising value. Looking ahead, our priorities for the remainder of 2026 remain consistent with those we have previously outlined. These include increasing the number of assets deployed in our lease pool, including the placement of the remaining four 757 freighters during this year; continuing to monetize our inventory through USM sales; filling available capacity across our MRO network; and improving overall operational profitability as recent expansion initiatives continue to gain scale. Despite the expected start-up costs incurred in the first quarter, we remain confident in our ability to deliver improved financial performance as we progress throughout the year. With a strong inventory position, an active leasing pipeline, and expanded operational capabilities, we believe AerSale Corporation is well-positioned to deliver more consistent and growing earnings. With that, I will turn the call over to our Chief Financial Officer, Martin Garmendia. Thanks, and good afternoon, everyone. Martin Garmendia: I will walk through additional details on our first quarter financial performance, then touch on cash flow, liquidity, and our outlook for the remainder of 2026. Revenue for the first quarter of 2026 was $70.6 million compared to $65.8 million in the prior-year period. Flight equipment sales totaled $5.2 million and consisted of one engine sale compared to $1.8 million from one engine sold in 2025. Excluding flight equipment sales, revenue increased 2.2% year-over-year, driven by growth in leasing activity, partially offset by lower USM and MRO parts sales. As we note each quarter, flight equipment sales can vary meaningfully from period to period. As a result, we believe performance is best assessed over time with a focus on feedstock acquisition, monetization of those investments, and profitability trends. Adjusted EBITDA for the quarter was $7.4 million, or 10.4% of revenue, compared to $3.2 million, or 4.8% of revenue, in the prior-year period. The EBITDA dollar and margin increase was primarily driven by higher leasing revenue and flight equipment sales during the quarter. Asset Management Solutions revenue increased 10% year-over-year to $43.1 million in the first quarter. Excluding flight equipment sales, revenue grew modestly, supported by an expanded lease pool and favorable engine mix, but partially offset by lower USM volumes. We ended the quarter with 18 engines and three Boeing 757 freighters on lease compared to 16 engines and one freighter on lease in the prior-year period. Technical Operations revenue increased 3.4% year-over-year to $27.5 million, driven primarily by higher on-airport MRO activity. Growth was led by increased activity at our Goodyear and Millington facilities, including the initial ramp-up of CRJ work at Millington. These gains were partially offset by lower MRO parts sales during the quarter. Gross margin for the quarter was 26.7% compared to 27.3% in the same period last year. The modest and temporary decline reflects start-up and training costs related to the CRJ line in Millington and the Aerostructures expansion, as well as higher labor costs at Goodyear as we maintained elevated staffing levels in anticipation of increased demand expected later in the year. We expect these margins to normalize and begin to improve as we increase labor and facility utilization. Selling, general, and administrative expenses were $22.2 million in the first quarter, down from $24.6 million in the prior-year period. The decrease reflects the benefits of our ongoing efficiency initiatives and the absence of one-time severance costs incurred last year. Current-year expenses included $1.8 million of share-based compensation expense compared to $1.2 million in the prior year. Net loss for the first quarter was $3.5 million compared to a net loss of $5.3 million in the prior-year period. Adjusted net income was approximately breakeven compared to an adjusted net loss of $2.7 million last year. Adjusted EBITDA for the quarter was $7.4 million compared to $3.2 million in the prior-year period, benefiting from a higher-margin product mix and lower expenses. Year-to-date cash used in operating activities was $26.7 million, primarily related to feedstock acquisitions of $25.1 million as we continue to make disciplined investments to grow the Asset Management segment. We ended the quarter with inventory of $369.5 million and aircraft and engines held for lease of $121.5 million. Available liquidity at the end of the quarter was $41.8 million, which included $2.1 million in cash and $39.7 million of availability in our $180 million asset-backed revolver, which can be expanded to $200 million. This available liquidity, growing performance, and our strong inventory position provide us with the tools needed to continue to grow our business through the remainder of 2026 and beyond. In conclusion, we remain focused on monetizing the investments that we have made. In a competitive market, we have built a strong inventory position that will allow us to continue to grow our leasing and USM activities. The commencement of a multi-line maintenance program at our Millington facility and new work commencing at our expanded Aerostructure facility put us on a positive trajectory to exceed the incremental $50 million revenue expectations for our expansion initiatives, with the expectation that margins will improve as we increase utilization of our additional capacity and start-up initiatives mature. All of this will allow us to continue to grow both our revenue and profitability in a more predictable and recurring manner quarter over quarter. With that, operator, we are ready to take questions. Operator: We will now open the call for questions. Thank you. At this time, I would like to remind everybody that in order to ask a question, please press star followed by the number 1 on your telephone keypad. Our first question comes from the line of Kevin Liu with RBC Capital Markets. Your line is open. Analyst: Hey, good afternoon, Nicolas and Martin. Thanks for taking the question. Could you talk about what you are hearing from customers in light of the ongoing conflict in the Middle East as it relates to your business, whether that is in USM, spare parts, or lease rates? Nicolas Finazzo: Hi, Kevin. Thanks for the question. We are not really hearing much from our customers at this point, and that is something we ask internally: how is the Middle East situation going to affect us in the short run? We are not seeing it yet. What do we expect? We expect that if this continues for a prolonged period of time and we see airlines park more aircraft, the result will be more aircraft in storage, which would benefit us, and there may eventually be a downturn in the demand for used serviceable material parts. However, as I have said, every quarter this question gets asked: is there enough USM out there to support demand? And the answer is, for the proper amount of USM—I do not mean every part from every engine, but the parts that sell from an airframe or engine—there continues to be more demand than available inventory. Until that eventually equalizes, if a number of airplanes are grounded—certainly during the COVID environment there were enough airplanes on the ground that there was very little requirement for USM because aircraft could be cannibalized for parts, and engines were not going into the shop because engines on wing were being cannibalized to keep other aircraft flying. Over time, if this prolongs, if fuel costs stay high, and that results in a substantial grounding of the fleet, then we expect that will have an impact. But I do not know when that would be. I believe that impact would still be years off unless you had a COVID-type event where a substantial amount of the fleet is grounded. So the short answer is we are not seeing an effect at this point, and based on the type of USM that we sell, we do not expect there to be an effect, certainly not in the short run. Analyst: Okay. Got it. Thank you. That is helpful. And then on a separate note, could you give us an update on your current capacity additions in MRO and talk about the potential impact to revenues in your business, both this year as well as in 2027? Martin Garmendia: Sure. As stated in the prepared remarks, Millington has come online and we have started a CRJ line there. We have gone through some start-up costs and a learning curve, but right now that is potentially going to expand to three aircraft that will be at full capacity at the Millington location, under a very profitable contract with a very good customer to whom we can provide multiple services. At our Goodyear facility, we continue to ramp up work, especially from the lows incurred last year after a long-term contract had finalized, and we continue to be bullish there. We continue to serve multiple operators, including Spirit, and we are seeing a ramp-up of return-to-service work for them with some of those overall aircraft. Based on the recent news, we expect that to accelerate during the remainder of the year. At our Roswell facility, we primarily do storage work. We have seen a decline in aircraft being stored, but if, for some reason, the war in the Middle East continues and there is an overall reduction in aircraft operating, we could potentially see aircraft being returned into that location from a storage perspective. On our component MRO side, our Aerostructures facility came online during the first quarter, and we are ramping up there. That is a 90 thousand-square-foot facility. We have a lot of capacity to fill. We have made a lot of inroads with customers, getting that process finalized, so we expect to quickly start ramping up demand there. Our landing gear shop has also been doing extremely well. We are starting two agreements—one with an OEM and one with an international carrier—that are expected to significantly increase our volume at that facility as we progress through the quarter. And our component shop has also seen increased demand, and we continue to pursue additional initiatives to fill that capacity because we have a good amount of available capacity there. As the market continues and there is overall demand, we are poised to grow and to fulfill some of those leads. Analyst: Got it. And just one last follow-up. As you are selling this capacity today, could you give us more color on what kind of margins you are getting on this new capacity and how we should think about the potential EBITDA contribution? Martin Garmendia: On the on-airport MRO side, there is still a need and a limited supply of available slots, so we have been seeing margin improvement in that area. Overall, as I mentioned, in the quarter margins were temporarily impacted by the Millington start-up, but as Millington comes fully online, we expect gross profit margins to be in excess of 20%. And at our Goodyear facility, as we increase return-to-service work—depending on the type of work—we definitely expect margins to be better than they have been historically. Operator: There are no further questions at this time. I would like to turn the call back over to Nicolas Finazzo, Chief Executive Officer, for closing remarks. Nicolas Finazzo: Thanks. Despite nonrecurring start-up costs from our facilities expansion projects in the first quarter, our operating business has continued to improve. These results validate our unique multidimensional and fully integrated business model, and as these units continue to develop and mature, we will be in an excellent position to achieve substantial growth in the years ahead. I want to thank Kevin for his insightful questions today, which I think provide good insight into our business model and will help our investors better understand how we are performing. To all the rest of you, I very much appreciate your interest in listening to our call today and look forward to bringing you up to date during our next earnings call. I wish you all a good evening, and thank you.
