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Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the BioLife Solutions Q1 2026 Shareholder and Analyst Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Troy Wichterman, Chief Financial Officer of BioLife Solutions. Troy Wichterman: Thank you, operator. Good afternoon, everyone, and thank you for joining the BioLife Solutions 2026 First Quarter Earnings Conference Call. On the call with me today is Roderick de Greef, CEO and Chairman of the Board. We will cover business highlights and financial performance for the quarter and reiterate our 2026 financial guidance. Earlier today, we issued a press release announcing our financial results and operational highlights for the first quarter of 2026, which is available at biolifesolutions.com. As a reminder, during this call, we will make forward-looking statements. These statements are subject to risks and uncertainties that can be found in our SEC filings. These statements speak only as of the date given, and we undertake no obligation to update them. We will also speak to non-GAAP or adjusted results. Reconciliations of GAAP to non-GAAP or adjusted financial metrics are included in the press release we issued this afternoon. Now I'd like to turn the call over to Roderick de Greef, Chairman and CEO of BioLife. Roderick de Greef: Thanks, Troy. Good afternoon, everyone, and thank you for joining us for BioLife's First Quarter 2026 Conference Call. We're off to a solid start to 2026 with first quarter revenue growth of 25% and adjusted EBITDA up approximately 15% versus the prior year. Performance in the quarter was driven by continued strength across our broader product portfolio, led by our biopreservation media or BPM franchise. We entered 2026 with a simplified business and heightened focus on high-margin recurring revenue, and our results this quarter demonstrate the operating leverage in our model as a result. At the same time, we're seeing continued momentum across the CGT landscape, driven by expansion into larger indications, encouraging data readouts, strategic M&A and an improving funding environment, all of which we believe will support long-term growth across our end markets and underpins sustained value creation for BioLife shareholders. Turning to the quarter's results. Total revenue reached $27.5 million, increasing 25% year-over-year and adjusted EBITDA of $6.2 million or 22% of revenue, up roughly 15% from the prior year. BPM remained the primary driver of revenue growth with our other cell processing tools also contributing to overall growth. BPM represents over 85% of total revenue and continues to benefit from broad adoption across both commercial therapies and clinical pipelines where we maintain a dominant market share. Our top 20 BPM customers represented approximately 80% of BPM revenue and demand forecast from these accounts provide good visibility into our business. Channel mix remained consistent with over 60% of BPM revenue generated through direct sales with the balance through third-party distributors. Roughly half of BPM revenue was generated from customers with approved commercial therapies, and this remains a key driver of growth and durability in our model. We highlight these metrics because they reflect the ongoing shift in our business toward later-stage programs and commercial products, which are more stable, less sensitive to funding dynamics and growing faster than the broader CGT market. Several of the therapies we support are already at or tracking toward blockbuster status with annual revenues exceeding $1 billion. As these therapies scale and expand into new geographies and additional potentially larger indications, we believe BioLife is well positioned to benefit from higher patient volumes and the recurring nature of these revenue streams. Gross margin and adjusted EBITDA as a percent of revenue declined year-over-year due to the previously discussed bag yield dynamics. This remains a key operational priority, and we are making steady progress in close collaboration with our key customers to address it and are confident that this is temporary in nature. Stepping back, our market position continues to strengthen. At the end of the quarter, our BPM products were embedded in 17 approved therapies with visibility into an additional 9 unique approvals, expanded indications and geographic expansions over the next 12 months. Across the broader pipeline, we estimate our solutions are utilized in more than 250 commercially sponsored CGT clinical trials in the U.S., exceeding a 70% market share with an even higher share in later-stage Phase III programs. Independent third-party analysis of U.S. commercially sponsored trials where our biopreservation media is not used, no other commercial alternatives were identified, suggesting that these trials are relying on internal homebrew formulations. Given our leading share among late-stage programs, we expect this pipeline will convert into future commercial revenue as therapies advance through the approval process, reinforcing our position as a critical spectrum component of the cell therapy workflow. Building on this foundation, our team is focused on expanding BioLife's role within the CGT workflow beyond biopreservation media. Our CellSeal Vials and hPL product lines are already utilized in 4 approved therapies and over 35 clinical programs, and that number continues to grow. This expanding footprint is supporting our cross-selling efforts with existing BPM-only customers evaluating additional components of our portfolio. Given the size of these organizations and the rigor of their validation processes, adoption cycles tend to be longer, reflecting a higher bar for change while reinforcing the stickiness of these relationships. That said, we're seeing encouraging early traction and each additional BioLife product that's integrated into a therapy has the potential to increase our revenue per dose by 2 to 3x relative to BPM alone. While still early, this represents a meaningful opportunity to enhance both growth and the overall financial profile of the business. From a capital allocation standpoint, we remain focused on the highest return opportunities to support long-term growth, both organically and through disciplined strategic initiatives. Alongside our cross-selling efforts, we are regularly evaluating adjacent areas that build on our core scientific and commercial strengths. This includes selective acquisitions, minority investments and strategic partnerships that broaden our platform and increase our participation across the CGT ecosystem. This is enabled by our balance sheet, which gives us the flexibility to pursue attractive opportunities with discipline while maintaining a high bar for financial profile and strategic fit. Turning to our 2026 outlook. We are affirming the guidance we introduced on our last call. We expect revenue of $112.5 million to $115 million for the year, representing growth of 17% to 20%. As in prior years, our guidance reflects the visibility we have today based on demand forecast from our key customers. We also expect continued operating and adjusted EBITDA margin expansion and anticipate generating full year GAAP net income for the first time in many years. Before handing it over, I'll briefly highlight a few favorable developments we're seeing across the cell therapy landscape. Field is diversifying beyond traditional oncology applications with increasing activity in large autoimmune indications. We're also seeing encouraging data emerging in allogeneic cell therapies that have the potential to unlock multibillion-dollar market opportunities as well as renewed interest in established autologous approaches such as CAR-T and TILs, expanding the market from its base in liquid tumors into solid tumor indications. At the same time, we're seeing meaningful strategic activity, including the recent nearly $8 billion acquisition of Arcellx by Gilead as well as continued investment in next-generation manufacturing capacity and automation to support scale. As these therapies evolve and care settings shift, whether into outpatient and community settings or toward off-the-shelf approaches, this is expected to support sustained demand for robust, high-quality and trusted cell processing tools, biopreservation media and packaging solutions, areas where BioLife is well positioned. Taken together, these dynamics reinforce our confidence in the long-term trajectory of the field and the attractiveness of the CGT end market. BioLife has exposure across these areas and is uniquely positioned to benefit as these trends translate into durable demand. With that, I'll hand the call over to Troy to provide an overview of our first quarter financial results. Troy? Troy Wichterman: Thank you, Rod. We reported Q1 revenue of $27.5 million, representing an increase of 25% year-over-year. The year-over-year increase was primarily related to increased sales of our biopreservation media products, driven by strong demand from customers with commercially approved therapies as well as strong revenue growth from the balance of our product portfolio. GAAP gross margin for Q1 2026 was 64% compared with 67% in Q1 2025. Adjusted gross margin for the first quarter was 64% compared with 68% in the prior year. The decrease in adjusted gross margin percentage compared with the prior year can primarily be attributed to a product mix shift towards bags, which carry lower gross margins than bottles as well as a previously discussed impact from manufacturing yields. We view the yield impact as transitory and a key operational priority throughout 2026. And as it is resolved, we expect a corresponding expansion in gross margin. GAAP operating expenses for Q1 2026 were $17.5 million versus $15.3 million in Q1 2025. The increase compared to the prior year can be attributed to a $1.2 million increase in R&D, primarily related to our PanTHERA acquisition in April 2025 and the opening of our Center of Excellence. In addition, we had a $0.9 million expense increase in stock-based comp acceleration related to severance, partially offset by a reduction of $0.8 million in acquisition costs. Adjusted operating expenses for Q1 2026 totaled $16.8 million compared with $13.8 million in the prior year. GAAP operating income for Q1 2026 was $27,000 versus an operating loss of $0.5 million in the prior year. The improvement was primarily due to increased revenue compared to the prior year and lower acquisition costs, partially offset by higher stock comp related to severance. Our adjusted operating income for the first quarter of 2026 was $1 million compared with $1.2 million in Q1 2025. Our GAAP net income was $1.2 million or $0.02 per share in Q1 compared to $0.3 million or $0.01 per share in the prior year. The increase in net income was primarily due to increased revenues compared to the prior year. Adjusted EBITDA for the first quarter of 2026 was $6.2 million or 22% of revenue compared with $5.4 million or 24% of revenue in the prior year. The primary driver of the change as a percentage of revenue in the current quarter was due to the impact of bag yields on our gross margin percentage as discussed earlier. Turning to our balance sheet. Our cash and marketable securities balance reported as of March 31, 2026, was $111.5 million compared with $120.2 million as of December 31, 2025. Taking into consideration our adjusted EBITDA of $6.2 million in Q1, cash usage was primarily driven by tax obligations for share withholdings vested in Q1 of $5.6 million, debt principal payments of $2.5 million and unfavorable working capital of $6.9 million, which includes an increase in AR of $5.1 million, primarily related to timing. The entirety of our $2.5 million SVB debt balance is considered short term. Our final payment on the SVB debt balance is due in June 2026. We will pay a $1.2 million loan maturity balloon payment due at the time of maturity. Turning to our 2026 financial guidance. We are reiterating our 2026 guidance disclosed during our fourth quarter earnings call. Total revenue is expected to be $112.5 million to $115 million, reflecting overall growth of 17% to 20%. The increase is primarily due to expected demand from our BPM customers with commercially approved therapies as well as increased demand for our other tools. We expect GAAP and adjusted gross margin for the full year to be in the mid-60s. We expect gross margins to benefit from favorable pricing, partially offset by product mix and the previously discussed impact from bag yields. We expect to achieve full year positive GAAP net income and expansion of adjusted EBITDA margin in 2026 compared to 2025. Finally, in terms of our share count, as of April 30, we had 48.9 million shares issued and outstanding and 50.3 million shares on a fully diluted basis. Now I'll turn the call back to the operator to open up for questions. Operator: [Operator Instructions] And our first question comes from Matt Stanton from Jefferies. Matthew Stanton: Maybe on the topic of the bags, could you just clarify, are you saying that the bags have lower margins than bottles, all else equal and that there's also the scrap issue tied to the bag, so kind of two issues on the bag in terms of mix? And then I would love to just get an update on the scrap side of the bag. I think before you talked about kind of a 90-day notice period. Maybe just help us in terms of getting that back to normal as we think about kind of the 22% adjusted EBITDA margins in 1Q and the walk up the rest of the year to kind of get to that year-over-year expansion that you reiterated again today. Roderick de Greef: Yes, Matt, let me take the second part of your question, and I'll have Troy deal with the first part. So with respect to where we are with our customers in order to solve this problem, we have been working with them over the last 60 days to provide them with several different alternatives to the existing bags, which are causing the problems. So we are at a point now where that customer notification will be going out shortly. There's a 90-day period for them to select effectively which option they'd like to utilize. And then we have to burn through the remaining bag inventory that we have. So we're on track for the same sort of timing as we had laid out in the last phone call we had. And we would expect to be able to see some flow-through of enhanced margin either Q4 or Q1 of '27, depending on how quickly we burn through the existing bag inventory. I'll let Troy answer the rest. Troy Wichterman: Yes. And Matt, on your question on bags versus bottles on gross margin. So as a percentage of revenue, bags do have a lower gross margin than bottles by quite a bit at this point in time because of that yield issue we've been talking about. Matthew Stanton: Okay. And then so once the yield issue is rectified, are the margins closer to the same as previous is that right? Troy Wichterman: Closer, correct. Matthew Stanton: Okay. Okay. And then maybe, Rod, you talked about a little bit just outside of biopreservation media, you talked a little bit about cross-selling there. I would love just some more color on the new product front. Obviously, you have the Cryo case. I think you've talked about maybe some other things coming out of the pipeline. You have PanTHERA here, would love kind of an update on that. Just anything as we think about the back half of '26 and '27 on the new product front and other things coming out besides biopreservation media. Roderick de Greef: Sure. You bet. With respect to the PanTHERA product, we're still on track for a Q4 launch of that. We've identified what the value proposition will be in addition to identifying the final molecule that we'll be going with. So that looks good. With respect to cross-selling the other products, that is a longer-term effort. It continues to move forward with respect to increased number of validations, et cetera. And I think that at the end of the day, when I look at the revenue growth, albeit from a smaller base, those other tools are growing at a faster rate actually than the biopreservation media is. So we're pleased with the momentum. Obviously, we'd like things to go faster, but there's a certain amount of inertia with respect to the validation process within these large companies. Operator: The next question comes from Brendan Smith from TD Cowen. Brendan Smith: Congrats on the quarter. Maybe just a quick one from us on a bit more sector level. I guess as you kind of look at state of biotech funding and kind of the broader strength you're seeing, are you potentially expecting any inflection orders over the coming months? I guess, just given that we're now kind of approaching almost 6 months of pretty solid funding recovery there. I guess, really, how big of a driver is that for BioLife realistically? And is this something that could jump up in Q3 or Q4? Or just kind of your view on the funnel looking like a more gradual ramp? Just kind of trying to understand cadence for guidance. Roderick de Greef: Yes. Thanks, Brendan. I think that as we've talked in the past, the biotech funding does not really impact us. To the extent that it does, it impacts us at very early-stage customers. There's a few exceptions to that. But in general, it affects earlier-stage customers that buy a very small amount of product through distributors from us, right? So the overall impact is not that meaningful. The bulk of the revenue, certainly the revenue growth is coming from well-capitalized firms. And when I look at the Phase III customers that we have that should be gaining approval over the next sort of 12 to 24 months, those are, by and large, also well capitalized. On top of that, though, to the extent there is an impact, I read the other day where overall biotech financings for '25 were about $11.1 billion. So it seems to me that, that issue has stabilized and now should not be a headwind at any level for us going forward. Operator: The next question comes from Paul Knight from KeyBanc. Paul Knight: Rod, we were at the BioLife booth at INTERPHEX, the CryoCase won one of the Best In Show awards. How is that going commercially? Roderick de Greef: Yes. We were pleased to receive the award for sure, Paul. I think it's good recognition that it truly was sort of a unique product that we put out. So again, we have well over 3 dozen validations going on, and I think that there's definite interest. But again, whenever you're dealing with something that changes in the manufacturing process, particularly of a final drug product, but even in late stage, it's a decision by committee, right? A lot of people are involved, and it takes a lot of time. But we're seeing some bright spots and are looking forward to being able to see some traction certainly towards the second half of the year, hopefully, with the type of announcement of a customer that people would recognize. Paul Knight: And then the other question, Rod, you mentioned earlier, autologous has kind of been the core of the market. But where are we with allogeneic cell therapy based on what customers are telling you? Roderick de Greef: Yes. I think we're still a couple of years out, but Allogene has published some decent data. I think they did a raise. So from a financial perspective, they're in a much more solid position. And I think there, although the overall BPM volumes per patient might be a little bit lower, the opportunity to address much larger patient populations is, in our estimation, going to far outweigh the reduced amount of volume per patient. But again, I think it's a good 2-plus years away from really having a revenue impact on BioLife. Paul Knight: And then lastly, you mentioned GAAP net income. Is that like targeting 4Q, Rod, or Troy? Roderick de Greef: No, it's for the full year per quarter, Paul. Operator: The next question comes from Mac Etoch from Stephens. Steven Etoch: Maybe following up on Paul's question. I think the share of homebrew has been pretty stable over the last couple of years, particularly in late-stage trials. As you think about cell and gene therapy expanding into these larger indications and the FDA focusing on more standardized platforms, do you see an opportunity to kind of capture more of that share moving forward? Roderick de Greef: Yes, I think so. As we're taking a cut of this data, Matt, on every 6-month basis. We go back and review the results of all the clinical trial work that has been done and refresh it. And the numbers are actually going up in our favor. So I think that at the end of the day, it's going to be very few folks who use a homebrew with a commercial product. As we've mentioned, we're in 900-plus trials worldwide, but the ones that really matter are the 250-plus that we're in that are commercially sponsored that are looking to achieve a commercial therapy. And I think that it's going to be increasingly difficult to justify whether it's from a cost perspective, a manufacturing process perspective, a logistics perspective, the FDA to use something other than the gold standard. Operator: The next question comes from Matt Hewitt from Craig-Hallum. Tollef Kohrman: This is Tollef Kohrman on for Matt Hewitt. Is there anything specific you want to call out on that increase in R&D expense? Roderick de Greef: Yes. I think it is directly related to bringing on the Center of Excellence, which provides us with the ability to do some serious scientific work. We have 4 or 5 scientists working at the center, all PhDs. We've never had that before in terms of a team of scientists that can actually do the R part in addition to the D part of R&D. So we're pretty pleased with that. So there's a cost associated with that as well as the cost of increasing the accelerating projects that we have internally, including the RCC, which will ultimately be the answer to the bag issue that we have. So that's a rigid container designed to carry our product from our factory to our customers in a rigid container that can be used in a closed system. So that's a product that we're definitely making an investment in as well as the consumable line associated with the CT-5. So that's where the money is going. It's really internal product development. Operator: The next question comes from Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Rod, you mentioned in your prepared comments that commercial BPM customers were about half the revenue. And I think on the last call, you said you could get that maybe up to 55%. Any update on that outlook? Or do you think 55% is still realistic? Or do you think you can push it beyond that? Roderick de Greef: I think in the near term, that's about the right number. The rate of growth of that group of customers versus, say, distribution or noncommercial is so significantly different that it's going to be a higher number in the outer years. But in this year, I think a target of 55% is pretty much where we're going to settle out. Operator: And our next question comes from Yi Chen from H.C. Wainwright. Katherine Degen: This is Katie on for Yi. Thinking about some of the deals you announced on prior calls with Pluristyx and Qkine with those two coming together and that announcement on May 1, does that integration kind of give you any meaningful wins for biopreservation media demand? Are you kind of expecting any pull-through from that deal? How are you kind of thinking about that? Roderick de Greef: are you speaking about the Qkine deal? Katherine Degen: Yes. Roderick de Greef: Yes. I think where the pull-through with our products comes into play is combining our CellSeal product line as a primary container for Qkine cytokine line. That's where we're going to see some incremental revenue from our products. The other way we'll generate revenue is obviously through the sale of their cytokines to our customer base. Katherine Degen: Yes. I guess my question is, are you expecting any synergy now that Pluristyx and Qkine have an agreement together? Roderick de Greef: You mean the Pluristyx and Qkine agreement? Katherine Degen: Yes, right. Roderick de Greef: No, no. I think -- yes, that's specific to Qkine providing some products that have -- that are relevant to their Organoid kit. So that really is outside of anything to do with BioLife per se. Katherine Degen: Okay. So you don't think they'll pull through any customer base from that? Roderick de Greef: Not that will directly impact our revenue in any way, no. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rod de Greef for any closing remarks. Roderick de Greef: Thank you, Jason. In closing, 2026 is off to a strong start with solid top line growth. We remain focused on operational execution, including supporting our core BPM customers, expanding adoption across our broader portfolio and managing operations efficiently across our organization. We believe our position as a leading supplier of bioproduction products, together with exposure across the attractive and growing CGT end market leaves us well positioned for durable growth and long-term value creation. Thank you for your time today, and I look forward to seeing some of you at upcoming investor conferences. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Telephone and Data Systems, Inc. First Quarter 2026 Operating Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please raise your hand. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute when prompted. I will now hand the conference over to John Toomey, Treasurer and Vice President, Corporate Relations. Please go ahead. John Toomey: Good morning, and thank you for joining us. The presentation we prepared to accompany our comments this morning can be found on the Investor Relations sections of the Telephone and Data Systems, Inc. and Array websites. With me today in offering prepared comments are, on behalf of Telephone and Data Systems, Inc., Walter C.D. Carlson, President and CEO, and Vicki L. Villacrez, Executive Vice President and Chief Financial Officer. On behalf of TDS Telecom, Kenneth Dixon, President and CEO of TDS Telecom, and Christopher “Chris” Bautfeldt, Vice President, Financial Analysis and Strategic Planning. I will now turn the call over to Walter. Walter C.D. Carlson: Thank you, John, and good morning, everyone. Turning to slide three, this morning Telephone and Data Systems, Inc. announced a proposal to acquire the remaining shares of Array not currently owned by Telephone and Data Systems, Inc. in an all‑stock transaction. As Telephone and Data Systems, Inc. continues its transformation, this proposal is the next step in executing our strategy, simplifying our corporate structure, and enhancing our ability to invest in targeted areas of growth. Array has successfully completed its transition into a tower‑focused company with strong fundamentals, and we believe this transaction will position the combined company for long‑term growth. By bringing Array fully under Telephone and Data Systems, Inc.’s ownership, Array’s stockholders would retain a significant interest in the tower business while gaining exposure to Telephone and Data Systems, Inc.’s growing fiber business. Under the terms of the proposal, Telephone and Data Systems, Inc. would acquire all of the outstanding common shares of Array that Telephone and Data Systems, Inc. does not currently own by way of a merger in which each Array common share not owned by Telephone and Data Systems, Inc. would be exchanged for 0.86 of a Telephone and Data Systems, Inc. common share. This exchange ratio assumes that the previously announced spectrum license sales identified in our offer letter will have closed prior to the closing of the transaction contemplated by Telephone and Data Systems, Inc.’s proposal, and that the Array Board, consistent with its treatment of net proceeds from prior spectrum sales, will have declared and paid dividends of $10.40 per share to Array stockholders prior to the closing. At $10.40 per share, Array would distribute approximately $900 million in net proceeds. This exchange ratio reflects an at‑market offer based on yesterday’s closing prices for Telephone and Data Systems, Inc. and Array, subject to the assumptions just described. The transaction is expected to qualify as a tax‑free reorganization for U.S. federal income tax purposes. Telephone and Data Systems, Inc. expects the transaction to eliminate duplicative corporate costs, streamline corporate governance, increase share liquidity, and strengthen the capital structure of the enterprise, providing greater flexibility to pursue strategic investments across all our businesses, including towers and fiber. As noted in this morning’s press release, the proposal is subject to review and recommendation by a special committee of Array’s disinterested directors and the approval of the majority of the disinterested shareholders of Array based on votes cast. It would also require approval of Telephone and Data Systems, Inc.’s shareholders and the satisfaction of customary closing conditions. Telephone and Data Systems, Inc. does not intend to sell or otherwise transfer its interest in Array and will not entertain any third‑party offers for Array or its assets in lieu of this proposal. Telephone and Data Systems, Inc. continues to support Array’s previously disclosed intention to opportunistically monetize its remaining unsold wireless spectrum. Telephone and Data Systems, Inc. looks forward to working constructively with the Array Board’s special committee as they evaluate this proposal. Beyond what I just disclosed, and the information included in our press release and proposal letter to Array, we are not going to comment further on or take questions regarding the offer on today’s call. With that, let us turn to slide three. The enterprise is making good progress on its 2026 priorities. Our focus remains on advancing our strategy with financial and operational discipline. As I just mentioned, the proposal announced this morning will aid in strengthening Telephone and Data Systems, Inc.’s corporate and capital structure, and we look forward to working with Array’s special committee. Both business units continue to make progress toward their operational goals. TDS Telecom continued to add fiber addresses and customers in the quarter. Array is off to a strong start in 2026 and is making good progress growing tower tenancy. In the arena of spectrum, Array closed on a small transaction with T‑Mobile earlier this week and expects the remaining announced T‑Mobile and Verizon spectrum sales to close in the second or third quarter, subject to regulatory approval and other customary conditions. I am pleased with the progress each business unit is making and with the efforts we have underway to strengthen our culture as we go through this period of transformation. I would like to personally thank every associate across the enterprise for their continued commitment and contribution. I will now turn the call over to Vicki. Vicki L. Villacrez: Thank you, Walter, and good morning, everyone. Slide four updates you on our capital allocation priorities. TDS Telecom continues to make nice progress toward achieving its long‑term objective of reaching 2.1 million marketable fiber service addresses, delivering 40 thousand in the quarter. Ken and Chris will discuss more about the opportunities and momentum we are seeing in that space in a moment. We continue to evaluate M&A opportunities in a financially disciplined, accretive, business‑case‑driven fashion. In mid‑April, we announced an agreement to acquire Granite State Communications. As I have communicated in the past, we are primarily focused on small to medium‑sized opportunities that are already fibered up or have an accretive economic path to all fiber and support our clustering strategy. Granite is just like that: fully fibered with over 11 thousand service addresses that are adjacent to several of our existing markets in New Hampshire. We are excited to welcome these associates and customers into the Telephone and Data Systems, Inc. family and expect the transaction to close in the third quarter, subject to regulatory approval. Finally, in the area of shareholder return in the form of Telephone and Data Systems, Inc. share buybacks, we were not in the market during the quarter. At the end of the first quarter, we had a $520 million authorization for Telephone and Data Systems, Inc. share buybacks available, and we remain committed to executing on that program. Across all three priorities, the company intends to be disciplined, balancing the needs of the business and evaluating future returns along with market and other conditions as we move forward. Thank you. I will now turn the call over to Kenneth Dixon to discuss Telephone and Data Systems, Inc.’s fiber business. Kenneth Dixon: Thank you, Vicki, and good morning, everyone. At TDS Telecom, 2026 is focused on executing our fiber growth plan: building fiber addresses, driving fiber sales, and continuing to transform our operations. This quarter, we made progress across all three priorities as we scale our fiber network and advance our long‑term strategy. As shown on slide six, our fiber builds are off to a good start. We delivered 40 thousand marketable fiber service addresses in the first quarter. This is the highest first‑quarter total in our company’s history and nearly 3x our delivery in 2025. This performance reflects both effective execution and construction capacity, including our highest‑ever internal and external construction crew counts. While we are pleased with the record construction number, we still have more work to do. We continue to invest in our internal construction teams by adding headcount and upgrading tools and equipment to support increased build capacity, giving us a strategic advantage. We believe these investments provide greater control over our execution and improve long‑term efficiency. In addition, we have a robust pipeline of addresses currently under construction, positioning us very well for the spring and summer build season. This pipeline includes a mix of addresses from our fiber expansion into new areas as well as fiber upgrades in our existing markets through our Fiber Deeper program and the federal A‑CAM program. As a reminder, the A‑CAM program provides federal support that enables us to bring fiber to approximately 300 thousand service addresses, including those along the route where it would otherwise not be economical, helping to drive copper out of our network. Looking at sales, we ended the quarter with approximately 11 thousand fiber net adds, up 32% year over year. As we continue to scale our fiber footprint, we remain focused on converting new service addresses into customers and improving the overall customer experience. During the quarter, we strengthened leadership in key sales and customer‑experience roles to support these priorities. Our operational transformation is centered on efficiency, improving the customer experience, and simplification. We continue to make progress modernizing our systems and remain on track with our transformation roadmap. I am happy to announce that we have now completed the billing conversion in our cable markets and have also introduced a new Field Force platform to support our technicians. These updates simplify our back‑office processes and provide an improved customer experience. We are now able to launch multi‑gig speeds in our cable footprint. These areas are some of the best markets in the country, and we continue to see great opportunity here, so expect more to come. Finally, as Vicki noted, in mid‑April we signed an agreement to acquire a fiber‑based telecommunications business in New Hampshire. The transaction adds over 11 thousand fiber addresses that are contiguous with existing TDS markets and supports our clustering strategy. Approximately 30 associates will join the TDS team. We are excited about the opportunity to continue to deliver excellent service in this area, and we look forward to closing this transaction in the third quarter, subject to regulatory approval. Turning to slide seven, our long‑term goals reflect our continued focus on executing our growth strategy that delivers scale, speed, and long‑term value. With the delivery of 40 thousand fiber addresses in the quarter, we now serve approximately 1.1 million fiber addresses representing 58% of our total footprint, with 79% of addresses capable of gig speeds. While there is more work ahead, the progress we are making reinforces our confidence in the path forward as we continue transforming into a fiber‑centric company. I will now turn it over to Chris to walk through our first‑quarter results. Christopher “Chris” Bautfeldt: Turning to slide eight, the chart on the left shows our quarterly fiber service address delivery over the past five quarters. As Ken highlighted, our first‑quarter fiber address delivery nearly tripled year over year. This significant increase reflects the additional construction capacity we introduced last year and are continuing to scale this year. Our execution in the first quarter demonstrates the effectiveness of the strategy and the momentum we are building as we advance toward our long‑term goals. The chart on the right illustrates the continued expansion of our fiber footprint. Over the past three years, we have nearly doubled the number of fiber service addresses across our markets, demonstrating steady and meaningful progress. On slide nine, residential fiber net adds were approximately 11 thousand in the first quarter, a 32% increase compared to prior year, driven by continued footprint expansion and ongoing copper‑to‑fiber conversions. Residential fiber connections have also nearly doubled over the past three years, and we expect continued growth as we expand our fiber footprint. Turning to slide 10, the chart on the left depicts our residential revenue per connection, which increased 1% year over year. This growth reflects annual price increases offset by ongoing industry‑wide declines in video attachment rates. The chart on the right is new this quarter and breaks down total residential revenue between copper, cable, and fiber. You will see our fiber revenue is up 13% versus prior year, an uplift of approximately $11 million, which helps offset the legacy revenue stream pressures we are experiencing. In cable, revenues are down roughly 10% versus 2025. As Ken highlighted, we are increasing investment in our cable markets to stem these declines. Overall, total residential revenue declined $5 million compared to prior year; approximately $3 million of this decline is attributable to divestitures of markets that were predominantly copper‑based. We remain hyper‑focused on driving fiber revenue at a pace that is expected to more than offset legacy declines. Slide 11 summarizes our financial performance. Total operating revenues declined 3% in the quarter, or 1% excluding the impact of divestitures. This reflects continued legacy revenue‑stream pressures, partially offset by growth in fiber connections and modest improvement in revenue per connection. Cash expenses decreased 3%, driven primarily by benefits from our transformation initiatives, including lower costs for billing, circuits, and facilities. Adjusted EBITDA declined 3% in the quarter, driven largely by the revenue losses from divestitures. Capital expenditures totaled $126 million in the quarter, reflecting higher construction activity, a robust funnel of addresses under construction, and accelerated investments in our internal construction crews and equipment. Slide 12 reflects our guidance for 2026, which remains unchanged. We are projecting total Telecom revenues of $1.015 billion to $1.055 billion. Current headwinds in our copper and cable markets are guiding us toward the lower half of this range. Adjusted EBITDA guidance remains between $310 million and $350 million as we continue our transformation efforts. Capital expenditures for the year are projected to be between $550 million and $600 million to support our goal of delivering between 200 thousand and 250 thousand new fiber service addresses. Before turning over the call, I want to thank the entire TDS team for their continued execution and focus. Their efforts across fiber delivery, customer growth, and operational transformation are critical to the progress we are making toward achieving our long‑term objectives. I will now turn the call over to Anthony. Anthony Carlson: Thanks, Chris, and good morning. 