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Operator: Good day, and welcome to the Trex Company, Inc. First Quarter 2026 Earnings Conference Call. Participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Note, this event is being recorded. I would now like to turn the conference over to our host. Please go ahead. Unknown Speaker: Thank you for joining us today, and good morning, everyone. With us on the call are Adam Zambanini, President and Chief Executive Officer, and Prithvi Gandhi, Senior Vice President and Chief Financial Officer. Trex Company, Inc. issued a press release earlier this morning containing financial results for the first quarter of 2026. This release is available on the company's website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see our most recent Form 10-Ks and Form 10-Q, as well as our 1933 and other 1934 Act filings with the SEC. Unknown Speaker: Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial measures can be found in our earnings press release at trex.com. The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. With that introduction, I will turn the call over to Adam. Adam Zambanini: Thank you, and good morning, everyone. Turning to the quarter, I want to acknowledge my first earnings call as CEO of Trex Company, Inc. Having been with the company for over 20 years, most recently as COO, I approach this role focused on continuity, execution, and accelerating the strategy already in place. Our five-year plan is clear. Our priorities are set, and our focus remains on disciplined growth, operational excellence, and delivering long-term value for shareholders. As part of that work, our leadership team has sharpened Trex Company, Inc.’s vision, mission, and values to ensure that we remain aligned as we scale. This is an evolution, not a reset, and it reflects both where Trex Company, Inc. is today and where we are going. Trex Company, Inc.’s vision is to shape the future of outdoor living through purposeful innovation that enriches people's lives. To support our ambitious growth and galvanize the organization, we recently codified five long-term strategic priorities. These priorities are designed to sharpen our focus and better leverage our strengths across marketing, innovation, and execution. Given their importance to our future growth, profitability, and long-term shareholder value creation, I would like to touch on each priority in detail. Our five long-term strategic priorities are as follows. First, to create an unbreakable bond with our end users—homeowners and pro contractors. Our goal is to deepen the Trex Company, Inc. brand preference and loyalty through superior marketing, product experience, and service. Trex Company, Inc. remains the undisputed brand leader in the wood-alternative market; we are committed to further strengthening that position through continued investment. We have already increased our investment in branding and marketing, highlighted by the launch of the next phase of our consumer- and pro-focused campaign centered around the “performance engineered for your life outdoors” brand platform. This multichannel media campaign will sharpen the focus on wood-to-composite conversion while also emphasizing many of our key differentiators, including technical innovations like our heat-mitigating technology as well as our marine and fire-rated solutions. I am excited about the momentum this campaign has produced and expect Trex Company, Inc. to become increasingly visible with both homeowners and pro contractors moving forward. Meanwhile, we are investing in technology to improve proactive lead generation among our programs to better support our valued pro contractors. This last quarter, we experienced a significant double-digit increase in lead generation, pointing to the early success of this investment. We are confident that these actions will help drive Trex Company, Inc.’s future growth. Next is our continued focus on high-performance innovation. As I mentioned on last quarter's call, driving high-performance innovation remains a central pillar of my leadership mandate. Shortly after joining the company, I led the development and launch of the game-changing technology that redefined the standards in the decking category, Trex Transcend decking. It was the first cap composite decking product that set a new standard of performance and aesthetics while serving as a catalyst to drive market share expansion over the following decade. At its heart, Trex Company, Inc. is the world leader in material science. We intend to sharpen our focus and leverage our tremendous development capabilities to invent and deliver a continuous stream of next-generation outdoor living solutions designed with what we believe is separator technology that makes the hardest innovation in the building products category imaginable. Our goal is to move beyond simply competing with our industry by introducing products with highly differentiated performance that effectively place us in a category of one. Building on the legacy of Transcend, our current pipeline focuses on category-defining performance. We are currently on track for a potential game-changing regional launch in 2027, followed by a more impactful national launch in 2028 through 2030. We are excited about our best-in-class products and our innovation pipeline and look forward to sharing more in the future. Our third priority is to optimize the channels for growth. Distribution remains a key component of the Trex Company, Inc. business model, ensuring that our products are readily available for pro contractors and homeowners. As a reminder, Trex Company, Inc. already has the most comprehensive distribution network with national coverage by two-step distributors and one of the very few brands in the world with a meaningful presence at both national home centers. The distribution channel has seen changes over the last five years with significant consolidation among both distributors and dealers in the two-step channel. We have seen rapid expansion of the home center retailers into the pro channel segment as they move beyond a purely on-shelf DIY focus. We expect the distribution landscape to continue evolving. Our goal remains clear: to maintain strong channel relationships at both the two-step channel and the home center retailers so that our products reach both homeowners and pro contractors across geographies. Our recent additional shelf-space wins at the home center, along with expanded territories with two key distributors, are proof of Trex Company, Inc.’s strong distribution network and demand for our comprehensive portfolio of products. And our recently redefined incentive and marketing programs have been well received by our two-step partners as we convert business away from the competition, further strengthening these valued relationships. Our fourth priority is more of a specific target—namely, lowering the cost of railing. Railing represents a material and rapidly growing part of our revenue mix, and with a large target of doubling our railing business in five years, its importance will only increase. Due to greater manufacturing complexity and a broader range of raw material components, the railing portfolio currently operates at a lower margin than decking, presenting opportunities for operational and cost optimization. We are applying the same continuous improvement initiatives and vertical integration strategies that successfully elevated our decking margins to our rapidly growing railing portfolio. And of course, as the product line continues to grow, we expect natural margin expansion due to economies of scale and greater utilization. Over time, we believe railing margins can approach those of the core decking products, contributing to an overall lift in the corporate margin. Our fifth and final priority, growth enablement, underpins all the others. This priority defines our approach in investing in our culture, technology, and talent to enable long-term profitable growth. We are strengthening our organization by building capabilities in digital and commercial excellence and fostering an innovation-driven culture that empowers teams to move with speed and discipline. We have already enhanced our leadership team, particularly in finance, adding significant capabilities in data analytics and forecasting, creating a new internal pricing group to implement a more nuanced portfolio-level pricing strategy that balances share and margin while improving responsiveness. Over the remainder of the year, I plan to add key senior roles, including a newly created Chief Commercial Officer who will integrate sales, marketing, and IT—which will enable technology, data and analytics, and customer insights—by providing sales and marketing the tools for commercial visibility that create revenue generation. Finally, we are aligning innovation and advanced manufacturing under a newly appointed Chief Operations Officer, Zach Lauer, to enable better coordination on commercializing initiatives in parallel. Our digital transformation is directly linking consumer inspiration to contractor execution, providing the TrexPro network with highly qualified leads and accelerating the wood-to-composite conversion cycle while optimizing our pricing analytics. As you can see, we are not waiting for repair and remodel demand to recover. Instead, we are taking proactive, disciplined action to accelerate growth, strengthen margins, and position Trex Company, Inc. for sustained outperformance. We are confident that these strategic priorities provide a clear roadmap for Trex Company, Inc.’s long-term success. Our team is laser focused on execution, and I look forward to updating you on the tangible progress we are making in these priorities. Turning to the quarter, we started the year with solid results, especially in light of adverse weather conditions and a continued uncertain economic environment leading many consumers to defer large-scale discretionary repair and remodeling projects. However, we are actively taking advantage of the current market environment to aggressively invest, ensuring that we capture a disproportionate share when demand normalizes. The trends underpinning our industry's long-term growth runway—the ongoing conversion from wood to composite materials, demand for low-maintenance outdoor living, and significant long-term repair and remodel tailwinds—have not changed. With that