Eric Boyer: Good morning, and thank you for joining Bentley Systems Q1 2026 results. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Executive Chair, Greg Bentley; Chief Executive Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of May 7, 2026, regarding the future results of operations and financial position, business strategy and plans and objectives for future operations of Bentley Systems Inc. All such statements made in or contained during this webcast other than statements of historical fact are forward-looking statements. This webcast will be available for replay on Bentley Systems' Investor Relations website at investors.bentley.com on May 7, 2026. After our presentation, we'll conclude with Q&A. And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley. Gregory Bentley: Thanks to each of you for your interest in BSY's '26 Q1. Nicholas will describe factors that contributed to commendable operating performance, favorably according as usual for BSY with our annual full year outlook. Werner will put this in the financial terms, which continue to differentiate BSY as leading among peers, both in the quality and in the measures most meaningful to shareholders of sustained profitability and cash flows. I will supplement their on-the-ground reporting with perspectives behind our characteristically even higher prioritized endeavors to benefit our future value, in particular through advancements, which make AI for us, more a seminal opportunity than a terminal threat. Last quarter, I enumerated some respects in which Bentley Systems prospects are rather uniquely enhanced and accelerated by AI. Our advantages, as summarized here, make the case that leadership in infrastructure AI is destined, given our experience and determination within Bentley Systems' grasp. Our long-established incumbency as the digital quartermaster for infrastructure engineering organizations substantive tooling is a differentiating and immediate advantage. Quantification of that pole position will be my focus today. In particular, our modeling and simulation applications have established the de facto standards for responsible and deterministic infrastructure engineering, and the stewardship for each account of their cumulative infrastructure engineering data in Bentley Infrastructure cloud, ProjectWise, SYNCHRO and AssetWise, positions them to leverage AI to compound value for themselves and for their own constituents at a steeper rate than ever. Beyond our existing consumption business models, AI is on the cusp of adding to our growth incrementally, agentic API consumption of our modeling and simulation functionality, especially for optimization of designs and, for instance, to intrinsically improve constructability. And our asset analytics initiative, spawned by AI and already exceeding $50 million in annual revenue run rate, is leading the way toward instant on digital twins to optimize operations and maintenance, commercialized through subscriptions denominated in consumption per asset. Imbued with all these factors and shaping our distinctive AI game plan, our business is anchored by stalwart enterprise accounts. Within infrastructure engineering, these enterprises are on the leading edge of adopting, acting upon and evolving individual proprietary AI initiatives which we are there to support, prioritize and enable. What will never change is that their business is our business, and their success is our success. Underscoring this affinity, 45% of our revenue comes from 220 accounts, which each spend over $1 million per year with us. And almost 2/3 of our revenue comes from 824 accounts, which each spend over $250,000 per year with us, mostly, of course, through E365 consumption subscriptions, which include, in each case, a dedicated BSY technical success team positioned to nurture joint AI initiatives. To understand the extent to which our interests are aligned with rather than opposed to our accounts, let us drill down on project delivery firms, in particular, because engineering news record surveys and ranks them all, publishing individual revenue breakdowns that can help us understand their economics and our own penetration level and potential as digital quarter masters. From engineering news records, 2 lists ranking, respectively, domestic and international headquartered design firms, last published together a year ago, we compiled the composite ENR global top design firms ranked by their verified design billings. For 2025, these 639 global top design firms generated $280 billion of design billings. 25% of these design billings were generated by 25 Chinese organizations. Unfortunately, because they're generally within state-owned entities, geopolitical tensions currently inhibit their accessibility for us. Thus, the top global design firms ex-China consists of 614 top firms generating design billings of $212 billion. Of these, 470 are BSY accounts, together accounting for $198 billion in design billings, 93% of the ex-China total. A considerable portion of those whom are not the BSY accounts are rather pure architecture firms. With our ARR across these BSY accounts totaling $414 million or about 28% of our overall ARR, top design firms are our largest constituency. Per million dollars of their design billings, they spent on average about $2,000 in BSY ARR. On average, each uses about 4 among BSY's top brands plus several other lesser brands. The top brand for these accounts, also now BSY's top brand, is ProjectWise, in use by 270 of the top firms, together generating $160 billion in design billings, representing 76% of the design billings of the ex-China top firms. In our coming quarter, we will describe joint AI initiatives with these firms to compound the reuse benefits from their Bentley Infrastructure cloud data platform. For now, I would like to quantifiably illustrate the aligned incentives for BSY and top design firms to work together on the incipient AI transformation of their business model. The key is that infrastructure engineering software isn't for these firms overhead or administration. It is a most necessary factor of production to enable, capture and deliver their substantive work. Along with attendant labor and associated computing, it's a cost of revenue. To assess the economics, let's consider a representative project with $1 million of design buildings. Triangulating variously, including from BSY's $2,000 average of spending per million dollars of design billings across the universe of all of our top firms accounts projects globally, I estimate that a representative million-dollar design project would consume about $10,000 of design software. Since margins for these firms now reach about 10%, the cost other than for design software, mostly for engineers labor, must then be $890,000. Now what could a top firm gain by theoretically investing to the detriment of its design software vendors to somehow reduce its design software spending, say, by 20%? For that putative inspiration and effort and distraction and risk and liability and investment, which thus couldn't afford to be much, their net profit margin would extensively grow from 10% to 10.2%. But back to the drawing board, consider that investing instead in AI automation and agentic API consumption and computing, even if that say double the all-in design software cost, could save at least 20% of scarce engineering time as that is readily achievable with just agentic automation of drawings production. It seems logical to prefer reducing engineering labor because these top design firms compete with one another for a demographically shrinking talent pool of infrastructure engineers. And with near record backlogs, these resource constraints limit the new projects each firm can pursue, even though there's an abundance of infrastructure engineering work available. Unfortunately, with the prevalent hourly billing commercial model for infrastructure engineering, improved productivity would produce more output with the same staffing, but not more design billings. So one more simple change would be needed to make this fully worthwhile, transform the design billings commercial model for such projects to fixed pricing. Now if I were an infrastructure owner-operator client, the only objection I can think of to fix pricing would be a concern that as a result, corners might be cut, alternatives might not be pursued and thus, engineering quality could be compromised. But now with API consumption enabling demonstrable agentic optimization, that concern can be overcome technically. And each human engineer, now augmented by busy agents and automation, remains daily in the loop, but delivering 20% more design billings on additional projects in the same time, yielding very worthwhile, AI-enhanced economics. The top design firm enterprise by investing in proprietary AI agents to automate and leverage and to API consume trusted modeling and simulation functionality could now generate IP level margins of over 24% on the same engineering inputs. As the owner client gets better assured and more timely quality of designs at no higher cost, everyone wins, including the fully employed and probably gainfully incented engineer, not to mention the software and computing providers. So while respecting confidentiality of our enterprise accounts individual AI plans and strategies, Nicholas will provide a brief update on our infrastructure AI program with accounts for such joint initiatives, among his other content. So over to you, Nicholas. Thank you. Nicholas Cumins: Thank you, Greg. We began 2026 on a strong footing. Our Q1 performance demonstrates our ability to consistently execute against the backdrop of sustained global demand for better performing and more resilient infrastructure. Before going further, my thoughts are with our colleagues and users affected by the conflict in the Middle East. I am incredibly grateful for our team in the region. Their commitment to our users has been unwavering, and their dedication is inspiring. Following up on Greg's remarks, I will start with an update on AI. We continue to execute on our AI initiatives across the portfolio, but I will focus on 2 recent highlights. First, on Bentley Asset Analytics. To take this business to the next level of scale, I am delighted to welcome [ Bryan Friehauf ] as our new General Manager. Brian joins us from GE Vernova and was previously at Hitachi. He brings a wealth of experience in scaling enterprise software businesses in the operations and maintenance phase of the infrastructure life cycle. Second, on Bentley open applications. We have engaged with leading infrastructure organizations, both engineering services firms and owner operators, as part of the infrastructure AI initiative announced at the end of 2025. The feedback has been clear and consistent. There is strong demand for us to instrument our applications so they can power users on AI-driven workflows. Based on this strong feedback, we have prioritized the development of both APIs and MCP servers. In fact, we just released an MCP server for STAAD, our flagship product for structural analysis. To give you a sense of the potential, this allows an AI agent like Claude to interact directly with STAAD to optimize the structural design at machine speed. The ability to iterate on complex design trade-offs so quickly is transformative. Our next steps are to instrument other key applications and to validate the commercial model for this powerful new usage pattern. We look forward to sharing our progress. Now turning to our business highlights. Our year-over-year ARR growth for Q1 was 11.5%, in line with our expectations. Our net revenue retention rate remained strong at 109%, consistent with previous quarters and highlighting the stability and growth within our existing accounts. Our enterprise 365 commercial program continues to drive steady growth, both in terms of conversions as well as floor uplift and renewals, noting that Q1 is our smallest quarter for renewals. New logos contributed again, 300 basis points of ARR growth, primarily within the SMB segment. Through Virtuoso, our flagship commercial program for SMB accounts, we again added over 600 new logos in Q1. At the same time, our growth model is evolving, with an increasing contribution from cross-selling and upselling to existing Virtuoso accounts. While our renewal rate remains high, the sheer scale of the Virtuoso base creates a natural churn dollar amount to overcome each period. Our combination of new logos and existing account expansion allows us to continue to deliver strong net growth. Turning to our performance by infrastructure sector. Resources was the fastest-growing sector in total and across each geographic region. We expect another strong year for Seequent, bolstered by improving mining fundamentals. I will come back to how we plan to expand our addressable market even further into critical resources in a few minutes. Our largest sector, public works utilities, delivered a solid quarter, driven by robust global infrastructure investments. Power line system continues to benefit from increasing demand for grid resiliency and new power generation as well as international expansion. The adoption of SQL applications