2026 has got off to a busy but great start. The organization is laser‑focused on fully optimizing our tower operations and monetizing our spectrum. In the first quarter, we saw cash site‑rental revenue increase 64% over Q1 of last year, we also demonstrated sequential tower‑tenancy growth when adjusted for DISH, and we continue to move our announced spectrum transactions forward. Before I get to the details of the quarter, I want to acknowledge the Array Board’s receipt of Telephone and Data Systems, Inc.’s proposal to acquire the remaining public shares of Array. Our Board has formed a special committee of independent directors who have retained independent advisers to carefully evaluate the proposal and make a recommendation as to what is in the best interest of Array’s shareholders. Array will be providing updates as appropriate, but we will not be commenting further or taking questions regarding this proposal today. Moving along to slide sixteen, I want to provide an update regarding DISH. As previously disclosed, we received a letter from DISH Wireless in September 2025 in which DISH asserted that unforeseeable FCC actions impacted its master lease agreement with Array and, as a result, DISH believes it is relieved of its obligations under the MLA. Since early December, DISH has generally failed to make the required payments and is therefore in breach of its obligations. Array continues to take actions it deems necessary to protect its rights under the MLA. Given the ongoing nonpayment, in the first quarter, Array ceased recognizing DISH revenue, and all unpaid 2025 amounts have now been fully reserved. Accordingly, our tenancy ratio no longer includes DISH colocations. When normalizing for this impact, we continue to see sequential growth in our tenancy ratio as depicted on the right, from 0.95 in Q4 2025 up to 0.96 in Q1 2026. Importantly, in Q1 we grew revenue and healthy colocation application volumes while supporting T‑Mobile in its integration. As noted on slide 17, cash site‑rental revenue in Q1 increased 55% year over year from all customers, and when normalized for DISH impact, this increase was 64%. When layering in the T‑Mobile interim site revenue, the increase was 86% year over year, or 98% when normalized for DISH. Our application volume remains robust, and coupled with our existing pipeline, will drive additional revenue growth in 2026 and beyond. Turning to slide 18, T‑Mobile has until January 2028 to finalize its 2,015 committed sites under the new MLA. We continue to anticipate 800 to 1,800 tenantless towers after the integration is completed and all interim sites are terminated. Our ground‑lease optimization work remained a priority in Q1, and we are making progress in reducing the cash burden of these negative cash‑flow assets. As noted previously, this will be a multiyear effort focused on cost avoidance, additional lease‑up, evaluating long‑term command, and decommissioning in situations where it makes sense, a process we have already begun on a subset of sites with no path to economic viability. This approach allows us to thoughtfully assess all potential outcomes for the tenantless tower portfolio. As shown on slide 19 and presented in prior quarters, we have reached agreements to monetize roughly 70% of our spectrum holdings. As a reminder, the sale of spectrum to AT&T closed on January 13, 2026, with the Array Board declaring a $10.25 per share dividend that was paid on February 2. In Q1, the FCC approved the sale of certain 100 MHz licenses to T‑Mobile, and that transaction closed earlier this week. Additionally, the FCC approved the sale of the 600 MHz and AWS licenses to T‑Mobile and, pending closing conditions, we expect that sale to close in Q2. Verizon will close in Q2 or Q3 of this year, subject to regulatory approval and normal closing conditions. The remaining transactions with T‑Mobile are expected to close by the end of 2026, once again dependent on regulatory approval and closing conditions. We continue to pursue opportunistic monetization of our remaining spectrum, primarily C‑band. We view our C‑band spectrum as a highly compelling 5G asset with a mature ecosystem ready for carrier deployment, and with no near‑term buildout requirements, we have ample time to realize its value. Slide 20 summarizes the results of our partnership, or non‑controlling investment interests. As discussed last quarter, investment income and distributions for full‑year 2025 were impacted by several one‑time factors, including the impact of the Iowa partnership selling their wireless operations to T‑Mobile and distributions received from Verizon related to their transaction with Vertical Bridge. For Q1, equity income was elevated due to prior‑period adjustments recorded by the managers of certain investee entities. Regarding cash distributions, certain entities distribute cash only twice per year, resulting in an uneven distribution pattern throughout the year. Slide 22 summarizes Array’s financial results. Year over year, we continue to see the impact of the T‑Mobile MLA driving revenue growth. As noted last quarter, there was a prospective change in classification of property taxes and insurance from SG&A to cost of operations. As such, that is driving roughly half of the year‑over‑year increase in cost of operations. SG&A expenses continue to include costs to support the wind‑down of legacy wireless operations, but sequential quarter‑over‑quarter results are declining as planned. We expect these wind‑down expenses to persist throughout 2026, but with additional reductions over future periods. On slide 23, our guidance across all metrics—total operating revenue, adjusted EBITDA and OIBDA, and capital expenditures—is unchanged. As a reminder, our guidance ranges are wider than industry norm due to uncertainty with the T‑Mobile MLA and the timing of interim site terminations. In closing, I want to again thank Array’s associates for their continued passion and dedication to driving operational efficiencies and growth. We continue to move through our first year as a stand‑alone tower company. I will now turn the call back to Walter. Walter C.D. Carlson: Thank you, Anthony. As I noted in my opening remarks, Telephone and Data Systems, Inc. continues to make solid progress advancing our strategic priorities. Our first‑quarter execution, combined with the momentum we are seeing across the business, positions us well as we move forward into the year. I would like to again thank all of the outstanding associates across the Telephone and Data Systems, Inc. enterprise for their continued dedication and hard work in serving our customers and supporting the advancement of our business. Operator, please now open the line for questions. Operator: Thank you. We will now open the call for questions. If you would like to ask a question, please raise your hand. If you have dialed in to today’s call, please press 9 to raise your hand and 6 to unmute when prompted. Your first question comes from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is now open. Richard Hamilton Prentiss: Good morning, everybody. You continue to be very busy. A couple of questions. On the fiber side, the TDS Telecom side, have you looked at whether there is an ability to put fiber into a REIT structure, or any desire at some point to put fiber into a REIT‑like structure to be more tax efficient? Vicki L. Villacrez: Yes, Richard, this is Vicki. I will take that one. We have looked at a number of structural options, but given where we are at today, they are just not optimal. I am not going to speculate going forward on what we may or may not do in the future, but as I think about our fiber program, we are in a really good position. We have a strong balance sheet, and we are focused on funding fiber with our cash. Richard Hamilton Prentiss: Okay. Second question, can you update us as far as the number of shares or percent ownership Telephone and Data Systems, Inc. has of Array Digital, just so we can understand exactly how many of the disinterested might be out there? Walter C.D. Carlson: Let me take that. I think the press releases that have been issued speak to that, Richard. I think 81.9% is the right rough number, and we can get back to you with precise numbers offline. Richard Hamilton Prentiss: That is great. We had some people asking; there were some Bloomberg numbers out there saying 70%. We knew it was 80‑something, so appreciate that. The last question for me, a little more strategic. I know you have been looking at maybe providing more reporting metrics on the fiber business. Any update to what you think you could provide to help people understand what is happening with the fiber business—any cohort analysis or trend lines to help us look at the value of that business as it is going through a capital spending cycle and some EBITDA pressure? Is there a burn rate, and what can you give us to help understand the traction and future look? Vicki L. Villacrez: Lots of questions there, Richard. We will piece those apart. On disclosures, this quarter we added disclosures for our residential revenues and broke them out by technology, so you will see reporting by fiber, cable, and copper. We think this is something that will be helpful to investors going forward. Furthermore, we have included metrics in our trending schedules on our Investor Relations website, so I will point you there. Ken, do you want to jump in on the rest of Richard’s questions? Kenneth Dixon: The metrics that are most important as we move to a fiber‑centric business are, first, how well we are delivering marketable addresses from a build‑plan perspective, and second, our fiber net sales as we sell into that new open‑for‑sale footprint while also increasing our overall penetration in those new cohorts. So build velocity and overall fiber net performance are the two big things. Richard Hamilton Prentiss: I am going to assume as you get fiber out there, the maintenance capital and ongoing capital once you are done with the build drops to pretty low levels. Kenneth Dixon: We definitely see the cash‑cost‑per‑customer improvements on everything—from trouble tickets, copper versus fiber, to a lower call‑in rate—so we love the fiber business. The faster we migrate away from copper and bring it to fiber, we will continue to see improvements in the bottom line. Richard Hamilton Prentiss: Great. That is helpful. Everyone have a great Mother’s Day weekend. Thanks. Operator: Thank you. Your next question comes from the line of Sebastiano Carmine Petti from J.P. Morgan. Your line is now open. Sebastiano Carmine Petti: Thank you for taking the question. Sticking with TDS Telecom and Ken for a second: you hired some sales folks and customer‑experience folks to support your priorities. Where are you from a process‑improvement standpoint—instilling some of your decades of experience running fiber businesses into TDS Telecom? What inning are we in? What near‑term low‑hanging fruit remains to improve process performance and construction build? And on investing in the cable footprint—something we have not heard discussed in a bit—is that strategic and core? How do you think about the blocking‑and‑tackling improvements needed for the cable KPIs to begin stabilizing, given the competitive backdrop and repricing pressures? Kenneth Dixon: Thank you for the question. I would say we are in the very early innings, and we are starting to make very nice progress. I am starting to see wind in our sails. On address delivery, I am very happy with the team’s 40 thousand service‑address delivery—almost three times more than last year. It was important to prove we could keep our crews working all winter, and we accomplished that. We have started the spring and summer months with record crew counts for the two most important quarters of the year. Through April we are at record numbers, a combination of internal and external crews, and we continue to see sequential month‑over‑month crew‑count improvements as we head into May. Going into the second quarter, I am bullish on what we can accomplish because we have the largest funnel of addresses under some form of construction in our company’s history. On sales and customer experience, we see the opportunity to penetrate new addresses as fast as we deliver them. We are very happy with our presales velocity; we typically go in 60 days before an address becomes marketable, and we are seeing excellent results in the low‑20% range. We have put a tremendous amount of sales capabilities into our door‑to‑door channel—adding several vendors in Q4 last year and more in April and May—and we have several others in our funnel. We believe we have to be in the markets and use door‑to‑door to drive our sales agenda. We have also expanded significantly our .com business, which is open 24/7/365; sales have improved significantly, and we will continue to put more resources there. We are now developing our MDU sales capabilities, which is a tremendous opportunity—again, early innings but starting to see nice progress. The 11 thousand fiber net adds—up 32% year over year—is a very good start, and we have momentum. On the cable business, I love our cable markets. We are in some of the best markets in the country. Last year, we decided to convert those markets first onto our new billing system and get them on a single stack across the company. We also made a significant investment in a new field service tool for our technicians to improve overall service delivery, and we are now positioned to move to multi‑gig in 2026. We are just getting started in terms of what we can do in those markets. A lot is going on, but I like what I am seeing, and we have more work to do. We are definitely moving in the right direction. Sebastiano Carmine Petti: For Vicki, on Granite—should we anticipate bolt‑ons like this going forward: smaller systems that are adjacent versus big chunky deals? And does combining entities make it easier to REIT the tower business over time versus the current structure? Vicki L. Villacrez: Sebastiano, thank you. On the second question, we are not going to comment on any impact or implications of the offer on the table, and we cannot speculate on what the future will look like at this point. On Granite, this acquisition is consistent with our capital allocation priorities—building fiber and M&A acquisitions in the fiber space. It is a tuck‑in, it is accretive, and it is adjacent to our current markets in New Hampshire. It is 100% fibered up. We are excited to bring Granite State Communications on board and welcome all of the associates. It brings 11 thousand fiber service addresses to our portfolio. Operator: Thank you. As a reminder, if you would like to ask a question, please raise your hand. If you have dialed in to the call, please press 9 to raise your hand and 6 to unmute. Your next question is a follow‑up from Sebastiano Carmine Petti from J.P. Morgan. Your line is open again. Sebastiano Carmine Petti: For Chris, on the cost‑transformation efforts, is the $100 million run‑rate savings by 2028 still the right figure? Are we at a point where the cost savings are falling to the bottom line in 2026, or is there reinvestment going back into the business? Christopher “Chris” Bautfeldt: Hi, Sebastiano. Yes, we remain on track to hit $100 million of run‑rate savings by year‑end 2028. As you heard in my remarks, we are starting to see some of those benefits this year. The bigger benefits you will see in 2027 and 2028, but we absolutely are starting to see some of those benefits drop to the bottom line. As I have said before, we do not expect that entire $100 million to fall to the bottom line because some of that is helping offset inflationary cost increases. As we continue to expand our fiber footprint and customer base, we do plan to reinvest some of those savings. We are seeing nice benefits and remain optimistic about the full potential of this program. Sebastiano Carmine Petti: Thank you. And for Anthony, on the upcoming AWS‑3 reauction and upper C‑band next year—any change in conversations regarding monetization of the remaining C‑band and CBRS? Anthony Carlson: Thanks for the question. We continue to believe that the C‑band spectrum we hold is excellent and valuable spectrum, with an ecosystem to support it today. We are not going to be a forced seller in these circumstances. We believe the carrying costs are modest. While we are open to a deal at a fair value, we do not feel it is burning a hole in our pocket. We do not have further updates on a sale of our C‑band spectrum at this time, but we remain very optimistic about realizing fair value at the appropriate time. Operator: Your next question is from Richard Hamilton Prentiss with Raymond James & Associates. Richard, your line is open. Richard Hamilton Prentiss: On the service addresses, Ken, is the build plan still targeting 200 thousand to 250 thousand service addresses this year, and what would cause you to miss it versus hit it or beat it? Kenneth Dixon: Yes, that is still the target. I have a very good degree of confidence based on the crew counts we have starting the second quarter and the funnel and pipeline of addresses at a new record in terms of construction. I am very confident we are going to deliver within that target. Richard Hamilton Prentiss: And, Anthony, one of the themes at Connect(X) was high‑rent relocation efforts. Do you have an appetite to do some new builds there, and what capital commitment might you put to work? Anthony Carlson: To be very clear, as we have stated multiple times, we are laser‑focused on optimizing the value of the assets we have in hand and see significant upside from our current portfolio. That is not to say we are not open to opportunities, but the going rates we have seen for high‑rent relocations and participating in new builds have not been consistent with what we think we can achieve by optimizing our portfolio. On our own churn, a small nugget: we had only one total tenant churn in the entire first quarter, which speaks to the strength of our portfolio and its relative susceptibility to high‑rent relocation. Richard Hamilton Prentiss: One for Walter—an obligatory satellite question. How are you thinking about the somewhat existential threat of satellite coming into terrestrial, given your assets in broadband fiber and towers? Walter C.D. Carlson: That is an excellent question. Satellite is a technology that has gotten substantial additional focus over the last 18 months and substantial additional investment over the last 12 months. I think satellites will have substantial influence going forward on the communications industry. That being said, we feel very strongly about the continued benefit of a terrestrial tower portfolio, and we feel very strongly about the superior capabilities of fiber networks delivering specific communication into individuals’ homes and businesses without interruption and without fear of being impacted by weather. We are paying attention, and we feel very good about the thrust of both of our businesses. We are watching. Operator: Next question comes from the line of Sergei Dluzhevskiy with GAMCO Investors, Inc. Your line is now open. Sergei Dluzhevskiy: Good morning. First question on the TDS Telecom side. Last quarter, you expanded the fiber build target by 300 thousand edge‑out passings in, I believe, 50 adjacent markets to your current expansion footprint. How do the demographics and churn profiles of these markets compare to your older cohorts? Among this new cohort, what types of markets are you prioritizing for a build sooner rather than later? Kenneth Dixon: We are looking at markets where we have already planted a flag—where we have established our brand and deployed fiber—so we already have technicians and sales capacity. We have looked closely at demographics, competitive intensity, build costs, and expected returns, and then prioritized accordingly. That is our edge‑out opportunity. These markets check the boxes I mentioned, and because we were first to the original market with fiber, the extensions are a natural fit. We believe we prioritized the right markets first with the highest opportunities and returns. Sergei Dluzhevskiy: On cable, what do you like most about your cable footprint? Can you comment on the competitive environment and the investments you are planning—where the dollars will go and how quickly you expect those investments to pay off? Kenneth Dixon: From an investment perspective, our focus now is going to a multi‑gig environment in our cable business, which is the opportunity for 2026. We are operating in highly attractive markets—some with among the highest housing growth in the United States—so we see a definite opportunity going forward. Sergei Dluzhevskiy: On the Array side, the wireless partnerships produce nice cash flow every year. Any updated thoughts on monetizing those stakes? For example, recent transactions valued stakes at about 11.5x cash distributions. At that multiple, your stakes could be worth a significant amount. What could move you closer to taking that step? Anthony Carlson: As we have said before, we like the cash flows from these assets. There are challenges for us with transactions similar to the ones you mentioned. We have them at a very low tax basis. If you looked at the performance of those investments over the very long term and did a DCF, it would be challenging to get a multiple commensurate with the full value. We are open to offers that would deliver full value, but they would have to deliver full value net of taxes. We like those cash flows, so we are not in a hurry to sell. Sergei Dluzhevskiy: Lastly on Array, EBITDA is expected to be somewhat depressed in the medium term, pressured by transition and wind‑down costs. Can you talk about your targets, qualitatively and quantitatively, to take cost out and improve margins in 2026 and 2027? Longer term, post T‑Mobile transition, what kind of margins are realistic? Anthony Carlson: We think there is significant opportunity to improve Array’s margins. We focus on tower cash‑flow margins. First, land is our largest cost, and we have a much lower rate of land ownership than many large public players. There is significant value to be realized by, where appropriate, purchasing more of the land interests under our towers. Second, as a new tower company, we believe we have opportunities to improve as we transition from a maintenance posture aligned with operating a full‑fledged wireless company to one aligned with a tower company. Those are the two big cost‑side opportunities to improve tower cash‑flow margins, in addition to expanding margins by increasing colocations, which we work hard to do every day. Operator: There are no further questions at this time. I will now turn the call back to John Toomey for closing remarks. John Toomey: Thank you again for joining us today. As always, please reach out to us if you have any questions. I hope everyone has a wonderful weekend. Thank you. Operator: This concludes today’s call. Thank you all for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to PTC Therapeutics' First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. I would now like to turn the call over to Ellen Cavaleri, Head of Investor Relations. Please go ahead. Ellen Cavaleri: Good afternoon, and thank you for joining us to discuss PTC Therapeutics' First Quarter 2026 Corporate Update and Financial Results. I'm joined today by our Chief Executive Officer, Dr. Matthew Klein; our Chief Business Officer, Eric Pauwels; and our Chief Financial Officer, Pierre Gravier. Today's call will include forward-looking statements based on our current expectations. These statements are subject to certain risks and uncertainties, and actual results may differ materially. Please review the slide posted on our Investor Relations website in conjunction with the call, which contains information about our forward-looking statements and our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K filed with the SEC, as well as our other SEC filings for a detailed description of applicable risks and uncertainties that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. Additionally, we will disclose certain non-GAAP information during this call. Information regarding our use of GAAP to non-GAAP financial measures and reconciliation of GAAP to non-GAAP are available in today's earnings release. I will now pass the call over to our CEO, Dr. Matthew Klein. Matthew Klein: Thank you all for joining today. We are off to a terrific start to 2026. We had a record quarter of product revenue, led by the continued strong momentum of the Sephience launch as well as contributions from our mature products. First quarter total revenue was $273 million, including $226 million of product revenue. With this revenue performance, we are raising our 2026 full-year product revenue guidance to $750 million to $850 million, with expected total revenue of $1.08 billion to $1.18 billion. I'll begin by providing an update on the Sephience global launch. In the first quarter, the launch continued at a strong pace, with all signs indicating sustained growth and breadth of uptake. First quarter Sephience global revenue was $125 million, representing 36% quarter-over-quarter growth with U.S. revenue of $112 million. As of March 31, we had 1,244 commercial patients globally. And in the U.S., we surpassed the 1,500 patient start or mark in the quarter with a consistent cadence of prescription starts averaging 140 per month over the past few months. We see this robust cadence of U.S. starts continuing for the foreseeable future. In addition to the sustained momentum in the U.S., growth is accelerating internationally through both commercial access and paid early access programs. We had our first Sephience sale in Japan in late March, ahead of schedule and remain on plan to have commercial sales in up to 30 countries by year-end. I'm incredibly proud of the execution of our global teams. Within 9 months, we have gained marketing authorization in the U.S., Europe, Japan, Brazil and several other countries and are well positioned to serve the global addressable market of over 58,000 children and adults with PKU, making Sephience a blockbuster rare disease product. We continue to see broad adoption across age groups, disease severities and treatment histories, including treatment-naive patients and those who have not responded to existing therapies. We are also seeing rapid penetration into centers of excellence in the U.S., with now over 90% of centers having prescribed Sephience. Persistence remains strong, supported by high refill rates, underscoring the long-term commercial opportunity. Feedback from patients, their families and health care providers continues to be positive. We have seen social media reports of meaningful reductions in phenylalanine and the ability to liberalize diet and enjoy certain foods for the first time. We also continue to gather, present and publish real-world evidence on success of diet liberalization as well as effects on other aspects of disease, including mood and cognition. I'm also pleased to report that our manuscript describing Sephience's novel differentiated dual mechanism of action has been accepted for publication. This manuscript nicely details how the dual mechanism of action supports the ability of Sephience to provide greater benefit to those who have a response to BH4, as well as the potential for Sephience to deliver benefit to those individuals with more severe mutations not responsive to BH4, typically associated with classical PKU. Based on Sephience's highly differentiated efficacy and safety profile, the strong start to the launch as well as our ability to maintain momentum in the U.S. and accelerate growth globally, we remain confident in the $2 billion-plus global commercial opportunity for Sephience. Turning to the votoplam Huntington's disease program. Last week, we reported positive top line results from the 24-month interim analysis of the PIVOT-HD long-term extension study. At 24 months, votoplam demonstrated dose-dependent slowing of disease progression on cUHDRS with an average slowing of 52% relative to a matched natural history cohort at the 10-milligram dose level in participants with Stage 2 disease. In addition, the safety profile continues to be favorable across doses and disease stages. These data support that the significant dose-dependent HTT lowering observed in the 12-month PIVOT-HD study are manifesting in dose-dependent clinical benefit over long-term treatment. In addition, the interim study results give us increased confidence for the success of the now enrolling global Phase III INVEST-HD study funded and led by our partner, Novartis. INVEST-HD has a target enrollment of approximately 770 individuals with early symptomatic disease who will be randomized 3 to 2 to receive votoplam 10 milligrams or placebo. The study also includes an interim analysis. The PTC and Novartis teams are still reviewing the data from the Phase II long-term extension interim readout and will discuss potential plans to meet with regulatory authorities. For vatiquinone, we had a Type C meeting with FDA in April to discuss the design of a new trial to provide additional data to support NDA resubmission. Based both on written comments and meeting discussion, we are moving forward with an open-label study with a matched natural history control group from the robust FACOMS disease registry. The study will have a target enrollment of approximately 120 individuals with Friedreich's ataxia from age 7 to 21. The primary endpoint will be a change in mFARS from baseline to 24 months. We look forward to initiating this study within the next few months and believe the design of the study, along with our learnings from previous studies, significantly increases the probability of success. Turning to our earlier-stage pipeline. In the second quarter, we expect to initiate the Phase I study of PTC612, our oral NLRP3 inhibitor. While the majority of the study will be conducted in healthy volunteers, we will look to include a dosing cohort of individuals with elevated inflammatory biomarkers to enable an early assessment of PK/PD. As we have discussed, PTC612 benchmarks favorably to other NLRP3 inhibitors in terms of potency. We expect to develop PTC612 for inflammatory lung disorders, where there is overlap between the NLRP3 inflammasome and disease pathology. We also continue to make good progress on our other pipeline programs, including our wholly owned MSH3 oral splicing program for HD and DM1. The MSH3 program for HD could complement the HTT reduction approach of the votoplam program as well as be particularly suited to target the juvenile HD population. We are also making good progress on several programs from our Inflammation and Ferroptosis platform, including our Phase II-ready PTC844 DHODH program, ferroptosis Parkinson's disease program and NRF2 activator program. Overall, we're off to a great start in 2026. We look forward to the sustained momentum of the Sephience global launch over the course of 2026 and continued favorable developments in our R&D portfolio. Our strong cash position enables us to continue to support all current programs, as well as to look for accretive business development opportunities that can leverage the strength of our global rare disease commercial engine to accelerate short- and intermediate-term growth. I will now turn the call over to Eric to provide a commercial update, including more details on the Sephience launch. Eric? Eric Pauwels: Thanks, Matt. To start, we are very proud of our commercial team's performance as they continue to execute on the launch of Sephience with excellence. Our outstanding performance in the first quarter reached our highest level of product revenue in the history of the company and has laid the foundation for continued success in 2026. The global launch of Sephience continues to accelerate, driven by continued strong growth in the U.S. and growing contributions internationally. First quarter Sephience revenue was $125 million, including $112 million in the U.S. and $13 million internationally, representing 36% growth from the fourth quarter of 2025. We continue to see growth with new prescriptions in all PKU patient segments, irrespective of age and severity and are seeing the rapid adoption of Sephience as we expand our global footprint with our experienced teams. Since the initial launches in the U.S. and Germany last summer and as of March 31, 2026, our commercial operations have generated over 2,200 prescriptions worldwide. In the first quarter, we continue to see momentum in the U.S. in terms of new patient starts and low discontinuation rates. As Matt mentioned, uptake in the U.S. continues to be broad with over 90% of U.S. PKU centers of excellence prescribing Sephience. We are also seeing broad adoption across the full spectrum of disease severities, including classical patients. We continue to see new patients with various treatment histories, including treatment-naive adults, past treatment failures and patient switches. Refill rates remain strong and discontinuation rates remain low in the low double digits, reinforcing our confidence in the sustained launch momentum. U.S. payer dynamics for Sephience remain favorable. Most commercial and government provider policies are in place, covering over 2/3 of the U.S. population with limited restrictions and flexible criteria for reauthorization. The AMPLIFY head-to-head data demonstrating superior clinical benefits of Sephience versus BH4 continues to strengthen the value proposition with payers, further supporting broad access in the U.S. and ongoing pricing and reimbursement discussions in Europe. Our Sephience launch momentum continues to build globally with the launch in Japan, which has progressed ahead of plan. We had our first commercial patients and revenue recorded in Q1, which was earlier than expected, and we are very pleased with the positive feedback from Japanese health care providers and patients in the early stages of the launch. We also secured Sephience regulatory approval in Brazil, where our local team is fully engaged in creating awareness for access via named patient programs while we finalize pricing in the second half of the year. In Germany, we're seeing good progress, with centers of excellence accelerating new patient starts, including adults, while we finalize pricing and reimbursement this summer. In other European markets, health technology assessment dossiers are being actively reviewed with paid early access programs already in place, while pricing and negotiations advance in France, Italy, Spain and other key European markets. While the U.S. remains a key near-term growth driver, we expect international revenue to continue to ramp with commercial patients in up to 30 countries by year-end. Sephience represents a significant global commercial opportunity long term. Its differentiated efficacy and safety profile and dual mechanism of action support broad adoption and positions Sephience as a potential standard of care, which gives us confidence to achieve multi-billion peak revenue. Going forward, as the Sephience business grows and diversifies globally, the launch metrics we provide will include only global revenue and the number of active patients on Sephience treatment worldwide. We believe these metrics will best illustrate the long-term trajectory of Sephience growth. Now turning to our DMD franchise. We delivered solid first growth performance despite significant headwinds. Translarna revenue was driven by a large government purchase order in Brazil, and we continue to support nonsense mutation DMD patients on therapy across Europe. In the U.S., Emflaza generated $22 million in quarterly revenue despite multi-generic erosion, supported by strong brand loyalty and high-touch patient services. Our experienced global commercial team have successfully executed multiple rare disease product launches for over a decade. Looking ahead, we are confident in our ability to drive strong performance and continued growth in