context, I will turn it over to Prithvi, who will walk you through the quarter in greater detail. Prithvi Gandhi: Thank you, Adam, and good morning, everyone. Unless otherwise noted, all comparisons are on a year-over-year basis. As Adam mentioned, we had a solid start to the year with net sales of $343 million, an increase of 1%. First-quarter volume is driven by both consumer sales and channel stocking to support the second- and third-quarter peak buying season. With our level-load production strategy implemented in 2025, we elected to reduce channel inventories for the early part of 2026 and rely on our own inventory to support peak channel requirements later in the year, resulting in lower first-quarter volume. From a channel perspective, we saw strong home-center-driven DIY demand early in the quarter, which shifted over the course of the quarter towards greater strength in higher-end pro-contractor-driven products. Gross profit was $139 million with gross margin of 40.5%, about 100 basis points better than we expected. A favorable mix of higher-margin premium decking products and lower sales of railing and margin improvements from continued operational excellence helped to offset an increase in depreciation expenses related to decking lines coming into production readiness at our Arkansas facility. Importantly, we did not experience any noticeable cost pressures related to the increase in oil prices related to the conflict in the Middle East. I would like to spend a few minutes diving a bit deeper into our raw material exposure, as it is the majority of our COGS—especially recycled LDPE. While recycled LDPE is a petrochemical, its pricing dynamic is quite distinct from virgin polyethylene, which is tied directly to the price of oil. Historically, recycled LDPE prices tend to lag virgin polyethylene by several quarters and generally exhibit less volatility. This reflects the substitution dynamic—users of virgin polyethylene typically need to see sustained higher prices before adjusting their production to incorporate even modest levels of recycled content, which in turn increases demand and prices for recycled LDPE. And supply of this material is not an issue, as we are entirely domestically sourced. As a leader in the use of recycled content, this is a significant competitive advantage, particularly during periods of raw material inflation when competitors relying on virgin inputs are more exposed to volatility. And while we are seeing increases in certain other input costs, such as diesel fuel and aluminum, we have a range of mitigating levers available, including cost-out initiatives, operational efficiencies, and product-specific pricing actions. Importantly, the same inflationary pressures also affect our competitors. Moving on to selling, general, and administrative expenses, which were $56 million in Q1, representing 16.2% of net sales. Excluding digital transformation costs of $1 million and Arkansas facility startup expenses of $200 thousand, SG&A was $54 million. SG&A came in below our expectations despite continued investments in branding and marketing programs to drive future growth. Lower self-insured medical costs and the timing of expenses more than offset higher investments in the quarter. Because we are in the final stages of the Arkansas facility build-out and did not finish as expected in Q1, interest expenses were capitalized on the balance sheet, resulting in no P&L impact. Our full-year guidance for interest expense now reflects completion beginning in Q2. Putting it all together, adjusted EBITDA of $103 million grew 2% in the quarter due to positive pricing and mix, cost control, and the timing of expenses. Free cash flow was negative $143 million as we built inventory and accounts receivable ahead of our peak selling season. This was an almost 40% improvement versus the prior year. As our capital investment needs declined significantly now that we are finishing the Arkansas facility, our balance sheet remains strong with our net debt leverage of 1x EBITDA at the low end of our target range of 1x to 2x. We are confident in our long-term free cash flow generation and continue to have balance sheet capacity to pursue our capital allocation agenda, which prioritizes an unwavering commitment to first drive growth, then return cash to shareholders through share repurchases, and lastly, to pursue disciplined M&A. In the quarter, the company took advantage of an opportunity in the stock price by executing continued aggressive share repurchases. For the first time in the company's history, we implemented an accelerated share repurchase, or ASR, to quickly buy back a large amount of stock. This $100 million ASR was part of our larger $150 million share repurchase announcement. We will be completing the full $150 million repurchase during the second quarter, and I am pleased to announce that the board has authorized a 10 million share increase to the company's existing share repurchase program, reflecting their confidence in the long-term intrinsic value of Trex Company, Inc. Turning to outlook. We are maintaining our full-year guidance based on our solid start to the year and our continued expectation for the broader repair and remodel market to be flat to down this year. We remain minimally exposed to input cost inflation. Our vertically integrated domestic recycling infrastructure and approximately 95% recycled content drive a highly stable cost profile, which helps protect margins during periods of petrochemical volatility. We continue to expect fiscal year net sales of $1.185 billion to $1.230 billion, adjusted gross margin of approximately 37.5%, and adjusted EBITDA of $340 million to $350 million. For the second quarter, we expect net sales in the range of $388 million to $403 million, and we expect to see a reversal of the gross margin benefit from product mix that we saw in Q1. Before turning the call back to Adam, I want to touch on two key metrics. The first is sell-in/sell-out. Sell-in represents Trex Company, Inc.’s sales to its distributors and home centers. Sell-out represents the sales from our distributors and home centers to dealers and end consumers. As we discussed in the past, quarterly sell-in and sell-out results can be influenced by timing, seasonality, and channel dynamics and, as a result, may not always reflect the underlying long-term trends of the business. To provide a clearer view of performance and how we manage the business, we are introducing a rolling 12-month sell-in and sell-out metric, which we will report each quarter going forward. This metric smooths short-term volatility and better captures fundamental demand trends by accounting for seasonality and other factors that are not fully reflected in quarterly movements. For Q1, growth for our trailing 12-month sell-in was 7% and growth for our trailing 12-month sell-out was 6%. The second metric is one which we believe will experience meaningful improvement not only this year, but for many years to come: free cash flow. As many of you are aware, we plan on ramping up production at our new Arkansas facility beginning next year. More importantly, the CapEx associated with the plant build-out will end this year, with the majority of our Arkansas-related spend finishing in the first half. We anticipate a total of $100 million to $120 million, down from $224 million in 2025—a more than $100 million improvement. And with construction substantially completed by the end of this year, we expect another meaningful decline in CapEx in 2027 to maintenance levels of approximately 5% to 6% of revenue, driving further improvements in free cash flow. We have built Arkansas to effectively more than double our revenue potential with just the purchase of additional lines. So this upfront investment will provide us with years of capacity expansion ability with minimal additional CapEx. This gives us a strong line of sight to continuous robust free cash flow generation regardless of the exact timing of a significant rebound in consumer demand. With our organic expansion needs met through our Arkansas campus, our capital allocation priorities will next focus on additional share repurchases and then on accretive bolt-on acquisitions. Trex Company, Inc. will return to the free cash flow generating machine that it had been before the recent necessary investment in capacity expansion, which started during COVID and will end this year. I will now turn the call back to Adam for his closing remarks. Adam Zambanini: Thank you, Prithvi. Hopefully, you can feel the excitement of the Trex Company, Inc. team about the great opportunities we see in front of us. While the current market environment remains challenging, we are investing in our business and aggressively innovating to capture a greater share of the growing addressable market. We remain the undeniable leader in our market, and we are infusing our team with a more focused, nimble, entrepreneurial culture that we had in the early days of my career at Trex Company, Inc. We are confident this is the right time to evolve our approach, leveraging our great history and brand. Before we close, I want to recognize our people. Their commitment, discipline, and focus on the customer continue to be the foundation of our performance. The progress we discussed today is a direct result of their work, and they remain committed to our long-term success. We believe when our people succeed, our shareholders succeed. Operator, we would like to open the call to questions. Operator: We will now open the call for questions. The first question comes from an analyst with Jefferies. Analyst: Hey, guys. Congrats on a really strong quarter—really good execution. And Adam, congrats on the new role. It was very noticeable in terms of the energy you laid out in longer-term strategic plans. Give us a little perspective on some of the things you are looking to impact. We have noticed leadership changes. You called out the new COO role and certainly a new head of marketing. There appears to be a bigger focus on innovation and streamlining efforts so you can put out product quicker. Help us think through how you are approaching things perhaps a little differently and how that potentially unlocks the growth engine and gets products to market a little quicker. Adam Zambanini: Good morning. Thank you for the kind words; we really appreciate it. When I look at the marketplace today, it