for the civil infrastructure also supported growth in that sector. Growth in the industrial sector continued to be solid, while commercial facilities remain relatively flat. Turning to our tone of business by geographic region. In the Americas, our largest region, the U.S. delivered solid growth, supported by stable public funding at both the federal and state levels for transportation, grid and water projects. Private investment was also robust, particularly in resources and AI-related data centers and power generation. Latin America delivered a standout quarter, with strong performance from Seequent and mining and from our increased focus on transportation in the region. EMEA was our fastest-growing region in the quarter. This strong performance was achieved despite the conflict in the Middle East, which saw some project delays and a shift in consumption to all the regions. However, this was more than offset by strength elsewhere. In the U.K., growth accelerated as major projects moved into the delivery phase just as we anticipated last quarter. We also saw robust growth in Africa, driven by increased spending in mining. Asia Pacific delivered solid growth, with India once again leading the way, and Australia showing improved momentum. While we continue to navigate persistent headwinds in China, which represents approximately 2% of ARR, the strength across the rest of the region more than compensates. Now I would like to take a deeper dive into our resources sector. This is a part of our business that has become increasingly significant, and we believe it's important for you to appreciate its journey and its forward-looking potential. When we acquired Seequent almost 5 years ago, our primary objective was strategic, to integrate their best-in-class software for understanding the subsurface into the world of infrastructure. We knew that a misunderstanding of ground conditions is a primary cause of delays in risk in major infrastructure projects. As a byproduct of that strategic move, we also acquired a sizable and thriving business in the resources sector. I am pleased to report that the initial strategy has proven effective. Since the acquisition of Seequent, we have grown our subsurface ARR in civil infrastructure by a factor of 4, in part due to successful cross-selling into the existing Bentley accounts. The potential for further growth is significant, as engineering services firms adopt a ground informed design approach, bringing detailed ground investigation in as a foundational step before design begins, much like they already do for above-ground survey. At the same time, Seequent has continued its impressive growth in its core mining market. Seequent's growth rate in 2025 accelerated as the geopolitical climate and race to AI increased the focus on critical minerals. We expect these trends to continue in 2026, contributing to another standout year for Seequent. However, it is important to note that Seequent has delivered strong growth even during the mining exploration slowdown starting early 2023, when production mining companies use our solutions to mine existing deposits more efficiently. But the potential of Seequent's resources extends beyond traditional mining. Seequent's technology is pivotal for other critical resources that are essential to the global economy and to society. Take, for instance, new sources of energy. Seequent software is already instrumental in the operations of more than 60% of the world's high-temperature geothermal electricity generation. Now it's being applied to new enhanced geothermal systems by companies such as [ Fervor Energy ], the winner at our 2025 year infrastructure awards. Their project [ cape ] in Utah, for example, demonstrated how new drilling techniques and digital technologies are making geothermal power increasingly accessible and economically viable. Clean, renewable and consistent baseload energy is more critical now than ever as AI and data centers demand more power. And Seequent's impact extends to the most vital resource of all, water. Groundwater supplies about 50% of global domestic water and over 40% of irrigation water. Most of these resources are under stress due to overuse. Seequent software is used around the world by engineering consultancies to manage these resources, mapping aquifers from California to India, designing managed aquifer recharge facilities and constructing a digital framework for groundwater management models. So nearly 5 years since the acquisition of Seequent, resources have become our second largest sector, accounting for more than 20% of our sector attributable ARR, and it continues to be our fastest-growing sector. In summary, it was a strong start to the year. We are executing well in a robust market, and we're excited about expanding our reach further within the resources sector. Before handing off to Werner, a quick update on our event strategy. We are decoupling our YII awards from our user conference to create 2 distinct world-class events. Our year-end infrastructure event will now be exclusively focused on our global awards competition. We are keeping its intimate and celebratory format. And this year, it will be held in Singapore from October 6 to 7. Separately, we're launching a new large-scale user conference dedicated to product learning, best practices and community networking. The very first will take place in Toronto in April of 2027. We believe this new format will allow both events to thrive. And now for a detailed review of our financial results, over to you, Werner. Werner Andre: Thank you, Nicholas. We are pleased with our strong start to the year, which continues the momentum we built through 2025 and positions us well within our financial outlook for 2026. Total revenues for the first quarter were $424 million, growing 14.5% year-over-year and 11.9% in constant currency. Our growth continues to be driven by our mainstay subscription revenues, which represent 93% of total revenues and grew 14.7% for the quarter or 12.2% in constant currency. Our E365 and SMB initiatives continue to be solid contributors. In our smaller and less predictable revenue streams, perpetual license revenues decreased 18% in constant currency. Perpetual license sales remain a very small part of our business, and are, as always, the less controllable and less predictable component of our revenue mix. Service revenues increased 25.8% in constant currency, driven by long-weighted reacceleration in maximum related services from our cohesive business. Last 12 months recurring revenues now stand at 1.440 billion, increased by 13.3% year-over-year or 11.5% in constant currency, and represent 93% of total revenues. Our last 12 months constant currency account retention rate remained consistent at 99%. Our constant currency net revenue retention rate remained at 109%, consistent with recent quarters. The combination of our high retention rates and new business momentum gives us confidence in the continued durability of our recurring revenue growth. Now turning to ARR. We ended the first quarter with ARR of $1.495 billion at quarter end spot rates. On a constant currency basis, our year-over-year ARR growth rate was 11.5%. Our sequential quarterly growth rate was 2.5%, all organic and in line with our expectations for the quarter. We continue to expect our quarter-over-quarter ARR growth seasonality to be similar to 2025, and thus organic year-over-year ARR growth rates to be relatively stable during the year. Our GAAP operating income was $126 million for the first quarter. As I've discussed previously, our GAAP results can be impacted by deferred compensation plan revaluations and acquisition-related expenses. Moving to our primary profitability measure, adjusted operating income less operating stock-based compensation or AOI less operating SBC. As we announced with our 2026 outlook, this is the first quarter we are applying this refined metric. This change aligns the treatment of cash settled and equity settled acquisition-related stay bonuses, removing M&A-related volatility from this key operational metric. AOI less operating SBC was $141 million for the quarter, with a margin of 33.2%. This quarterly margin performance was in line with our expectations, positioning us well to deliver on our annual margin improvement. As a reminder, we plan to invest earlier this year, resulting in operating expenses being more weighted towards the first half compared to 2025. Our free cash flow for the quarter was $188 million. This result was in line with our expectations and reflects 2 key factors we signaled on our last earnings call. First, our 2025 free cash flow benefited from exceptionally strong collections at year-end. This created a timing benefit in 2025, which, as anticipated, resulted in a tougher year-over-year comparison for the first quarter. Second, the plan for operating expenses to be relatively more weighted towards the first half this year is reflected in comparison to 2025 for both profitability and cash flows. Looking beyond quarterly timing fluctuations on a last 12 months basis, free cash flow of $492 million was up 13%, and we remain on track to meet our full year free cash flow outlook of $500 million to $570 million. We continue to execute a disciplined and balanced approach to capital allocation. During the quarter, we repaid, at maturity, the outstanding balance of $678 million of our 2026 convertible notes, utilizing borrowings under our credit facility and cash on hand. The retirement reduced our fully diluted share count by approximately 10.6 million or 3%. In total, our net debt decreased by $134 million in the quarter. We also returned capital to shareholders, deploying $54 million for share repurchases and $21 million for dividends. Our balance sheet provides significant strategic flexibility. At quarter end, capacity under our credit facility was $756 million, and we reduced our net debt leverage during the quarter from 2.1 to 1.9x adjusted EBITDA. Subsequent to quarter end, we closed on a new $550 million term loan A under the [ accordion ] feature of our credit facility. This transaction was completed at attractive terms and used to repay outstanding borrowings under our revolver and lowering our interest cost. With the term loan in place, total borrowing capacity under our credit facility increased to $1.850 billion. This provides ample capacity to support our strategic priorities, positioning us well ahead of the 2027 notes maturity, while also funding potential programmatic acquisitions, ongoing share repurchases and dividends. We continue to actively manage our interest rate exposure. Our safeguards include a low fixed coupon on our remaining convertible notes and our $200 million interest rate swap expiring in 2030. And finally, we remain comfortable with our 2026 financial outlook range that we provided just over 2 months ago on our Q4 call. With regards to foreign exchange rates, for the first quarter, the U.S. dollar has strengthened, slightly relative to the exchange rates assumed in our 2026 annual financial outlook, resulting in approximately $2 million less revenues from currency changes. If end of April exchange rates would prevail throughout the remainder of the year, our Q2 to Q4 GAAP revenues would be negatively impacted by approximately $3 million, relative to the exchange rates assumed in our 2026 financial outlook. And with that, over to Eric for Q&A. Thank you. Eric Boyer: Thanks, Werner. Before we begin, just as a reminder, please limit yourselves to one question so we can get to everybody today. First question comes from Joe Vruwink from Robert Baird. Joseph Vruwink: Great. I guess, Greg, the example you shared is interesting. I think the prospect of supporting $200,000 more in revenue by spending $10,000 on software is something all of your customers would gladly entertain. What do you think about in terms of Bentley's product efforts in terms of bringing that proposition closer to reality? What still needs to be done? And what sort of deliverables do you need to demonstrate to your customers so that they believe and give you the buy-in? Gregory Bentley: Well, I think the path to that, foreseeably, is the API consumption, the notion that agents spun up by the engineers can do more iterations in the same time, not only will deliver a better quality of design, but the engineering firms will be able to substantiate that to the owner operators to accelerate this transformation to fixed pricing. The -- what's really great about that prospect for us is the -- the more of that engineering