building Sephience into a blockbuster brand for PTC. With that, I will now turn the call over to Pierre for a financial update. Pierre? Pierre Gravier: Thank you, Eric. I will now share the financial highlights of our first quarter of 2026. Beginning with top line results, total product and royalty revenue for the first quarter was $273 million and total net product revenue across the commercial portfolio was $226 million compared to $153 million for the first quarter of 2025, representing 47% growth. First quarter 2026 product revenue includes Sephience net product revenue of $125 million and DMD franchise revenue of $81 million. Translarna net product revenue was $59 million, including a large one-time government purchase order. And Emflaza net product revenue was $22 million. For Evrysdi, Roche achieved first quarter global revenue of approximately USD 585 million, resulting in royalty revenue of $47 million. As a reminder, we continue to report Evrysdi royalty revenue in our financial statements. However, there are no cash proceeds to PTC. For the first quarter of 2026, non-GAAP R&D expense was $90 million, excluding $11 million in non-cash, stock-based compensation expense compared to $100 million for the first quarter of 2025, excluding $9 million in non-cash, stock-based compensation expense. Non-GAAP SG&A expense was $74 million for the first quarter of 2026, excluding $12 million in non-cash, stock-based compensation expense compared to $72 million for the first quarter of 2025, excluding $9 million in non-cash, stock-based compensation expense. Cash, cash equivalents and marketable securities totaled $1.89 billion as of March 31, 2026, compared to $1.95 billion as of December 31, 2025. Our strong financial position supports continued development of our commercial and R&D portfolios and preserves flexibility for strategic and disciplined business development to further enhance long-term growth. And I will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question coming from the line of Kristen Kluska with Cantor Fitzgerald. Kristen Kluska: Congrats on the record quarter for the company. Now that you have a couple of quarters under your belt for Sephience, I was hoping you can give us a little bit more color and clarity about patterns that are emerging in the real world around making sure that patients and physicians are working conservatively in measuring Phe and slowly increasing the protein uptake and how that's been resonating in terms of compliance, long-term utilization and also how these patients that are staying on therapy, is it entirely driven by diet liberalization? Or are there in other instances, other factors that are playing a key role? Matthew Klein: Kristen, thanks for the questions. Look, I think we're incredibly excited about the continued launch momentum we're seeing. We think we're in a stage now of consistent growth in the U.S. of acceleration ex-U.S., which is what's going to make this such a valuable product for us. And as a global launch, this is exactly what we've been working for and exactly as we expected. In terms of dynamics now a couple of quarters in, in general, I think, again, we're seeing this consistent theme of breadth, breadth of uptake across all patient segments, including those naive patients who many thought were lost to follow-up. It was really just a matter of being able to offer them a safe and potentially effective therapy, full age range, babies up to, as we talked about octogenarians and broad uptake across centers of excellence in the U.S. as well as outside the U.S. In terms of folks staying on drug, it's a combination of factors. Of course, the ability for individuals on the drug to liberalize their diet and try foods for the first time, the things we're seeing all over social media are so incredibly impactful and so motivating not only for those individuals to stay on drug, but it's also continuing to increase the enthusiasm and desire of others to get on drug. I think that's really been an effective way in this launch that the demand keeps growing in the patient communities, which is great to see. We have, of course, worked very hard with the centers where, as you know, there's dietitians on staff. They're an important part of PKU management even when an individual is not on therapy. And so this idea of making sure that when someone gets on the drug that there's first evidence of Phe lowering and getting into that range where you can liberalize diet and then proceeding slowly so that we're set up for success. I'll also add, we're hearing a lot about other benefits that have been really important for patients. And what's really interesting about this is for a lot of the prescribers and the patients, it's not necessarily about a number. It's about being able to liberalize diet. And others are saying, I just feel better. I have improved anxiety, improved cognition, less brain fog. And that's really also some of the impactful things that clients has been able to do. And as Eric mentioned in his script and I did as well, these are things that we're codifying now in real-world evidence papers as well as presentations. We have a number of them coming up at the SSIEM in September, talking about all these different ways in which benefit is provided to patients and really supporting, again, not only persistent and in some cases, growing demand, but also adherence, which remains very high. Operator: And our next question coming from the line of Tazeen Ahmad with Bank of America. Tazeen Ahmad: I have a couple. So when you talk about the cadence of around 140 new start forms, you've been careful to make sure you say this is consistent. So, do you expect this trend to continue? Or do you think this could accelerate, especially in the U.S. over the course of the coming year? And then can you also comment on discontinuation? So, you've talked about that a little bit, but for patients who are discontinuing, what's the main reason? Matthew Klein: Tazeen, thanks for the questions. So in terms of the start forms, when we talk about the consistency of about 140 per month, that's going back to the later parts of 2025. As expected coming into the new year around the holidays, there was a bit of a decrease. It's completely expected with seasonal effects and all the things that everyone knows about. We had one of the strongest months in March actually. We're seeing that continued momentum into April. So, we think that the 140 probably represents a reasonable run rate for the foreseeable future, knowing that there'll probably be ups and downs and things, and just the typical dynamics one sees in a launch, essentially being early on. But we believe that's a very solid number, and we're excited about being able to have those starts added to already a very substantial base of patients, which are maintained on the drug, which, of course, is a key to driving the revenue opportunity over time. I'll make a brief comment about discontinuations and then turn it over to Eric for a bit more color on this. As he mentioned on the call, we're in low double digits at this point in the launch. We're starting to approach steady state. I think what's really encouraging is that we know that the earliest individuals put on Sephience were tended to be those not on a therapy, the more challenging patients, those therapy-naive adults. And so to be able to have this kind of adherence rate in the context of the most challenging patients coming on first is obviously incredibly encouraging for the strength and growth of the launch over time. Eric, do you want to provide a little more color on what we're seeing? Eric Pauwels: Yes. Thanks for the question. In fact, I think we're very pleased because in the very first phase of the launch, we would call that an accelerated phase. The vast majority of these patients were the ones who actually in the real world were failed or had poorly controlled based on previous treatments. What we're seeing right now is that even that hard-to-treat group has benefited really well, and we have low double-digit discontinuations. And in fact, the amount of discontinuations is even lower for clinical reasons in terms of efficacy or safety. Some of the reasons are obviously because maybe patients don't respond or safety reasons, but it's very low. The others are just patient choice. And that could be a variety of different reasons. But overall, when you think about the number of patients that have come in, we're building this very large base of patients. And as Matt said, it's an accelerated but a robust cadence. And as we build that, part of what we're going to do is sustain the momentum and continue to grow and maintain high refill rates and work very diligently on discontinuations and making sure they're very low. Operator: And our next question coming from the line of Ben Burnett with Wells Fargo. Benjamin Burnett: I wanted to ask about kind of what you're seeing in terms of average weight or average price. And as you kind of add Japan and some of these ex-U.S. territories to the mix, would you foresee any changes to kind of the long-term sort of average price estimate? Matthew Klein: Ben, look, we said at the beginning, we expected average weight to be around 45 kilos and our studies had shown that we'd be somewhere in the 45 to 50 range. And I think we're very much in that ballpark. And as you alluded to, the international dynamics play into that as well, right? We have some adults who came on. We said that the average age now is around 17 or so globally, but different rates of patients in different regions in different areas. We're seeing very young patients be put on first, especially in some of the early access programs where there's a preference to get infants on drug because there's a keen concern for the neuroprotective effects or the neurodevelopment protective effects that we see with the drug. And in an early access scheme, those are the kinds of things that could get someone on paid drug ahead of formal pricing and reimbursement. So, I'd say overall, we're still in the ballpark we thought we'd be in. We anticipate that for a while. But obviously, we'll continue to watch that dynamic as the launch plays out. Operator: Our next question coming from the line of Eliana Merle with Barclays. Eliana Merle: Just a follow-up question on how to think about the ex-U.S. opportunity and the near and long term for Sephience? I guess, specifically, how we should think about the pricing for Sephience and then how we should think about the cadence of ex-U.S. sales over the course of the year? Matthew Klein: Yes. Thanks, Ellie. And as we talked about, we've always been very intent on maintaining a rigid pricing corridor that went into our launch strategy. I'll let Eric detail that and talk a little bit about how we're seeing price globally and the cadence of contribution ex-U.S. Eric Pauwels: Yes. I think very importantly, the international business right now will be a very important future contributor to the revenues. However, the U.S. will still be the main driver at this point for this year. We know that each country that comes on incrementally up to 30 countries that we anticipate this year will be incrementally very important, but the U.S. is still our main driver this year. Japan, we got off to an early start. We're very pleased. And we're seeing a lot of the launch dynamics there. And we've been able to maintain pricing and reimbursement. We were able in Japan to lock that down in Q1 and finalize pricing, and it will be locked down for the next 10 years during orphan exclusivity. Currently, we have pricing in HTA assessments in dossiers in Europe and where the HTAs are being assessed and pricing and reimbursement discussions would be finalized towards the second half of this year and early parts of next year. I think it's safe to say that the U.S. will be, again, the near-term driver in terms of revenue and will continue to play a very important role. However, over time, each one of these countries will be adding incrementally revenue in patients, and that will be important for the long term. Operator: And our next question coming from the line of Brian Cheng with JPMorgan Chase. Lut Ming Cheng: Can you hear me? Matthew Klein: Yes. Lut Ming Cheng: Congrats on the quarter. Matt, you sounded very confident in the 140 patient start forms per month run rate continuing and you see growth accelerating in your prepared remarks. You mentioned over 90% of the centers have now prescribed Sephience. So, what is holding back the remaining 10% of the centers? Just curious if you can talk a little bit about the phenotype of the center of excellence that's holding out. Is it just a matter of reaching out to those doctors and increase the touch points? Or is there something else that we should also consider? Matthew Klein: Thanks, Brian. I'll start by saying that we are very bullish on the opportunity in the U.S. and globally, right? This is a true global launch, and we're at a point to be able to add, we believe, 140 starts per month on top of already a very strong base is why we believe we're going to reach the very promising revenue potential we think is out there for us. So, we're incredibly excited about that and everything we're seeing continues to support our confidence there. I'll let Eric talk about the center dynamics, but I'll also say that we're now sitting here after the second full quarter of a rare disease launch. The fact that we have prescriptions from over 90% of the centers for us is the headline. That's incredible progress, thanks to all the work our team did in market development and establishing relationships with the centers. And as you can imagine, these tend to be the larger centers where we are. But I'll let Eric talk about the dynamic. But I just want to emphasize that we're incredibly proud to have that degree of penetration at this early part of the launch. Eric? Eric Pauwels: Yes. This is a very strong penetration when you think about -- and the centers right now that are giving are obviously some of the ones that are in the large metropolitan areas. These are what I would call the Tier 1s who have already written many prescriptions and continue the breadth and depth of the prescriptions, particularly the new starts. But keep in mind, we're also -- these centers also have many patients on therapy. So, we're working not only to get new starts, but maintain many of these patients and get those refill rates high, make sure discontinuations are low. When we look at just the remaining 10% or so, which are just a small handful, these are typically what we see with any centers. They're late adopters. They're probably smaller centers. We call on all of them, by the way. And in many cases, they're just not staffed adequately and they're not really proactive as much with patients. So when we go and we look at where the bulk of our prescriptions are coming from, 90% in those big metropolitan centers. They're working very hard right now. They're very strong and robust cadence from those centers. Operator: Our next question coming from the line of Judah Frommer with Morgan Stanley. Judah Frommer: Congrats on the progress here. Two quick ones for us. I guess, first, just on the guidance update. Can you separate out that one-time Translarna order from the rest of the guidance raise? And then just on vatiquinone, any indication within that meeting or written feedback as to how prior data would be treated, specifically subcomponents of the mFARS? Or should we think about this as kind of starting from scratch in a late-stage trial? Matthew Klein: Judah, so on your first question, just looking at overall guidance, we came into the year and we said, look, there's a couple of things we know for sure. We are incredibly confident in the growth trajectory and strength of the Sephience launch, and we believe the vast majority of product revenue will come from Sephience. We also know that there's uncertainty in the mature products, specifically the DMD franchise. We have, in Translarna, business in Europe, which we're continuing to maintain without a license. So, that longevity is hard to predict. And we know that we're facing headwinds in some of the countries like Brazil, like Russia, where we get large purchase orders. On the Emflaza side, we're already seeing in Q1, we are down from Q4 last year. There's 10 generics in the market. And while there's been no major price drops, we do expect erosion to continue. So, we basically increased guidance based on the overall performance of the quarter. And as we go forward in the year and understand better the trajectory of the science and understand what we get from other government orders for Translarna as well as the Emflaza erosion, we'll then be in a situation to raise or narrow guidance whatever is appropriate based on the dynamics that we're seeing. On the Friedreich's ataxia side, look, I think we were excited to have gotten the suggestion from FDA itself that the additional data to support NDA resubmission could come from a natural history controlled study. Obviously, the safety profile of vatiquinone is very favorable and very well established. There's no need to have a placebo-controlled study to identify new safety signals. And the data from MOVE-FA do provide a signal of efficacy. So, this is really -- we view this as a way to get additional data that will support the already established data set of safety as well as signs of benefit, particularly in younger patients. Now, I'll say that the endpoint selection here is really a function of duration of the study. The natural history of FA in young individuals has been very well characterized now in a number of publications. And it's clear that over the shorter period of time, about 12, up to maybe 18 months that the upright stability subscale is likely the most sensitive component of the mFARS rating scale to capture progression and therefore, treatment benefit. We're now doing a 24-month study, and the literature clearly shows that as you get to 18 months out to 24 months, you start seeing other components of the mFARS scale capture progression and therefore, capable of capturing treatment effect. We actually saw this in MOVE-FA as well. Once we got to 18 months out to 24, we started seeing upper limb, lower limb start to contribute. So, this is really a question of choosing an endpoint that's most appropriate, yes, to our population, but also importantly, to the duration of the study of 24 months. Operator: And our next question coming from the line of Geoff Meacham with Citigroup. Jarwei Fang: This is Jarwei on for Jeff. Maybe just thinking about the OUS opportunity. Maybe a 2-parter. First, if you can help quantify or help paint the picture for how the early Japan launch pattern has looked? Have you guys seen a similar uptick pattern from the early days of the U.S. initial launch? And then also, I guess, as a follow-up to that, the second part. The U.S. launch has seen great success with using social media as a leverage to gain awareness among patients. And I guess, can we expect similar success in other geographies just given maybe there are different patient to physician dynamics versus stateside? And then third question, if I may, just real quick. Given vatiquinone's open-label study, the plans will be open label, I guess, how sensitive is mFARS to potential protocol deviations or data? Matthew Klein: Jarwei, thanks for the questions. Let me take the third one first, the second one second, then I'll turn it over to Eric to handle the second and the first. Okay. Third one, look, I think the -- I'll say in general, FDA has very well thought out guidance if you're going to use a natural history comparator group as a control arm. And I think we know that the agency has used the FACOMS, the FA registry before to support regulatory decision-making in public forum. They held that out as a model of a patient registry where you can get quality data because that very well characterizes and captures disease progression. Obviously, we had to set up the treatment portion of the study with vatiquinone to match a lot of the dynamics in the natural history registry, including timing of assessments and such. Obviously, again, in selecting natural history cohort from the registry, we're going to be sure to make sure that they do have the appropriate endpoint information at the key time points, clearly baseline, clearly 24 months and 12 months in the middle. So, these are all things that we are thinking of ahead of time. We've included in the protocol, the statistical analysis plan to make sure that this we can get as robust a comparison as possible. And again, I think we're afforded -- we have the luxury that the FA community has developed such a robust and rigorously collected and protocolized natural history registry for the key endpoints that are relevant for clinical trials. Your second question was about social media being so important in the U.S. and what's going on outside the U.S. Look, I think it's different use in different places. I think the important thing is that globally, there's well-aggregated communities that communicate with each other and there's global communities as well. So there's the flow of information not only in the U.S., what happens in the U.S., it goes outside the U.S. And social media is global. And then we also know that there's communities in other countries as well where there's sharing of information, whether that's on social media or other form. Let me turn it over to Eric to talk a little bit about the Japan dynamics and if he wants to add anything to the question about social media. Eric Pauwels: Our Japanese launch is really off to a really great start, again, ahead of schedule. And we believe that this will be an important and significant opportunity for us. Keep in mind that we actually did get approval in December, and we were promoting and profiling a lot of the centers there. But in Q1, we actually did finalize the pricing and reimbursement, which, as I mentioned, has been locked in now with no price decreases for the next 10 years due to orphan exclusivity and no referencing. So, that's incredibly important for us in terms of that sustained business. What we've seen in the early stages of the launch in Japan, and keep in mind, this is just early stages, is that there is some similarities to the U.S. There are patients who are seeking treatment that have failed or uncontrolled, but we are also pleasantly surprised that there are adults and naive patients that have come in. So, so far, we've seen a lot of the similar, what I would call, accelerated dynamics that we saw in the U.S., in Japan as well. Operator: And our next question coming from the line of Brian Abrahams with RBC Capital Markets. Kevin Meli: This is Kevin on for Brian. Maybe just on Sephience and payer dynamics there. I know you mentioned sort of increasing coverage there across commercial and government. Can you talk maybe a little bit about any -- the types of step edits that you're seeing or maybe you had anticipated at this point? And then just what percentage of prescriptions, if you can comment, are sort of currently facing prior authorization delays and maybe how you see that metric evolving from here? Matthew Klein: Thanks, Kevin, for the questions. Eric, do you want to take those payer dynamics and then any challenges in authorization? Eric Pauwels: Yes. Absolutely. I mean, payer dynamics have been as expected. Prior authorizations are typically in place based on the label. And so most, if not all payers are requiring, obviously, PKU assessment and understanding requirements that are within the label. These are very simple and easy to get through. And right now, we've seen the vast majority of commercial payers as well as government payers have already written their policies. And it's really been very favorable with very few limitations, including step edits, very few step edits. And of course, the vast majority of patients have already some kind of documented history, either they've been on Kuvan or Palynziq, or they have actually failed on any of those therapies. So, prior exposure is incredibly important for moving them through. Even it does require step edits, it's something that we can measure very quickly and sometimes days and in just a few weeks and provide that information to insurers. So right now, everything is going according to plan, and we see very few limitations. And in fact, our time from PSF to dispense has improved continuously because of those policies now being in place. In terms of answering your question about the split, we've historically said it's a little over 2/3, 1/3. It's holding very well. In fact, in the last quarter, we had a slight tick up towards more commercial. We anticipate around 65% to 35%, being 65% commercial payers right now that are being covered. Operator: And our next question coming from the line of Yifan Xu with Jefferies. Yifan Xu: This is Yifan for Faisal. Congratulations on the quarter. Can you maybe provide some additional color on the PKU patient split? And for the current quarter, like what percentage of revenue like contribution from mild to moderate patients and what percentage for from classic PKU patients? And for your $2 billion peak sales guidance, how is that split? Matthew Klein: So Yifan, in terms of the breakdown, we don't collect specifically whether you're classical, moderate or mild. What we have seen from the beginning and are continuing to see is up to 1/3 of the patients are treatment naive, and those tend to be the more classical patients who were never tried on other therapies that were not thought to provide benefit to classical patients. And then again, the remainder are between those who have tried and failed existing therapies or those who are switching from existing therapies. But I think we're seeing more tried and failed as we've heard from centers that at first, there's a priority to get those who are not currently on a therapy on to a therapy. I think the important part of this is the feedback we are receiving and what we're seeing, which is that the more severe patients, as we expected, they're benefiting from Sephience. We have a number of these patients, which are showing significant reductions in Phe, diet liberalization. And so what we're seeing is consistency of effect across moderate, classical, mild, which is really, really encouraging. And obviously, we're doing a lot of work with the mechanism of action paper to support why that's the case, the fact that there is this independent chaperone effect that provides benefit in the more severe mutations and obviously, as well getting the physicians to put together these real-world evidence studies that clearly document how these more severe patients and those therapy-naive patients, those that are thought to have lost follow-up are coming in and having important responses, including Phe reduction, including the ability to liberalize diet and then other benefits like we talked about in terms of cognition and anxiety and other things. Eric, do you want to talk a little bit how we're thinking about the -- we said $2 billion plus, multi-billion. Those are the words we're using. So, I wouldn't limit it just to $2 billion. But let Eric, do you want to talk a bit about how we think the splits can and contributions can play out? Eric Pauwels: I think the contributions are going to be consistent, with the U.S. being, again, the main driver longer term. So, we understand that the U.S. will play a very, very important role. However, we've always said that there are 58,000 addressable patients worldwide. That means that out of the 17,000 to 20,000 in the U.S., there's 2/3 of them that are available in many other markets. We'll continue to work very hard to ensure that there's a narrow pricing corridor, that access and reimbursement is available to as many of these countries. And as we bring these 30 countries -- up to 30 countries along, we're going to continue to add patients internationally as well as grow the business in the U.S. One of the most important things is getting new patients in, but also building the base and maintaining that base. That's what we do in rare disease. And it's important that we continue to not only add new patients and add new countries, but also maintain patients with all the services, education and program that we can and at the same time, minimize any kind of discontinuation and maximize adherence and compliance. So overall, that gives us the confidence that we can actually build this blockbuster brand in multiple countries, and it will be truly a global launch. Operator: And our next question coming from the line of Jacob Ormes with TD Cowen. Jacob Ormes: This is Jacob on for Joseph Thome at TD Cowen. I just wanted to ask, so regarding Sephience and time it takes for patients to get on drug, we're wondering if you had any insights on how that might differ based on geography? Matthew Klein: Jacob, thanks for the question. I don't think you mean geography being country-wide within the U.S. or outside the U.S. I'll just say, in general, in the U.S., we're continuing, as Eric said, to get folks on fairly quickly. Some take longer, some take shorter, but on average, we're still seeing very, very rapid throughput. Eric, do you want to talk a little bit about the global dynamics and in particular, why we say going forward, we're going to really focus on global patients given the complexities of the global dynamic? Eric Pauwels: Yes. And it's a good question given the fact that the complexity is now with multiple countries and everyone has their own unique systems for access. What we see in the U.S. is dispenses that can be just in a matter of a couple of weeks. And in some cases, just a few days depending on the insurance, the policy and the requirements. In Germany and Japan, likewise, it's just a few days because the products are either reimbursed and/or listed and available in the pharmacies. As we get to the complexities of named patient programs in Southern Europe or Latin America or Middle East and others, the times can be days, weeks or it can be months. And each country is unique and different. But the most important metric is the prescription because our teams are really behind working with health care providers and centers and patients to ensure those prescriptions turn into commercial therapy and move those as quickly as possible. So it's very hard to tell you that there's an average out there, but certainly, named patient programs can take sometimes weeks or months in timing. But in other cases, once pricing and reimbursement is finalized, you'll see a much more accelerated and rapid adoption. So, that's why we believe going back to those metrics of providing global revenue as well as the number of active patients will be an important metric to measuring our ability to get to that multibillion-dollar status. Operator: And our next question coming from the line of Luke Herrmann with Baird. Luke Herrmann: I had 2. First on Sephience. A follow-up on U.S. reimbursement. Is there any sort of bolus of patients who haven't been able to get reimbursed yet that you think can be in the future? And then secondly, on vatiquinone, on the open-label study, can you just walk us through how you're treating Skyclarys use here? And do patients need to wash out for how long? Any details there would be helpful. Matthew Klein: Luke, so let me take the second question first, and then I'll let Eric talk a little bit about the favorable payer dynamics that we're continuing to see. So on vatiquinone, one of the key things in this study was to make sure that if you're going to use a natural history comparator group that matches or that the treated patients would match the natural history, if you will. It has to match both ways. And given that there's not been an extensive experience with individuals on Skyclarys for a prolonged period of time, we can't allow concomitant use of Skyclarys as we've done in the open-label extension of MOVE-FA, for example. So, there are going to be some provisions in the protocol for those who've been on it for a short amount of time and have washed out of it, but we can't allow concomitant use or long-term priority use of Skyclarys because we have to make sure that the natural history data we're using can accurately capture any other concomitant therapies. And again, Skyclarys is relatively new. So the natural history data don't have that well captured. And again, this is just an example. It's a really good question and a really good example of all of the thought, planning and alignment with FDA that's needed if we're going to go ahead and prospectively identify a matched natural history cohort and use that to support the resubmission. Eric, do you want to talk a little bit about on the payer dynamics and questions about any areas we're seeing challenges? Eric Pauwels: Yes. In fact, there have been very few limitations. Things are going as planned with U.S. payers. In fact, I think what we're seeing right now is very few of these patients right now are being denied. If they are, they're not hard denials. It's to work through medical necessity. We do not have a bolus, or a very large number of patients that are either on patient assistance programs or bridge. And if we do, we work very carefully to ensure that we bridge them to commercial therapy in matters of days or weeks. So, there isn't a very significant number at all. There's a smaller number. And we've been very pleased so far that the time to dispense is becoming more and more efficient, and we're doing that. We're seeing scripts being filled in a matter of a couple of weeks or less. And reauthorizations have not been onerous at all. They've been basically reauthorizations for 6 to 12 months. And we see that medical assessment of the physician and the patient along with Phe and -- Phe lowering and diet liberalization are enough for that patient to continue to get therapy. So overall, I would say the simple answer is the vast majority of these patients are actually on treatment. Operator: Our next question coming from the line of Joseph Schwartz with Leerink Partners. Jenny Leigh Gonzalez-Armenta: This is Jenny on for Joe. Maybe just one on the longer-term PKU competitive setup with oral genotypes independent SLC approaches now in late-stage trials, how are you thinking about the parts of the PKU market where Sephience is most defensible long term? Is the differentiation around Phe lowering, diet liberalization or physician comfort with this BH4 pathway or something else? And relatedly, are there any patient segments where you think future oral competition could expand the treated pool rather than directly compete with Sephience? Matthew Klein: Yes. Thanks, Jenny. While we acknowledge there's other therapies in late-stage development for adults, the Phase III study being done in adults, look, we don't -- we're not worried about a significant threat here. We have a significant first-mover advantage. We're very well penetrated into the market. And the general view in the marketplace, i.e., amongst the prescribers is they would be looking for something to add on to Sephience and not replace Sephience. And of course, in PKU, this is already a community where they're used to cocktail approaches. Their whole life is about supplements and mixing and matching different things. So the idea of being able to add something on to Sephience to potentially even get even better benefit, whether that could be complete diet liberalization, Phe lowering -- additional Phe lowering in more severe cases. So, again, I think the view here is very much as it being complementary. Of course, if there are segments of patients, the small numbers who have tried Sephience and have not had the success with it in terms of efficacy. We know it doesn't work for every patient. Clearly, we see those folks getting tried on the other kidney-directed drugs. But I think this is why when we talk about what we've been able to do in the launch, the penetration we have, this is becoming first-line therapy and standard of care. And anything that comes later would obviously be added on top of it or would be for those who aren't being served by Sephience. Operator: And our next question coming from the line of Paul Choi with Goldman Sachs. Kyuwon Choi: I wanted to also follow up on vatiquinone. And Matt, I was wondering if you could comment on since the MOVE-FA study and the commercial availability of Skyclarys, any changes in understanding of what the natural history in FA looks like versus when the other studies were run previously? And then secondly, just on the cash balance, Matt, I guess, as you think about sort of the catalyst and data cards that have yet to -- won't turn over for a bit in terms of your late-stage pipeline, I guess, sort of what's the rate-limiting factor for additional business development here? Matthew Klein: Thanks, Paul, for the questions. First, on vatiquinone, I think what's so interesting about FA natural history and the natural history registry, it's been incredibly well characterized and it's incredibly consistent. So if you look over time at the number of publications that have been done using the FACOMS registry, the rate of progression has been fairly consistent, 2 to 2.5 points a year on the mFARS. The components that contribute to that are -- as we talked earlier, are a function of age and a function of time. So even with approved therapy, that natural history has remained pretty consistent. And again, I think in the discussions with FDA regarding the use of FACOMS as a natural history comparator, it's that consistency over time. It's that robust data. It's the large number of patients and the completeness of that registry that have, I think, given them comfort that we can further substantiate efficacy with vatiquinone using this type of study design. In terms of the cash balance, look, we've talked a lot about this. We're incredibly excited for having gotten the company into this position where we've been able to launch Sephience, which is clearly a foundational product for our growth. The launch is going very much as we hoped and anticipated, and we still expect very strong growth and for this to be a multibillion-dollar product. As you alluded to with FA now with what we view as a trial with a high probability of success coming later in the decade and of course, the PIVOT-HD data really derisking the Phase III trial that Novartis is now -- has up and running for Huntington's disease that does have an interim analysis. These are 2 really attractive potential commercial revenue contributors later in the decade. There is an opportunity, and we have capital. And I think really what it comes down to is finding the right fit for us, something that we could bring in to set and leverage our existing commercial infrastructure and still remain in a strong financial position. So, I'd say the limiting factor is really identifying something that fits what we want to do in terms of the right size and something that we think we can set in. We're incredibly excited about our R&D portfolio. As we outlined in the research -- in the R&D Day, we have a lot of exciting things coming. We're finally getting -- I think we're leveraging all the learnings we've made in splicing, and that's a truly highly differentiated mRNA therapy platform that we're now just really learning to apply and get therapies forward. So again, I think as we look at things now, I think the company is in an incredibly strong position. We have a number of opportunities, and we have the luxury to be able to find the right thing to set in to ensure that we're continuing to grow our top line in the short, intermediate and long term. Operator: And I'm showing no further questions in the queue at this time. I will now turn the call back over to the CEO, Dr. Matthew Klein, for any closing remarks. Matthew Klein: Thank you all for joining the call this afternoon. Look, as I just stated in response to Paul, we're incredibly excited where the company is now. We work very hard to build PTC, to be in this position with a very strong launch for Sephience, a global opportunity that we're well positioned to take advantage of. And I'm incredibly proud of the team's performance, and we're positioned now to continue to grow in the U.S., accelerate growth outside of the U.S. and realize that multi-billion-dollar opportunity as well as all the advances in the R&D platform and the cash position, as Paul alluded to, which gives us the ability to continue to drive value in both the short and intermediate term. So, thank you all again for joining the call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Welcome to the PacBio First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Caylene Parrish with Investor Relations. Please go ahead. Caylene Parrish: Good afternoon, and welcome to PacBio's First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the Investors section of our website at www.pacb.com, or as furnished on Form 8-K available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available on the Investors section of our website. With me today are Christian Henry, President and Chief Executive Officer; and Jim Gibson, Chief Financial Officer. On today's call, we will make forward-looking statements, including, among others, statements providing predictions, estimates, expectations and guidance. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks and uncertainties that could cause our actual results to differ materially from those projected or discussed. Please review our SEC filings, including our most recent Form 10-Q and 10-K and our press releases to better understand the risks and uncertainties that could cause results to differ. We disclaim any obligation to update or revise these forward-looking statements, except as required by law. We also present certain financial information on a non-GAAP basis, which is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. Reconciliations between historical U.S. GAAP and non-GAAP results are presented in our earnings release, which is available on the Investors section of our website. For future periods, we're unable to reconcile non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year. A recording of today's call will be available shortly after the live call in the Investors section of our website. Those electing to use the replay are cautioned that forward-looking statements may differ or change materially after the completion of the live call. I will now turn the call over to Christian. Christian Henry: Thank you, and good afternoon, everyone. Our first quarter of 2026 was highlighted by record consumable revenue, greater than 100% year-over-year growth in consumable shipments to clinically focused accounts and significant progress on our strategic objectives, including entering our first significant AI-related project with Basecamp Research. On the other hand, instrument revenue, particularly Vega, was lower than we had expected. This was driven by continuing pressure on academic funding, particularly in the United States. Additionally, we were unable to deliver some products to the Middle East because of the conflict in the region. I'll start by diving into our consumable performance. Once again, we achieved record consumable revenue, marking our third consecutive record quarter. In Q1, this was highlighted by more than 100% year-over-year growth in shipments to clinically focused accounts. This growth offset the fact that some customers held off consumable shipments to wait for the SPRQ-Nx commercial launch. Overall, consumable revenue grew 9% year-over-year, and clinical shipments now represent a mid-teens percentage of total consumable shipments, doubling year-over-year. We expect clinical shipments to continue growing as customers transition from testing and validation to full commercialization. Consumable pull-through was within our expected range of $225,000 to $250,000 Revio system. Additionally, there was strong demand to participate in our SPRQ-Nx early access program during the quarter. Turning to instruments. We shipped 15 Revio systems in the first quarter compared to 12 in the first quarter of 2025. While Revio demand remains constrained by the funding environment in the Americas, we are encouraged by the fact that half of Revio placements went to new customers globally, and we continue to see multisystem orders from clinical accounts building their capacity. We ended the quarter with cumulative Revio shipments of 346 systems. We shipped 27 Vega systems in the first quarter compared to 28 in the first quarter of 2025. The revenue contribution from Vega was impacted by 2 primary factors: lighter demand in the United States, where academic funding remains under pressure and promotional pricing geared towards attracting new customers. Specifically, during the quarter, we launched a limited time Vega promotion to expand our Vega installed base and unlock several new accounts. We concluded the promotion at the end of the first quarter, and we expect Vega ASPs to normalize in the second quarter. The good news is that more than 85% of Vega placements went to new customers this quarter, expanding the reach of HiFi sequencing. Cumulative, Vega shipments stand at 174 systems. From a regional perspective, EMEA was a highlight in the first quarter, delivering 17% year-over-year growth. We are seeing clinical customers who were in pilot and validation mode now make the transition into sustained production scale sequencing. That shift is creating demand for more Revio placements and is driving sustained consumable pull-through. The EMEA pipeline for Revio continues to be strong, and we believe that instrument sales in EMEA will remain an important driver for our business. As we saw in 2025, we expect that EMEA will be the fastest-growing region in our business in 2026. In the Americas, we continue to aggressively shift our strategy to clinical and commercial accounts where the funding dynamics are more favorable. In fact, in Q1, our largest accounts are now commercial service providers and clinical accounts. Revenue in Asia Pacific declined 16% year-over-year due primarily to our largest customers in China waiting for the commercial launch of our SPRQ-Nx kits, which are expected to ship later this month. Looking ahead, we remain confident in delivering revenue growth for the year. Although Vega demand remains softer than we anticipated, Revio opportunities are increasing with the imminent launch of SPRQ-Nx. As I communicated previously, we believe the introduction of SPRQ-Nx makes HiFi sequencing the most affordable long-read sequencing technology. These favorable economics have been enabled by both the Multi-Use SMRT Cell and an increase in SMRT Cell yield. We will commercialize SPRQ-Nx with the ability to use the SMRT Cell 3x, and our beta customers have seen double-digit improvement in yield. In fact, the beta program has gone so well that we significantly expanded the program in the first quarter. However, as I previously indicated, some of the customers are waiting for the full launch of the new chemistry, which will occur later this month. Ultimately, we believe that SPRQ-Nx will drive demand for both more Revio systems and more consumables, but SPRQ-Nx isn't limited to Revio. Later this summer, we expect to launch the SPRQ-Nx chemistry on the Vega platform. On Vega, SPRQ-Nx will enable significantly more throughput, and it will unlock some of the key features of the SPRQ chemistry, including lower DNA input quantities. This will immediately increase the utility of the platform and increase its value, which we believe will accelerate demand for Vega. Now I'd like to highlight a few significant strategic developments from the first quarter and areas where we have made encouraging progress in support of our long term goals. First, we completed 2 significant strategic actions in the quarter. We closed the sale of our high-throughput short-read sequencing assets to Illumina, generating approximately $48.1 million in net cash proceeds and meaningfully strengthening our balance sheet. Additionally, we resolved outstanding litigation with personal genomics of Taiwan. Taken together, these actions sharpen our focus, strengthen our position and allow us to concentrate entirely on what we believe to be our true competitive advantage, long-read sequencing. We are also making real progress in our clinical opportunity, which we believe remains the most compelling long-term driver of our business, with shipments to clinical accounts increasing more than 100% year-over-year. Our goal is clear: lower the barriers of adoption and enable clinicians worldwide to deliver more complete answers to patients and their families. Our core thesis is straightforward. HiFi is the only commercially available sequencing technology that we believe can comprehensively characterize substantially all classes of variants in a single assay. As a comparison, short-read approaches require multiple tests to achieve a similar result. As demand for comprehensive genomic testing continues to grow, we're focused on expanding the clinical utility of HiFi sequencing because our system's faster time to answer, comprehensive genomic output, and altogether less expensive total testing costs can provide the insights that meaningfully change outcomes for patients. Specifically, we continue to believe that the rare disease market will be a major driver for clinical adoption of HiFi sequencing. Of the estimated 300 million people living with a rare disease, many remain undiagnosed or misdiagnosed, which we believe to be a reflection of the limitations of historic sequencing technology. What makes the rare disease market particularly compelling from a business perspective is that we believe we are in the early phase of the adoption curve. Patients getting sequenced today represent a small fraction of those who could benefit. It is clear to our team that we are in the early innings of a very large opportunity, and we have the chance to make a big impact with HiFi technology. We've made notable progress across our recently announced collaborations in rare disease. Ambry Genetics is on track to assess 1,000 patients in their once study. With Ambry, we believe we are proving that HiFi has the power to find what other sequencing technologies have missed. Our collaboration with n-Lorem and EspeRare continues to advance with HiFi sequencing across dozens of ultra-rare diseases. HiFi has the potential to help inform therapy recommendations, another important validation point for clinical utility beyond the initial diagnosis. Additionally, the University of Washington program studying sudden unexplained death in childhood by sequencing across 200 families is well underway, further building our evidence base. As utilization of HiFi to sequence rare disease cases continues to expand, the ability to connect the data across customers and sites becomes a valuable tool for understanding each rare disease. This is why in late February, we announced a collaboration with DNAstack to launch the first global federated HiFi whole genome data set. Through the HiFi Solves consortium, which includes nearly 30 clinical and research institutions across 15 countries, the collaboration enables secure international research and allows genomic insights to travel across borders. Members have connected or have committed to connect more than 10,000 HiFi whole genome sequences, which would form one of the largest and most diverse federated HiFi data sets dedicated to rare disease research. We expect that collaboration will accelerate discoveries for patients and further drive our strength in the clinical research setting. Beyond rare disease, we're seeing a tremendous opportunity in the carrier and newborn screening markets. For example, in the fourth quarter of '25, we announced the Babies and focus project led by Eurofins Genomics U.K. to sequence at least 2,000 samples. This study aims to demonstrate that long-read whole genome sequencing provides clinically meaningful improvements within a newborn screening setting, particularly in detecting complex and structural variants. We believe that this study will generate real-world evidence at population scale that can justify adoption of long-read sequencing in newborns in national health care programs and demonstrate the value created by long-read sequencing over short-read approaches. I'm happy to report that this is advancing as planned, and we expect 1,000 samples to be sequenced on the PacBio technology between April and September of this year. We believe this work is foundational for building the evidence base for potential inclusion of long-read sequencing in a national newborn screening program in the United Kingdom. Before I turn the call over to Jim, I want to discuss our recently signed collaboration with Basecamp Research to deeply sequence approximately 100,000 metagenomic samples. This will be the largest project using HiFi technology in the history of PacBio and the first scaled use of HiFi for the development of a biological foundation model. The team at Basecamp believes that model performance and biology scales disproportionately with data quality and diversity, not just model size. As a result, Basecamp is ambitiously targeting to create a Trillion Gene Atlas, which may end up expanding known genetic diversity by as much as 100-fold by sequencing up to 100-plus million species globally. The Trillion Gene Atlas will be used to train a new class of biological foundation model, Basecamp's Eat-in model, which is already demonstrating the ability to move beyond simple prediction into generative biology, designing therapeutics directly from sequence and disease prompts, including gene insertion systems, antimicrobial peptides and cell therapies with high experimental hit rates. Basecamp selected PacBio for this groundbreaking project because HiFi technology offers the most accurate and comprehensive view of the genome, which will be critical for this new class of biological foundation model. Additionally, with the launch of SPRQ-Nx, we now have the ability to not only sequence at scale, but also offer the economics required to meet the needs of ambitious projects like the Trillion Gene Atlas. I look forward to keeping you updated on this project as we expect sequencing to begin scaling up over the course of 2026. I'll now hand the call over to Jim, to detail our financials. Jim? James Gibson: Thank you, Christian. I'll discuss non-GAAP results, which include noncash stock-based compensation expenses. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release. Unless otherwise noted, all growth rates are year-over-year. We reported total revenue of $37.2 million in the first quarter of 2026, roughly flat compared to $37.2 million in the first quarter of 2025. Instrument revenue in the first quarter was $9.7 million, a 12% decrease from $11 million in the first quarter of 2025. The year-over-year decline was primarily driven by lower Revio ASPs as we continue to prioritize placements in strategic accounts and lower Vega ASPs associated with our Q1 promotion. This dynamic was partially offset by an increase in Revio instruments shipped. In total, we shipped 15 Revio systems and 27 Vega systems, bringing cumulative shipments to 346 Revio systems and 174 Vega systems. Turning to consumables. Revenue reached a record $21.8 million in the first quarter, up 9% from $20.1 million in the first quarter of 2025. Annualized Revio pull-through per system was approximately $229,000, reflecting consistent utilization across an expanding installed base. Finally, service and other revenue declined approximately 7% to $5.6 million in the first quarter compared to $6 million in the first quarter of 2025. From a regional perspective, Americas revenue of $16.7 million increased by 2% year-over-year. The performance was primarily driven by growth in consumables revenue related to an increase in our installed base. For Asia Pacific, revenue of $9.7 million decreased by 16% compared to the first quarter of 2025. The year-over-year decline reflected a weaker academic funding environment and the fact that some of our Chinese service providers are waiting for the launch of SPRQ-Nx. EMEA revenue of $10.8 million increased by 17% compared to the first quarter of 2025 despite some challenges delivering product to the Middle East. The year-over-year increase was driven by consumables demand, reflecting both account expansion and higher utilization, particularly in clinical settings where increased test volumes drove incremental pull-through. Moving down the P&L. First quarter non-GAAP gross profit of $13.8 million represented a non-GAAP gross margin of 37% compared to a non-GAAP gross profit of $15 million or a gross margin of 40% in the first quarter of 2025. Non-GAAP gross margin decline in the quarter was impacted by 3 primary factors: First, we continue to see increased computing component costs, specifically memory, which we flagged on our Q4 call as a potential headwind in 2026 and which we believe will persist throughout the year. Second, we held a temporary Q1 promotion for Vega to drive placements, which compressed instrument margins. Third, there are unique onetime dynamics at play in Q1, including inventory adjustments and warranty-related charges. We want to be clear. Gross margin pressure in Q1 was primarily driven by nonrecurring and timing-related factors, and we expect gross margins to improve in the second quarter. Non-GAAP operating expenses were $49.9 million in the first quarter of 2026, representing a 19% decrease from non-GAAP operating expenses of $61.7 million in the first quarter of 2025. Operating expenses in the first quarter of 2026 included noncash share-based compensation of $3.8 million compared to $8 million in the first quarter of 2025. Regarding headcount, we ended the quarter with 492 employees compared to 485 at the end of 2025. Non-GAAP net loss was $35.9 million, representing $0.12 per share in the first quarter of 2026 compared to a non-GAAP net loss of $44.4 million, representing $0.15 per share in the first quarter of 2025. We ended the first quarter with approximately $276 million in unrestricted cash, cash equivalents and investments compared with $280 million at December 31, 2025. Our cash position reflects the January closing of the sale of intellectual property and other assets related to our short-read DNA sequencing technology to Illumina for which we received $48.1 million in net cash proceeds. Turning to 2026 guidance. Given the dynamics that Christian cited, we are lowering the high end of our outlook for 2026 revenue by $5 million and now expect revenue in the range of $165 million to $175 million. Our revised outlook continues to assume that consumables are the primary driver of growth, supported by continued utilization from clinical customers and the ongoing expansion of the Revio and Vega installed base. We continue to assume no meaningful recovery in academic and government funding, particularly in the Americas. We expect non-GAAP gross margin improvement in 2026 to be towards the lower end of our previously communicated range of 100 to 400 basis points. While higher consumable mix and the introduction of SPRQ-Nx remain important drivers of margin expansion, rising compute costs will temper the pace of margin improvement in the near term. Non-GAAP operating expenses are expected to be in the range of $220 million to $225 million, down from 2025 levels. I'll now hand it back to Christian, for closing remarks. Christian Henry: Thanks, Jim. The first quarter certainly had its challenges. But when I look at what we have accomplished to start the year, record consumables revenue, continued sequential strength in EMEA, increasing clinical adoption, the Basecamp Trillion Gene Atlas win and the promising results of our SPRQ-Nx beta program, which will enable full commercialization later this month, I see that we are executing on the initiatives that are expected to drive meaningful sustained growth. We are well positioned to advance the field of sequencing, making an impact for the better and delivering long-term value across stakeholders. We believe that HiFi sequencing remains the most comprehensive and accurate way to sequence the genome. We remain focused on increasing the adoption of HiFi through both increasing the throughput of the sequencers and dramatically improving the economics of leveraging the technology through SPRQ-Nx. With these improvements, we expect to continue creating new opportunities and expanding our clinical opportunity, especially. Additionally, HiFi is increasingly becoming recognized as an obvious choice as large data sets are created to train advanced AI models for drug discovery. As a result, I'm confident in the trajectory of our business and growth as we advance through 2026. We look forward to updating you as the year continues to unfold. With that, we will now open it up for questions. Operator? Operator: [Operator Instructions] The first question comes from Dan Brennan with TD Cowen. Unknown Analyst: [ Pradeep ] on for Dan. What does your guide for instruments imply? And what sort of visibility do you have going forward? Christian Henry: Can you repeat the first part of the question for me? Unknown Analyst: Yes. What does your guide for instruments imply for the rest of the year? Christian Henry: Yes. So our guide for instrument, the guide for instruments continues to be strengthening Revio's and a little bit of uncertainty around the Vega platform. Vega, we're finding, particularly in the Americas, is really more sensitive to the academic and government funding environment. And as we've turned our focus to really driving clinical and commercial accounts, we're seeing more demand for the Revio system. And so on balance, we expect them to somewhat balance out, and that's why you can see in the guide, we still believe we're going to achieve -- we're going to still be in the range of the guide that we provided back in February. From a visibility perspective, we do have funnels for both platforms of course. The platform for Revio has been improving. And Vega, particularly in the Americas, has been a bit more challenging. And so that's kind of where we sit today. Unknown Analyst: Can you discuss clinical traction, including U.S. versus outside U.S.? And what does progress in the U.S. look like and outlook for 2026 and even 2027? Christian Henry: Yes. So U.S. versus the U.S., if we look at clinical traction, I'll start outside the United States because really, we're seeing in EMEA, very, very strong traction with the Vega platform being really the platform for whole genome sequencing for rare disease. And we're seeing the customers in EMEA go from the validation phase to increasing full commercialization. And so we expect that to be an important core driver. In the United States, we're actually seeing much of the same thing. And one of the things we said in our written remarks is that our biggest customers now have become the clinical and commercial accounts. And what's exciting about that is those clinical accounts -- some of them have gone commercial, but many of them are kind of ending their validation phase at this point in time. And we expect to see them ramping in full commercial production with both the carrier screening assays as well as whole genome sequencing in the rare disease setting. So we do expect our growth prospects in clinical to continue and quite frankly, keep moving forward, both in the United States and in Europe, in particular. So very encouraging results. We also indicated that we saw over 100% growth quarter year-over-year for the clinical side of our business and consumables, which will help us all around. Operator: The next question comes from Doug Schenkel with Wolfe Research. Unknown Analyst: This is [ Austin ] on for Doug. Just a quick one on input costs. Within cost of product sales, what is your exposure to memory pricing? And given the rise in memory chip costs, are you expecting a material gross margin headwind? And if so, how should we think about the impact on margin cadence for the rest of the year? Christian Henry: Yes, it's a great question. Thank you, Austin. We do -- our instruments are heavy compute instruments, both for DRAM and for storage as well as GPUs. We've mitigated some of that risk over the for 2026, but we do expect that to impact our gross margin some this year. And as Jim pointed out, we expect to be more on the lower end of gross margin growth than the higher end of gross margin growth really as a result of these input costs. So they are having an impact. There's a lot of variability there. We're seeing prices increase pretty regularly here. And so we're managing it. But we're managing it through. We already have supply on hand, and we're also looking at R&D solutions, which take a bit longer to get into the system, but over the long run, as DRAM prices kind of normalize, those R&D solutions actually will help us with gross margin in the long run. So in the short run, we're managing it will have some impact in 2026. We still are expecting to improve our gross margins over 2025. And in the long run, R&D solutions will help us lower those costs overall. Unknown Analyst: Great. And then just one on the discounting you mentioned. Where did ASPs for Revio's and Vegas land in the quarter? And are there any similar discounting activities planned for the rest of the year? Or should we expect improving ASPs from here? Christian Henry: Yes. We -- there are no additional discount programs that are ongoing or going forward. That Vega was really a onetime promotion. And what we were trying to do with that promotion is get some new accounts, and we are very successful at that. 85% of the Vega sales were to brand-new customers. But we've decided to kind of back off of that discount in Q2. Revio ASPs are reasonably consistent with where they've been and Vega was certainly lower this quarter because of that promotion. We would expect Vega to return to kind of more normalized levels in Q2. Operator: The next question comes from Kyle Mikson with Canaccord Genuity. Unknown Analyst: This is [ Alex ] on for Kyle Mikson. So I understand you're facing 2 pressured instruments, but I'd like to focus on some areas of strength and potential growth. Just to start here, congrats again on the consumables growth in the quarter. Aside from rare disease, you had your pure target panels. Any plans to launch additional pure target panels in the near term? And of course, it's no secret that you shifted a good deal of focus towards the clinical end market. Do you have any internal targets regarding where you can envision what clinical might make up as a percentage of total revenue in the medium- to long-term? Christian Henry: Yes. Those are great questions, and we're actually very happy with the pure target performance that we've had with the company, and that's really enabling us to get into the carrier screening market, for example. Where we're seeing the fastest growth though in clinical really is in a whole genome context in rare disease. But the pure target panel itself is great for carrier screening. We are developing variations of it, so that customers can customize their panels somewhat, which I think will help spread that opportunity out for us. And when we start to look at the long run, we do believe that a very substantial proportion of our business, perhaps as much as more than half of our consumable revenue over time will be clinically driven. And we'll reserve to figure out when does that actually occur. But we are certainly seeing that the clinical business is making up for some of the weakness in the academic segment, particularly on the consumable side, and we're very happy to see that we've got 3 sequential quarters in a row of record consumables which I think will -- not only is demonstrating the power of the platform, but it's also going to, in the long run, help our gross margins as that product mix continues to improve. Of course, the one thing I will also say is with the imminent launch of SPRQ-Nx, SPRQ-Nx, because of its multi-use capability is one of those rare situations where we can improve the economics for the customer, but we can also increase our gross margin for consumables. And so as that product starts to take hold over the second half of the year and into 2027, that's another real opportunity for gross margin expansion. So very excited about what's going on in consumables right now. Unknown Analyst: Great. And just one more for me. This is on the upcoming ultra-high throughput sequencer. So just thinking about multiple dynamics here in the near to medium term, the launch of SPRQ-Nx and the reusable SMRT Cells. But also you have customers thinking about this ultra-high throughput sequencer as well. So how should we factor that into potential slowdown of Revio orders near the ultra-high throughput launch as well as the benefit you're going to get from the full broad commercial launch of the reusable SMRT Cells. Moreover, do you envision yourself as a multiple product tools vendor in the long term? Or realistically, do you think maybe ultra-high throughput and Vega would become the main stage of the portfolio? And perhaps what is customer feedback on potential new sequencers indicated to you about how you think about this dynamic? Christian Henry: Yes. It's an interesting question. And what our strategy has been is that we believe we need that having 3 platforms in the market gives customers a lot of choice for what levels of volume that they want to pursue. What our intent is, is to keep improving the Revio platform through improvements to the reagents to the consumables, which is what we've done with the SPRQ chemistry and now with SPRQ-Nx chemistry, we will keep creating more value for those Revio customers. That said, for those customers that want to operate at very significant scale, the ultra-high throughput system will be the way to go because it will be -- it will drive cost down for them in terms of not only the economics of the sequencing, but the logistics and everything behind that. And so over the long run, we believe that all 3 platforms will find their place in the market with the mid-throughput kind of customers being long-term Revio users. And then, for example, the larger clinical accounts all moving to the ultra-high throughput. Vega will continue to improve as well. As I said in my written remarks, we're going to increase the throughput pretty substantially later this summer and also introduce all of the features of SPRQ, so Ultra or so low DNA input amounts, for example. And that will add value to that platform and help it become a mainstay. It is -- it will have the right level of throughput for lots of different applications like AAV and microbial and other types of applications like that. So we do think it will find its footing not only in the academic setting, but perhaps in some of the -- some aspects of the clinical market as well. So we see very strong prospects for all 3 platforms in the market going forward. Operator: The next question comes from David Westenberg with Piper Sandler. Unknown Analyst: This is [ Peron Patel ] on for David. Maybe just one on EMEA growth. Maybe could you characterize the type of clinical applications that are driving that growth? Is it primarily rare disease germline? Or are you seeing meaningful contribution from oncology rare disease? Christian Henry: Yes. So we grew 17% in EMEA. So we're really pleased with how EMEA is moving forward. And it really is on the back of rare disease testing in going -- becoming first-line tests in different countries. Structurally, Europe is a perfect market for us and for Revio for this, a single-payer health care system with a lot of innovative leaders that have really gotten behind the fact that with long-read sequencing and particularly HiFi, you can eliminate several other tests relative to short-read approaches and you can increase your diagnostic yield at the same time. And so they're demonstrating this in multiple countries now, and we're starting to see that push. That's really what really what is propelling our growth in that part of the world right now. Interestingly, they grew substantially even though we did have some challenges getting some shipments out to the Middle East, which would have counted in the EMEA scorecard. So that region is really doing quite well, and I fully expect it to be our fastest-growing region again in 2026. Operator: The next question comes from Mason Carrico with Stephens. Mason Carrico: Maybe first, within the 2026 guide, how much visibility do you have today into consumable revenue that's baked in maybe from the existing installed base ramping utilization versus consumables associated with maybe new placements this year? Christian Henry: Yes, that's a great question. And the reality is that we have -- most of our guide is predicated on existing customers and their utilization because here we are in May. And as we place new systems, there is a ramp-up time for utilization, particularly if they're going to have a meaningful contribution to consumables in 2026. So when you think about the guide, we're really taking the majority of it coming from existing customers as they grow and expand. The launch of SPRQ-Nx is the one variable that we are evaluating, and we'll see how that unfolds over the next 2 or 3 months as we kind of get that off the ground. As I did say, some of our customers held off their shipments in March for regular SPRQ reagents in anticipation of the SPRQ-Nx launch. And so I suspect as some of those -- as we get SPRQ-Nx out to market, some of those customers perhaps will place bigger orders earlier, which will help us and get us off and moving. But overall, when we think about the visibility to the guide in consumables, it really is driven off of the existing installed base, what we know about the existing installed base expanding their utilization and then to a lesser extent, the new placements of instruments that we expect. Hopefully, that helps. Mason Carrico: Yes. No, that's really helpful. And -- we're juggling a few tonight, so sorry if you've talked about this, but could you share any additional feedback on the Vega promotional program in Q1 and how we should be thinking about Vega placements for the balance of the year? I think you had a high percentage of new customers in Q1 for Vega. How much of that demand was driven by that promotional program? Christian Henry: Yes. The promotional program was successful. It's always difficult. Once you put a promotion in place, it's always difficult to know which customers would have purchased the system without the promotional price. But we did have a substantial portion of our 27 units shipped under the promotion. And where the promotion was most successful was in APAC, in particular, where that's certainly a more price-sensitive market. And so we're seeing that. But it also kind of gave us some insight that it really is a tough academic and -- academic and government tough funding environment, particularly in the Americas because even with the promotion, there wasn't that many customers that took advantage of the promotion in the United States, and it's really due to funding. And so it helped us understand that a little better. When I think about going forward demand, I do think that the funnel allows us to kind of certainly achieve our guidance. That's why we put the guidance out the way we did. And I do think that Vega will be volatile from quarter-to-quarter. It typically is. It varies. If you look at last year, the numbers varied quite a bit. But I do expect us to start moving in a more normalized direction with respect to ASPs, and we'll see how the unit volumes react to that. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Christian Henry, for closing remarks. Christian Henry: Yes. Well, I appreciate everyone's participation on today's call. We look forward to providing you updates at the various conferences this quarter and on our next call, and we appreciate your support of PacBio. So have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Owlet Q1 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Jay Gentzkow, Investor Relations. Jay, please go ahead. Jay Gentzkow: Good afternoon, everyone, and thank you for joining us. Earlier today, Owlet released financial results for the first quarter ended March 31, 2026. I'm pleased to be joined today by Kurt Workman, Owlet's President, CEO and Co-Founder; and Amanda Twede Crawford, Owlet's CFO. Before we begin, please note that our financial results press release and presentation slides referred to on this call are available under the Events and Presentations section of our Investor Relations website at investors.owletcare.com. This call is also being webcast live with a link at the same website. The webcast and accompanying slides will be available for replay for 12 months following this call. The content of today's call is the property of Owlet. It cannot be reproduced or transcribed without our prior consent. Before we begin today, I'd like to refer you to our safe harbor disclaimer on Slide 3 of the presentation. Today's discussion will contain forward-looking statements based on the company's current views and expectations as of today's date. These statements are only predictions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, those described in our most recent filings with the SEC and in the Risk Factors section of our annual report on Form 10-K as updated in the company's quarterly reports on Form 10-Q and other filings with the SEC. Please note that the company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. With that, it's my pleasure to turn the call over to Kurt. Kurt Workman: Thanks, Jay. Good afternoon, everyone, and thank you for joining. Before we dive into the business results, I want to address a recent leadership transition and a renewed path forward for Owlet. On behalf of the Board and the entire Owlet team, I'd like to share our deep gratitude for Jonathan Harris. Jonathan was instrumental in navigating Owlet's breakthrough growth following FDA clearances. Owlet is in a better position as a result of his contributions, and we wish him well. As Owlet enters this next stage of our growth and evolution, I'm stepping back into the CEO role as announced in April. I'm back to build on the mission I started in a garage 12 years ago with a clear long-term mandate to lead Owlet through this next phase of scale and development in pediatric health. While our core mission hasn't changed, we are sharpening our focus on execution and concentrating resources on our highest value opportunities. I want to highlight 3 strategic priorities where we see the greatest opportunity to improve performance. First, we're prioritizing the Owlet360 subscription and telehealth opportunity more deliberately than we have in the past. With well over 0.5 million parents purchasing a new Owlet device every year, we already have an established user base to support subscription conversion. We believe the structure of the modern parenting journey creates a meaningful opportunity. Among parents, the average family grows to just over 2 children with siblings typically arriving within a few years of each other. Owlet is uniquely positioned to secure a 4-year subscription window. By extending high-value subscription features that span the child's first 2 years, we aim to increase engagement and retention over time, evolving the customer relationship from a onetime user into a 4-year subscriber. This evolution from a hardware-centric sales to a multiyear subscription model fundamentally shifts our growth trajectory, compounding our recurring subscriber base into the millions. Owlet is increasingly operating with a subscription-first approach across the business. That means the product road map, marketing and channel partnerships are aligned toward increasing subscription penetration across our entire customer base. We have 3 key Owlet360 subscription priorities to execute this year. Number one, launch new features and AI integrations for Dream Sock to enhance the subscription value proposition and support continued increases in our attach rate. Number two, launch compelling new camera subscription features that deliver value to hundreds of thousands of nightly active cam users. The Dream Sight subscription feature set is critical toward extending LTV as many families use their cameras throughout the toddler years. Number three, expand subscription access to our large and growing customer base outside of the U.S. Our objective is to establish Owlet360 subscription as a foundational value add for a family's first 2 years of parenthood. For families with a single child, this can significantly extend LTV. For those families that grow to a second child, it can extend the subscription life cycle to multiple years, supporting a longer-term high-margin subscription relationship. This evolution from a hardware-centric sale to a multiyear subscription model has the potential to fundamentally transform our business profile and strengthen Owlet's role as a long-term partner in the parenting journey. Owlet is building a generational opportunity on AI, anchored by what we believe is the most scaled pediatric health data set in the world. By combining our data moat, FDA-cleared hardware and trusted parent relationships, we believe we can deliver the kind of personalized proactive infant care that has never before been possible in the home and establish Owlet as the defining pediatric health platform of this AI era. Turning to our second strategic priority. We are sharpening focus on the high-value opportunities within our existing core markets, where we continue to see meaningful growth potential. In the geographies we're currently in, we still have large underpenetrated markets of just under 20 million children under 24 months of age. With market penetration sitting at just over 11% in the U.S. and low single digits in Europe, we believe there is substantial room for expansion within our existing footprint. We continue to see significant runway for growth in the U.S. with penetration rates approaching at or above 20% in key states like Utah, Nebraska, Wyoming and Kentucky. We view these markets as potential benchmarks for what we can accomplish nationwide and in Europe. We believe the business has the potential to scale toward over 1 million new customers annually over time. Combined with our efforts to extend LTV, we believe this can support a 4-year family subscription life cycle, a recurring subscriber base that can scale meaningfully over time. To capitalize on what we see as a significant opportunity ahead in our core markets, we are consolidating our focus and resources to capture the significant white space available in our current high-value geographies where we have established category leadership. As part of this targeted approach, we have deferred our planned entries into India, Hong Kong and Singapore for the current year and redirected investments to core markets with higher near-term return potential. This leads into our final strategic priority, a heightened focus on operational efficiency and financial discipline to drive profitable growth. While we continue to invest in operating expenses year-over-year, we've optimized our spending plans to support operating at a higher level of efficiency. Our goal is to drive meaningful operating leverage by prioritizing a disciplined strategy, where we align our cost structure to scale efficiently. Specifically, we're pausing new global clearances and delaying country launches that carry upfront regulatory app development quality and marketing costs. We've eliminated previously planned headcount additions through leveraging internal technology and AI-driven efficiencies, allowing us to grow efficiently with fewer resource constraints. We are deferring lower ROI projects outside of our core 0 to 24-month segment. This disciplined financial profile prioritizing growing profitability is intended to provide flexibility to reinvest strategically, which we believe will support our long-term growth and strengthen our market position. To fully align with these 3 priorities and a more focused profitable growth strategy, we are proactively updating our full year 2026 outlook. For the full year, we are adjusting our revenue guidance to a range of $118 million to $122 million, representing 12% to 15% year-over-year growth compared to our previous guidance of $126 million to $130 million. This revised range accounts for our deliberate decision to exit lower-margin, high-burden revenue streams in noncore geographies and new channels. Additionally, this outlook incorporates a more conservative view on sell-through for the remainder of the year. I will provide more specific color on these category trends in our consumer data in a few moments. By concentrating our resources only on high-impact priorities and eliminating the overhead associated with noncore channels, we've created a much more efficient engine. Consequently, we are raising full year 2026 adjusted EBITDA to be in the range of $7 million to $9 million or 250% to 350% growth year-over-year compared to our previous guidance of $3 million to $5 million. While this disciplined approach may result in lower near-term revenue, it is a purposeful trade-off designed to improve operating leverage and profitability. We believe this approach will provide greater flexibility to invest in our highest value opportunities and support stronger, more sustainable long-term growth. I'll now turn to our first quarter business update. I want to give more clarity on where we're gaining momentum and identify specific areas where we need to sharpen our execution. To align with the strategic priorities I just outlined, going forward, we will focus our quarterly updates on the following core growth drivers: First, driving adoption of Dream Sock and Duo in core global markets; and second, expanding the subscription platform with Owlet360 and Owlet OnCall. In the U.S., our Q1 domestic sell-through units for Sock and Duo grew 10.5% year-over-year, led by a 45% increase in Duo and a 3% increase in Dream Sock. One item of note, Owlet was the only brand in the category to grow during a period of general decline. Excluding Owlet, the baby monitoring category was down 19% in dollars versus prior year Q1, while Owlet dollars grew 11%. Q1 inherently has low promotional activity following the holidays. We believe customers are delaying purchases in anticipation of key promotional events like Mother's Day and Pride Day, which drive significant volumes at a lower selling price. We started Q2 optimizing marketing and retail placements to accelerate momentum and take share from our competitors. These efforts are already yielding results. Quarter-to-date in Q2, sell-through has increased to over 30% for both Duo and Dream Sock versus prior year. This performance validates our strategy and is a positive indicator for the rest of the year. However, we have not yet factored this Q2 performance into our full year outlook, preferring to see additional sell-through data before adjusting our projections. Brand health remains exceptional, evidenced by a Dream Sock NPS of 77 and a blended product NPS of 71 to [ Q1 ]. Also importantly, for our Dream Sight camera, customer service contact volumes have decreased by 74% versus our second-generation camera as Dream Sight is clearly removing friction points with our customers, including solving core setup and connectivity issues. Owlet products are maintaining their position as a registry priority. In Q1, year-over-year registry additions increased 31% for Dream Sock and 44% for Duo. Finally, momentum in our current global markets remains robust. In Q1, international revenue grew 22% year-over-year. Sell-through continues to show strength internationally, ending Q1 with 37% year-over-year growth. We're excited about the progress we're seeing in our current international markets. For example, the Czech Republic already has nearly 9% of all babies born using an Owlet. Other markets like the U.K., Germany, France and Australia are all on a similar trajectory for market penetration as the U.S. on a year-by-year basis. Given that more babies born in Europe than the U.S., our current growth opportunity in Europe is massive if we focus and continue to execute at a high level. Shifting to our second focus area, expansion of Owlet 360 and Owlet OnCall, our subscription engine is thriving. Having surpassed the 1-year mark since launch, we've validated the value proposition of our subscription model, scaling to over 115,000 paying subscribers in Q1. As a note, we'll begin reporting subscriber count at quarter end to align with the subscription revenue metric we will begin disclosing in our quarterly filings. The underlying subscriber momentum is translating into durable top line growth as monthly recurring revenue, or MRR, was $1 million at end Q1, highlighting the compounding value of our subscriber base. Furthermore, subscription achieved a 34% penetration rate for Dream Sock users in the U.S. in the first quarter. This high conversion rate validates our bundled value proposition and demonstrates that parents increasingly view Owlet 360's pediatric health insights as an important extension of Dream Sock. As discussed, we're prioritizing the launch of camera-specific Owlet 360 features to enhance the subscription value proposition and extend LTV across multiple children. In April, we launched Camera Extended Clips. The Extended Clips feature for Dream Sight enhances the user experience by offering AI-assisted event detection. While Owlet 360 subscribers gain expanded benefits like a 14-day cloud archive and longer 60-second recording. In addition, in the coming weeks, we are launching built-in white noise, a Dream Sight subscription feature that transforms the camera into a daily sleep essential, eliminating the need for extra hardware. By integrating the product into nightly sleep routines, we can foster consistent platform engagement and support long-term Owlet 360 subscription retention. Subscription is the cornerstone for our evolution into a data-driven pediatric health platform. The rapid adoption we've seen over the last year validates our decision to prioritize the growth and expansion of our recurring platform features. And finally, ending on Owlet's OnCall telehealth opportunity. We're excited to report that this week, Owlet OnCall telehealth is officially going live in our app for select participants. That means that for the first time, Owlet parents can communicate directly with the pediatrician in our app. We will begin scaling access to more and more users over the coming weeks and months to test and learn. As we further integrate our wellness data with professional pediatric access and oversight, we see an opportunity to provide deeper value to parents, potentially reduce health care costs and extend the customer relationship. Our telehealth launch this year is a pivotal step in this evolution, and we expect the insights gained from this initiative to inform our long-term platform expansion and future revenue opportunities. We believe that combining insights from our platform with access to pediatric consultation will provide greater value to parents, simplify access to care and lengthen the customer relationship. And we believe the learnings from this year's telehealth launch will fuel a significant new revenue stream for the business as we move into next year. I'll now turn the call over to Amanda to go over Q1 financial highlights. Amanda, take it away. Amanda Crawford: Thanks, Kurt. Turning to our first quarter 2026 financial performance on Slide 11. Unless noted otherwise, I will be comparing first quarter 2026 results to the first quarter of 2025. Q1 total revenue was $22.5 million, up 6.4% year-over-year, coming in above our Q1 guidance range of $20 million to $21 million. Q1 results reflect a onetime inventory rightsizing at a large retail partner where they reduced their weeks of supply from 8 to 10 weeks to 4 to 6 weeks, which negatively impacted sell-in revenue. This partner ended Q1 with approximately 5 weeks of inventory. The first quarter is consistently our seasonally lowest revenue quarter due to the lack of promotions, so a meaningful amount of revenue quickly dropping out created a short-term headwind. Subscription revenue grew sequentially for another quarter to a record of $2.7 million in Q1. Subscription gross margin also expanded to 67.4% in Q1. Q1 overall gross margin was 54.5%, above our Q1 guidance range of 50% to 52%. Overall, gross margin was up 80 basis points versus prior year, including a 480 basis point impact from the cost of tariffs. Total operating expenses for the first quarter were $17.7 million compared to $14 million in the prior period. This increase was primarily driven by higher compensation costs, including stock-based compensation. The rise in personnel expenses reflects full period impact of headcount additions made throughout 2025, supplemented by strategic new hires in the current quarter. Additionally, stock-based compensation increased due to expanded headcount and the timing of long-term incentive plan grants. As a percentage of revenue, Q1 operating expenses were 79% compared to 66% in Q1 2025. As Kurt referenced, we are committed to raising our level of operational efficiency and financial discipline for the balance of this year and beyond. Q1 operating loss was $5.5 million compared to $2.7 million in the same period last year. Net loss in the current quarter was $3.3 million. Q1 adjusted EBITDA was negative $1.5 million at the high end of our Q1 guidance range of negative $2.5 million to $1.5 million. Adjusted EBITDA was down versus prior year, primarily a result of tariff cost impacts. Turning to our balance sheet. Overall financial health remains strong. Cash and cash equivalents, excluding restricted cash as of quarter end March 31, 2026, were $35.5 million, in line with fourth quarter 2025. We had $3.9 million of undrawn availability on the line of credit at the end of Q1, increasing our total liquidity to $39.4 million as of March 31, 2026. The principal balance on our term loan was $6.3 million at the end of Q1 versus $7 million at the end of Q4. Turning to our guidance. Detailing what Kurt outlined for the full year 2026, we expect revenue in the range of $118 million to $122 million, representing growth of 12% to 15% over 2025. Revenue is expected to trend upward in Q2 following our historical seasonal patterns. We project Q3 to have a slight sequential decline versus Q2 before reaching an annual high in Q4. For the full year 2026, we expect gross margins in the range of 50% to 52%. The tariff situation remains dynamic. At this time, we're estimating a 15% tariff rate as a current baseline for the remainder of the year, down from the previous 19% and 20% attributed to Thailand and Vietnam, respectively. We continue to monitor the dynamic trade environment closely. And finally, we expect adjusted EBITDA in the range of $7 million to $9 million, representing growth of 250% to 350% over 2025 as we prioritize operational efficiency and profitable growth. With that, we will now take your questions. Operator: [Operator Instructions] Your first question comes from the line of Owen Rickert with Northland Capital. Owen Rickert: Gross margin expanded pretty healthy year-over-year despite those continued tariff headwinds. I guess, can you just discuss the operational improvements and mix benefits that helped offset those pressures? Amanda Crawford: Yes. Primarily, what impacted the quarter was a higher relative proportion of subscription revenue, which was at about 67% for the quarter. In addition, we did see favorable product mix in the current year of Sock versus camera in the prior year. Owen Rickert: And then secondly for me, OpEx did increase a bit year-over-year, largely tied to that G&A line. Just as you sharpen the focus on that operating efficiency, I think that was the third strategic focus. Where do you see the biggest opportunities to improve leverage going forward? Amanda Crawford: Yes, it's multifaceted when it comes to operating leverage. The first priority is we had in the previous guide, a pretty significant amount of headcount investment across the board. And as we looked at our plans and with how fast AI is changing and transforming, we just determined that we would not be adding as many headcount as initially planned, but we believe that we're going to be able to achieve more with less. So those have been removed from the plan. In addition, we are reprioritizing our focus. We have deprioritized entering new geographies, which come with upfront costs in regulatory, quality, engineering, marketing, it's a multidepartmental cost that we've taken out of the plan. And then finally, this year, we're prioritizing 0 to 24 months. So really what the core market that we are in and deferring any other projects that are outside of that scope. Kurt Workman: And I would just add that by focusing on these higher ROI initiatives that will provide longer -- higher long-term growth, it allows us to actually increase investments in those initiatives while decreasing the overall OpEx throughout the rest of the year. Owen Rickert: And then maybe lastly for me. How are you thinking about monetization for OnCall initially? Is the near-term focus more around engagement and retention within Owlet360? Or do you expect it to become more of a direct revenue contributor sooner rather than later? Kurt Workman: Yes. And it's very similar to kind of how we framed up subscription last year, where we didn't include it in our guide. We were really focused on testing and learning and improving the experience for the customer. That's the same focus for this year for us. This is a transformational opportunity where for the first time, our customers are going to be able to chat with the doctor inside of our app. That doctor is going to be able to use the Owlet data to empower parents at home to give care to their children without needing to go into the ER or the pediatrician in some instances. And so we're going to really leverage the opportunity this year to learn and to nail that model. And then we expect it to be a meaningful contributor in future years. Operator: [Operator Instructions] Your next question comes from the line of Jonna Kim with TD Cowen. Jungwon Kim: I would love to get additional color just around what changed in your latest guidance versus your prior guide on the top line. Would love to get just additional color there. And then what is assumed in your guidance in terms of the ramp in the subscription growth and that color will be helpful. And then just lastly, as you think about activating more opportunities in the U.S., does your marketing strategy change at all? How are you sort of envisioning your marketing strategy for the year? Kurt Workman: Yes. Thanks, Jonna. And keep me honest on making sure I answer all 3 of those questions as I go through this. Feel free to ask a follow-up if I don't cover it all. The 2026 revenue outlook is a reflection of our sharpened focus and strategy toward profitable growth. We've intentionally removed lower-margin, high-burden revenue kind of previously tied to the noncore geographies and some of the new channels, resulting in kind of that lower top line revenue. It also takes a more conservative outlook for the remainder of the year. I think when we look at the new guidance, it also raises our EBITDA outlook to $7 million to $9 million versus the prior year. It's a purposeful trade-off. And really, the goal is to focus on these bigger opportunities. If we can take our subscriber base to the millions, we can get to 1 million new customers per year, and we hold them for 2 years. This business is transformationally different. And so it's really reflecting of that focus and a little bit more conservative outlook on the remainder of the year. Jungwon Kim: And yes, any perspective on subscription growth, how you're thinking about that for the year? And then the marketing piece will be helpful. Kurt Workman: Yes. Yes. Thanks for following up. Look, when you bring your baby home for the first time, life stops. Like it's -- you're taking time off work. Everything is focused on -- for that first year on this new member of your family. It's the biggest change we go through in spending, in habits, in sleep. So it's no surprise to us that 360 is resonating. We beat all of our internal goals on 360. The fact that we're already close to 35% of our Dream Sock customer base in the U.S. is incredible, and we know that, that number can go much higher. And it's just not a normal kind of premium consumer app model. It's a critical health and sleep data set that empowers parents to better care for their children. So who wouldn't want that? The re-guide, we're still very optimistic on 360. It's growing well. We expect it to continue to grow well for the business. And it just makes life better for baby, better for parent. And we think AI is going to unlock massive growth here over the next few years. So we're very bullish on 360. It's why it's one of our primary focus areas for the next few years. Operator: [Operator Instructions] Your next question comes from the line of Ian Arnt with Lake Street Capital Markets. Ian Arnt: Filling in for Ben Haynor here. You noted on the last call that you would share some more cohort data going forward. And now that we're kind of just past a year here on the original cohort retention data, I was wondering if you could give us a sense of where annual retention is shaking out and kind of how that compares to your initial assumptions when you launched the service? Kurt Workman: Yes, that's a great question. So we're actually -- we're very optimistic on this. When you think about churn and retention, we've had meaningful improvement sequentially since we launched last year. The increase in value in the subscription, I think, has been a big part of that and also just the value in the device and the performance of the devices is increasing usage and retention has been fantastic. We're in -- from a churn perspective, we're in kind of that monthly single-digit range, which has improved sequentially. And having surpassed that 1-year mark, I would say that subscriptions exceeded our internal benchmarks. And we're going to drive continued efficiency there. Our goal is that parents use subscription across multiple years across multiple children. So this can become a 4-year LTV opportunity. Our whole product road map is designed to continue to reinforce that for the next several years, including telehealth. The highest rate of health care utilization is in the first years of life. Parents can now with contextualized data chat with the pediatrician in our app. That should unlock significant continued engagement past the first year, especially for stock users. Cam is another big unlock for us. Parents use cam for multiple years. They anchor it to the wall and it becomes part of that daily routine. So we're launching a bunch of new camera features as well. We expect that this will continue to go down, and we're really pleased with the performance so far. Ian Arnt: And then just one more for me. On the Q4 call, you guys mentioned 4 new hospital partnerships had engaged following the CHKD launch. Could you give us an update on where those stand and the timing of announcements and maybe what the average ramp looks like once hospitals go live in terms of monitors deployed per month? Kurt Workman: Yes. I think what I want to share is that BabySat was up meaningfully in Q1 over last year. It was nearly 100% in terms of revenue growth. Still a very small number for the business, but the hospital partnerships are growing. It takes a little bit more time to get into those partnerships. So we're going to let that continue to progress inside of the business. It creates incredible partnerships and brand opportunities. It helps us address the babies with the most vulnerable needs of our population, and we see it as a long-term big opportunity for Owlet. We'll proactively report out on it when it reaches the level of scale that kind of I think, makes sense for earnings calls, but we continue to see good progress in BabySat, and it's just a really important part of making sure we're addressing the entire population of children. Operator: There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Kurt for closing remarks. Kurt Workman: Yes. Thank you. Thanks again, everyone, for joining us and for the continued support. I just want to state again that Owlet's generational AI opportunity is massive. We have a large, unique pediatric data set, and we're contextualizing that data right now. And that's why we're so focused on the Owlet 360 and telehealth opportunities. They alone represent massive growth potential, and we're excited about our current progress and the long-term opportunity for this platform. Look forward to updating you on this on coming calls. And I've just never been more confident in Owlet's path. I started this company in a garage. I have been with the company for 12 years, and this is the most exciting period for Owlet. So thank you for your continued support as we build the standard of at-home care for babies. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the INmune Bio's 2026 First Quarter Earnings Call. As a reminder, this conference is being recorded. A transcript will follow within 24 hours of this conference call. At this time, it is my pleasure to introduce Mr. Daniel Carlson, Head of Investor Relations of INmune Bio. Daniel Carlson: Thank you, operator, and good afternoon, everyone. We thank you for joining us for the call for INmune Bio's 2026 First Quarter Financial Results. Presenting on today's call are David Moss, CEO and Co-Founder of INmune Bio; Dr. Mark Lowdell, Chief Scientific Officer and Co-Founder of INmune Bio; and Cory Ellspermann, INmune Bio's CFO. Before we begin, I remind everyone that except for statements of historical fact, the statements made by management and responses to questions on this conference call are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those such as forward-looking statements. Please see the forward-looking statements disclaimer on the company's earnings press release as well as risk factors in the company's SEC filings, including our most recent quarterly filings with the SEC. There is no assurance of any specific outcome. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made as the facts and circumstances underlying these forward-looking statements may change. Except as required by law, INmune Bio disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. Now my pleasure to turn the call over to INmune Bio's CEO, David Moss. David Moss: Thank you, Daniel, and good afternoon, everyone. For our first quarter 2026 earnings call, today, I'll review key takeaways and provide an update on our platform programs. Following my review of recent developments at INmune Bio, I will pass the microphone to Dr. Lowdell, INmune Bio's CSO and inventor of CORDStrom, who will provide an update on our CORDStrom MSC platform and particularly our RDEB program. Next, Cory Ellspermann will provide our financial results, after which I'll conclude our prepared remarks. We entered 2026 with clear priorities and strong momentum across our platforms. Most importantly, our CORDStrom platform remains on track, and we are now approaching a key milestone with our regulatory filings. Based on the progress of our analyses, manufacturing readiness and regulatory preparation, we expect to file for approval beginning in the near term, and we remain confident in the time line that we previously outlined. CORDStrom represents a potential first systemic therapy for RDEB, and we believe the data continue to support both its clinical benefits and its broader platform potential. Execution against this filing is our top priority. Turning to XPro. While CJ is not speaking today, I want to emphasize that we continue to make meaningful progress. We are advancing additional imaging analysis from the MINDFuL study, including MRI data focused on myelin preservation and structural integrity. These data sets are important as they further characterize XPro's potential as a disease-modifying therapy. At the same time, we're exploring potential rare disease trials for XPro and potential partners as we define the path forward, including regulatory alignment late-stage development strategies. Naturally, we'll update the markets as these milestones develop. Overall, we believe we're well positioned across both platforms as we move through a catalyst-rich period for the company and a marked change potentially for the company as we get closer to commercialization. With that, I'll turn the call over to Mark Lowdell to provide more details on CORDStrom. Mark? Mark Lowdell: Thank you, David, and thank you to everyone that's joined the call. As David said, since our last earnings call, we've moved forward significantly in bringing CORDStrom to market, and it is our central aim. First, we submitted the pediatric investigation plan known as a PIP to the U.K. medicines regulator in February, and we were approved for rapid assessment and receiving their response on the 9th of April. No substantial issues were raised, and we anticipate submitting our final response in the next few days. The approval of the PIP is an essential step to complete prior to submission of the marketing authorization application in the U.K. and then to the EMA for Europe. We've started the first of the 3 process validation manufacturing runs on time and the remaining 2 are scheduled to meet our MAA submission deadline. Most significantly, we've concluded negotiations with the Anthony Nolan U.K. Cord Blood Bank this month to ensure secure supply of umbilical cords and allow testing by U.S. laboratories to meet the requirements laid down by the FDA in our Type B meeting last year. This agreement was signed yesterday and is the final step in getting the UCMSC isolation part of manufacturing process validated, ready for commercial manufacture. Facilitating our ability to manufacture consistent batches of CORDStrom, we're pleased to announce that we recently signed an amended material transfer agreement with Anthony Nolan. This expanded strategic collaboration secures the long-term reliable supply of these high-quality umbilical cord tissues from their world-class cord blood bank to further our CORDStrom platform. Having a consistent supply is essential for us, not only for regulatory authorities, but also to enhance our ability to take the CORDStrom platform forward into other disease indications. The marketing authorization application submission requires completion of a very significant body of documents in 5 sections. These are now well underway. And as part of the product definition section, we've had to determine the formal names for CORDStrom as applied to RDEB to show it's different to other formulations targeting other diseases in the future. The active ingredient was named by the World Health Organization as pobistrocel, and we've chosen a commercial drug name of Ebstracel for the formulation to be used in recessive dystrophic EB. In 2 weeks' time, we will meet with the MHRA for further advice about the marketing authorization submission filing in the U.K. and then start to finalize those documents. Some minor regulatory delays have meant that we expect to submit to the MHRA in early Q3, and we've contracted a U.K. company, TMC Pharma, with expertise in rare disease submissions to run the EMA and the FDA submissions in parallel to meet the end of the year deadline that we described before to you. Finally, I had the great privilege to speak at the Cure EB Annual General Meeting in London last month, which is one of the largest EB charities in the U.K. I presented our data and our plan was overwhelmed by the response from patients and carers who attended. They're desperate for us to get Ebstracel to the market and to open the next phase of the clinical trial in the U.K. We're doing our utmost to deliver on our promises to them and to you to get into commercial manufacturing and supply in 2027. I'll hand over to Cory now for an update of the current financials. Cory? Cory Ellspermann: Thank you, Mark. At this time, I'll provide a brief overview of our financial results. Net loss attributable to common stockholders for the quarter ended March 31, 2026, was approximately $5.4 million compared with approximately $9.7 million for the comparable period in 2025. Research and development expenses totaled approximately $3.6 million for the quarter ended March 31, 2026, compared with approximately $7.6 million for the comparable period in 2025. General and administrative expenses were approximately $2.2 million for the quarter ended March 31, 2026, compared with approximately $2.3 million for the comparable period in 2025. And at March 31, 2026, the company had cash and cash equivalents of approximately $21.4 million. Based on our current operating plan, we believe our cash is sufficient to fund our operations through Q1 of 2027. And as of May 7, 2026, the company had approximately 26.6 million shares of common stock outstanding. And now I'll hand the call back to David. David Moss: Thank you, Cory. To close, our focus is straightforward. We're executing towards regulatory filings for CORDStrom, which we believe represents a major inflection point for the company. At the same time, we're continuing to build the case for XPro through additional imaging data, exploring the future rare disease trials and ongoing partnership discussions aimed at advancing the program efficiently. We believe these efforts position INmune Bio for a significant year ahead with multiple opportunities to create value for both patients and shareholders. Due to travel schedules, we'll not be taking questions, and this concludes our prepared remarks. If you have further questions, please reach out to the contacts at the end of our press releases, Dan Carlson or myself via those phone numbers or e-mails. Thank you for joining us today. Operator: And thank you, ladies and gentlemen. This concludes today's conference call. We thank you for your participation, and you may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Good morning, ladies and gentlemen, and welcome to the First Quarter 2026 Arbor Realty Trust, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. If you want to remove yourself from the queue, please press 2. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker today, Paula Eliano, Chief Financial Officer. Please go ahead. Ivan Paul Kaufman: Thank you, Stephanie, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust, Inc. This morning, we will discuss the results for the quarter ended [inaudible]. Some of those short reports appear to have provoked investigative interest from regulators, as well as class actions and derivative claims from plaintiffs' law firms. We have steadfastly maintained that these attacks and claims made against us were baseless and misleading. We are pleased to report in that regard that we believe any pending investigations that were initiated in the wake of the short reports have now been closed without any action against us. Additionally, and very recently, our motion to dismiss the class action lawsuit against us was granted and the claims dismissed without prejudice. We have been very pleased with these developments. Although our management team never lost sight of our shareholders and their interests during this challenging period, we are happy to put this chapter behind us and focus on creating shareholder value free of these costly and unwarranted distractions. On our last earnings call, we discussed at length how we feel we are at the bottom of the cycle, have ring-fenced the majority of our nonperforming and subperforming loans, and are working exceedingly hard at accelerating the resolution of these loans into performing assets, which will allow us to start to build back our run rate of interest income for the future. This is our top priority, as these loans are having a tremendous drag on our earnings. We also mentioned that if rates went down, the process would accelerate, and if rates increased, it would lead to a longer period of time needed to resolve these loans. Unfortunately, given the geopolitical landscape, the 5-year and 10-year have actually increased roughly 50 basis points in the first quarter, which is certainly pushing our timetable out a little bit. Despite these challenges, we continue to make progress in working through our assets, and again, we believe we have a clear line of sight on resolving a bulk of these assets over the next several quarters. We ended the first quarter with approximately $500 million in delinquent loans and around $500 million of REO assets for total nonperforming assets of roughly $1 billion. These numbers are down approximately $100 million from the last quarter, or a 9% reduction in risk. Again, our goal is to continue to accelerate the resolution of our non-interest-earning assets and redeploy the capital into performing loans and grow our run rate of income. We had $200 million of resolutions, which is consistent with our goal of continuing to shrink our total delinquencies each quarter. Additionally, we have line of sight on roughly another $200 million to $300 million of delinquencies we expect to resolve in the second and third quarters, in addition to another $100 million we believe we have the potential to resolve by the end of the year. We also remain optimistic that we can reduce our REO assets to around $200 million to $300 million by the end of 2026, even adding an additional $100 million of REO assets over the next few quarters, which were already reflected in our delinquency numbers as of March 31, 2026. We have been actively marketing several of these assets for sale, which will go a long way toward helping reduce the drag on earnings and increase our run rate of income for the future. As we discussed in detail last quarter, we continue to focus heavily on our legacy portfolio, which currently sits at approximately $5 billion. Approximately $500 million of these loans are delinquent, which we are working through very aggressively, and approximately $1.5 billion continue to perform in accordance with their original terms. The other $3 billion have modified to pay-and-accrue features, of which only half of these loans we are accruing the full rate of interest on. We continue to make progress in reducing the amount of accrued interest outstanding on certain loans by resetting the rates to today's market spreads and requiring that the borrowers pay down a large portion of the outstanding accrued interest as part of the modified terms. In fact, we are currently working on several loans totaling approximately $400 million that we think we can modify in the second and third quarters, which will result in receiving approximately $19 million in back accrued interest, reducing the loans' outstanding accrued interest down to around $1.1 billion. This is a very effective strategy that will also put these loans in a much better position to cover our debt service from property operations and is resulting in improved terms from our line lenders. This, combined with having the proper guarantees and requiring the borrower to commit significant additional capital to support the deals, gives us comfort about how these loans will perform going forward and will greatly limit the potential risk of future losses. As Paul will discuss in more detail, we produced distributable earnings of $0.18 per share in the first quarter. Clearly, our earnings are being greatly affected by the significant drag of our non-interest-earning assets as well as from resetting legacy loans to today's market rates. This is something we believe will improve in the next several quarters. We continue to make progress in resolving our legacy issues and growing our business volumes. Our first-quarter numbers were also affected, as we expected, by a normally slow start in the agency business from the seasonal nature of that platform, which was also impacted by the increase in rates. On our last call, we mentioned we would continue to evaluate our dividend policy based on how quickly we think we could resolve our delinquent loans and subperforming loans and reduce that drag on earnings. With the recent increase in rates as well as the expectation that rates can continue to remain volatile, we are now predicting a slightly longer timeline in resolving these loans. As a result, the Board has decided to reset our quarterly dividend to $0.17 per share. We believe this is the dividend we will be able to cover from earnings for the rest of the year, with the potential for growth in the later part of the year and in 2027, as we work aggressively to reduce the earnings drag from our legacy assets and improve our run rate of interest income. We also believe it is very prudent in the current environment to retain our capital to fund the growth of the platform and to buy back stock where appropriate, which generates strong risk-adjusted returns on our investment. Turning now to the production numbers for the first quarter in our different business lines. In our agency platform, we originated approximately $[inaudible] million in volume, in addition to our first CMBS brokerage transaction of $88 million, for total first-quarter volume of $795 million. These numbers were in line with our previous guidance, as we normally experience a lighter first quarter due to the seasonal nature of the business. Despite the challenging rate environment, we are seeing an influx of new opportunities that are increasing our current pipeline significantly. We are off to a good start for the second quarter with approximately $350 million of volume closed through May 2026, and we still feel we could produce similar volumes as last year with a strong second half of the year, which is obviously great for our platform. In our balance sheet lending business, we originated $400 million of volume in the first quarter. This business continues to be incredibly competitive, and as a result, we are being highly selective and are focusing our attention on launching deals with high-quality sponsors. The bridge lending business is a very important part of our overall strategy as it generates strong levered returns on our capital in the short term while continuing to build up a pipeline of future agency deals. With the significant efficiencies we continue to see in the securitization market and with our line lenders, we are able to produce strong returns on our capital despite the competitive landscape. In fact, in the first quarter, we issued another CLO with very attractive pricing and terms. We priced the deal at 1.73% over the index and 88% leverage with a 2.5-year replenishment feature. This was an incredible accomplishment, especially in light of the fact that we priced the deal during the height of the Iranian conflict. We continue to have access to this market and are a leader in this space, which allows us to finance our new originations with nonrecourse, non-mark-to-market debt to drive higher returns on our capital. In our single-family rental business, we experienced an unusually slow start to the year, which was primarily driven by the noise surrounding the housing bill being considered. This bill, in its current form, surprisingly does not have a full carve-out for the build-to-rent business as initially expected and definitely kept folks on the sidelines due to this uncertainty. There has been a tremendous amount of talk lately that this bill will not get passed in its current form and that there will be serious considerations to building in the appropriate carve-outs for the build-to-rent business, including removing the for-sale provisions in year seven that currently exist in the proposed legislation. As a result, things are starting to loosen up as people believe this will occur, and we expect to see a real uptick in our new originations in this platform going forward. We originated approximately $125 million in the first quarter and expect we will see a significant increase in new volume numbers over the next few quarters. This is a great business as it offers us returns on our capital through construction, bridge, and permanent lending opportunities and generates strong levered returns in the short term, providing significant long-term benefits by further diversifying our income stream. In our construction lending business, we continue to see our share of high-quality deals with very experienced developers. We closed one deal for $113 million in the first quarter and are expected to close another $250 million in the second quarter. Our pipeline continues to grow each day, giving us comfort in our ability to hit our target of between $750 million and $1 billion of production in 2026. In summary, we are laser-focused on resolving our legacy book as quickly as possible, which will reduce the significant drag that these assets are having on our earnings. We believe we have a clear path to resolving the majority of these over the next several quarters, which will set us up nicely to build our earnings base heading into 2027. We also continue to focus on growing the many different verticals we have and generating strong returns on our capital that are being enhanced by the significant improvements in efficiencies we continue to create on the right side of our balance sheet. We will continue to work exceedingly hard through the bottom of this cycle, and as always, we remain focused on maximizing shareholder value. I will now turn the call over to Paul to take you through the financial results. Paul Anthony Elenio: Thank you, Ivan. In the first quarter, we produced distributable earnings of $37.4 million, or $0.18 per share, excluding one-time realized losses of $23 million in the resolution of certain delinquent and REO assets. On our last quarter earnings call, we guided to around $10 million of realized losses in Q1, all of which we had previously reserved for. We had some success resolving some loans ahead of schedule, resulting in an additional $13 million in losses in Q1. We will continue to do our best to give guidance on expected resolutions, although it is a very fluid process and often hard to predict the exact timing of these resolutions. Having said that, our best estimate is a range of approximately $15 million to $25 million of realized losses a quarter for the balance of the year that we will continue to reserve for as we receive more price discovery on these assets. As Ivan mentioned, our first-quarter numbers were in line with our expectations, especially given the light first quarter we usually experience in our agency business. We also expect it will take a little longer to work through our legacy book given the current rate environment, which will likely keep our earnings in a similar range for the next few quarters before we start to see an increase in our run rate towards the end of the year as we reduce the drag on our earnings from our underperforming assets. This should put us in a position to start to show growth in our earnings in 2027 as we realize the full benefit of converting our delinquent assets into performing loans. With that said, the second and third quarters of this year are likely to be our low watermark and hover around $0.17 per share as we continue to reset certain subperforming loans to lower rates that will affect our earnings run rate for the next few quarters. We do expect this number to grow in the fourth quarter with further upside potential in 2027 as we are working diligently to resolve nearly all of our nonperforming assets over the next several quarters. We are estimating the second quarter will actually come in around $0.15 per share, as there is roughly $0.02 per share of unusual drag from some inefficiencies related to our financing costs that are resulting in a temporary overlap of interest for a few months. This includes the $100 million ramp feature in our new CLO that we expect to be able to fully utilize by May 2026, and the timing of redrawing on our repo lines to pay off our 4.5% unsecured notes last week, as we used some of the proceeds from the December bond issuance to temporarily pay down higher-cost repo debt until the April notes came due. Given the nonrecurring nature of this expense, combined with the expectation that we will resolve the bulk of our delinquent loans by the end of the year, we believe we will be able to start to grow our earnings in the fourth quarter, with additional upside expected in 2027 as well. In the first quarter, we recorded an additional $12 million of OREO impairments to properly mark these assets to where we think we can effectuate a sale. We have engaged brokers to sell the bulk of these OREO assets quickly and create interest-earning loans for the future. As Ivan mentioned, we are expecting to take back roughly another $100 million of assets as we work to the bottom of the cycle, $50 million to $75 million of which will likely happen by the end of the second quarter of 2026. Most of these assets are already reflected in our delinquent numbers. Again, we are working very diligently to dispose of these assets quickly, with an estimated $100 million to $150 million of sales scheduled in the second quarter and another $200 million to $250 million expected in the third and fourth quarters. This should put our OREO assets between $250 million and $300 million by the end of 2026 and greatly improve our run rate of income for the future. We also booked another $9 million of specific reserves on our balance sheet loan book, for total OREO impairments and specific reserves of approximately $21.5 million in the first quarter. We expect to book similar levels of reserves and impairments over the next few quarters, which is consistent with our strategy of accelerating the resolution of problem loans as we look to mark certain loans that we are marketing for disposition to where we think we can execute a sale. In our GSE agency business, we originated approximately $[inaudible] million in volume and had $671 million in loan sales in the first quarter. The margins on these loans were very healthy at 1.86% this quarter compared to 1.36% last quarter, which was mostly due to a shift in product mix and loan size, with some larger deals in Q4 that contained lower margins. We also recorded $10 million of mortgage servicing rights income related to $734 million of committed loans in the first quarter, representing an average MSR rate of 1.32%. Our fee-based servicing portfolio was approximately $36.3 billion at March 31, 2026, with a weighted average servicing fee of 35.5 basis points and an estimated remaining life of six years, continuing to generate a predictable annuity of income going forward of around $129 million gross annually. In our balance sheet lending operation, our investment portfolio was approximately $12 billion at March 31, 2026, with an all-in yield on that portfolio of 7.03%, compared to 7.08% at December 31, 2025. This was mainly due to resetting rates on certain legacy loans and from the slight decline in SOFR. The average balance in our core investments was approximately $12.04 billion this quarter compared to $11.84 billion last quarter, reflecting the full effect of our fourth-quarter growth. The average yield on these assets increased to 7.5% from 7.38% last quarter, mainly due to significantly more back interest and default interest collected in Q1 on loan resolutions, which was partially offset by a decline in SOFR in the first quarter. Total debt on our core assets was approximately $10.7 billion at March 31, 2026. The all-in cost of debt was approximately 6.4% at March 31, 2026, versus 6.45% at December 31, 2025, mainly due to a reduction in SOFR along with a lower rate on our new CLO issuance in March 2026. The average balance on our debt facilities was approximately $10.4 billion for the first quarter compared to $10.1 billion in the fourth quarter, mainly due to funding our fourth-quarter growth and from a full quarter of the new unsecured debt issued in December 2025. The average cost of funds in our debt facilities was 6.52% in the first quarter, down from 6.66% for the fourth quarter, excluding interest expense from leveraging our OREO assets, the debt balance of which is separately stated in our balance sheet and therefore not included in our total debt on core assets. This decrease is mostly due to a reduction in SOFR, which was partially offset by the unsecured debt we issued in December 2025. Our overall spot net interest spreads were flat at 0.63% at both March 31, 2026, and December 31, 2025. In summary, we continue to make steady progress in resolving our delinquencies and are extremely focused on completing the process as quickly as possible, which will significantly reduce the drag on our earnings. This, combined with growing our origination platforms, will go a long way toward allowing us to increase our run rate of income in 2027. That completes our prepared remarks for this morning. I will now turn it back to the operator. Operator: We will now open the call for questions. We will take our first question from Jade Rahmani with KBW. Please go ahead. Your line is open. Jade Joseph Rahmani: Thank you very much. Could you comment on the outlook for SFR originations picking up and also if you can give any color on the types of borrowers that you are dealing with, the number of properties they hold, what their intended hold period is, and how the financing terms from counterparties are changing the cap rates and return profile of that business? Ivan Paul Kaufman: Can you repeat the first part of that question? It did not come clearly. Jade Joseph Rahmani: Yes, sorry about that. Could you comment on the outlook for the single-family-for-rent originations business? If you could provide some color on the types of borrowers you are dealing with, whether they are institutional or whether they are smaller, the number of properties they hold and their hold period, and about your comments regarding the housing legislation and how that is changing that business? Ivan Paul Kaufman: Sure. Let me respond to that thought first. Let us talk about the legislation because I think the business got frozen a little bit initially with the concern and the fear. But the consensus now, a very strong consensus, is those prohibitions that were put into that bill restricting closing the sale are not going to be put in the bill. As a result, we have seen real momentum over the last couple of weeks in that business. We already have approximately $200 million and we expect to exceed approximately $300 million for the quarter. So we are back in line and back in pace. Enthusiasm is back in the business. Most of the people we are dealing with—many of their investors are institution-based. A lot of them have anywhere between five and thirty assets. That seems to be the typical profile of what we are dealing with. Some have high-net-worth families, but a lot of them are institution-based. As for cap rates, returns, and how we are seeing the financing side of that business, the credit markets are extremely aggressive right now, and the cap rates are very aggressive. It is a very well-liked business. We think there is a lot of momentum in the business. So it is still viewed very favorably. Anything that is completed and goes to a bridge loan is priced extraordinarily competitively, and the agencies—Fannie and Freddie—as well as the CMBS market love this product. Jade Joseph Rahmani: Great, and that is really good to hear in terms of the resiliency of that asset class. Just turning to the outlook on credit, I think you touched on it that the 5-year and 10-year move this year is kind of slowing the pace of resolution. My main question would be if there are any new delinquencies or new defaults you would expect as a result of where the 5-year and 10-year are. I imagine that there is at least some cohort of borrowers that have been kind of on the fence as to what they are going to do, and the outlook for rates makes a huge difference in their consideration. So if you could just comment on how the 5-year/10-year move this year has affected the credit outlook? Ivan Paul Kaufman: I think it is very clear from management’s standpoint that we have taken a look at the change in the rate environment. In the fourth quarter, we clearly had a drop in rates and there was a lot of liquidity flowing into the sector and a lot of enthusiasm. Now, with the Iran situation and rising rates, and with the view that rates will remain a little bit higher, we have adjusted our philosophy. We are getting ahead of where we think the market is, and that is why we adjusted our dividend to reflect a more difficult environment. We do not want to be sitting here in the second and third quarters making the adjustments. We think that this rate environment is going to slow the resolution, it is going to slow liquidity into the sector, and it is going to slow where these resolutions go. In fact, as Paul has guided in his comments, we are expecting to continue to have reserves going in the second, third, and fourth quarters, and it is reflective of where this new environment is. So we have made the adjustments. I am not sure everybody else has, but we do think that this new rate environment is going to affect the balance of the year, and that is what we are reflecting in our comments. Jade Joseph Rahmani: Thanks for taking the questions. Operator: Thank you. We will take our next question from Citizens Capital Markets. Please go ahead. Your line is open. Analyst: Hey, guys. Thanks for taking the questions. I was having some connection issues, so apologies if you already hit on some of this. Looking at originations in the bridge portfolio, average loan size looks to be about $128 million versus $38 million in the fourth quarter. I think Ivan touched on this a little bit, but was this more opportunistic, or are you intentionally moving up the loan-size spectrum and should we expect to see more of this going forward? Ivan Paul Kaufman: I think it is a great question. We are definitely going into a larger loan size, but the market is extremely competitive. It is to the point where, on each individual loan, you have to make certain credit decisions in order to bring those loans on. So we have chosen to go to larger sponsors and larger deals and be more selective in that sense, to put more management attention on each and every loan that we do, and the larger loans give us the ability to do that. Analyst: Got it. That makes a lot of sense. And then, I guess, gain-on-sale margin stepped up quite a bit in the quarter to 1.86% from 1.36%. Can you just remind me if there was a large deal in 4Q numbers, or is something else driving that dynamic? Ivan Paul Kaufman: That is exactly right. A couple of things happened. If you go back and look at our margins—look at 3Q, 4Q, and even 2Q of last year—if you look at 1Q and 2Q of last year, the margins were actually very strong. A 1.86% margin is very healthy. We did approximately 1.75% in the first quarter of last year and approximately 1.70% in the second quarter of last year. In the third and fourth quarter, you saw that dip to approximately 1.15% and 1.36%. In the third and fourth quarter, we had some really large off-market deals that we were able to get over the line, and we also had a lot more Freddie Mac business in the fourth quarter, which is a different type of business. In the first quarter, we had a lot more Fannie Mae business and a lot more smaller deal size, so we were able to extract the higher margin. It all depends on what is in our pipeline. We do have a lot of large deals in our pipeline that we are working through. Our pipeline is growing each and every day, so you could see that number dip a little bit in the second quarter and the third quarter depending on deal size. It is deal size and mix, and to your point, the fourth quarter did have some really large deals in it. Analyst: Got it. That makes a lot of sense. Appreciate you guys taking the questions this morning. Operator: Thank you. We will take our next question from Richard Barry Shane with JPMorgan. Please go ahead. Your line is open. Richard Barry Shane: Hey, guys. Thanks for taking my questions this morning. A couple of different things. In prior calls, you had talked about some fairly substantial capital investments in REO properties. I am curious how much you have spent life-to-date in terms of that CapEx and what you expect going forward, given your sort of expectations for additional REO? Ivan Paul Kaufman: Sure, Rick. I think we look at it a couple of different ways. We break down the REO book. As I said in my commentary, we have been in the process recently of engaging brokers and really trying to find people that are interested in these assets, that are experts in that particular market with that particular asset. We are doing a really nice job, I think, of getting a significant amount of bids. There is certainly more capital out there now chasing deals, so we have seen a real influx of opportunities to dispose of the assets quicker, which is why we are guiding to getting our REO book down to roughly $250 million to $300 million. I would say that from a CapEx perspective, there are certain assets that we expect to hold on to. There is a subset of assets within that $250 million to $300 million that we expect to hold on to a little longer and stabilize, and we are feeding those assets with CapEx. In the quarter, I think we put about $8 million to $10 million of CapEx into certain assets. As for life-to-date, we can follow up with precise numbers, but that gives you a sense of the recent pace. Richard Barry Shane: I appreciate you referencing the comment about working with the brokers. That is actually what precipitated my question. I am curious if there is a little bit of a change in strategy here, which, instead of investing and trying to potentially optimize outcome on a longer timeline, you are taking a first-loss, best-loss approach here and accelerating the disposals. Ivan Paul Kaufman: A lot of it is loan-specific. If we feel we can get to market with an asset fairly quickly without putting CapEx in, we will do it. Early on, there were certain assets that really required CapEx to put them in a better position, so it is really an asset-specific situation. That said, we are leaning toward, as you referenced, resolving assets on an accelerated basis at our mark if we can. We have had a few of those this quarter as part of that $23 million of realized losses, and we continue to push that way. It is asset-specific, but we are definitely leaning toward quicker resolutions where appropriate. Richard Barry Shane: Got it. Okay. That actually relates to something that someone pinged me about, which is during the quarter, you sold a property for $25 million and provided a $24.5 million bridge loan, which seems like a fairly aggressive financing structure. As you are resolving the REO, is part of the intention to provide financing for those transactions? Is that type of advance rate going to be typical of how you are approaching things, and how should we think about that from a credit perspective? Ivan Paul Kaufman: Once again, it is asset-specific, but a lot has to do with loss structures as well. While it may be a high advance rate, there are capital commitments and guarantees that are required on those loans from the people who are stepping into those transactions. We will look at our recoveries and our returns fitted on each particular case. Many times these are sponsors we have done a lot of business with, with strong balance sheets, and while we may give them a high level of leverage going in to create a very seamless process, their commitment to maintain that asset with the right guarantees—CapEx, interest guarantees—helps to offset that high leverage. Richard Barry Shane: Got it. Okay. Last question. If we think about dividend policy going forward—again, you have clearly trued the dividend up to distributable earnings. I know different commercial mortgage REITs talk about distributable earnings ex realized losses. I am curious, as we are looking at our models, what do you think we should use as the guidepost for the dividend? Is it distributable earnings, or is there something else? I want to make sure we are looking at the right metrics so that we catch any inflections either up or down going forward. Ivan Paul Kaufman: Good question. We clearly look at it as distributable earnings excluding the one-time realized losses that we have already provided for and that have already reduced book value. That is how we look at it—what are we earning from a cash perspective. In this quarter, we put up $0.18 excluding the losses. What we have guided to is a bit of a low watermark in the second and third quarters. Richard Barry Shane: Absent the $0.02 one-time drag, that probably puts me at $0.15 for the second quarter. Ivan Paul Kaufman: We are really at $0.17 if you add that back in Q2 and $0.17 in Q3. Then what we have guided to is, if we can execute our business strategy very effectively—which we are laser-focused on—and really start to turn a lot of these nonperforming assets into performing assets, we will start to see growth in the fourth quarter in that distributable earnings number. So we have set the dividend where we think we can earn it for the rest of the year, and we have set it to where we think distributable earnings will be, excluding those one-time losses. Richard Barry Shane: Got it. Okay. Thank you, guys. Operator: Thank you. We will take our next question from Raymond James. Please go ahead. Your line is open. Analyst: Roughly 40% of your loan portfolio is in Texas and Florida, where there is quite a bit of housing supply across multifamily, SFR, and single-family housing. Can you please provide some updated commentary on what you are seeing on the ground in those geographies? Ivan Paul Kaufman: What we are really seeing is being at the bottom of the market. Over the last 24 months, there has been an extreme amount of softness that we are seeing firming month by month. I think some of the issues that we faced in the Texas market and in the Florida market in particular, and also in the Atlanta market—issues with immigration and the issue with the eviction/ICE rates—have really had a negative impact on the portfolio and accelerated some of the delinquencies. We have had assets that were 90% occupied see periods where occupancy dropped to 75% overnight. Over the last 12 months, I think the eviction dynamics had a negative impact in those markets. That is getting behind us at this point, and we are seeing a reset of rental rates and occupancy rates. We also saw, for a period of time, real slowness and issues with respect to the credit of our tenants and the inability to remove nonpaying tenants from occupancy. That has changed; the court system has sped up, and the software and discipline that have been put in place to catch fraud and put the right tenant base in place have improved dramatically as well. The other thing we are seeing is that we are accelerating our efforts in terms of assets that are not performing properly. We are requiring management changes and/or taking control of these assets. It is generally the case when assets are cash-starved that they get poorly managed. We have taken very aggressive steps to make those corrections. That is reflected a little bit in our forecast because we are taking control of those assets either directly or indirectly. During that period of time, we are going to have a little bit of a drag on our earnings while we are doing it, but we are seeing the benefit of our efforts by seeing a real stabilization in these assets and a growth back in occupancy and operating income. Analyst: Great. Thank you. Operator: Thank you. We will take our next question from Jade Rahmani with KBW. Go ahead. Your line is open. Jade Joseph Rahmani: Thank you. I wanted to ask you about the CECL reserve or the credit loss reserve. It currently stands at $131 million, which is 1.1% of the portfolio. You said you expect realized losses of about $15 million to $25 million a quarter for the next three quarters, so that is up to about $70 million. Assuming that comes out of CECL, there would be a remaining $60 million of CECL, which is 0.6% of the portfolio. So, I think the question is if you are going to be taking additional CECL reserves in future quarters, and if there is a normalized CECL reserve ratio that should be on this portfolio. You mentioned that there is about $1 billion of nonperforming assets including REO and nonaccruals. Ivan Paul Kaufman: Sure. Jade, I think you cannot look at it just on the nonperforming assets and the delinquencies. You have to look at it with the REO assets as well. Yes, we have approximately $130 million of CECL on the balance sheet loan book and approximately $481 million of delinquency on the balance sheet loan book. We also have approximately $520 million of REO assets, on which we took another $12.5 million of impairment this quarter, up from $20.5 million the prior quarter. Before those loans were transferred to REO, we had booked CECL reserves on those, so there is about $85 million of reserves effectively sitting in the REO book. That REO book has been written down by about $85 million. You have to take that $85 million and the $130 million and divide it over the REO plus delinquency book, which puts your ratio more around 1.7% to 1.8%. That is probably the right ratio. To your second question: yes, we have guided to $15 million to $25 million in realized losses going forward, but not all of those will be delinquencies; some of those will be REO. You have to look at those buckets together—that is how we look at it. We are also guiding that in this market—given the interest rate environment and given the fact that we have engaged brokers and are getting more price discovery on assets—it is hard to sit here and tell you exactly what the numbers will be, but based on recent experience, we think that range is appropriate. As for the portfolio yield you referenced—6.49% weighted average cash pay rate or current pay rate—yes, 6.49% is the pay rate, but another roughly 25 basis points of that is origination and exit fees that we accrete over time, so that is cash, and then approximately $25 million is PIK. On PIK, during the quarter we booked just about $5 million of PIK interest on our bridge loans. We have about $2 million of PIK interest on our mezzanine and preferred equity—standard for those products. On the bridge business, the PIK for the quarter was down to $5 million; a year ago it was about $18 million. SOFR has dropped, we worked out a lot of loans and reset them at current rates, and the PIK has been paid or recovered and does not continue going forward. As we work these loans out, they will not be PIK. I think that $5 million a quarter on balance sheet loans goes down to probably around $4 million a quarter. Jade Joseph Rahmani: Okay, great. Thanks for the color. Operator: I am showing no additional questions at this time. I would like to now turn the conference back to you, Ivan Kaufman, for any additional or closing remarks. Ivan Paul Kaufman: Thank you, everybody, for your participation today, and have a great weekend. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: The host is recording this meeting. Line muted. Press pound pound one or hash hash one to speak. Kelsie Davenport: Good morning, and thank you for joining us as we discuss RGC Resources, Inc. 2026 second quarter results. I am Kelsie Davenport, director of finance of RGC Resources, Inc., and I am joined this morning by Paul W. Nester, president and CEO of RGC Resources, Inc.; Timothy J. Mulvaney, our VP, treasurer, and chief financial officer; and Tommy Oliver, senior vice president of regulatory and external affairs. To review a few administrative items, we have muted all lines and ask that all participants remain muted. The link to today's presentation is available on the Investor and Information page of our website at www.rgcresources.com. At the conclusion of the presentation and our remarks, we will take questions. Turning to slide one. This presentation contains forecasts and projections. Slide one has information about risks and uncertainties, including forward-looking statements that should be understood in the context of our public filings. Slide two contains our agenda. We will discuss operational and financial highlights for the second quarter and first six months of our 2026 fiscal year. We will then review our outlook for the rest of the 2026 fiscal year, with time allotted for questions at the end. I will now turn the presentation over to Tommy. Tommy Oliver: Well, thank you, Kelsie, and good morning, everyone. Turning now to operations on slide three. Main extensions and renewal activity for 2026 were steady. We installed 2.7 main miles, a similar total to the main miles installed in 2025. In addition, we connected 340 new services in 2026, which was close to the 359 connections from 2025, evidence that residential development continued across the region in the first half of the fiscal year. As shown on the right side of the slide, we renewed 1.5 miles of main and 190 services during the 2026 fiscal year. While the main miles renewed were down, in part due to weather, compared to the same period last year, the service renewals increased by almost 25%. Let us move to slide four, where we show our delivered gas volumes for the quarter. Despite an extreme cold spell in late January and early February, the quarter as a whole was warmer compared to the same quarter in the 2025 fiscal year. Total volumes were down 5% compared to 2025. Residential and commercial volumes were both down 5%, and heating degree days were down 2% compared to 2025. Let us move to slide five. The story of delivered gas volumes was a little different in the first six months of fiscal 2026. Despite the larger number of heating degree days, total volumes were down 3% compared to 2025, with the decline in industrial usage, primarily attributable to one customer, being the main reason. Unlike the quarter, heating degree days for the six months increased 3%, as the first six months of the fiscal year were colder than the prior year. Let us move to slide six, where we talk about CapEx. CapEx for 2026 compared to 2025. Total spending was 9.8 million dollars in the current year, down approximately 8% over the same period a year ago. Weather related to a winter storm in late January and early February affected our spending. We picked back up in March and will discuss plans for the remainder of the year later in the presentation. I am going to now turn it over to our CFO, Timothy J. Mulvaney, to review our financial results for the quarter. Tim? Timothy J. Mulvaney: Thank you, Tommy. Moving to slide seven, this shows both our second quarter and first half results for fiscal 2026. We had a robust quarter, with increased Roanoke Gas margins due to the rates that went into effect January 1 combined with higher earnings from our unconsolidated affiliate, MVP, and lower interest expense, which overcame higher expenses related to investment in our gas system and inflationary pressures that remain higher than the Fed’s 2% target. Net income of 8.7 million dollars, or $0.84 per diluted share, compared to net income in the same quarter a year ago of 7.4 million dollars, or $0.74 per diluted share, a 14% increase. The year-to-date results are also shown on slide eight. The strong Q2 results drove the six-month performance as well, as the first quarter did not have the benefit of the January rates. Net income was 13.6 million dollars in 2026, or $1.31 per diluted share, compared to $1.26 per diluted share in 2025, a 5.3% increase. A reminder about the seasonality of our industry: with recent ratemaking activity, much of our revenue is generated through volumetric factors, and accordingly, our performance in the back half of the year, when volumes are lower, inevitably results in fewer revenues and profits. Paul will discuss our outlook for the remainder of 2026 in a few moments. Moving forward to slide eight, our balance sheet remains strong. We do have a 15 million dollar note at Roanoke Gas that matures in August. It is included in our current maturities of long-term debt. We are deep in conversations with our lenders to refinance this note. We have long known that we would be unable to replicate the 2% rate that we have enjoyed. The discussions with lenders have been positive and should allow us to refinance this note at a rate consistent with our plans. We will have more to share on this in the near term. I will now pass the presentation to Paul W. Nester, our CEO. Paul? Paul W. Nester: Good morning, and thank you, Tim. We have a few topics that we would like to discuss concerning the second half of 2026. These are listed on slide nine. Before we get into the details of those, I do want to again thank our customers and employees for an outstanding winter performance. We discussed this a little bit on the first quarter call, when we were just coming out of winter storm Fern, but our system performed admirably during that period. Our employees performed admirably and safely, and so did our customers. Again, we had an outstanding winter heating season and are appreciative of our employees and customers. We are here to serve our customers. We did have a couple of challenges that arose in the second quarter. One of our top five customers by volume, and a long-time manufacturer in the Roanoke Valley—in fact, over 60 years—idled their operations in March. We really have great care and concern for the employees at that operation who lost their jobs in that process. Many had been there many years. As Tim said, it is a headwind in 2026. Again, they were a large gas customer. Tommy will talk about the ratemaking impacts of that event in just a few moments. Another challenge was described in our 10-Q, which we filed yesterday afternoon. We had some damage at our LNG peak shaving facility in the middle of the quarter. We have hired tank experts and other experts to help us assess the cause and makeup of this damage and to potentially design some solutions to remediate it. The outcome of that is that we do not expect to have use of our LNG peak shaving facility in the coming winter season. We have begun intense and thorough planning for that event and to provide service without the facility. As we disclosed in October, we are unable to estimate the costs associated with this event, and we are unable to estimate the investment required to possibly repair or, if needed, replace the tank. Tommy will also incorporate the ratemaking impacts of that into his comments. We will, of course, continue to update you in future communications and/or SEC filings as more facts about this become known. I am going to turn it over to Tommy to give us an update on our pending rate case. Tommy? Tommy Oliver: Thank you, Paul, and we are moving to slide 10 now. As we discussed in our most recent earnings call, Roanoke Gas filed an expedited rate case on December 2 seeking approximately 4.3 million dollars in incremental annual revenues, based on our current authorized return on equity of 9.9%. Interim rates became effective 01/01/2026, subject to refund. The SEC staff is in the process of their audit and is scheduled to file testimony in June. The hearing is scheduled for 07/15/2026, and we expect final resolution from the Commission by calendar year-end. For four months beginning in January, we were offsetting the new rates through credits on bills to return the tax credits to customers that were resolved with the IRS late in fiscal 2025 and had been included within our regulatory liabilities on the balance sheet. We concluded these refunds in April. As Paul mentioned just a few minutes ago, we had a large customer cease operations in the second quarter. We informed the SEC staff of this development, and we are optimistic that the SEC staff will incorporate the expected decline in usage over the coming year into their recommended revenue requirement when they file testimony in June. Regarding the damage that occurred to our LNG facility, we have alerted staff of this situation and have held discussions with staff regarding the establishment of a regulatory asset for these costs. So, Paul, I am going to turn it over to you. Thank you, Tommy. Paul W. Nester: I continue to be pleased with the work of Tommy and his team, and really our whole company, and our relationships with the State Corporation Commission, not only on the ratemaking side, but also in the safety aspect. So thank you for all that good work there. We are on slide 11. Our capital spending forecast remains at 22 million dollars for the fiscal year. We have rebalanced the mix of spending just slightly from what we presented at the end of the first quarter. Again, as more facts become known about our LNG facility, we will continue to be flexible to reposition certain investments as needed, or potentially add to this capital spending plan. On slide 12, with the strong second quarter that Tim reviewed, we have both narrowed and raised our 2026 earnings per share range. On the lower end, we are at $1.31, and on the higher end, we have moved it up to $1.37. I think Tim’s reminder about the seasonality is important. Obviously, the third and fourth quarters will not look like the first and second quarters from an earnings standpoint. We continue to see the same macroeconomic concerns that we have been talking about now for several quarters. Practical inflation remains above the 2% level that the Fed targets. We are constantly, throughout the organization, looking for ways to be more efficient and to save and manage expense. Interest rates—Tim talked about the refinancing of that note. Certainly, the global situation has caused the interest rate market to be volatile within a range, but still volatile. We are working with our debt partners almost on a daily basis to optimize that refinancing. The local economy, and we have said this as well for several years now, continues to be steady. The Google data center is moving forward. There have been a few other positive announcements recently across the Roanoke Valley. Our teams continue to work every day with economic development, contractors, and other folks that are facilitating this growth, and we do everything we can to support that. We will now open the call for questions. We would love to entertain any questions that you may have. Please dial 1 to unmute your line. Pound pound or hashtag hashtag 1 to unmute your line. We will wait just a few more moments in case anyone has a question. Hashtag hashtag 1 to unmute your line. Okay. Well, hearing no questions from the audience, this does conclude our remarks. Our team will be at the AGA Financial Forum in about ten days, and we hope to have the opportunity there to greet and visit with many of our investors and financing partners there. We wish the rest of you a safe and pleasant summer, and we look forward to speaking with you again in August to review our 2026 third quarter results. Thank you.
Operator: Thank you for standing by, and welcome to Howard Hughes Holdings Inc. First Quarter 2026 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Joe Vilain, general counsel. Please go ahead. Joe Vilain: Morning, and welcome to the Howard Hughes Holdings Inc. First Quarter 2026 Earnings Call. With me today are William Albert Ackman, Executive Chairman; Ryan Michael Israel, Chief Investment Officer; David R. O’Reilly, chief executive officer; Carlos A. Olea, chief financial officer; Jill Chapman, who leads investor relations at Pershing Square; and Mark Grandison, who joined the Howard Hughes Holdings Inc. board just yesterday. Before we begin, I would like to direct you to our website, howardhughes.com, where you can download both our first quarter earnings press release and our supplemental package. The earnings release and supplemental package include reconciliations of non-GAAP financial measures. Howard Hughes Holdings Inc. believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions; we can give no assurance that these expectations will be achieved. See the forward-looking statement disclaimer in our first quarter earnings press release and the risk factors in our SEC filings for factors that could cause material differences between forward-looking statements and actual results. We are not under any duty to update forward-looking statements unless required by law. I will now turn the call over to our Executive Chairman, William Albert Ackman. Thank you, Joe. William Albert Ackman: Those of you on the call probably have seen a presentation we put out providing some perspectives on how we think about Howard Hughes Holdings Inc. from a valuation perspective. The company is going through a transition in terms of its business model, and I think there has been a pretty meaningful transition, or at least the beginning of the transition, in our shareholder base. We thought this was a good time for us to share how we think about the company and to provide some, I would say, better metrics to think about valuation going forward. So our plan for the call is we are going to start with David R. O’Reilly giving a comprehensive brief update on the quarter. I will talk a bit about KPIs. Ryan will speak briefly about valuation, introduce Mark to the group, and then we will leave the substantial majority of the time for Q&A. So why do we not start with David? Go ahead, David. David R. O’Reilly: Thank you, Bill. Good morning, everyone. I am going to start with the first half of the presentation, and as you probably saw, it is organized into two parts. The first part really focuses on the first quarter results of Howard Hughes Holdings Inc. Communities’ real estate business. Using the slides from the supplemental, I am going to be covering the four key performance areas of our communities: master planned communities, operating assets, condominiums, and then other expenses along with our debt and liquidity position. As you saw, we are introducing several new KPIs this quarter, and we believe these better reflect how we manage the business and how long-term value accrues within each segment. I will reference those as I cover the results. Then we will turn to the second half of the presentation, where, as Bill mentioned, he and Ryan will do a deeper dive in what those new metrics reveal about our current valuation and the long-term growth of this platform. The goal is always to give investors a more complete picture of where Howard Hughes Holdings Inc. is headed, and why we believe the stock represents a compelling opportunity. I am also sure you noticed that our earnings release no longer includes annual guidance. Given the pending acquisition of Vantage, we have elected to remove annual guidance expectations and will instead shift our focus to longer-term objectives by platform, consistent with how we allocate capital and measure success internally. With that said, the first quarter results I am about to review, and specifically our land sales and MPC EBT, were ahead of our expectations. And if not for the transaction, we would have increased MPC EBT guidance for the year. With that, let us talk about the first quarter performance, starting on slide four with the company highlights. It was a strong start to 2026. The real estate engine did exactly what we needed it to do: it grew cash, it provided pricing power, and it converted more land into long-duration income. We saw strong MPC earnings growth, continued leasing momentum across the operating assets, and the company ended the quarter with substantial liquidity. On slide five, as part of this new supplemental, we are providing a simpler road map to show how performance of our communities connects to the overall valuation of this platform. We will be focusing on the following four key areas that we will step through in turn: Master Planned Community EBT and margin-affected residual land value; operating asset adjusted maintenance free cash flow; condo gross profit; and other expenses, which includes G&A and net interest expense. So let us start on slide six with the MPCs. Earnings before taxes was $84 million in the first quarter, up 33% year-over-year driven by higher residential land sales. In Bridgeland, we closed 62 acres at an average price of $60.188 million per acre. That compares to 37 acres and $605,000 per acre last year, with net new home sales in Bridgeland up 12%. In Summerlin, custom lots averaged $7.2 million per acre, and super pads averaged $1.8 million per acre. New home sales in Summerlin were up 6%. The point is not just that volumes were higher. The point is that we are converting scarce entitled, developer-ready land into cash at an increasingly attractive price in markets where we effectively control supply. We are not selling land. We are harvesting scarcity. As our communities mature, price becomes a primary driver of MPC value, which means we can generate more cash from fewer acres while protecting the long-term economics of the land bank. Shifting to operating assets on slide seven. Our operating asset NOI grew 2% year-over-year and 7% on a trailing twelve-month same-store basis. Within the portfolio, multifamily and office were the primary drivers of same-store growth, supported by continuing leasing activity and the burn-off of rent abatements. More important than the quarterly print is what this segment represents for the holding company we are building. Operating assets are the steady cash flow engine. As we move land into vertical development and lease-up, we convert one-time MPC proceeds into a growing, recurring base of NOI diversified by asset type, tenant, and market. This quarter, we are also introducing adjusted maintenance free cash flow because we believe this metric gives a cleaner read on the recurring property-level cash flow that is actually available to redeploy. Turning to condos on slide eight. At Ward Village, we completed ‘Ōlana and broke ground on Lē‘ahi, which is already 70% presold. Across the platform, we have approximately $5 billion of estimated future GAAP revenue at sell-up. Condo gross profit was roughly breakeven in the first quarter as expected and will increase meaningfully in the second quarter with Park Ward Village closings. Condo profit is always going to be recognized in large blocks when towers deliver, so the quarterly pattern is going to remain lumpy even though the underlying economics are largely locked in through presales. These projects are largely de-risked well in advance of GAAP recognition. We typically presell the majority of the units, fund construction with buyer deposits and nonrecourse construction loans, and lock in our margins years before delivery. Estimated future condo gross profit—the total projected gross profit from condo towers under construction or in active predevelopment, the vast majority of which are already presold—highlights the embedded condo cash flow well ahead of when it appears on the income statement. I want to spend a minute because I think the capital mechanics here are worth walking through. They make the economics of condo development unusually compelling. Our primary contribution to these projects is land, along with a modest amount of cash. We contribute that land, and that modest cash is our equity. From there, buyer deposits are collected at signing, often years before towers deliver, and they fund a meaningful portion of construction cost. Nonrecourse construction financing covers the majority of the remaining required capital. The result is that we are delivering towers worth hundreds of millions of dollars with very little of our own cash actually at risk. When units close, buyers pay the full purchase price, we repay the construction loan, and the profit flows to us. It is a model where our buyers and lenders are essentially financing the construction and we collect the upside at the end. That is what we mean when we say condos are a self-financing capital recycling tool. And it is why this business generates returns that are difficult to replicate. Beyond condos, projects like 1 River Row, 1 Bridgeland Green, and others in our pipeline follow that same land-to-income pattern: convert entitled land into durable NOI, grow the recurring cash engine, and raise the long-term earnings power of the platform. On slide nine, we will turn to other expenses. G&A expense was $25.8 million in the quarter, including $3.8 million of Pershing fees and $3.4 million of Vantage-related transaction costs. Net interest expense declined year-over-year due primarily to the amount of interest income we received from our invested cash balances during the quarter and on a trailing twelve-month basis. On slide 10, I will turn to the balance sheet and wrap up. We completed a $1 billion refinancing at the tightest credit spreads in the company’s history during the first quarter. Importantly, this execution occurred after announcing the Vantage acquisition, which we view as a strong external validation of both our balance sheet and our strategy. The transaction extended our maturities and added $230 million of incremental liquidity. We also closed on a $300 million mortgage at Downtown Summerlin. At the end of the quarter, we finished with $1.8 billion of cash, comprised of $[inaudible] at the HHH level, and $929 million at the HHC level, and significant additional liquidity. That position, combined with the Pershing preferred commitment, fully funds the Vantage acquisition and supports our current development pipeline, while continuing to preserve our flexibility for future capital allocation decisions. So the overall takeaway for the quarter: the real estate foundation of Howard Hughes Holdings Inc. is doing its job. It is generating strong cash flow, demonstrating pricing power in our MPCs, expanding our base of recurring NOI, and recycling capital in a way that supports our evolution into a multi-engine holding company. The first quarter performance primarily reflects the resilient demand in our communities that lead to bottom-line results. MPC earnings will continue to be lumpy quarter to quarter depending on when large parcels close. But what matters for us, and what I encourage you to focus on, is the multiyear growth in recurring cash flow and the value embedded in the land and condo pipeline, rather than the precise results of any given quarter. The new metrics Bill and Ryan are going to walk through in a minute are designed with exactly that in mind: to make it easier to connect reported results to intrinsic value. And with that, I will turn it over to Bill. William Albert Ackman: Thank you, David. So what we are doing here—maybe just to back up for a second. I think historically, the company had tried to create a quarterly number that shareholders could annualize and maybe put a multiple on. The vast majority of companies are valued that way. Analysts estimate earnings, the market assigns a multiple based on the inherent growth and predictability of that earnings stream, and that helps people come to a value. The problem with that metric is it does not really work for Howard Hughes Holdings Inc. We really have three different segments. Perhaps one of them, the operating asset segment, you could certainly value at a multiple of a metric. But the other two are a bit unusual. Our MPC business is really a business of owning land, and the goal of these communities is to make them really attractive places to live. And we have developed assets to meet that demand in our operating asset segment. Over time, what that has done is bring more residents into the communities, increase demand for land. That has led to continuous—well in excess of inflation—increases in the value for our land portfolio. But putting a multiple on the GAAP profit from a portion of the land sales for a quarter is not a particularly helpful metric. What really matters is: how much cash do we generate from our land sales during the quarter, and what is the value of our remaining land? And so our new metric is going to focus on those two levels. What is interesting about these communities is every acre of land, we know for a certainty we are going to sell. We do not know precisely which quarter we are going to sell it in. And so what matters to you is: how much cash do we generate during the quarter; what price did we achieve; and what is the value of the remaining land that we own? So that will play into the metrics we are talking about. With respect to operating assets, adjusted maintenance free cash flow—what are we doing here? We are starting with NOI and we are getting to an actual “free money we can spend” metric after all the costs associated with owning these assets. Our condominium business—so we do not have an infinite supply of land in Honolulu. We have a finite supply of land. We have an amazing team, and that team is actually a valuable asset of the company that we are not today assigning value to. We do think over time we will have more opportunities to access more land and continue that business. But today, for the purpose of keeping these metrics simple to understand and also conservative, what we are saying is: we have a finite amount of land today, and on the basis of that finite amount of land, we intend to build a certain number of condominiums. We estimate a gross profit. That is how we get—and we present value that today to keep track of the remaining value of that portfolio. So if we go to page 13 on the new metrics, we are going to give you the residual value of our remaining acreage, undiscounted and uninflated. What we mean to say is if we sell acres for $1.8 million in Summerlin, we are going to use that to value the remaining residential land portfolio at the end of the quarter. Now that, I believe, is a conservative metric because land values have compounded at rates well in excess of the cost of capital that you should discount them at at Howard Hughes Holdings Inc. And let me just make my case for that for a second. We have compounded land values at the teens in Summerlin. Correct? Correct. Okay. So let us pick a number. It has been what over the last five years? 15%? Five years, it has been just under 15% in Summerlin, and it has been, okay, 6% to 8% in Woodlands Hills—in Bridgeland. Okay. So in Summerlin, which is a further built-out community, you have got land that has appreciated at 15% per annum. Again, because it is a certainty we will sell this land—because these are fully developed communities—the discount rate I would use there would be a relatively modest spread over Treasury. So using today’s value for the land is one that I think is a very conservative measure of remaining land. If the land continues to appreciate at these kinds of levels and you discount them back at lower levels, the land values are even greater than what we are showing. For operating assets, adjusted maintenance free cash flow: we are starting with NOI and getting to the free cash after all the costs associated with maintaining assets and leasing. Then we project the profits from our remaining condominium deliveries. It is pretty straightforward to do this because, for example, for the units that we have under contract, we know exactly what price we are selling for. We generally have GMP contracts; we lock in, for the most part, the cost to build them; and then it is a present value calculation. With that, we are not going to take you through every page of the deck because we want to leave a lot of time for answering questions. Ryan is just going to focus on some summary valuation pages. We will start with today’s value and how we get to thinking what is possible over the next five years. Ryan Michael Israel: Sure. Thank you. So what we wanted to do, as Bill mentioned, in the pages that we provided that we will not walk through all the detail on this call, is show you how, using the metrics that we believe are the right way to think about long-term value—what we use in our own internal evaluation as well as tracking our progress over time. I will just highlight on page 27 the takeaway. We believe today, using those metrics, and as Bill mentioned, conservatively trying to come up with a value for Howard Hughes Holdings Inc., we think that the intrinsic value of the business based on those metrics is about $104 a share, which is more than 60% higher than the roughly $65 share price today. And when you look at that in detail, nearly 80% of that is coming from the Howard Hughes Holdings Inc. Communities real estate business, and about 20% of that is coming from the economic ownership percentage that Howard Hughes Holdings Inc. will have in Vantage, which we are on track to close very shortly. So we believe that the shares are very undervalued relative to our estimate today. If you go to page 42, what you will see is really our benchmark for how we believe we can grow the intrinsic value of Howard Hughes Holdings Inc. over the next five years. And we actually think that we have the ability—and it is one of the reasons we are so excited to have Mark join us, as he will be very helpful as we achieve these metrics—to grow the intrinsic value of the business to roughly more than $200 a share. We have about $211 that we have derived conservatively for our valuation in 2030, which is about 3.3 times the current share price of $65, or a 233% increase. And what is interesting about that metric is today, nearly 80% of the value of Howard Hughes Holdings Inc. is coming from the real estate business. But we actually think over the next five years we are going to have much more of the value coming from Vantage, other insurance, and some of the high durable growth companies we seek to acquire. So that ratio will shift to about two-thirds coming from things that are not related to real estate. And the way that we get there at a very high level is that we will be looking at the Howard Hughes Holdings Inc. Communities real estate business, and we will be using a lot of the excess cash we do not think is needed for reinvestment into the communities that could be allocated to higher returns in other parts of the business, particularly insurance. We have about $2.5 billion to $3 billion of cash that we are expecting we will be able to generate over the next five years, which can be somewhere in the order of 65% to 80% of the current market cap of the company, and we believe the insurance business—particularly having Mark’s help—will be a very valuable place to put that. With Vantage, which we are very excited about given the business and given the team that is there, we believe we can improve the returns on equity from something in the low to mid-teens to something that could be in the high teens or even better. If we can do that, we can allocate a significant portion of that $2.5 billion to $3 billion of free cash flow over the next five years to build up the capital base. And as the returns on equity at Vantage improve, the multiple that the market—and we—would assign to Vantage for being a higher return on equity business should also increase. As a reminder, we are buying this business at a headline purchase price of 1.5 times book value, but we believe by the time we close, given the accretion of the book value, it will be about 1.4. We think we can increase the intrinsic value of this business to something that is worth north of two times over the next five years. And so that is going to be a significant reason why the value at Vantage will be growing so quickly over the next five years and will really help become the driving force of the increase in intrinsic value of Howard Hughes Holdings Inc.’s equity over time and make Vantage really the leading asset that we will have in insurance—a key focus of that business. William Albert Ackman: Thank you, Ryan. I thought to introduce Mark Grandison, and he will be available, obviously, to answer questions. We actually began a conversation with Mark well more than a couple years ago in connection with an investment that Arch made in the Pershing Square management companies. We got to know Mark a bit there. Then we learned of his departure when we read about it in the press when Mark stepped down from being CEO of Arch Capital Group. In light of our plans for Howard Hughes Holdings Inc., a year ago we started a conversation with Mark. He was still otherwise encumbered at the time, and he was trying to decide what he wanted to do with his life and thinking about all kinds of different things. We kept the conversation going. We took a very significant step in signing an agreement to acquire Vantage, and we kept talking to Mark. Our thoughts here are, well, Ryan and I—other members of the Pershing Square team—have analyzed insurance companies from the perspective of an investor. Neither one of us has any operating experience in the insurance industry, and it is an industry where you can make a lot of money and it is an industry where you can lose a lot of money if you do not know what you are doing. While we are buying a company with a very capable team, I think it is as important that at a board level, we have one or more directors who really understand the industry. Mark was by far our number one choice—there really was not a close second—in terms of, without embarrassing him, really the iconic executive of the last, I would say, couple decades. Almost twenty-five years at Arch building one of the most profitable, most successful insurance platforms. We thought that experience was incredibly relevant. We were delighted to bring Mark to Howard Hughes Holdings Inc. So maybe, Mark, could you just give a little background because not everyone knows who you are, and then we will open it up for questions for the group? Mark Grandison: Well, thanks, Bill, for all the wonderful comments. I feel very honored and privileged to be part of the group. I am very happy that we got to this landing, and I am looking forward to help the whole team really develop your vision—your collective vision—of having a diversified platform with insurance being an anchor. I think, like you, I firmly believe if you do it well, it can really lead to wonderful results. I also like the fact that you are collectively wanting to wait for it. There is a timing issue going along, and it is not a quick hit, and it is really if we deliberately build it the right way, this will be a formidable business. I have been thirty-five years in the business. I was most recently ACGL CEO. I was one of the founding members back in 2001 after the terrible events of 9/11, with a very similar vision that you would hear me talk about all the time, which is about underwriting excellence, focusing on the cycle, focusing on allocating capital to the right places where it gives good returns, and really surrounding yourself with a good team—good talented individuals—focusing on underwriting expertise. The difference between a top quartile performer in insurance and the bottom quartile is 20% to 30%—meaning the ones at the bottom are actually losing and actually going by the wayside, and we have seen many of them. Bill just alluded to that. I am excited to join because I like the vision. I am here to help the board to understand the business, to demystify some of the things. I know it is not as easy to understand from the outside world. It can be opaque. A lot of the investors and shareholders of Howard Hughes Holdings Inc. have built, perhaps, no expertise or exposure to insurance, and we are going to make sure—or try to make sure collectively—that we are bringing you along into that journey altogether. What else am I going to bring to the table? Looking forward to working with everyone here, obviously, and also with Greg and his team. I have known Greg for twenty-five years. We were neighbors in Bermuda, and he is a great executive. The platform they built at the right time, right after the market turn in 2019—beautiful timing. Hard E&S legacy. It was highlighted in the package before, and it is really hard to create that kind of platform, and they did a very, very good job. It is both insurance and reinsurance, so it allows the company to really participate across the board in as many opportunities as possible—and again, being selective on the underwriting. I am very much looking forward to help demystify, help teach the board and the investors, and it is going to be a long-term play for everyone here. I have seen it before, and I think the playbook is there. It has worked. I have seen it work. I think we have all the elements to make it one of the best emerging and surging insurance platforms, alongside the real estate platform and whatever else Bill and Ryan will find along the way, to create something very unique and once in a lifetime. I am very excited to be here. Thanks for having me here, Bill. William Albert Ackman: Thank you, Mark. We will now open the call for questions. Operator: Star 11 on your telephone. To remove yourself from the queue, you may press 11 again. Our first question comes from the line of Anthony Paolone of JPMorgan. Your line is open, Anthony. Anthony Paolone: Great. Thanks. Good morning. First question, maybe for Bill. I am not that close to all the different things happening at Pershing Square and the specifics around that. Can you talk to whether anything on the capital-raising side there has any direct implications back to Howard Hughes Holdings Inc.—whether mechanically you have to buy shares or whether there is a greater commitment—or just anything we should think about related to Howard Hughes Holdings Inc. from the activities at Pershing Square? William Albert Ackman: Sure. Last week, we did two listing transactions: an IPO of an entity called Pershing Square USA, which is a U.S.