is a very dynamic and challenging market. You start to look at the consolidation of national accounts and inflation, and you have to ask: do we have the right strategy in place—which I believe we do, and we laid it out on the call. Do we have the right people? Absolutely. Do we have the right structure? And that is really what I am focusing on—making sure that we have the right structure to execute the strategy. Now on top of that, once we have that structure in place, we innovate, and I think that is where I add the most value to Trex Company, Inc., because when I talk about separator technology, it is about what is going to make Trex Company, Inc. a category of one. And so that focus right now is to take what Trex Company, Inc. used to have—let us say 100 initiatives—and boil that down to 20 underneath five imperatives. So we are working on fewer things that are more impactful to the organization. We want $100 million programs on everything that we work on. That has been our focus as an executive team, and I think it has provided the organization with a tremendous amount of clarity moving forward. Analyst: In an uncertain macro backdrop, how did sell-out trends shape up in the quarter? I appreciate the LTM number, but any more color on how that progressed intra-quarter? And perhaps how things are looking in peak decking season—April and May—and how the channel responded to programs you have rolled out and any marketing efforts? Prithvi Gandhi: Okay, a lot to unpack there. Overall, in terms of the quarter itself, as we said in my remarks, we managed sell-in to the channel based on our level-loading strategy, and essentially overall demand is progressing as we expected in our assumptions for the year. As we go through the busy season, the channel is on the lighter end in terms of the inventory they are carrying—closer to 30 to 40 days of inventory. Assuming a normal busy season, we expect more impetus for sell-in as we progress through the second and third quarters. Adam Zambanini: The lower inventory on the channel side is a function of our decision to take out volatility. For some high-level context as we look at Q1, January and February were fairly challenging. I think most people came out of those two months wondering how this year was going to pan out, but we saw a nice rebound in March as we moved into April. Everybody is still projecting flat to slightly down in the market, but we are expecting to outperform. One trend we have seen over the last year or two is more national accounts acquiring independent lumber yards and carrying less inventory. In many cases, they would carry 90 or even up to 120 days of inventory, and now we see some of them carrying around 30 days. That means probably fewer trucks in Q1, but when in-season demand hits in Q2, you must make sure you have inventory on the ground to execute because there is going to be quick pull-through. Analyst: Thank you. The next question comes from an analyst with William Blair. First topic is gross margin. You beat your internal expectation nicely. Can you unpack what happened? It sounds like mix might have been favorable. Prithvi Gandhi: Yes. Thanks for the question. In Q1, relative to our forecast, we were ahead by about 100 basis points, largely driven by favorable mix from decking. If you recall, we announced a price increase around our aluminum railing in January, and we did see some pull-forward in Q4 and, as a result, a lower mix of railing in Q1. That was the primary driver of why gross margin performed better in Q1. Analyst: Got it. And then SG&A also beat a little bit. I guess the guide still assumes that it is up year over year the rest of the way. Was there some timing issue in Q1? Prithvi Gandhi: In Q1, SG&A came in about $5 million lower than we had planned, driven by two things. One is favorability in medical claims, and that is a hard one to forecast. We feel good about the full year, but in any quarter, things can move around, and that is what we think happened here. Second, there was timing around certain expenses related to our investments in growth and brand awareness. We expect those to come through in the second quarter. To level set, we still expect full-year SG&A to be around 18% of sales. In Q2, we expect a significant sequential dollar lift in SG&A, based on certain expenses that should have been incurred in Q1 moving into Q2 and our continued investment in marketing and innovation that drive growth and brand awareness. With those things, you should see a dollar step-up from Q1 to Q2. Adam Zambanini: We also were trying to be responsible. The war in the Middle East broke out in Q1, and we managed the manageable. That was one area we looked at from an SG&A perspective. As things have calmed down, we are going to continue with the execution of our plan. Analyst: Thank you. The next question is from an analyst with UBS. Good morning. The revenue outlook seems to imply a decent deceleration in the second half. It does seem to imply roughly 5% year-over-year growth in the second half despite a fairly easy comp in the fourth quarter. Is this really just conservatism given the conflict in the Middle East and macro uncertainty, or is there anything else you are trying to message? Prithvi Gandhi: You nailed it. In terms of growth, it is around 5%—our number is about 4%. When we look at this year, there are still some things we want to see in terms of how the war is going to pan out. If it keeps going on over the next several months, then yes, there is some conservatism. If we think this will settle down, there are opportunities for us in terms of execution. One wildcard is the lower-end consumer, who is still struggling. We still see the high end doing really well on the decking side, and we are definitely focused on converting more of the wood market—about 75% of the market is still wood—and we are getting more creative as to how we will convert that opportunity. A couple other things around the second half. We introduced a refuge PVC product; most of those sales will occur in Q2 to Q4. That should help revenue growth. Second, in line with the industry, we announced a mid-quarter price increase again around aluminum railings; that was not in our prior forecast. Third, our continued investments in marketing and innovation are showing green shoots—lead generation, sample orders—all progressing really well, and we expect to drive some conversion from that. Analyst: That is helpful. On the quarterly cadence of adjusted EBITDA margin, second-quarter revenue is expected to be up sequentially, but is it possible EBITDA margin is actually down quarter over quarter given factors like the step-up in SG&A? Prithvi Gandhi: From Q2 2025 to Q2 2026, you should expect EBITDA margin to be lower this year. We expect a little more than half of the Q1 gross margin favorability to reverse in Q2, and SG&A will see a significant dollar step-up between Q1 and Q2. Those two together create a different EBITDA profile versus Q2 of last year. Analyst: But sequentially, Q1 to Q2, EBITDA margin could be down as well? Prithvi Gandhi: Yes, Q1 to Q2 as well—you should see some decline in EBITDA margin. Analyst: Thank you. The next question comes from an analyst with J.P. Morgan. Analyst: Hi, this is [inaudible] in for Michael. First, on cadence throughout the year and the back half, can we get an update on how you are looking at the R&R backdrop and how that connects to the full-year guidance range? Prithvi Gandhi: Looking at the home center business, there has been a lot of forecasts from negative 1% to 1% growth. We have seen many forecasts at flat to slightly down. We are doing low- to mid-single-digit growth. For the full year, it is about 3% right now in terms of our year-over-year growth. Our overall macro assumption on repair and remodel is unchanged—still flat to down with the back half better than the first half, in line with indicators like LIRA. Analyst: You mentioned the relative strength between DIY and pro and how it shifted through the quarter. Could you provide more detail and how you are thinking about that going forward? Adam Zambanini: We are a marketing powerhouse, so we had to get back to our roots. That is the territory I have come from. We reinvested in that platform, made structural changes in marketing, and filled out that department. I feel like we are in a great spot. That really helps drive the high end of the marketplace. Once again, products like Trex Transcend and even our Select decking are doing really well, along with higher-end lines of railing. Those are the consumers buying right now. The focus is also on converting the low end—converting more wood users over to Trex Company, Inc. On the high end, there has been focus on the PVC area—not just with the introduction of Trex Refuge; we have other products that compete in the fire segment. There is plenty of opportunity, and a lot of the mid-to-premium end is doing well because our marketing is working. Analyst: Thank you. The next question comes from an analyst with D.A. Davidson. I was hoping to talk more about the shelf-space commentary. Can you help frame the magnitude of that expansion and how you expect that business to ramp over the next couple of quarters? Maybe some sense on price point? Prithvi Gandhi: Good morning. We would characterize it as meaningful. We have picked up both decking and railing slots in the recent line reviews. Trex Company, Inc. was one of what we believe are two winners at retail, and some peers did not do as well. We will not give a specific number, but it is meaningful for growth. In terms of timing, shelf resets are always challenging to time exactly. We will start to see some of those reset and some products in place now as we move into Q2, with momentum building from Q2 into Q3 and Q4. Analyst: A two-parter on railing. Can you talk about the pace at which you can drive improvements in controllable costs and how M&A may factor? Second, does lowering cost act as a catalyst for market share objectives and the pace of volume growth? Adam Zambanini: Great question. Railings are about material science. We have seen things this year that we are going to unlock on the material science side of the portfolio that will lower raw material cost of railing. In many cases, this will drive margin expansion. Trex Company, Inc. is aggressively priced in every segment—from the opening price point at home centers that can be $20 to $25 a foot, all the way up to systems at $250 a foot. Most of the material science benefits will drop to the bottom line. On vertical integration and acquisitions, these are very small companies we are looking at, but with meaningful impact in lowering raw material streams. In some cases, we can be more aggressive to convert, but we are satisfied with where railing sits today. The focus is on expanding margins. Prithvi Gandhi: Just to add, back in 2023 we said we would double our business by 2028. We are on track to do that. Analyst: Thank you. The next question comes from an analyst with Goldman Sachs. Analyst: Good morning. This is [inaudible] in for Susan. On the high priorities you mentioned earlier, where do you see the biggest opportunity to drive above-market growth in the near term relative to those more helpful in the long run? Analyst: Could you repeat which priorities? Analyst: Yes—within the five you mentioned, which provides the biggest near-term upside to drive above-market growth versus those that are longer-term? Adam Zambanini: Near term, it is creating an unbreakable bond with end users—getting back to basics on marketing and having the right people in the right spots to convert more downstream with contractors and consumers. Not far behind that is launching high-performance innovation. We will start regional launches in 2027 and see a much more meaningful impact from 2028 to 2030 with national launches. But near term, it is the unbreakable bond with end users. Analyst: You talked about optimizing channels for growth. Does that mean expanding presence in retail versus making changes to wholesale? We are seeing consolidation at the wholesale level—how does that provide more opportunities, and where do you see the biggest ones? Adam Zambanini: We created a pricing department to price our products by channel. You want to avoid channel conflict between home centers and the pro channel, and sometimes products cross-pollinate. Our perspective is to have the right products in the right channels at the right price. The market is very dynamic with a lot of consolidation at the dealer and distributor levels. As there is consolidation, there will be channel changes long term. We need the right pricing strategy for each channel with the right products. We have been creating that structure to allow us to take market share while maximizing margins over time. Analyst: Thank you. The next question comes from an analyst with BMO Capital. Analyst: Good morning. Looking at your full-year guidance, what is embedded within that in terms of sell-out—both decking and railing? Prithvi Gandhi: In total, our sell-in growth is about 3%. In terms of sell-out, we are assuming something close to that in the overall market. Analyst: That would imply a meaningful slowdown from the trailing 12 months, which was about 6%. But you are not seeing anything today that suggests that slowdown is happening—is that fair? Prithvi Gandhi: As Adam said, the year started slow, some of it driven by weather. Since March we have seen good order intake, and that continues through April. Overall, we do not see anything that would cause us to think otherwise. Analyst: Switching to capital allocation. You talked about CapEx coming down. As we sit here today and you have been active with share repurchases, can you talk about the M&A pipeline and how you rank priorities between repurchases and M&A? Prithvi Gandhi: Good question. Lee just joined us a couple of months ago, and we are actively doing the work. Adam has talked about areas of interest: number one, vertical integration and margin expansion; two, the whole outdoor living space from the fence back to the deck and house; and third, more distant, the exterior building envelope. That is the playfield. We are doing the strategy work now to identify targets and areas that would be very synergistic. We should have a point of view shortly, and then we will build out the pipeline. It is still early days around M&A. In terms of capital allocation, I always look at M&A against share buybacks—where is our share price, how much cash flow do we have, what is the intrinsic value, and the return of buying back shares versus using that capital for an M&A transaction. The big difference is M&A gives you future growth options; buybacks do not. That is the analysis we go through. Analyst: Thanks. The next question comes from an analyst with Wolfe Research. On your goal to lower the cost of railing and drive margin improvement, are there any numbers you can put around the opportunity in terms of cost reduction or margin improvement? You talked about eventually pushing margins closer to decking—can that happen in a five-year time frame? Adam Zambanini: In our strategic plan, that can happen in a five-year time frame. We have it broken out by year, but we are not sharing that detail at this time. Analyst: Expectations for inflation in 2026. You mentioned reasons why you should be shielded from inflation on LDPE. Can you put numbers around potential inflationary impact and what you are expecting in terms of price/cost relative to that inflation? Prithvi Gandhi: As we said at the start of the year, price/cost for the full year is relatively neutral, and we continue to have that expectation. Three areas have some exposure, but we have taken steps to mitigate it. One is around virgin resins—on that front, we essentially have a fixed cost for the rest of the year, and that is baked into the forecast. Second is diesel prices—we pay for inbound freight and transfers between plants. We have pushed back against vendors on the cost of raw materials to offset some diesel inflation and are managing internal transfers to mitigate impact. Third is PVC—the new product we have introduced. Our costs are fixed through the balance of 2026 with our third-party sourcing. On all these fronts, we are well positioned in managing any inflationary impact. Analyst: Thank you. The next question comes from an analyst with Loop Capital. You mentioned the cold start to the year in January and February. Did you see delays with the start of the spring selling season in seasonal markets such as the Northeast that could benefit Q2 sell-through? Adam Zambanini: Looking at the northern markets—New England across to Minnesota and that upper northern belt—we were down double digits in Q1. In the Mid-Atlantic—draw a line across the U.S.—about flat. In the southern U.S., we started to see double-digit growth again. We could see the weather influence, and we are just now starting to see some northern territories wake up. The promising part is where the weather has been good, we have seen nice numbers across the board. Analyst: Very helpful. And on the mid-quarter railing price increase, any impact from the new Section 232 valuation on your railing products, and will the increase fully offset inflation pressure you are seeing? Prithvi Gandhi: In terms of tariffs, in our overall cost position it is less than a 5% impact, and through our pricing initiatives we are able to cover most of that cost increase. Analyst: Thank you. The next question comes from an analyst with Benchmark Company. Most of my questions have been asked. Follow-up about inventory in the channel and your own inventory. Your inventory looks a little higher than usual in Q1. Is that just an extension of level-loading? Was it in part because of the slow start to the year? Or being prepared for a bounce-back? Adam Zambanini: We have our level-loading strategy in place. We want to be there to serve the market when demand is ready. Channel inventory is about flat to prior year, but with pricing in there, on a lineal-foot basis external to Trex Company, Inc., inventory is slightly down. As discussed earlier, larger customers like national accounts did not take as much inventory. We believe demand will be there in Q2; therefore, we have a little higher inventory now in Q1 because those customers are going to need it right away as we move into Q2. That is the key change. Analyst: Thanks, and congrats again. The next question comes from an analyst with Stephens. I want to dig into the railing impact on margin a bit more. You mentioned that lower railing sales helped margins in Q1. I think the expectation was for a higher mix of railing sales through this year to have roughly an 80-basis-point impact to gross margin. Is that expected to normalize in Q2 fully? With movements in raws and pricing and initiatives to grow margins—which I understand you are not ready to fully quantify—is that still the best way to think about the margin impact for this year, and then improvement from there more in 2027? Prithvi Gandhi: Let me start by reminding everyone of what we said back in November when we reported Q3 2025 results. At that time, we stated we expected about 250 basis points of headwind to adjusted gross margin in 2026 on a full-year basis. We continue to have this expectation for 2026, and we finished 2025 with adjusted gross margin of 40% for the full year. Also in November, we said 170 to 180 basis points of that 250 was entirely from the depreciation associated with bringing Arkansas to production readiness. The balance—70 to 80 basis points—is from railing growth, and we continue to expect that for the full year. In Q1, we saw about 100 basis points of gross margin favorability from railing being smaller in the mix. In Q2, we expect a little more than half of that to reverse, and the rest will reverse through the balance of the year. That is how to think about it. Analyst: Thanks. And Adam, you mentioned Trex Company, Inc. has historically been a marketing powerhouse and you are getting back to your roots. Is the thought that branding and marketing spend will continue at a similar level as a percentage of sales and grow with sales, or will there be a need to ramp that up more with new product rollouts? Adam Zambanini: As long as I am here, we are going to be investing in marketing. The 18% is a really good number. During COVID, you saw SG&A plummet—we were out of capacity—and we delivered strong numbers. If I go back in time, I would have invested more then to create more awareness around the Trex Company, Inc. brand. Will there be some leverage over time on SG&A? Sure, but it will not be 100 or 200 basis points. It might be 10, 20, 30 basis points as we expand and grow, because I want to make sure we are still investing in that platform to get more contractors