firms and owner operators are excited about and ready to act on this transformation to a new commercial model. That's all good for our prospects. It's where everyone wins, as I say. It can't be doubted that this will happen with the AI inflection as it is happening in every other service industry, engineering is one of those. But it's been slow until now, and this notion of optimization that literally is in front of us at the moment is going to speed it up, I think. Eric Boyer: Our next question comes from Matt Hedberg from RBC. Matthew Hedberg: Great. Good start to the year. When we look at your business, you guys all highlighted a number of, I think, really interesting company-specific catalysts that seem to be moving in your favor this year. And to us, when we sit back and look at, it seems to present an opportunity that could push constant currency ARR towards that higher end of the range this year and perhaps accelerate versus last year. I guess when I sit back and think about all these opportunities, if you were to highlight the 1 or 2 things that you're like, these are the most important things that could deliver those results, what would they be? Because it seems like there's a lot of opportunity here for you guys. Nicholas Cumins: Well, I think you're characterizing it exactly the right way, Matt. There's a lot going on that is very positive for the company. We benefit from very strong tailwinds here in both infrastructure and in resources, and as I highlighted during the prepared remarks. So for us to get to the, let's say, higher part of the range, we would need both resources and mining, in particular, to continue to go strong throughout the year. And right now, everything is signaling that this is trending well. We need Bentley asset analytics to continue to grow strongly throughout the year. We need, of course, the core business infrastructure to continue to go well and then probably in order programmatic acquisition. So if you have all of that lighting up, then yes, we're talking about the higher part of the range. Eric Boyer: Next question comes from Jason Celino from KeyBanc. Jason Celino: Great. This actually goes back to Joe's question. There's growing debate among the investment community on whether to charge or not charge for access to data. It seems like Bentley is one of the only software platforms trying to monetize this way through API consumption. And frankly, might be the preferred way investors may want to see it. But do you foresee any risks from like a customer perspective on charging this way since other horizontal software companies have decided to be more open and not necessarily charge for it? Nicholas, the STAAD MCP server that you talked about, are there other MCP servers that you might going to stand up? Nicholas Cumins: Definitely. Right, so maybe a point of clarification first. When we're talking about API consumption, we're talking about an indirect usage to our engineering applications. So as opposed to having a user directly interacting with the applications, we have an AI agent that is directly interacting with the application. Now there's still a user behind the AI agent, but the AI agent, which is now being able to do with the application level of optimization, which was simply not possible for an engineer on its own, okay? Then we have Bentley Infrastructure Cloud, where the data actually resides. And here, indeed, we're not monetizing the access to that data because that data belongs to the infrastructure organization that are entrusting us with that data as part of the platform, right? So those are 2 different things. The ability to leverage AI to optimize designs or even generate parts of the design is just a fantastic value proposition. Clearly, our user base pricing right now, whether we're talking about attended consumption as part of E365 or annual subscription with Virtuoso is not going to capture the full value that is going to be created, right? So we're discussing with the representative accounts who are involved in our coinnovation initiative called infrastructure AI. We're talking about a different commercial approach where we'll be in a API consumption-based pricing, maybe token-based because that seems to be the common denominator across different AI tools. But that's really for the engineering applications. For Bentley Infrastructure cloud, at least in the foreseeable future, the pricing is indeed user based, either user-based consumption, [indiscernible] consumption or annual subscriptions. Gregory Bentley: And may I make clear that today, we only monetize attended consumption. Our strategy is to introduce and increase the API consumption and give users and accounts a chance to explore the potential of that and learn in the process what it cost us, what it could cost them and what the benefits and values are so that we can arrive at an appropriate monetization approach to that, which we are open-minded about for now. Eric Boyer: Next question comes from Siti Panigrahi from Mizuho. Sitikantha Panigrahi: Great. Just following up that AI part, Greg, you laid out really a compelling case for AI within your customer base. Wondering what sort of feedback have you got from your customer? And how should we think about the TAM expansion for Bentley or even the ARPU uplift potential as AI drives even deeper multiproduct adoption, maybe it's not near term, but how should we think about ARPU and TAM expansion? And in the same context, Werner, how are you looking about the margin and even there is a incremental engineering and computing cost implication as in Bentley start focusing on building AI products. How should we think about the investment intensity over next 12 to 18 months? Gregory Bentley: I'm going to ask Nicholas to speak about the account reaction. But I may just say a particular multi-product scenario that has me excited is during design to be able to have an agent using SYNCHRO to explore the constructability of what's being designed while it's being designed. This doesn't imply that the design firms that we talked about will be doing the construction necessarily. Someone will be doing a construction subsequent to their involvement, but they'll be able to say to the owner operator, we're going to be able to give you a design where we already know the economics of construction. We've simulated that in the course of our design. It's just an example of something not even conceivable now that AI will introduce through API consumption. But Nicholas, perhaps you can speak to the reaction of accounts to the prospects for this instrumentation. Nicholas Cumins: After that, and then I'll also get to the TAM question. So the reaction of our accounts is really validating the opportunity for this indirect usage of our applications. Now we do see a difference here between the very large infrastructure organization, in particular, the very large engineering services firms and all the others. The very large ones, by the way, exactly like it was shared with the AC adviser CEO survey of 2025, the very large ones are the ones who are really investing in their own AI-driven workflows. They are the ones who are exploring with us how exactly they will start to use our applications indirectly through AI, right? Now all of the infra organizations we talk to, all of them, whether they're big or small, are welcoming that we deliver our own AI capabilities as part of our products, right? Now back to the very large one, these are still very early days. And as we commented actually last quarter, we're much more in the mode of exploring and validating and then confirming for example, that yes, an MCP server for STAAD makes a lot of sense, and then an MCP serve for another application, another application. And we're very focused on adoption as well. The monetization will come next. Where we are doing monetization right now with AI is really through a different offering, which is Bentley Asset Analytics, which we can talk again in a moment. But now back to your question about the TAM, I think it's a great question because the time that we shared at the moment of our IPO when we became public, was all based on the number of engineers. And effectively, if we're talking about indirect usage of our applications through APIs, we are somewhat removing that natural cap of how many engineers are out there, and how much can they consume within a given day in terms of applications for Bentley? So we're very excited about that as a long -- let's say, longer-term growth opportunity for us to actually expand our TAM by having indirect users of application through AI. Unknown Executive: And Werner? Werner Andre: Yes, maybe on the margin. So I think as Nicholas said, it's early days. It's completely immaterial as of now. But I could say that gross margins will be impacted, but it's likely, and this has to be considered then in the monetization of the products. Eric Boyer: The next question comes from Dylan Becker from William Blair. Dylan Becker: Appreciate it. Maybe Greg or Nicholas here, I think the shift to outcomes obviously makes sense and kind of your ability to facilitate that efficiency gain, I think, is abundantly clear. But I was maybe wondering on the importance of kind of your services or in the direct customer relationships you have from a go-to-market perspective and how you can kind of help those customers bridge that gap from a change management perspective and kind of help maybe accelerate that push in the economic delivery model, if that makes sense. Gregory Bentley: One thing that I'll remark upon is that our dedicated teams in E365 over the past year or 18 months have discovered a new productive way to help our accounts. It's by helping them pursue new business -- it's helping join their pursuit teams to bring new ideas to owner operators. And I hope that will include, as we implement the optimization approaches, how that gets sold and communicated among things to enable fixed price, which is the beginning of that outcome-based contracting. Nicholas Cumins: Yes. At the end of the day, when it comes to the commercial model of the engineering business firms we serve, this is very much to be decided between them and their clients. And then depending on the industry, it will vary quite a lot. Some of them have already embraced fixed base pricing, others are still in time and material. The -- what we can do, besides, of course, demonstrating the part of AI and how it changes the whole value proposition. Besides that, we have a lot of high-level advocacy efforts that we're doing with governments, with the financial sector as well, with the clients. Some of them are through our infrastructure policy advancement team. Some of it is also through our services arm called [ Cohesive ], which is providing consulting to owner operators and getting insights about what else could be done. What's the art of the possible. And potentially, what does it mean for their commercial model. Gregory Bentley: When Nicholas described some have begun fixed pricing, it's primarily those that do private sector work, where private sector owner-operators are quicker to adapt and evolve than government-funded public works and utilities. Eric Boyer: The next question comes from Jay Vleeschhouwer from Griffin. Jay Vleeschhouwer: Nicholas, a quarter ago on the call, you described Bentley Infrastructure Cloud as your data foundation for AI. And I assume it's more broadly so aside from AI that in terms of the importance of infrastructure cloud. With that in mind, could you talk about perhaps some of the adoption metrics for infrastructure cloud? Do you think of it as a kind of prerequisite for or leading indicator for other business, AI or not? And then if I may have pointed to clarification given all the API discussion earlier. In a complex federated system of that kind, how do you assure what customers adopted good or better throughput or performance in a complex API system? Nicholas Cumins: So to the first question, when we're referring to Bentley Infrastructure Cloud as a data foundation for AI, we're really talking about the AI efforts of the infrastructure organizations we serve. So when they upload files, when they connect data systems into Bentley Infrastructure Cloud and all of the data from those files or the systems is not to schema, so that, that data becomes so [ equirable ], it can be analyzed, but it can also be leveraged by AI, right? Now we made it very clear that we are not using that data, which is in Bentley Infrastructure Cloud to train our own AI. That definitely sets us apart from all the