-listed closed-end investment company listed on the New York Stock Exchange, and we also did a direct listing, in effect, of the management company that some people might call the GP of Pershing—the entity that receives fees from various funds that we manage. As part of the IPO pitch for Pershing Square Inc., we pointed out that it is a bit of an unusual alternative asset management company. Think analogies would be Blackstone or KKR or others, in that we are small relative to others in terms of scale, but the capital base is very unusual in that 98% of our assets are in permanent-capital vehicles. The three examples we gave were our London-listed entity, an entity called Pershing Square Holdings; Pershing Square USA, which is this new entity we launched; and then Howard Hughes Holdings Inc., which we put in the same camp. It is not an investment company per se; it is an operating company, a C-corp. But it is a very important, I would say, leg to a three-legged stool. I would say the significance of that transaction is not that we are—we actually cannot buy more stock in Howard Hughes Holdings Inc. We are contractually—our agreement with the board is to stop at 47%. But I would say the importance of Howard Hughes Holdings Inc. to the Pershing Square platform was something we emphasized to a great degree as part of the IPO transaction. We described Pershing Square—this is a permanent holding. We intend to be a forever owner of Howard Hughes Holdings Inc., and our goal is to build a valuable, diversified holding company led by this insurance platform over the next many decades. That is the idea. Anthony Paolone: Okay. Thanks for that. And then my second question is you show the demonstration of value and how much insurance plays a role in that. With it being such a big driver, why continue to hold things like multifamily or some of the other assets in real estate, and should we see that kind of move over to potentially add more to the insurance side over time? William Albert Ackman: Sure. If you look at Howard Hughes Holdings Inc. over the fifteen years we were a dedicated real estate company, basically every dollar of cash we generated we reinvested in real estate. For example, we bought another MPC as a result of having excess cash that we actually could not deploy in our existing MPCs. What the transaction accomplished a year ago is it widened the aperture of things that we could do. I think what we have learned over time is a dedicated pure-play real estate development MPC business is not one that the market will assign a high value to—or another way to think about it, the market assigns a very high discount rate to those kinds of cash flows. All that being said, as demonstrated by our expectations of $2.5 billion of cash that we are going to generate from that business over the next five years, it is a meaningful cash flow generator. So I think the pivot we are making is we are not going to reinvest every dollar of excess cash into things only in real estate. But our definition of excess cash is not just free cash flow. We intend to continue to build out—“the golden goose” for the real estate company is that we want The Woodlands, we want Summerlin, we want these communities to continue to be amazing—ranked in the top handful of places to live in America. In order to do that, we are going to be building apartments; we need more apartment buildings. We are going to be building office buildings; we need more office buildings. But there are some number of assets that may be non-core—that are not critical for us to own—that we are going to look at and examine and say, does it make sense for us to own this asset forever because it is critically important to our market share—say, in The Woodlands in office space—or is it a tertiary asset where there is a buyer who will pay a much higher price than our cost of capital would allow? That is an examination that we are going to do over time. The nature of the Howard Hughes Holdings Inc. real estate business is it is sort of self-liquidating, in a manner of speaking, in that we have a finite amount of land that over the next whatever number of decades we are going to sell. We have a finite amount of condominium development land, and we are going to build out those units and generate a bunch of cash. We have cash flows that come from our operating asset portfolio. We would expect those cash flows to grow on a same-store basis, and we expect them to grow because we are going to continue to develop whatever the communities need to make them really attractive places. But I would say, on the margin, if it is not critical and core, it becomes something that, if a stabilized asset is better owned by someone else, we will sell. Operator: Thank you. Our next question comes from the line of Alexander David Goldfarb of Piper Sandler. Your line is open, Alexander. Alexander David Goldfarb: Hey. Good morning, Bill and David, and welcome aboard, Mark. First, I want to say I love the new disclosure—much more streamlined, much more to the point, and much easier to comprehend. Thank you. Bill, on the Vantage deal, is there anything that could delay a second quarter closing? Any regulations, paperwork, anything like that, or are we on track that this will close in the second quarter? William Albert Ackman: This will close in the second quarter. We have a scheduled hearing date, which is May 19, with the Delaware regulator. Transactions typically can close within a couple weeks of that hearing date. I think we will beat our quarter-end estimate absent something unexpected happening, but I do not expect the unexpected here. Alexander David Goldfarb: Okay. Second question is I think you said the value of the company currently, as you do your math, is $104 a share. Bill, you bought your stock into the company at $100 a share. Is that the delta versus what you previously disclosed—$118 a share for the company’s value? I was a little surprised by the $104, but maybe it is just the math on the dilution. I would assume you guys have better insight into the value of the company versus what we estimate from the outside. William Albert Ackman: Yeah. I think, number one, we are being conservative because of the way we are looking at the— I mean, the true value of the company, you would build a DCF on the MPC community, and you would compound the land values over time and discount them back at a discount rate that I believe would be lower than the rate at which you would appreciate them. What we are saying is: let us come up with a simple metric that is hard to argue against. We are also—with the value of the commercial land—we are assuming a sale to a third party. Obviously, when you sell land to a third party, you are giving up the opportunity for a development profit and everything else. If we develop that land ourselves, we get the benefit of that development profit. So this is a quite conservative way to think about the value of the company. There is obviously some dilution associated with our $100 a share primary investment. Ryan, do you want to add anything else? Ryan Michael Israel: The $104 figure—another way to look at this. We tried to give a very conservative snapshot. Outside of the Howard Hughes Holdings Inc. context, when we value businesses at Pershing Square, we often think about what the business will produce over the next five years, and then we think about that as a value. We might discount that future value back to today. One thing you would note on page 42: we conservatively estimate $104, but we also then roll forward—we believe by 2030 the value will grow to $211, which is a 16% growth rate in intrinsic value over that period. The way to think about that is focus on the $211 and discount that back. I think we would argue that you should discount that back at a substantially lower rate than 16%, given the high-quality nature and the increasing predictability and high growth of the business. If you were to do something like that—using a more modest discount rate—you could get to numbers that are easily 25% to 30% higher than the $104 figure. So, to Bill’s point, there are a lot of different ways to look at this. The $104 would be by far the most conservative way to look. We just wanted to lay out a very simple explanation for people as to how they could start to think about the most conservative value for Howard Hughes Holdings Inc. relative to the current share price. William Albert Ackman: Another way to say it is I think of $104 as basically like a liquidation value of the company. It is after tax, after all various expenses. As opposed to almost like a going-concern type value where the expectation would be we would be building out all the commercial land, embedding a certain profit margin, assuming that we would be selling land at higher prices in the future and discounting it back at much lower discount rates. Those would all accrue to a higher value. But I think this is a very fair way to think about the company and provides a relatively straightforward metric for us to judge the company every quarter. It makes everyone’s life easier. I think simplifying the way people think about the company—in particular, the real estate assets of the company—will go a long way to making this a more ownable stock by a broader array of investors. Alexander David Goldfarb: That is helpful. And then the final question for you. Obviously, data centers are a huge topic these days. You guys have a lot of land. I realize the value of Summerlin or the Houston portfolios may not make sense to add a data center to that. But when I think about West Phoenix, you have a huge amount of acreage, and it would seem like that would be potential to have a colocated power generation/data center, etc. As you look at your land holdings and what is per-sellable for residential versus potentially if there is a bid from a tech company to do data center or a power plant combo, is that at all an option? Or is the view that residential is still the highest and best use, and as far as maximizing the MPC, you want to stick with the formula you have to date versus trying something new? Ryan Michael Israel: Yeah. I would say we have an extremely open mind with respect to West Phoenix. William Albert Ackman: It is an amazing asset. It has all the attributes that you have talked about—access to power, access to water—in a very, I would say, pro-business, favorable environment, and we have enormous scale. We bring a lot of value to any one of those players. There are AI companies raising money at trillion-dollar valuations. In the context of that, you look at this very, very valuable land we own—it might be an interesting transaction to ask someone not only where they want to build data centers or power, but there are some pretty aspirational people in the technology world that want to build cities, and they want to build a community around the company that they are building. One great outcome for us is we bring in a partner who writes a big check, and then we become an asset-light developer of whatever that community is. We make it an ideal place to live in the way that the company has historically built communities—for example, The Woodlands or Summerlin. We do the same in Phoenix. But the anchor is someone for whom having access to everything from nuclear power—to these small nuclear reactors—and all the interesting technology, and they do it with a blank sheet of paper. I think it is a pretty good opportunity. That is something we are totally open to and something that could be transformative in terms of value creation for the company. We are valuing that asset at cost in this context. We bought that asset, what, six years ago or so? David R. O’Reilly: Just over three years ago. William Albert Ackman: Three years ago. Okay. It seems like six years. But the world has changed, I would say. The world has moved at least six years in the last three years in terms of what that property can be used for. Alexander David Goldfarb: Thank you. Operator: Sure. Okay. Next question, please. Thank you. Once again, to ask a question, press 11 on your telephone. Our next question comes from the line of John P. Kim of BMO Capital Markets. Please go ahead, John. John P. Kim: Thank you. I have had some technical issues, so apologies if you have already addressed this. On the KPIs that you introduced as far as MPC residual value and the condo remaining profits, does that essentially incentivize you to maximize price going forward and, in essence, not sell and not generate as much current cash flow? William Albert Ackman: Our goal—we, and maybe David can speak to our approach—we generally take an approach to optimize the combination of volume and price and make sure that we are not stuffing—we do not want a bunch of homebuilders with excess land inventory, and we do not want to manage the supply in a manner where we can continue to grow the per-acre value of the assets. It is not critical to us whether we sell X dollars of land in any particular quarter. What matters to us is we are building these amazing communities, and we are managing our scarce asset in a thoughtful way. But, David, maybe you want to speak to that. David R. O’Reilly: I think, Bill, you summarized it perfectly, which is we are not selling assets to maximize any metric. We are selling assets to maximize the value of the company. We do that by selling just enough land to homebuilders to keep up with underlying home sales. Sell them too much land and they are oversupplied, and in a downturn, they will make a terrible decision that will negatively impact the rest of our dirt. Sell them too few, and we are going to strangle affordability in our communities. So we are tracking underlying home sales in each of our communities daily, making sure that we are preparing the right amount of lots to keep up with those home sales to maintain equilibrium as best we can across our communities. William Albert Ackman: Said another way, simply because we are changing the KPI, that is really just to help the market better understand the company—understand our progress in creating intrinsic value—but it has really no impact on how we think about how we auction land each quarter. John P. Kim: Okay. Makes sense. The KPIs—that information was already there before, but you just want us to focus more on the remaining values of your land and condo profits. William Albert Ackman: Look, one of the concerns I had is that people were looking at the company and saying, “I want to put a multiple on a next-twelve-month estimate of MPC EBIT.” It is really just not the right way to think about an asset like land, which you are going to sell over time and where the land values are going to appreciate over time. The right way to think about an asset like that is either on a present value basis or—maybe the simplest way to think about it is—how much did we sell during the quarter, how much cash did we take in, and what is the remaining land worth? It is a bit like we have oil in the ground. Unlike oil in the ground, which is incredibly volatile, our oil gets more valuable over time as people move into the communities. But there is a finite amount of it, and we want to be smart—kind of like OPEC. We do not want to dump it on the market at any one time. We want to be thoughtful about how we extract it and how we convert it into cash over time. But we do not want you to put a multiple on the amount of drilling that happens in any one quarter, because that is really just a function of, sometimes, rates. Sometimes rates back up a bit, and there may be a pause in sales. One thing is certain: people want to live in The Woodlands. People want to live in Summerlin. They want to live in our communities, which means we will sell this land, and the land just gets more desirable over time. We are at a place in The Woodlands now where there are really no more residential lots; it is only commercial acreage. We will get there at some point in Summerlin as well, which means we are going to sell every acre of residential land over time in Summerlin. I cannot tell you exactly what date, but I am confident that the land we sell in future years is going to be worth a lot more than land we sell today. That is why we are never in a rush. We would certainly not want management thinking about, “Oh, I put out a guidance number, and I want to make the number—let’s just discount the land a bit.” We want people to be focused on the things that matter for growing the value of the company. So these metrics are as much for internal use as they are for external observation. John P. Kim: And when you talk about allocating more capital to Vantage rather than reinvesting back into MPCs, besides selling stabilized assets that you mentioned before, what are some of those investments that you would have made that are now either being deferred or removed going forward in the MPC business? William Albert Ackman: I do not know that we—we had already arrived at a place where we had excess cash flow expected to be generated from condo sales and other parts of our business. But if we were a pure-play real estate company, we would have tried to figure out other places to put that money in real-estate-related assets. What we are doing now is we are saying, well, now we have a really good place to put that money. We think the driver of value in the slide that Ryan showed you is, one, the nature of the insurance business—a profitable insurance operation with assets managed by us for no cost—we think is approaching a 20%+ ROE business. Those are returns very hard to achieve in a relatively low-leverage kind of real estate company. So, one, the returns are higher. Two, the business we are buying here for effectively 1.4 times book value becomes worth something comfortably north of two times book value if we can achieve our objectives. Every dollar we can put in Vantage appreciates both because the ROE is higher and the value that the market will assign to that capital invested in Vantage is much higher. Therefore, our incentive is to invest every marginal dollar in Vantage as opposed to buying another MPC. If we had had this business plan three years ago, instead of buying West Phoenix, we would have put an extra $600 million into Vantage. John P. Kim: Thanks. Operator: Thank you. I would now like to turn the call back over to William Albert Ackman for closing remarks. Sir? Operator: Okay. Ending early. William Albert Ackman: I guess my closing remarks are the company is going through an important transition that we think is going to create a lot more value for shareholders over time. We are incredibly excited about it. We think we have all of the things needed to achieve that objective. We have a great core, very profitable business, and I think the team is thinking about it the right way, and the numbers are great. We have mayors around the country that are great for— including in New York City—sending people to business-friendly communities that are pro-business and pro-capitalism, and we happen to own assets in states that are aligned with that objective. So I think Howard Hughes Holdings Inc. owns real estate assets in the right places, and we are going to generate a lot of cash from that business. Now we have a very good place to put that capital. The Vantage transaction, I expect, will close earlier than the end of the quarter. We are excited about that. We are excited about the Vantage team. I think they are excited to be part of a permanent, long-term business. In insurance, you want to have a long-term owner, and we have achieved that. With Mark’s addition to the board, I think the board is now very well positioned to help oversee this important transformation. I think the only thing that is missing in the share price is some new shareholders, because I think we have scared away some of the real estate shareholders, and hopefully we will start to attract people who are excited about the business plan going forward. With that, absent any further questions, we will end the call. Hearing no further questions, thank you so much, and have a great day. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the PennantPark Floating Rate Capital Ltd.'s Second Fiscal Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speakers' remarks. Simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 2 on your telephone keypad. It is now my pleasure to turn the call over to Art Penn, chairman and chief executive officer of PennantPark Floating Rate Capital Ltd. Mr. Penn, you may begin your conference. Art Penn: Thank you, and good morning, everyone. Welcome to PennantPark Floating Rate Capital Ltd.'s second fiscal quarter 2026 earnings conference call. I am joined today by Jose Briones, Senior Partner at PennantPark. Richard Allorto, our CFO, was unable to be with us today due to a prior commitment. Jose, please start off by disclosing some general conference call information and include a discussion about forward-looking statements. Jose Briones: Thank you, Art. I would like to remind everyone that today's call is being recorded and is the property of PennantPark Floating Rate Capital Ltd. Any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on our website. I would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Our remarks today may include forward-looking statements and projections. Please refer to our most recent SEC filings for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of the latest SEC filings, please visit our website, pennantpark.com, or call us at (212) 905-1000. At this time, I would like to turn the call back to our chairman and chief executive officer, Art Penn. Art Penn: Thanks, Jose. I will begin with an overview of our second quarter results, including our dividend adjustment and an outlook for net investment income. I will then discuss the current market environment and how we believe we are positioned going forward. Jose will follow up with a detailed review of our financial results after which we will open up the call for questions. We are pleased with the continued strong performance and quality of our portfolio in what remains a challenging market environment. The risk-reward profile of the core middle market remains meaningfully more attractive than that of the upper market. NAV was flat quarter-over-quarter. Median portfolio company leverage remains moderate, at 4.6x. Last twelve months, PIK interest is only 2.2% of total interest and nonaccruals are less than 1% of the portfolio. We do not have material software exposure. The substantial growth of the PSSL 2 JV this past quarter provides a solid base and positions us for growth in NII over time as the JV ramps. Let me now walk through our quarterly results. For the quarter ended March 31, core net investment income was $0.27 per share. During the quarter, we continued to scale our new joint venture PSSL 2, investing $148 million in new and existing investments. At quarter end, the portfolio totaled $340 million. We are encouraged by the pace of deployment and remain focused on methodically scaling PSSL 2 to over $1 billion of assets consistent with our existing joint venture. Based upon the current market environment, we expect this ramp to occur over the next 12 to 18 months while maintaining our disciplined underwriting standards. In light of the current market dynamics, in consultation with our board, we are updating our dividend framework to better align with net investment income. Beginning with the July dividend, we will set a base monthly dividend at $0.08 per share, a level we believe is well supported by current earnings. In addition, we will introduce a variable supplemental dividend equal to 50% of the excess NII above the base dividend. The supplement will be declared and paid monthly along with the base dividend. Let me now turn to the broader market environment. M&A activity has increased over the last six to nine months. Although overall conditions remain uneven, private equity sponsors remain active, and we are seeing a growing pipeline of attractive opportunities across both new originations and add-on investments. However, activity levels remain below the unusually strong levels observed in 2024 as the market transitions toward a more normalized backdrop. We expect increased transaction activity to drive repayments across the portfolio, including opportunities to monetize equity co-investments and redeploy capital into income-generating investments. Notably, we expect a meaningful realization from our equity co-investment in Echelon this quarter. Echelon is a leading defense technology company sponsored by Sagewind Capital, our long-term sponsor relationship. Echelon announced that it has agreed to be acquired by Shield AI, another cutting-edge defense technology company. Upon closing, we expect our $3.2 million equity co-investment to generate approximately $47 million in total proceeds. Proceeds will consist of $40 million of cash and $7 million of value in Shield AI stock. This represents nearly a 15x multiple on invested capital and demonstrates the value of our equity co-investment program. Given the current geopolitical environment and the Echelon news, it is important to highlight approximately 20% of our portfolio is exposed to government services and defense. In the core middle market, pricing for high-quality first lien term loans remains attractive, typically ranging from SOFR plus 500 to 550 basis points with leverage of approximately 4.5x EBITDA. Importantly, these structures continue to include meaningful covenant protections in contrast to the covenant-lite structures prevalent in the upper middle market. We believe that the current environment favors lenders with strong private equity sponsor relationships and disciplined underwriting, areas where we have a clear competitive advantage. During the quarter, we invested $295 million at a weighted average yield of 9.3%, including $117 million invested in six new platform portfolio companies, with a median debt-to-EBITDA ratio of 3.0x, interest coverage of 3.4x, and a loan-to-value of only 44%. Our portfolio remains conservatively positioned. PIK income represents just 2.5% of total interest income, among the lowest levels in the industry. Median leverage was 4.6x. Median interest coverage was 2.0x, and median loan-to-value was 44%. We ended the quarter with three nonaccrual investments, representing just 0.8% of the portfolio at cost and 0.5% at market value. These results reflect the rigor of our underwriting process and the discipline of our investment approach. Turning to software exposure, which has been an area of recent market focus, our exposure remains limited at approximately 4.3% of the portfolio and is structured consistently with our core middle market strategy. These investments are primarily cash-pay, covenant-protected loans with moderate leverage and shorter durations. Importantly, they are concentrated in mission-critical enterprise software serving regulated industries such as defense, healthcare, and financial institutions. We believe this represents a meaningful point of differentiation relative to our peers. We continue to believe that our focus on the core middle market provides us with attractive investment opportunities where we provide important strategic capital to our borrowers. Core middle market companies, those typically with $10 million to $50 million of EBITDA, operate below the threshold of the broadly syndicated loan and high-yield markets. In the core middle market, because we are an important strategic lending partner, the process and package of terms we receive is attractive. We have many weeks to do our diligence. We thoughtfully structure transactions with sensible leverage, meaningful covenants, substantial equity cushions to protect our capital, attractive spreads, and equity co-investment. Additionally, from a monitoring perspective, we receive monthly financial statements to help us stay informed on the performance of our portfolio companies. Regarding covenant protections, while the upper middle market has seen significant erosion, our originated first lien loans consistently include meaningful covenants that safeguard our capital. Our credit quality since our inception over 14 years ago has been excellent. PennantPark Floating Rate Capital Ltd. has invested $9 billion in 551 companies and we have experienced only 27 nonaccruals. Since inception, our loss ratio on invested capital is only 12 basis points annually. As a provider of strategic capital that fuels the growth of our portfolio companies, in many cases we participate in the upside of the company by making an equity co-investment. Our returns on these equity co-investments have been excellent over time. Overall for our platform from inception through March 31, we have invested over $618 million in equity, and co-investments have generated an IRR of 25% and a multiple on invested capital of 2.0x. Looking ahead, our experienced team and broad origination platform position us well to generate attractive deal flow. Our mission remains consistent: to deliver a stable and well-covered dividend while preserving capital. Everything we do is aligned to that objective. We continue to focus on investing in high-quality middle market companies with strong free cash flow generation. We capture that value through first lien senior secured loans, and we pay out those contractual cash flows in the form of dividends to our shareholders. With that overview, I will turn it over to Jose for a more detailed review of our financial results. Jose Briones: Thank you, Art. For the quarter ended March 31, GAAP net investment income was $0.26 per share, and core net investment income was $0.27 per share. Core net investment income includes the add-back of $1.1 million of debt issuance costs related to the refinancing of our securitization due 2038. Our operating expenses for the quarter were as follows. Interest expense on the debt was $24.1 million. Base management and performance-based incentive fees were $12.8 million. General and administrative expenses were $2.1 million. Credit facility amendment and debt issuance costs were $1.1 million. Provision for taxes was less than $100 thousand. For the quarter ended March 31, net realized and unrealized change of investments, including the provision for taxes, was a gain of $3 million. As of March 31, NAV was $10.47 per share, essentially flat from $10.49 per share last quarter. As of March 31, our debt-to-equity ratio was 1.6x, and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt. Subsequent to quarter end, we paid down our revolving credit facility and reduced our debt-to-equity ratio to 1.5x, which is within the target range of 1.4x to 1.6x. As of March 31, our key portfolio statistics were as follows. The portfolio remains well diversified, comprising 162 companies across 51 industries. The weighted average yield on our debt investments was 9.8%, and approximately 99% of our debt portfolio is floating rate. LTM PIK income equaled 2.2% of total interest income. The portfolio is comprised of 87% first lien senior secured debt, 1% in second lien and subordinated debt, 3% in equity of PSSL 1 and PSSL 2, and 9% in equity co-investments. Debt-to-EBITDA on the portfolio is 4.6x and interest coverage was 2.0x. With that, I will turn the call back to Art for closing remarks. Art Penn: Thanks, Jose. In conclusion, I would like to thank our exceptional team for their continued dedication and our shareholders for their trust and partnership. We remain focused on delivering durable earnings, preserving capital, and creating long-term value for all stakeholders. That concludes our remarks. We will now open the call for questions. Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will take our first question from Brian McKenna of Citizens. Brian McKenna: Thanks. Good morning, everyone. NAV per share was roughly flat in the quarter. That is a pretty notable standout here within the group for the first quarter. What is driving the resiliency here? You do have the fairly sizable realization event, I believe, coming in the next quarter or so, so I am assuming that drove some incremental gains across the portfolio. But anything else to note across the rest of the portfolio? Art Penn: Yeah. Thanks, Brian, and good morning. Yes, Echelon is a big piece of the equation there, really showing the value of equity co-invest. We also have a few other equity co-invests that are percolating along nicely, and you will see those in the SOI. We have one called Guild Garage, which is an equity co-invest that has already been exited, and we have some others that are certainly not the size of Echelon but are percolating along and provide us some nice singles and doubles. Just to zoom out, that is really part of the reason we do equity co-invest. Many of our peers do it; some of our peers do not. It is nice to have something in the portfolio that can give you some lift that can offset the inevitable nonaccruals that you are going to have in a broadly diversified loan portfolio. The program in this quarter is certainly meeting its mission and providing a stable NAV. Brian McKenna: Got it. That is helpful. Thanks, Art. And then when you look at your pipeline of new originations today, where are you leaning in? Is it a lot of the same sectors? I know you have been active in defense and government services, but what is the mix of the pipeline there? And then how do spreads compare on these transactions versus spreads tied to the prepayments that have come in over the last quarter or two? Just trying to gauge where the spreads are coming in today versus the recent prepays. Art Penn: Yeah. Jose, do you want to answer that one? Jose Briones: Sure. Good morning. With regards to areas of opportunity and what we are seeing, defense and government services is a big part of our investment philosophy as well as healthcare and some business services. We are quite active with our private equity sponsors looking at those type deals in these industries, and you saw the benefit of our exposure to defense with Echelon. With regards to spreads, by and large in our market we are in that 500 to 550 over SOFR, and our view is that it is pretty consistent over the last couple of quarters. Art Penn: I will also add on the industry focus. Obviously, government services and defense are a big one. We also have substantial exposure to healthcare, which we think can be a resilient area of the economy. It is certainly a big part of GDP. Some of our peers have stumbled a little bit in healthcare over time. Thankfully for us, by and large, we have done very well with it. We keep leverage low. We do not get out over our skis. We keep leverage reasonable. I think where you have seen stumbles in healthcare, it is higher leverage situations, and when you have higher leverage, you just do not have the cushion to be able to withstand bumps in the road. We are pleased with healthcare. We also have a big business services book. Consumer services are a big area we have been doing quite a bit in, kind of services around the home. That has been an active area. Those are some of the areas where we focus. Brian McKenna: Very helpful. Thank you, guys. Operator: And as a reminder, that is star 1 for questions. Art Penn: Okay. We do have an extra question here. Please. Operator: We will go next to Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Hey, guys. Apologies if I missed part of the call. Art, on your comments earlier on the dividend adjustment, should we look at that as a proxy for the run-rate direction for PennantPark Floating Rate Capital Ltd.? Art Penn: Yeah. It is a great question. We still believe that as we ramp this joint venture, this JV 2, we can earn over time north of $0.30 a share per quarter. If you were to model it out, Chris, I think you would see that. With what is going on in the M&A market, which was not quite as robust as we would have hoped, we said, let us not force it. Let us take our time in this more muted M&A market. Forcing investment usually does not pay off. So we said, let us take this time to adjust the dividend to be more comfortable. We clearly want to position ourselves as a prudent, stable BDC. BDCs today are a little bit out of favor, and as the market turns—and we hope they will be in favor again—we want to come out of it well positioned as a BDC that easily and comfortably covers its dividend and also has dividend upside. It was an opportunity for us to clear the table a bit, align the dividend comfortably to the NII, which is why we have chosen the $0.24 a quarter—$0.08 a month—plus 50% of the difference between the base and GAAP NII. We will pay that out monthly. We have already stated that for the month of July there will be an $0.08 per share base dividend and a $0.33 supplemental dividend for July, August, and September. We will announce earnings in August, be back here in a few months, see what GAAP NII was, and adjust the supplemental to whatever that was. We thought it was a good time, given what is going on, to reset the table, make sure our investors know that we can comfortably cover it, and not force the issue on ramping the JV in a more muted M&A market. I hope that makes sense. Christopher Nolan: Yeah, it does. And from a broader perspective, you see a lot of deals. For this quarter, at least from my chair, it looks like asset quality for BDCs in general seems to be deteriorating. I am not isolating PennantPark Floating Rate Capital Ltd. or any PennantPark entity, but in general, where do you see us in the cycle for credit for these middle market companies? Art Penn: For us—if you missed the first part of the call—our nonaccruals are under 1%. For us, that is pretty good. We will take below 1% in any environment. Let me comment on the broader picture. Those BDCs that have significant software exposure, by definition, had to mark those loans down. Hopefully, they will perform well and pay off, but by definition there was a mark-to-market, particularly for those with big software exposure. We have very limited software exposure, so we did not get hung up on that. I will highlight that where we do have our minimal nonaccruals—and where everyone in the industry has some nonaccruals—is what I will call the post-2021/2022 deals. Right post-COVID, there was a lot of money flowing around, and there was a perception that the era we were in—for instance, consumer products were doing well and other areas of the at-home economy—would persist long term. Here we are in 2026; there has been a reversion to the mean. Some of those companies that were doing really well in 2022 or 2023 are doing less well. For us, in our below-1% nonaccruals—and you see it elsewhere in the industry—that is where you are seeing some of the nonaccruals hit. Does that answer your question, Chris? Christopher Nolan: Yes, it does. Thanks for the color. Operator: At this time, there are no further questions. I will turn the call back to Art for any closing remarks. Art Penn: Thank you. Thanks, everybody, for being on the call today. We look forward to speaking with you in early August after our next earnings release. In the meantime, wishing all the mothers out there a great Mother's Day. Have a great summer, and we will speak to you in August. Thank you very much. Operator: This concludes today's conference. We thank you for your participation.