and more consumers to buy Trex Company, Inc. We will continue to invest; when we can leverage, we will, but investing in marketing will remain very important. Analyst: Last one—on M&A appetite. Is there potential or appetite for larger deals, or more tuck-in, complementary stuff? Adam Zambanini: Our five-year strategic plan is tuck-in M&A, and we have been very consistent. Number one, vertical integration—this is about margin expansion. Number two, we have the license to own the backyard—from the threshold of your sliding glass door all the way out to the fence, Trex Company, Inc. could be anywhere in that backyard. That is where we would go next. Lastly, the envelope of the house. We view this as smaller tuck-in acquisitions that can add value. Our brand is our number one asset; there are a lot of smaller companies where the Trex Company, Inc. brand makes a lot of sense and helps us potentially grow our TAM. We reside in a $75 billion outdoor living market. Our TAM is around $14 billion, and if we can expand that over four to five years to $20 billion to $25 billion, that benefits Trex Company, Inc. in terms of opportunities to grow market share. Analyst: Thank you, and congrats on the quarter and new role. The next question is from an analyst with Barclays. First, on capacity dynamics: given demand trends and contractor sentiment, how does this support your strategy around incremental capacity, and how would you adjust the capacity network as the Arkansas facility ramps? Is Arkansas displacing any production elsewhere? Adam Zambanini: At the contractor level, we still see books out six to eight weeks on the low end, and in some areas eight to ten weeks. In some cases, contractors feel slightly better this year than last year. Part of that is our marketing investment—we are seeing significant double-digit growth in leads we are giving to our contractors, which may be extending backlogs. On capacity, we have been consistent: as we look at Little Rock and our growth, we would be looking at opening that in 2027 from where we sit today. Even if we did not see as much growth, Little Rock provides leverage—it is going to be our lowest-cost facility. We have one facility in the Winchester footprint that is over 30 years old. We will maximize our manufacturing footprint over the longer term. Our expectations are for good growth in 2027 through 2030, and we are going to need all that capacity—from Little Rock to Winchester to Nevada. Analyst: With the introduction of your PVC product, how is it faring regionally—Northeast, West Coast? And more broadly, on pro versus DIY, is higher-end luxury still outperforming the opening price point? Adam Zambanini: We still see outperformance from the middle to higher-end consumer, which has been consistent over the last several years. Trex Company, Inc. is putting more marketing effort into conversion from wood. We have a new campaign called “No Regrets.” If you have seen it on TV, it shows a dock owner maintaining wood versus a dock owner with a Trex deck who can go enjoy the boat for the day—No Regrets. It is a strong visual. Targeting wood is a huge focus. On PVC, we had a great rollout on the West Coast and are ahead of expectations on manufacturing. We are getting increased supply from our supplier. The largest market for PVC is in New England and the Mid-Atlantic, and we have quickly opened those two regions as we rolled into Q2. It is a roughly $0.5 billion market, and Trex Company, Inc. had not played in it. We plan to expand that over time as a great growth opportunity. Analyst: Thank you. The next question is from an analyst with Bank of America. Can you talk about the right level of leverage for the business longer term, and would you be open to buying back more stock as free cash flow frees up next? Prithvi Gandhi: Thanks for the question. We want to manage company leverage between 1x and 2x. This year, free cash flow will increase by about $100 million versus last year. We expect to complete $150 million in buybacks by the end of this quarter. Then we will look at the rest of the year—where free cash flow is and how the business is doing. With the board's new authorization, we have capacity to do more buybacks. Based on where the stock price is relative to intrinsic value, it is still a compelling opportunity. Going forward into 2027, we will have even more free cash flow because we will essentially be done with capacity expansion. Share buybacks will continue to be a significant part of capital allocation. Analyst: And on reinvestments you are making, can you give more color on allocation and priorities between hiring more sales versus marketing? Adam Zambanini: A bigger portion will be marketing-related and the investments we are making to create awareness—linear TV, streaming, podcasts, and all forms you can think of to get the Trex Company, Inc. name out. Then drive to trex.com—there are investments in the website—and investments in innovation. If you want game-changing innovation, you have to invest in R&D. The major buckets are marketing and innovation, with some in sales to support and execute the strategy longer term. Operator: That concludes the question-and-answer session. I would like to turn the floor to management for any closing remarks. Adam Zambanini: Thank you, everyone. Prithvi and I look forward to speaking to you and seeing you at upcoming conferences in the coming weeks. Operator: This concludes today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Please standby. Your meeting is about to begin. Hello, and welcome, everyone, joining today's Clean Energy Fuels Corp. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Note this call is being recorded. We are standing by should you need any assistance. It is now my pleasure to turn the meeting over to Tom Driscoll, Vice President, Strategic Development and Sustainability. Please go ahead. Tom Driscoll: Thank you, Dana. Earlier this afternoon, Clean Energy Fuels Corp. released financial results for the first quarter ending 03/31/2026. If you did not receive the release, it is available on the Investor Relations section of the company's website, where the call is also being webcast. There will be a replay available on the website for 30 days. Before we begin, we would like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy Fuels Corp.'s Form 10-Q filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company's non-GAAP EPS and Adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and Adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on Form 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Clay Corbus. Clay Corbus: Alright. Thank you, Tom. I want to start by saying that I am honored to be named CEO of Clean Energy Fuels Corp. I have been part of this company for 19 years and have been involved in every major chapter of our evolution, from our days building out the fueling network to our initial investments in RNG in 2008, to the integrated platform we operate today. I have a huge amount of confidence in our team and the foundation we have built, and I am very excited about the opportunity ahead of us. Now as CEO, I plan to focus on growth, strengthen execution and operating discipline, and fully leverage the assets, infrastructure, and people we have in place. We have a strong balance sheet, recurring cash flow, and a very capable team. I also see opportunity to be more technology-forward, using data and software to improve efficiency across operations, corporate functions, RNG, and how we identify new customers and serve existing customers. All of this supports the same objective: deliver value for our customers and stakeholders. At its core, I believe deeply in this business and our product. RNG is domestically produced, lowers fuel costs, reduces greenhouse gas emissions, and uses existing infrastructure. Those fundamentals have always mattered, but they are especially relevant today. Beginning in early March, the conflict with Iran caused a sharp rise in crude oil prices, which quickly flowed through to diesel across the U.S. Diesel prices increased by roughly $1.50 to $2 per gallon or more, a 50% increase almost overnight. Fuel is a meaningful component of cost per mile, and this level of volatility strains fleets, carriers, and shippers, and ultimately leads to higher costs for consumers. This environment reinforces why Clean Energy Fuels Corp. exists. Compared to diesel, natural gas is cheaper, cleaner, domestic, and less exposed to geopolitical events abroad. As you have heard many times before, nearly 100% of the fuel delivered to our stations today is renewable natural gas, which captures all the benefits I just mentioned and helps our customers advance their sustainability goals. Now turning to the quarter, we delivered 67 million gallons of RNG, we generated $16.6 million of Adjusted EBITDA, and we ended the quarter with $126 million of cash on the balance sheet. In our downstream business, performance across core markets remained steady. Our transit and refuse sectors continue to be consistent contributors, supported by long-standing customer relationships and the reliability of RNG. We also see underappreciated growth potential in these segments. Over the past five years, battery-electric and hydrogen solutions have proven costly and challenging to deploy in many locations. As those realities become clearer for transit and refuse fleets, RNG offers a practical, cleaner, and lower-cost alternative to diesel, and many of these fleets already have firsthand experience with RNG. In trucking, the recent diesel price hikes and volatility have brought total cost of ownership back into focus. Heavy-duty trucking remains our largest growth opportunity. Class 8 trucks with the Cummins X15N engine allow fleets to capture RNG's economic and environmental benefits without sacrificing range or performance. The technology works, the infrastructure is in place, the fuel is available today, and it is cheap and less volatile. Quite simply, the case for switching from diesel to RNG has never been stronger. At the same time, adoption of the X15N has been slower than we originally expected. Diesel is the incumbent fuel for the vast majority of fleets. In the last two years, the sector has faced challenging freight fundamentals, federal and state regulatory uncertainty, particularly in California, and frankly, ESG whiplash as companies balance long-term