software providers out there. Now data ownership is a very, very sensitive topic across all industries, for sure in infrastructure as well. We do not think it's right to be leveraging the intellectual property of some companies to train AI that will benefit other companies, right? We just don't think it's right. So we're not going to do it. So the only time we use data within Bentley Infrastructure Cloud to train AI is when we're explicitly asked by infrastructure organization to do so. And then it really is their data. And by the way, we gave full transparency of what data has been used in order to train AI. That -- it sets us apart to the extent that it really becomes a reason why infrastructure organizations also choose Bentley Infrastructure Cloud as opposed to other alternatives because they really have trust that we're going to be a good custodian of that data on their behalf, yes? Now when it comes to API throughput, indeed a point of clarification. So for example, with the demo I was showing with STAAD, we are, in a sense, in the first step of the instrumentation, where these applications are still running on the desktop. In fact, you can see it with a video. It was still running on the desktop. They're not yet platform services. That will be the next step. So the first thing we're doing is making sure that the APIs exist, that there are MCP services available, so it's easy for AI agents to interact with those applications. But all of that interaction is actually happening on the local computing station on the personal computer. When -- at some point, of course, that's why we're discussing also with the company. We're talking about the longer term here. Some of those workloads will be moved to the cloud to become true cloud services, but then we'll just make sure they are as performant as they should be, like we do for all of the cloud services that we offer. Eric Boyer: The next question comes from Alexei Gogolev from JPMorgan. Alexei Gogolev: Great to see you all. You've mentioned that it is still early days for applying AI to mission-critical engineering, and you're leading the exploration to building and drive the adoption of highest value AI workflow. So could you maybe speak about some of the initiatives on that end? What efforts you're taking? Nicholas Cumins: So we have -- if you're referring also to one of the earlier comments around we're making progress with our initiatives across the portfolio, we have both efforts to deliver our own AI capabilities as part of our products. And then efforts to instrument our applications, in particular, the engine applications, so that they can support AI-driven workflows that are being created by the infrastructure organizations that we serve, right? So those are 2. For the latter one, there is a co-innovation initiative that we've launched at our annual conference last year, YII, so towards the end of 2025, where we invited infrastructure organization to join, talk to us and explore with us what are the use cases they're going -- they would like us to be able to support in applications. And it was no surprise that the actually first case has identified was for STAAD because we had already seen STAAD, which is our flagship product for structural analysis, being used this way because it had an API in some of the submissions for the going digital awards at our annual conference over multiple years, by the way, it was clearly the first one. So no surprise that there was a very strong demand for us to create an MCP server based on that API in order to support the interaction of AI agents with STAAD. And so that's the way we're interacting with them in that context, which is understanding what are the use cases with the biggest potential, validating with them and then creating those MCP servers. And we have multiple efforts across our pretty wide portfolio of engine applications to create the MCP servers directly if the APIs already exist, if not, start to create the APIs themselves, okay. But then now for the AI capabilities that we offer. We have AI capabilities as part of the engineering applications that will automate parts of the design workflow. Typically, we go for the, let's say, mundane tasks, which are extremely time consuming like [ joins ] production that we talked about in multiple quarters ago. We have AI capacities built within Bentley Infrastructure Cloud, for example, in order to facilitate the search of engineering data using natural language. We have AI capabilities being part of Bentley Infrastructure Cloud in order to help navigate very complex construction models as part of SYNCHRO. We obviously have AI pretty much for all of our applications for Bentley Asset Analytics, whether we've developed them or we require them. And we even have AI in Seequent, which I spent time highlighting today as part of my prepared remarks, right? So there are efforts related to AI really across the portfolio. It's a wide range of initiatives. Eric Boyer: The next question comes from Daniel Jester from BMO.. Unknown Analyst: This is [ Will Hancock ] on for Dan Jester. So you hit on data ownership a few minutes ago. And I just wanted to double-click there. Are you guys seeing any shifts in customer behavior, whether that be increased willingness to use data, to train AI models or conversely more cautions around permissions? And then are you guys seeing any variance across end market or customer size? Nicholas Cumins: So what hasn't changed is the fact that it's -- let's say, the largest infrastructure organization, especially the largest engine business firms that are the most advanced in their own AI efforts, and therefore, looking into their own data on how they can train their own AI models. So that hasn't changed. What we have seen in the last few months is a very -- suddenly infrastructure organization realizing that not all software providers have a principal approach to data, and then therefore, pushing for a lot of clarification on terms and conditions and access rates, et cetera, for the data. That's what really sets us apart, which is already back in 2023, we took this very principled approach. Our commitment to data stewardship that made it very clear that our users' data is their data always. And we don't use it to train our AI, unless explicitly directed to do so by the infrastructure organizations we serve. It is a very sensitive topic. And I expect it as basically infrastructure organization become more educated about on one hand, the potential of AI, and second, the fact that there is a difference here across software providers. I do expect this topic to become even more sensitive going forward. Gregory Bentley: And I'll add that while the immediate attention is paid to training AI models, the -- I think the ultimate value of this data will be its reuse in future designs. That's never been the norm because in attended consumption, an engineer will always prefer to start with a blank screen and originate a new approach. But each firm has a very valuable archive of project data in ProjectWise Bentley Infrastructure Cloud and AI will be good at finding and suggesting and modularizing and parameterizing. And ultimately, when that reuse can be informed by the operating and maintenance performance of those designs, which the engineering firms will increasingly be in the business of improving and optimizing, that will be a virtuous cycle that will yet reinforce the valuable proprietary advantage. When I say that engineering firms can earn IP returns, I mean returns on that valuable data and knowledge, their accumulated compounding advantage with Bentley Infrastructure Cloud. Nicholas Cumins: And maybe I'll put one final point because it is such an important topic, because some of you may ask, wait a minute, the other software providers who are shamelessly leveraging the data that is stored in their platform to train their AI, do they have an advantage? And I will clearly say, no. And for 2 reasons. Number one is, because of their stance, infrastructure organizations have a higher tendency of choosing us and our platform because they can trust us. And second is, for all of the AI capabilities that we're developing that I mentioned before as part of our initiatives across the portfolio, right? We don't do it in isolation. We do it always with representative accounts. And we've never had an issue of not having enough data to train our AI models, either by using our own synthetic data or getting data from those representative accounts involved, that they deem they think is not sensitive, not differentiating and they're happy to contribute, right? So we clearly see this as a net positive for -- and a net advantage for us. Eric Boyer: The next question comes from Taylor McGinnis from UBS. Taylor McGinnis: Yes. Can you guys hear me? Gregory Bentley: Yes. Eric Boyer: Yes. Taylor McGinnis: Okay. Perfect. So if I look at your guys' constant currency net new ARR growth historically, I think it's been around $26 million to $27 million. And this quarter, it was $37 million, so up 36% and really strong. So when you just think about the drivers of what drove that strength in the quarter, could you unpack a little bit of that? And was there anything onetime or different seasonally this year compared to what you've seen in the past that might explain some of that? And then just how do we think about that in the context of what you're thinking about demand trends going forward? Werner Andre: So maybe I take that. So Q1 saw a continued strong momentum as we exited 2025. And the quarter-over-quarter growth puts us somewhat ahead of what we saw in Q1 2025. It was, I would say, predominantly let kind of the over by the continued momentum of our Seequent business and mining just doing still very well. So as we said, that puts us in a pretty good position for our full year outlook range. But it's still -- Q1 is 20% of our ARR opportunity based on contract resets, and it's going to see that the rest of the year plays out well as well. Eric Boyer: The final question comes from Joshua Tilton from Wolfe Research. Joshua Tilton: I'll give you guys a break from the AI questions. Maybe just 2 points of clarification on my end. First, you talked about Seequent being really strong last year and expectations for it to be strong again this year. Are you -- do you expect it to accelerate again in 2026? And then my second part to that question is, on the other side of that, you kind of cautioned us -- or maybe I'm reading into a little bit, but you cautioned us around Virtuoso getting big and a churn dollar amount that you have to overcome each quarter. Is there anything we should think about or be paying attention to or anything unusual around that churn that you're trying to signal to us this quarter? Nicholas Cumins: Okay. I'll try to be brief since we are at the end of the scheduled time. So on Seequent, no, we don't expect further acceleration in a sense that as part of our plans for 2026, we assume the same level of growth that we've seen towards the end of 2025, right? So clearly, in 2025, there was an acceleration. And for 2026, we just assume, is it going to continue? And Q1 basically proves us correct, yes. On Virtuoso now, we just wanted to explain that in addition to solid growth coming from new logos, we now also have growth coming from existing accounts because in previous earnings calls, we were only talking about new logos. Now clearly, we've developed a new muscle here, which, by the way, also helps for retention. There's a clear correlation, which is if we see accounts using more than one product, then they will have a higher propensity of staying with us. But the overall retention rate remains stable at a high double-digit, very similar to what we've shared in previous quarters. It's just mathematics. It's a much higher base, of course. So indeed, there is a churn amount in terms of dollars that is to be compensated for. But that's it. It was just explaining all the different puts and takes and explains why even though we have this new muscle, you can see the growth being still very consistent with Virtuoso. Gregory Bentley: Maybe I'll just say -- in closing, your first question about acceleration, there hasn't been questions, particularly about geopolitical events in the world. But the notion that each country needs to be more self-sufficient in its defense and its resources and so forth, represents a commitment to investment in infrastructure, and it's not limited to resources. You need the resources for infrastructure, you need the infrastructure for resources. And I expect that to be not a short-term phenomenon to our benefit. Thank you. Eric Boyer: Thanks. That concludes our call today. We thank you for your interest in time in Bentley Systems, and we'll talk to you again next quarter. Nicholas Cumins: Thank you.
Operator: Welcome to the Primo Brands 2026 First Quarter Earnings Conference Call. I will now turn the call over to Traci Mangini, Vice President, Investor Relations. Traci Mangini: Thank you, operator, and hello, everyone. With me on the call today are Eric Foss, Chairman and Chief Executive Officer; and David Hass, Chief Financial Officer. Our discussion today includes forward-looking statements within the meaning of U.S. federal securities laws, which are subject to risks and uncertainties that may cause actual results to differ materially. For more information, please refer to the forward-looking statements disclosure in our earnings release. In addition, the definition of an applicable reconciliations for any non-U.S. GAAP measures are included in our earnings release and the supplemental earnings slides, which were made available earlier today on the Investor Relations section of our website. With that, I'll pass it to you, Eric. Eric Foss: Thanks, Traci. Good morning, and thank you all for joining us. This morning, I'll provide a high-level review of our 2026 first quarter results. I'll share with you an update on our progress on our direct delivery customer experience, and discuss the current operating environment and our key growth priorities. David will then take you through our financial results and our updated 2026 guidance. Let me begin by stating how encouraged we are by the strong start to 2026 and the momentum building broadly across the business. First quarter net sales of $1.63 billion were up 1.7% on a comparable basis versus prior year. Marketing a return to growth for Primo Brands. Top line performance was broad-based, driven by both price mix and volume. It was fueled by the strength of our brands in retail, particularly premium and another quarter of sequential improvement for direct delivery with service levels exceeding our expectations. Our comparable adjusted EBITDA was $306 million, down 10.4%. This was driven by increased investments in the business discussed during our last earnings call to improve service and direct delivery, which have yielded operational improvements, higher on-time in full and an improved customer experience as well as incremental cost incurred attributable to the winter storms and incremental freight and logistics costs year-over-year. Based on our strong first quarter top line growth, we're raising our 2026 comparable organic net sales growth guidance to 1% to 3% from flat to 1% previously. At the same time, given recent geopolitical events and the dynamic cost landscape, while we believe we're well equipped with multiple levers to help mitigate oil-related commodities inflation, we are prudently widening our adjusted EBITDA range. As a result, we're updating the low end to $1.465 billion while maintaining the high end at $1.515 billion. This implies a revised adjusted EBITDA margin midpoint of 22%, which would be up 20 basis points versus prior year. Despite the macro environment, we are executing with pace and purpose so we are fit to win. We believe we are well positioned in an attractive growing category, supported by our differentiated portfolio of leading brands and our advantaged to market. On our fourth quarter earnings call in February, we outlined 2 critical near-term priorities. First was improving the customer experience in direct delivery and second was returning the company to balance growth. Our actions in the quarter drove meaningful progress across both of these priorities. First, on direct delivery, we achieved another quarter of improvement in key leading indicators and more importantly, sequential improvement in financial performance. Top of the funnel demand remains strong and customer quits continue to decline, leading to a sequential improvement in customer nets, which approached a net breakeven customer position in March. Customer call volume declined and our respond and recover solved by send-out initiative resulted in an accelerated pace of customer issue resolutions. Notably, one of our most important success metrics on-time in full reached over 90% in March. While pleased with our progress, there's more to do. So we're taking some additional actions. We're implementing a new warehouse management system to support superior supply chain execution from product supply to in-branch inventory to help satisfy customer demand. With the final wave of our U.S. integration behind us and those delivery customers now on one enterprise management system, we're focusing on harmonizing data enhancing analytics and insights and strengthening management tools to better serve our customers. We're reimagining and optimizing the end-to-end customer journey from customer sign-up and delivery, through billing and issue resolution. By enhancing the digital and mobile app experience, strengthening our win-back initiatives and designing a more efficient customer contact center. This ongoing work is grounded in 3 principles that we believe matter most to our customers: transparency, convenience and trust. And with that in mind, our current initiatives are focused on streamlining and improving communications across every stage of the customer experience. Our second priority was to get the overall business growing again. First quarter results put us firmly on that path led by retail, where we expanded our leadership position in branded bottled water, gaining both dollar and volume share in the category. We plan to build on this momentum through multiple growth vectors going forward, including brand building and innovation, improving our in-store presence, leveraging the momentum behind our leading premium brands and a comprehensive development approach to revenue growth management and pricing. Our summer plans around brand building include building on our successful partnership with Major League Baseball for our regional spring waters. This marks the first time our entire regional spring water portfolio is under one creative campaign. In addition, we'll have a significant presence in Philadelphia this July as we celebrate this year's All-Star game. As part of our multiyear partnership with Disney, we're launching a limited edition Pure Life bottle series this summer, featuring Toy Story 5. We are also focused on extending our retail presence by driving new points of distribution getting more display inventory and expanding our exchange and refill footprint. Expanding our presence extends beyond physical footprints to e-commerce. In April, for the first time, our regional spring waters became available through Amazon Grocery, providing an opportunity to increase household penetration, further accelerate brand awareness increase our share of virtual shelf at this important marketplace and add new customers. Another growth vector is prioritizing premium. Saratoga and Mountain Valley continues to be incredible contributors to growth, growing an impressive 43% in the first quarter. Both brands showed momentum via new points of distribution and grew volume and dollar share of category in the quarter. Going forward, we'll be amplifying awareness of our new Saratoga collection, 4 sparkling flavors in a slim can with the highly recognizable Saratoga's signature blue color. Also for the second year, Mountain Valley is the proud sponsor of the Academy of Country Music Awards in May. We believe these brands are early in their growth trajectory with expanding distribution, strong brand equity, and investments in additional capacity coming online to drive continued momentum. Saratoga capacity in Texas became operational in May and adding the second production location supports lower distribution costs. We expect to complete the Mountain Valley new greenfield facility in mid-summer. Our final growth priority is the development and execution of a more strategic and holistic revenue growth management approach across price points, package types and channels. Our pricing strategy begins and ends with the consumer, understanding how they define value and how that perception shapes their purchase and usage behaviors. At the same time, we assess our competitive position across our brands and products, while attempting to make sure our decisions reflect both our cost structure and margin goals as well as the economics of our retail partners. As we navigate today's dynamic macro environment, pricing, along with productivity initiatives, are levers we can use to help offset commodity headwinds. In closing, I want to extend my thanks to our associates for their pride and commitment to ensure we sell and serve our customers with passion each and every day. Let me also reiterate that the investment thesis behind the merger that created Primo Brands, the U.S. bottled water leader remains intact. We compete in an attractive category and continue to benefit from strong tailwinds in health and wellness and hydration. It's highly penetrated, frequently purchased and among the fastest-growing categories within liquid refreshment beverages. We are a clear leader in branded water and healthy hydration and a major player across the liquid refreshment beverage category. As a leader in a structurally advantaged category with consumer and customer-first culture, we're investing to capitalize on the category momentum and the power of our brands. By ensuring we elevate service and execution, we're positioned for sustained growth, margin expansion, stronger free cash flow and long-term stakeholder value. With that, let me turn the call over to David. David Hass: Thank you, Eric. For 2026, reported financials include Primo Brands results for both 2026 and 2025 as we're now past the anniversary of our first quarter as a merged company. For greater comparability on our continuing operations, we focus on comparable results, which exclude the Eastern Canadian operations, which we exited in the first quarter of 2025 and our Office Coffee services business, which we exited across 2025. Reconciliations of this information is available in our earnings supplemental deck available on our website. For the first quarter, comparable net sales increased 1.7% versus the prior year, driven by a 1.3% price or mix contribution increase and a 0.4% volume contribution increase. These results reflect an earlier-than-expected positive inflection in the business and validate that our actions are driving measurable top line progress ahead of plan. Simply put, we had a priority of returning to growth, and we delivered that with a fairly balanced first quarter top line performance. Volume, which we define as case goods equivalents measured in 12 liters, was driven by an increase in retail channels, partially offset by a decline in direct delivery. In retail, net sales growth was driven across multiple channels, particularly mass, club and away-from-home, pack sizes driven by occasion and case packs and brands led by Primo. As Eric mentioned, Saratoga and Mountain Valley, combined net sales were up 43% in the quarter, continuing their incredible momentum. While direct delivery net sales declined in the quarter, it reflected lower volume from a smaller customer base and a tough comparison to prior year, which was just prior to the main integration activities. That said, customer net adds trend continued to improve approaching breakeven. On a comparable basis, direct delivery sales declined 3% with sequential improvement each month within the quarter. The performance also reflects sequential improvement over the last couple of quarters, a trend we expect to continue over the balance of 2026. Comparable adjusted EBITDA decreased $35.5 million to $306 million with comparable adjusted EBITDA margin, down 260 basis points to 18.8% versus the prior year. Margins were affected by our decision to continue to operate with a higher route count than typical in order to strengthen our direct delivery service levels, an investment that we -- that contributed to better-than-expected net sales and customer retention. We expect these costs to begin to normalize in the second half of the year as we realign the cost structure under the improved operating model, which should improve the overall margin profile. This approach also helped us navigate the temporary disruptions caused by severe weather across many of our markets during the quarter. Leading indicators such as OTIF and customer volume trends validate