sustainability goals with fluid policies and near-term stakeholder expectations. Even though RNG delivers a lower total cost of ownership, natural gas tractors still carry a higher upfront cost than diesel. In that environment, many fleets have chosen to delay change and stick with the status quo. Our strategy is to be targeted, focusing on applications and fleets where RNG delivers the clearest economic and low-carbon advantages. In our upstream RNG production business, we now have eight projects operating and three under construction. The first quarter reflected continued ramp-up at our South Fork project in Texas and our East Valley project in Ohio. The first quarter also had extreme winter weather, which impacted production, particularly in the Upper Midwest. We were able to get our projects back on track and anticipate production and financial results to improve as the year progresses. I would also like to highlight a positive regulatory milestone. In March, CARB approved the pathway for our Del Rio Dairy project in Texas with a carbon intensity of approximately negative 300. We also continue to await an upgraded GREET model from the Department of Energy for determining 45Z credit values, which is expected to better reflect the negative carbon intensity of dairy RNG. As we scale our RNG production business, projects have taken longer to develop and ramp up than initially expected, and some have faced operational challenges. We have responded by taking a more hands-on approach to operations, strengthening internal oversight, and replacing vendors where performance fell short. These improvements and transitions take time, but we are making progress. We remain focused on improving performance at our operating sites and executing projects under construction. It remains true that Clean Energy Fuels Corp. is an advantaged owner of dairy RNG production. Customer demand for low-CI RNG remains strong, particularly in California, where we have the largest RNG station network. Now, in concluding, I want to take a moment to recognize Andrew J. Littlefair. Andrew J. Littlefair founded this company, led it for three decades, and built Clean Energy Fuels Corp. into the platform that it is today. I have had the privilege of working alongside Andrew J. Littlefair and learning from him. We are fortunate that he remains actively involved by continuing his work on policy matters in Washington and serving on our board. On behalf of the entire company, I want to thank him for his contributions and continued commitment to Clean Energy Fuels Corp. With that, I will hand the call to our CFO, Robert Vreeland, to walk through the financials. Robert Vreeland: Thank you, Clay, and good afternoon to everyone. Overall, our financial performance was in line with our expectations with normal variations within our integrated businesses. For example, while extreme cold weather impacted upstream RNG production, we were able to monetize a larger-than-expected amount of RIN and LCFS credits from our East Valley dairy in Idaho, which was placed into service in March. Increased RNG volumes delivered by our fuel distribution business drove higher RIN revenues, and we were able to optimize our gas costs in this volatile commodities market. To a lesser degree in the quarter, but still ongoing today, we enjoy the dynamics of higher retail fuel prices while our natural gas commodity costs did not increase proportionally at the same level as oil and diesel prices. In fact, despite increases in our natural gas costs and retail prices, we maintained a large discount on our fuel price compared to diesel. Consequently, one of the effects we see of elevated commodity and retail prices is higher revenue. Coupled with higher fuel volumes, which drive both base fuel sales revenue as well as RIN and LCFS revenues, we reported $117.6 million in revenue for 2026 compared to $103.8 million last year. RNG volumes delivered in 2026 were strong. In addition to our normal recurring volumes, we saw higher demand from customers outside our network of stations needing RNG for transportation. We have seen this before, and it is nice to have the supply to accommodate those deliveries. We believe we will come off the first-quarter RNG volumes by a few million gallons or so as we look forward, but remain confident in achieving our annual guidance of delivering 250 million gallons or more given the first quarter of RNG for the year. GAAP net loss was $12 million for 2026. Certainly, there was a return in 2026 to more normal operations versus a year ago in the first quarter, where we reported a GAAP net loss of $135 million, which included a couple of large non-cash charges totaling $115 million. Adjusted EBITDA of $16.6 million in 2026 compares to $17.1 million of Adjusted EBITDA a year ago. In addition to the normal variations I mentioned for 2026, we also saw lower, albeit still very adequate, base fuel margins, which we anticipated in our outlook for 2026. And, as well and also anticipated in our 2026 outlook, we lowered SG&A expenses in 2026. One reporting comment I will make is a change in where the non-cash Amazon warrant charge is recorded in our financial statements. You will notice in 2026, a portion of the warrant charge is included as a charge against our O&M service revenue, whereas previously, 100% of the charge was in our products revenue. There is more detail on the Amazon warrant charge—it is just a different place in the income statement that you are seeing it this year. There is more disclosed in our 10-Q. In addition to the $126 million in cash and investments on our balance sheet, there is another $46 million in cash off balance sheet at our dairy RNG joint ventures. And during the first quarter, we contributed $12 million to our MAS Energy Works JV, with another $12 million that was contributed in April. MAS Energy Works continues to make good progress toward completing the three dairy projects under construction. And with that, operator, please open the call to questions. Operator: Thank you. To leave the queue at any time, press 2. Once again, that is 1 to ask a question, and we will pause for just one moment to allow everyone a chance to join the queue. Our first question comes from Eric Stine with Craig Hallum. Please go ahead. Your line is now open. Eric Stine: Hi, Clay. Hi, Bob. Clay, you touched on it a little bit, just with the X15N. I mean, I know that now there are two OEMs in the market and prior to Freightliner's entry, pricing was an issue, so incremental cost has come down some. And obviously we have all read the glowing feedback of fleets that have been testing this. But the market conditions, as you said, you have a more difficult environment, but obviously it highlights the price benefit. Do you view this as just going to make it more likely that it is going to be the large fleets rather than the small one-off adoption stories? Or how do you view that? I mean, is this the kind of thing that, if it persists, could be what actually jumpstarts this market? Because as you have said, although Cummins' view of it has not changed in terms of the overall opportunity, it is well behind schedule. Clay Corbus: Yeah. Well, Eric, it is what we spend a lot of time thinking about and focused on. I do not think anybody really thinks that diesel is going to stay at these prices forever. But I do think that this run-up in diesel has really heightened the awareness of the volatility. You know, we were at the ACT conference the last few days, and what a lot of people are talking about is, if you just take the last five years and do a regression analysis on what the price of diesel has been, and then you compare that to the price of natural gas, it is just higher overall. And when fleets are trying to plan going forward what their fuel costs are going to be and their total cost of ownership, they are factoring that into those decisions. So it certainly helps us because it helps us with the total cost of ownership and the payback period for that incremental cost. I would also say that I do not know that it changes the types of fleets we are looking at, whether they are large fleets or small fleets. Because even with the large fleets, they are not going to change 2,000 trucks overnight. I think what we are seeing is that—as we heard from some of the fleets—they are going to start out with five trucks, start out with 10 trucks, dip their toe in the water, get their mechanics used to it, get their drivers used to it, get their routes used to it, and then from there, expand it into larger numbers within the fleet. I think that, combined with the advantages that we are seeing now in the total cost of ownership, will result in incremental adoption as we go forward. But it is a long sales cycle. It takes a long time to get trucks ordered, and it takes a long time to get them on the road. So it is not something where people can see high diesel prices and say they are going to order a truck tomorrow. It is a longer decision process than that. But certainly, the fundamentals behind it are reopening a lot of discussions that we are excited to take part in. Eric Stine: Got it. That is very helpful. And then maybe just my second one for Bob. So you mentioned lower base fuel margins and something that was kind of the expectation. Was that commentary for Q1 or early in the year? Because if I think about, especially in trucking, when you have got high diesel prices, you can still offer a pretty healthy discount, and it is a pretty good margin environment for you. So just maybe clarify that statement and how you are thinking about that for the remainder of the year? Robert Vreeland: Yeah, Eric, that comment is looking at the full year. When we gave our guidance back in February, we talked about some of the dynamics that could impact our guidance for 2026, and the possibility of lower margins from a variety of reasons was in the mix, and it is really throughout the year. But I will say, to the point you are making, we have numerous levers. So while the margin gets impacted from one area, the fact that we are enjoying higher prices with our costs remaining pretty stable helps offset some of that. But it is a go-forward look and certainly in our plan. Eric Stine: Okay. Thanks a lot. Clay Corbus: Great. Thanks, Eric. Operator: Thank you. We will now go to Rob Brown with Lake Street Capital Markets. Please go ahead. Your line is open. Rob Brown: Hi, Clay