these actions. Additionally, margins were pressured by higher transportation costs in retail tied to severe weather and a tighter freight market. Moving to our balance sheet and cash flows. Underscoring our commitment to a disciplined capital structure, on March 31, 2026, we proactively refinanced our $3.1 billion term loan at SOFR plus 275 basis points, extending the largest and nearest maturity in our debt stack to 2031 from 2028. Our liquidity remained strong with $874 million of availability between our cash balance and our unused line of credit. At quarter end, our net leverage ratio was 3.52x, reflecting expected seasonal working capital dynamics in the first quarter. We believe we remain well positioned to generate leverage ratio improvement as cash flow strengthens throughout the year. We generated $103.8 million of cash flow from operations for the quarter, adjusting for significant items, most notably our integration and merger activities cash flow from operations would have been $191.6 million. Adjusted free cash flow, which excludes integration-related capital expenditures, was $128.6 million representing a $73.9 million improvement versus prior year. Our strong financial flexibility allows us to reinvest in the business while returning cash to stockholders. First quarter total capital expenditures were $118.1 million, while $47.2 million were related to integration capital expenditures, the majority supported growth initiatives and maintenance. We also continued to execute our share repurchase program, repurchasing $29 million or approximately 1.5 million shares under the $300 million program announced last November. Before we move to our financial guidance, we believe it's important given the macro environment to outline our oil-related commodities exposure and how we manage that risk. We do not speculate on the market. Instead, we hedge key input costs to create predictability around our input costs and to strengthen our ability to forecast. Our risk management program blends fixed price and forward contracts where those instruments are available. The strategy is intentionally balanced and programmatic in structure and opportunistic when conditions allow. It's guided by guardrails and typically include coverage that extends 12 to 24 months. Our primary oil-related commodities include plastic resins, virgin PET or VPET, recycled PET or RPET, high-density polyethylene or HDPE and low-density polyethylene or LDPE which are used across our product portfolio as well as diesel and propane. Within our delivery fleet, about 40% of our trucks run on propane and given elevated industry inventory levels, propane markets have been relatively stable. For the diesel-powered portion of the fleet, we have significant hedge coverage in 2026, and we are extending some of that margin protection into 2027 through longer-term derivative contracts that lock in prices well below current spot levels. At present oil futures in 2027 remain significantly below today's levels, which, in our view, provides visibility and confidence to navigate the current situation. That said, the recent unexpected volatility in these oil-related input costs occurred shortly after providing our full year 2026 guidance in February. While this will likely result in some added headwinds, we are actively managing our cost outlook and believe our financial risk management program is one of the multiple levers to help mitigate the impact. Moving to our financial outlook. We are raising our comparable organic net sales guidance for the year. As a reminder, in 2026, we cycled the exit of our Office Coffee Services business, which accounted for $25.5 million in our reported 2025 net sales. This puts our comparable 2025 net sales at $6.635 billion. This is the base for our full year 2026 guidance and growth rate. With that in mind, we now expect comparable organic net sales growth in the range of 1% to 3% as compared to flat to 1% as provided in February. The increase is driven by not only the broad-based better-than-expected first quarter top line, but also a trajectory change in direct delivery. We now expect direct delivery to transition from the down 3% in the first quarter to closer to breakeven in the second quarter and to modest growth in the second half of the year. We also expect continued strength in our consolidated retail channels behind our brands and premium momentum. Our revenue growth management capabilities intend to fully leverage the power of our brands and should also help mitigate some of the commodity cost pressures. Turning to adjusted EBITDA. We are widening our previous range to include an updated low end of $1.465 billion and maintaining the $1.515 billion on the high end. While we are confident in the guidance provided in February, the macro and commodity environment meaningfully change shortly after. Despite the shift, we believe we have multiple levers, including pricing actions, growth initiatives, ongoing supply chain cost initiatives and our financial risk management program to help mitigate the impact. We expect to benefit from productivity improvements in direct delivery in the second half of the year as we realigned the cost structure under the improved operating model. At the same time, we plan to prudently invest in enhancements in the customer experience, including the redesign of our contact center and capabilities that support future growth. The revised midpoint adjusted EBITDA margin is 22.0%, down approximately 50 basis points compared to the previous guidance and continues to imply margin expansion for the year. We are reaffirming our adjusted free cash flow range of $790 million to $810 million. Beginning in Q2, we anticipate free cash flow add-backs to decline. This trend follows the first quarter reduction in EBITDA add-backs and reflects the typical reporting lag between expense recognition and cash payment. As integration activities mature, we expect a cleaner cash flow profile that more closely aligns with our underlying operational performance. Our strong free cash flow supports our capital allocation priorities, we continue to expect to deploy approximately 4% of net sales and capital expenditures for the year in addition to the approximately $100 million in integration capital expenditures. Also, given our commitment to return cash to stockholders last week, we announced our Board of Directors authorized a $0.12 quarterly dividend, which annualizes to $0.48 per share. We also intend to continue to execute our share repurchase plan, which had $78.3 million available under the program authorization as of the end of the first quarter. And with that, I'd like to turn the call back to Traci. Traci Mangini: Thanks, David. To ensure we can address as many of your questions as possible, please limit yourself to one question. And if we have time remaining, we will reap poll for additional ones. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from Peter Galbo with Bank of America. Peter Galbo: David, thanks for all the detail around the hedging program, particularly Slide 6, I think is very helpful. I wanted to just kind of pressure test that a little bit, David, first question being just how locked are you for the year? So if we do get kind of resolution based on the conflict and let's say, oil goes lower from here, is there actually kind of upside to what you presented, are you pretty much locked for this year? And then the second question is, I believe last quarter, you talked about a 48-52 split on EBITDA first half, second half for the year, I wanted to see if that still holds in light of kind of the updated guidance? And given that Q1 maybe came in a little bit light of Street, but maybe you could address those 2 items for us. David Hass: Sure. Let me maybe start with the second one quickly because I think in that regard, we're probably a little bit more like $47.53 and be about maybe one point from those investments inside the quarter. But again, I think we remain very encouraged by what that led to in our top line performance. And notably, when you see the momentum building in direct delivery, it gives us that confidence to go from essentially the down 3% in Q1 to closer to breakeven in Q2 and then resuming growth. So we think that those investments have really yielded the right activity set to respond to the consumer, deliver what they ordered on time and in full. And if not recover very quickly to sort of retain them, which is our #1 priority. Into the actual hedging and some of that activity year-to-date, really where we have technical hedges is within our diesel activity, and that's basically just using sort of market-based hedges. And then that allows us to sort of transact with that and sort of align that usage to our sort of what we believe is our fleet consumption. We're pretty far hedged but if there were to be a resolution as maybe the markets have anticipated this week, that would provide some opportunity for benefit balance of year. And it would obviously allow us to start to lock, if we felt so inclined, locked prices for '27 in that category itself. Where we have more forward priced contracts with our vendors, that happens in the resin portfolio. I think if there was a resolution, whatever premium that vendor or supplier is attempting to pass through to customers like ourselves and others, that would provide a more advantageous sort of negotiation posture for balance of the year and again into 2027 activities. Operator: Your next question comes from Nik Modi with RBC Capital Markets. Nik Modi: Maybe we can just talk a little bit about the scenarios between kind of the low end and the high end, whether it be on the revenue side and the EBITDA just so we can understand exactly kind of scenario wise, what would need to happen to get you to the high end versus, let's say, the low end? And then the second question is, would love just some more clarity around some of the pricing actions that recently have taken place. Maybe you can just kind of quantify like what percent of the portfolio is that happening? My understanding is that's not the case pack side. And do you believe you have opportunity to actually take price in case pack if you need to offset some of these headwinds from inflation? Eric Foss: Nik, it's Eric. Yes, thanks for your question. I think -- let me just start with the fact that I think we're really pleased, and I think we made meaningful progress in the quarter versus some of the growth priorities we laid out. So I'll get to your question. But I think the way to connect the dots to the low end or the high end on the growth side is look, we continue to improve our customer experience in direct delivery. That happened faster than we anticipated. So we were pleased by that. I think we also delivered earlier than anticipated this commitment to return the business to growth. I think on the last call, I talked about those 2 being our 2 focal points for the business. And I think what to me -- leads me to conclude that the growth is durable and even structural is the fact that, that growth was balanced and broad-based. And it was -- it took place across premium, which has been a key growth facilitator for us. But it also was applicable to our regional spring water portfolio. It was applicable to Pure Life. It was fairly broad-based across channels. And so as we look ahead, to me, the path forward is clearly compelling. We think that the continued brand building to create demand, continuing to raise the bar on execution. We are going to leverage a very disciplined revenue growth management approach to drive value and over time, expand margins. So anyway, we really believe that we're in a good spot as we look forward to the rest of the year. Second, I think when it comes to pricing, again, we still have a lot of work to do on RGM, but I'll give you a little bit of just the framework on how we think about pricing. Our first principle is that all of our pricing actions start and end with the consumer. So we keep the consumer and her decision-making matrix at the forefront of anything we would do. We also have to maintain competitiveness, which we have and will continue to do. And then we've got to look at the company P&L and look at the cost margin implications and try to make sure we're appropriately managing margins. So I'd say it's a comprehensive development approach that includes rate mix and trade spend. And what we've done is we felt like given the current environment, our focus would be more on immediate consumption, where you tend to see the consumer be more convenience oriented