and Bob. Thanks for taking my call. On the RNG volume you talked about in the quarter from kind of third parties, could you just clarify how that works and maybe sort of visibility on that? Clay Corbus: Yeah. You know, it was a strong growth quarter, particularly when you compare it against last year. But I think we want to be careful on that because part of that growth was that the first quarter of last year, we did see our volumes trend down. If you remember, we had the biogas reform that pushed a lot of our volume into 2024, so 2025 was lower. And then, of course, we always have bad weather in the first quarter, but last year it was really spread throughout the country, and so we had less RNG from our third parties, in addition to our own production that was down. So while we are very pleased with the first quarter, a lot of it really was that we were comparing against a very easy comp in 2025. Rob Brown: Okay. Thank you. And just to clarify, given the CARB pathway certification right now, it sounds like that is great. How does that flow through into the ability to get credits? Clay Corbus: Well, it basically almost doubles the number of LCFS credits we can generate. When you are at a negative 150 versus negative 300, you are able to generate more credits off the same fuel that is coming through. Rob Brown: Okay. Thank you. I will turn it over. Clay Corbus: Yeah. Thanks, Rob. Operator: Thank you. We will now go to Matthew Blair with TPH. Please go ahead. Your line is open. Matthew Blair: Thanks, and good afternoon, Clay and Bob. Could you talk a little bit more about the comment where you mentioned higher demand from customers outside of your network? Could you unpack that a little bit? Do you think you were taking share from some of your competitors? Or was it just a situation that these customers were utilizing their existing CNG trucks a little bit more and just needed more fuel given rising diesel prices? And could you also talk about what end markets you saw increased demand from? And then on the fuel distribution guide for 2026—it looks like you did not change it, still 67 to approximately 70 million despite the good result in the first quarter of 19 million. I think you mentioned that you would expect things to roll off a little bit in Q2. Are you already seeing softer conditions so far in the second quarter, or is that just your general expectation? Clay Corbus: Yeah. So, Matthew, there are other folks out there with CNG fueling stations, and there are instances where, based on supply availability and that sort of thing, we will flow our RNG into those stations. It is really a supply-demand dynamic, and I could not necessarily tell you what is going on with their demand, but I know that they need the supply, and we are able to move it. We have done it before. It is not necessarily routine, but that is what that looks like because we have the RNG and we can flow it to other places. It is the beauty of the distribution model. As for the fuel distribution guide, I will not comment on what I am seeing intra-quarter. Second quarter is not really softer or consistent; it is more a comment relative to the volatility and the strength that we saw in the first quarter, and knowing that we may not see that level of strength as we go forward. We had some unique opportunities to sell some RNG to some of our customers that are probably not going to be repeated. So while it was a good result, it was an easy comp against last year, and you should not just multiply it by four for the full year because there were some unique opportunities in Q1 that we took advantage of. Matthew Blair: Sounds good. Thanks for your comments. Clay Corbus: Yeah. Thank you, Matthew. Operator: We will go next to Betty Zhang with Scotiabank. Please go ahead. Betty Zhang: Thank you for taking my questions. I wanted to ask about Amazon and that relationship. Earlier, Amazon announced its logistics services. Do you think there would be an opportunity to leverage that existing relationship and maybe increase some RNG volumes to them? And then for my follow-up, also related to Amazon, on those warrant charges, you mentioned it is now shared between the fuel and services. Is this a change in the contract with Amazon, or how would you describe that change? Thank you. Clay Corbus: Betty, I will take the first comment. We do not comment specifically on Amazon. We want to be very careful—that is not something we can, or will, do. Across our customers, though, every single customer with existing trucks—whether they are 12-liter, 9-liter, wherever they are—we work with all of our customers to try to increase the penetration into their fleet with the X15N. So I am not going to speak specific to Amazon, but it is just good business sense to work with customers that you already have and see if you can continue your growth with them. As far as the Amazon warrant charge, I will let Bob take that one. Robert Vreeland: Yeah. And Betty, I really cannot say that much, but it was not an arbitrary change. Any change like that is typically going to be driven contractually. We are just doing the appropriate accounting based on the contract that we have. Betty Zhang: Thank you. Operator: At this time, there are no further questions in the queue. I will now turn the meeting back over to Clay Corbus. Clay Corbus: Alright, Dana. Thanks very much. And thank everybody else for joining us. We look forward to speaking with you next quarter. Unknown Speaker: Thank you. Operator: This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver First Quarter 2026 financial results conference call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Allison Pettit, Vice President, Investor Relations. Please go ahead. Allison Pettit: Thank you, operator, and good morning, everyone. Before we get started, I ask that you view our MD&A for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A and financial statements are available on our website at edrsilver.com. On today's call, we have Dan Dickson, Endeavour Silver's CEO; Elizabeth Senez, our CFO; and Luis Castro, Endeavor's COO. Following Dan's formal remarks, we will open the call for questions. And now over to Dan. Dan Dickson: Thank you, Allison, and welcome, everyone. Endeavour Silver delivered excellent results in the first quarter of 2026, setting new records in both production and revenue. The strong performance generated significant cash flow, underscoring the company's remarkable growth trajectory. With the [ Cubo ] plant expansion substantially complete and Terronera's operations performing near design expectations, we are entering an exciting phase for the company, and we look forward to building on this momentum as we progress throughout the year. In Q1, Endeavour produced nearly 2 million ounces of silver and 12,000 ounces of gold with base metals, totaling 3 million silver equivalent ounces. This represents a 78% increase compared to Q1 2025 with the additions of [ Copa ] and Terronera. We reported revenue of $210 million, an increase of 23% compared to prior year with cost of sales of $160 million, mine operating earnings of $94 million and mine operating cash flow of $115 million before taxes, a 400% increase from Q1 2025. Our all-in sustaining costs net of byproduct credits were $37 this quarter. This represents a 51% increase compared to Q1 2025 when [ Copa ] and Terronera had not yet joined Endeavour's production portfolio. It's also worth noting that these costs were 9% lower than Q4 2025 primarily due to the ramp-up of operations at Terronera with gained efficiencies throughout the quarter, and we anticipate further reductions in these costs as we continue to optimize operations throughout the year and capital expenditures become normalized. In Q1, Endeavor recognized adjusted net earnings of $59 million or an adjusted earnings per share of $0.21. Both direct operating cost per tonne and direct costs per tonne were elevated this quarter. To clarify how we define these costs, our direct operating cost per tonne include direct input costs associated with mining, milling and site level G&A. Our depiction of direct costs per tonne includes royalties, mining duties and purchase of third-party material. Changes in the metal prices have a meaningful impact on our direct cost per ton. For an example, a $1 increase in silver, cost per tonne rise by about $0.90 at Terronera, Guanacevi is $3.80 and $0.50 at [ Copa. ] Obviously, due to the higher royalties the mining duties, third purchase costs and federally required profit sharing. Our direct operating cost per tonne rose by 30% in Q1 compared to Q1 last year as a result of the inclusion of [ Copa ] and Terronera into our portfolio. Both assets carried higher operating costs in Q1 than what is expected going forward. During the first quarter, [ Copa ] installed and commissioned a new three-stage crusher in ball mill, increasing plant capacity to above 2,500 tonnes per day. It remains additional plant expansion expenditures. However, these will dissipate as we move through 2026, and we expect to see benefits on cost metrics starting this quarter. In Peru, we've experienced pressures on attracting and retaining skilled labor impacting labor costs, training costs and overall efficiencies. We expect this to continue, but the additional costs will be offset by the efficiencies of an updated and expanded operation. At Terronera, we're in the infancy of operations. In Q1, we made a significant transition from a construction and start-up team to an operations team, adjusting and reducing personnel. Mine and plant metrics have steadily improved through continuous measurement, review and adjustments. As the operation settles into consistent day-to-day rhythm, cost efficiencies are expected. As onetime capital investments are completed in the first half of the year, we expect operating cost metrics to decrease with higher ore grades expected in the second half. We also expect significant improvements on a cost per ounce basis. Exploration drilling has restarted at Terronera, and we expect to provide an update later this quarter. I should note, we have not transitioned our power generation to the LNG plant, but expect to before the end of this quarter. We have the necessary authorizations and plan to commission the LNG vaporization plant this month. At Guanacevi, cash flows were north of $20 million this quarter. The mine incurred higher operating cost