than price-oriented. We did take actions on the immediate consumption portfolio. We still maintain kind of the best value across channels in the marketplace. And relative to your question on case pack, yes, I think later this year, we probably look at taking some pricing on case pack, obviously, being very sensitized to the starting point, which is making sure we understand consumer value and elasticity on that package. Operator: Your next question comes from Daniel Moore with CJS Securities. Dan Moore: Obviously, encouraged to see the increased revenue growth -- revenue and growth guidance. Of the delta or change beyond the improvement or faster recovery in direct delivery, are there other areas of the business you're seeing more significant opportunities or acceleration? And how much of that delta is kind of volume versus price? Eric Foss: Yes. Well, again, I think, Dan, we want to continue to be very balanced. So I think we came out of the quarter with a combination of price mix and volume. I think as we look at the growth opportunities, I think, again, if you think about the kind of the structural tailwinds at the category and consumer level, you look at our leadership position within the category and then you think about the strength of our brands and where we can continue to make, I think, significant inroads on the direct delivery business. We also have an opportunity to continue to grow our presence in retail execution in store. And so you look at the momentum we have had at retail, I think that's poised to continue to run really well for us the rest of the year. And again, the encouraging thing, as I mentioned on Nik's question, is how broad-based that momentum has started to become as evidenced by the Q1 results. Dan Moore: Super helpful. I'll just sneak one more in. Just you are at your 6-month anniversary, congratulations. Beyond the stabilizing the HOD business, any surprises, takeaways or just things that you're hoping to change kind of culturally kind of high level, would love your thoughts there. And I'll jump back in queue. Eric Foss: Sure. Well, again, we -- I think have made a lot of progress on the culture front. We had our senior leadership team together a few weeks ago and had a very good discussion around our mission around hydrating a healthier America, rolled out a new set of values with the customer in our frontline really at the centerpiece of that. And so we continue, I think, to strengthen the team. I think we continue to change the mindset, which is we're a leader in not just the water and healthy hydration space, but a major player across LRB. And I think we're developing a winning mindset and changing our pace to be a little faster to market and our perspective of who we really are. So I'm really pleased with what's happened on the culture front and how the team has responded. And I think we're in a very different position than when I entered in November. Operator: Your next question comes from Andrea Teixeira with JPMorgan. Drew Levine: This is Drew Levine on for Andrea. You mentioned a number of potential mitigation options for the potential commodity inflation that we can be seeing, productivity and pass-through mechanisms among them. Just hoping you could talk a little bit more about some options on the pass-through side, particularly on direct delivery, maybe how quickly you would be willing to pull that lever? And if you could give some perspective on the stickiness of the customer base historically when there are changes in delivery fees, for example, I think in the past, it's really not been too much of an issue when the service is good. But clearly, that's been an area that was maybe a little bit more challenged over the past year. So if you could give us some perspective on when and if you would be able to adjust the delivery fee and expectations from a customer perspective when that happens? Eric Foss: Sure. Yes, it's Eric. I'll take that, and then David can jump in as well. I think let me just maybe back up as we think about how we might face any commodity or inflationary pressures, I think there's a variety of ways and a variety of levers for us to think about. One is just more top line growth and leveraging that growth through the P&L. Second is productivity and cost management third is pricing. And then we have 2 other ones available to us, which historically at times have been activated, whether that's the delivery fee that you referenced or fuel surcharges. I think our near-term focus is really on the productivity and the pricing side and wouldn't see us, at least in the near term, thinking about any changes on the delivery fee or fuel surcharge. And I think, again, our goal here is to make sure we have a balanced algorithm, meaning growth and margin improvement over time and that growth being a combination of sustainable volume and pricing actions. And that's what's reflected in the full year uptick in our growth guidance that you saw earlier this morning. The other thing I think I want to just make sure that I message is I've seen this movie before in the beverage industry. And I think when something like this happens, there's a couple of things to keep in mind. I think the first thing to keep in mind is unlike the growth potential that we have in this company, which is very much structural. This issue is transitory and it is not while near term, there is volatility and uncertainty that we have to deal with, it's not structural. Second, it tends to impact the industry broadly, both branded and private label players. And so everyone is kind of equally impacted. We all have our hedging strategies and forward by processes that David highlighted. But that's the reality of how this typically gets impacted. And then the final one is that we have multiple levers to offset, which I talked about earlier. So again, we are, I think, in a very good position to deal with this and to continue to move this business forward. Operator: Your next question comes from Derek Lessard with TD Cowen. Derek Lessard: Great to see that sales performance, Eric and David. Just one for me. I just want to maybe touch on the retail side. Can you maybe just talk about sort of the growth in your points of distribution category growth or maybe some share gains that you're getting in some of the categories? Eric Foss: Sure. Yes, I think this quarter, what you saw at retail as you saw us continue to expand points of availability across the portfolio. Certainly, we gain points of availability on the premium side, we also saw improved execution around number of displays. And I think as we go forward, again, we've talked about a more holistic approach to in-store executional excellence whether that be displays, space, certainly, coolers over time is a big priority for us. I think we were encouraged because from a market share standpoint, in addition to the great growth, we obviously translated that into both dollar and volume share gains in water and the same thing across LRB. So again, we are making progress. We still have more work to do, whether that's on the customer direct and direct delivery side or the retail side. But again, some of those success metrics executionally are starting to trend in a more positive direction. Derek Lessard: Absolutely. Congrats on that. And that's it for me. Operator: [Operator Instructions] Your next question comes from David Shakno with William Blair. David Shakno: This is David Shakno stepping in for Jon Andersen. Question, looking at Q2 specifically, if I recall correctly, a year ago, it was a pretty wet and cold spring season across the U.S. I just wanted to understand what we should be looking for in trends over the next couple of months here, especially as we get throughout May and June. And then separate from that, just kind of -- almost as a follow-up for the previous question, I wanted to understand if you're feeling kind of competitive pressures from private label, given the weaker consumer right now? I wasn't sure if there's pressure in specific channels, be it club or somewhere else or just kind of overall what you're seeing across channels related to private label, too? David Hass: Yes. Thanks, David. This is David. I think maybe let's start with a little bit of chronological framework of Q2 last year. So -- but what I want to start with is, first, Q1's performance. So if you recall last quarter, excuse me, same quarter prior year, we delivered a 3% top line. So on a 2-year basis, not only was this our hardest comp in which we still delivered actual growth. But it was obviously higher within the retail pieces of the business in our Q1 of this year. Obviously, offsetting what was the direct delivery decline I mentioned earlier, of approximately 3%. And so we feel incredibly encouraged by taking on a very challenged comp and still delivering. And again, that growth was broad-based and really balanced. And when you look at the disclosure tables in our quarter information in the supplemental, you'll see a couple of things that I want to call out. One, almost every brand and pack basically expanded in the quarter. And when you see things like purified water showing de minimis growth, if not a slight decline, that actually reflects a little bit more of the drag that's occurring in the direct delivery business itself. Similar things when you look at the premium water that grew substantially in Q1. And on a -- 2 years ago, this was a $50 million business in that quarter. So we've basically essentially doubled that business in 2 years. That's actually held back because Mountain Valley was a larger distributed brand on our route-based system in direct delivery. So that growth actually would have been even higher if we wouldn't have gone through some of the integration challenges and like you mentioned, weather disruption that occurred. So now let's kind of go into that sort of time line. Last year, just a few weeks ago, last year is when our Hawkin's facility was hit by a tornado. Actually, we held our board meeting in Texas in the market. And went and visited the plant, [indiscernible] celebrated what that team has done to rally and bring that factory back online and not only bring it online, but actually enhance it with an expanded line that we mentioned where Saratoga product will be coming to market from that facility. And then obviously, later in the quarter when some of the integration disruptions began. So we're not raising guidance because we have an easier comp. We're raising guidance because we have structural tailwinds that are occurring in the business and feel pretty confident in what's happening and what we're watching with both service levels as well as the retail execution, which was your original question, that retail execution continues to perform quite well. And it's not really at the expense of another brand and not really feeling directionally threatened at this point from private label, but I'll let maybe Eric provide some perspective there. Eric Foss: Sure. I think when it comes to private label, again, in this sector, you're always going to have a price-only shopper that's going to look for what's cheapest, which tends to be, in most instances, private label. Having said that, as the leader in the category, the good news is there is a high level of brand loyalty. And so as we look at our future consumption business. As I mentioned earlier, we have and intend to continue as we go through the summer months to maintain very good value around that portfolio. The encouraging thing in the first quarter is all 6 of our regional spring water brands grew. In addition to that, Pure Life, which is really our brand that tends to compete most against private label, and we manage a gap accordingly, also grow, as a matter of fact, grew mid-single digit. And so I think the point David and I are trying to convey is the durability and sustainability of some of the things we're starting to see on the recovery side. And certainly, that applies to our retail business in a big way. Operator: Thank you so much. That concludes our Q&A. I would now like to turn the call back to Eric Foss for closing remarks. Eric Foss: Thank you. Well, in closing, let me just state how excited we are by our start to the year. I think the fundamentals are strengthening. The momentum is building, and we're very energized by the opportunities ahead. and feel like we're well positioned to deliver sustainable long-term growth. So thank you for your continued interest, and we look forward to updating you on our progress. Operator: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.