per tonne, largely due to lower throughput with minor increases in our absolute costs. As an operation, the royalties, purchased ore mining duties and profit share is a significant part of that cost structure, and thus, we saw increases. Step-out drilling has commenced and also, we expect to provide results later this quarter. As of March 31, our cash position was over $232 million. Working capital was north of $173 million, which gives us a strong and stable foundation to drive our ongoing initiatives. We remain committed to advancing progress at Pitarrilla, where studies -- where steady investment in exploration, studies and economic evaluation continues to move forward with the expectation to provide economic evaluation in the third quarter. In closing, our strong financial footing and successful expansion of the Pulpa plant and the steady improvements at Terronera put Endeavour in an excellent position to meet our production targets this year. These achievements reflect our unwavering focus on operational excellence and our ongoing dedication to delivering long-term value for our shareholders. I would like to thank everyone for their continued support and engagement. And with that, I'm happy to open up to questions. Operator, let's proceed to the Q&A session. Operator: [Operator Instructions] The first question comes from Heiko Ihle with H.C. Wainwright. Unknown Analyst: This is [indiscernible] filing in for Heiko. He's on a [indiscernible] right now. First question, the great step up at Terronera. Next week, we'll be halfway through the second quarter. Any views of what you've seen with grades at site during this period so far? Dan Dickson: Yes. We have Q1 and Q2 grades a little bit similar. Q2, we expect to be slightly higher than Q1. Ultimately, the real step-up in grade in the back half of Q3 and into Q4. Unknown Analyst: Okay. Great. And second question, maybe a bit of a philosophical one. The Terronera approaches name plate capacity. Could you maybe talk about what you saw and learned during the ramp-up phase that maybe will be useful as you move other assets into production? And I guess, as a sweetener to that anything you expect to add to the Pitarrilla feasibility study that you may not have expected a year ago? Dan Dickson: Yes. I mean, how much time do you have on things that we learn during the Terronera build-out phase. I mean I think as an organization, it's our first build from scratch and there's a lot of learning. And I think we can apply a lot of that. And in fact, in Q4 and into Q1, we did a post mortem or post review of construction of things that we can improve. So we can take that over to Pitarrilla. Obviously, continuity is a very important part. And this year, Don Gray retired and we replaced Don with Luis Castro, who's been with the company for 21 years. But there are a lot of people that remain in the company that were involved with the construction in Terronera. If we can move Pitarrilla along in accordance with what we think is our time line sometime in 2027, starting that construction, we can benefit from it. From processes and protocols and procedures that would be put in place at Terronera, I think those will be stronger going forward. And a lot better positioned as a company to take on a second build, so to speak. And so we're well positioned. The biggest part of that is really understanding all the permits and permits that are required. I mean as we went through, we originally got our EMEA at Terronera about 2015, 2016, Pitarrilla already has MEA. There are some other permits that are required around MEA specifically around the tailings storage facility, and we're going through that process to try to obtain that by Q1 of next year. But behind all that, there's about 100 other 30-some-odd permit that you learn to go through and how to navigate that through the government. And I think we have the ability to do that a lot quicker than what we did at Terronera. So we're excited about what we gained from a knowledge standpoint at Terronera, and we think we can apply it up to Pitarrilla. And then for your second part of that question. At this point, there's nothing new that's surprising at Pitarrilla. There's a lot of work that was done. SSR and invested $145 million. They've done a pre-feasibility study on underground operation O9. They did a lot of work on an open pit operation in the feasibility study that was 2012. I mean we've been looking at this now for 3 years. And so there hasn't been anything, I'd say, in the last 6 months to 8 months have jumped out that's been surprising to us. We have a good indication of what the plant is going to look like, and what the capacity of the mine is, and that will come out in due course when we put out effectively the feasibility study or 43-101 feasibility study later this year. Operator: The next question comes from John Tumazos with John Tumazos Very Independent Research. John Tumazos: Congratulations on all the increased production and raining cash and all those good sense. Some other companies in Mexico have had bumps in the road, one company had their plane shot down a month ago. Another company has a very tragic incident in January. You've got at least four locations where you're operating, is there any particular secret to your operational success and good security results. I get to some parts in Mexico are so much better than others. Dan Dickson: Yes. But I think that's the specifics to it all is there are parts in Mexico that are more secure than others. And I mean it's hard to say that we haven't had our issues. In February, there was a code red in the State of Lisco, when one of the captains of the cartel was killed. And that on the Sunday following, they put blockades into 22 different states. And part of the State of Lisco and around Portovarta was significantly impacted with blockades of the highways. Now I don't think there is a lot of there is some unfortunate incidents with citizens. But generally, citizens weren't targeted. It was just the target to the government to show power, I guess, of that cartel. And for us, it impacted our supply chains, and we shut down operations for three days to make sure that if we had any safety incidents, so we could get to a hospital. So like I say, it's not to say that we have not been impacted. But I'd say, generally, our areas that we operate haven't had significant violence, but we're -- we've got a team in place, a security team in place provides us intelligence, and we make various decisions based on what's happening in Mexico and what's happening in various states. So again, we've been at Guanacevi for 20 years and very low impact to all that. We actually sold our Bolanitos operation in January. So we're no longer in Guanajuato. And then in Helisco, like I say, we're an hour in Porte Varta, which is considered a very safe area in that 2-day event. And there's about 3 million Americans and Canadians that visit that area on an annualized basis, and we're very happy to operate there, but we keep our eyes open and ears to the ground and just trying to understand what's all happening. John Tumazos: Are there any variations in cost between your locations due to logistical costs where you maybe avoid a bad neighborhood or anything like that? Dan Dickson: Yes. Nothing that would be significant I can recall back in '08 or '09, we made sure we didn't drive by a certain town, which added about 35, 45 minutes of driving time up to Guanacevi, which was about 4 hours away. But ultimately, the costs associated with our security between Terronera and between Guanacevi and ultimately also now at [ Copa, ] are very similar. I mean a lot of the same procedures and protocols are in place. So from a significant standpoint, I would say no. John Tumazos: And I apologize for even asking these questions, but... Dan Dickson: No, those were fair questions. John Tumazos: Investors' minds. Dan Dickson: Yes. No, it's a very fair question. We get them often in our meetings with investors. So happy to answer them. Operator: The next question comes from Soundarya Iyer with B. Riley. Soundarya Iyer: Congratulations on the quarter. Was with another call, so I don't know if this question has been answered. But so on Guanacevi, I mean the grades have come pretty low year-over-year. So -- and like third-party material purchase have also increased and its almost 1/3. At what point does this or economics change and start to dilute margins there to purchase in third-party or we continue doing that? Dan Dickson: Yes. I mean, with the higher prices, obviously, allows us to go after lower grade material. And the great thing is we mined Guanacevi now for 20 years, and there's areas of the old parts in the mines, North Provenir, and what we call Santacruz, South central propane that would have material left behind that would have been running 225-, maybe even 250-gram silver equivalent material that you can go back and and mine. And as prices go up, your cutoff grades come down. Some of the grades that we're pulling right now, where we had 275 grams more from the depth depth of El Curso, which is on Frisco ground. We pay significant royalty there, too. As we move through the year, we're going to be going into an area called Malache, which is 100% controlled by us. We've got an area near propane dose, which we mined up in 2015. We've been working in there. Some of that's on is ground, some of it's on ours. Obviously, as a management team, we continually look at grades and cut off grades and ultimately, margins. And has provided that Guanacevi is going to still continue to be profitable. And as I say, we did north of $20 million of free cash flow there this quarter. We're going to continue to operate it. So right now, we don't have a huge reserve base. We know we can get into and maybe into 2027 and maybe into '28, probably extend that. We're going through that work. We started some drilling and various areas. We start to go back into other areas and build out our resources, and we'll have a plan in place for the end of the year of how long -- much longer will be at Guanacevi. And I suspect we can get there for quite a while, especially at these prices. Soundarya Iyer: Got it. That's really clear. And just 1 more on Pitarrilla FS. So is it still on -- I mean, is it still targeted before 3Q 2026, I mean given that the spend -- $1.8 million spend in 1Q was pretty low. So how do we... Dan Dickson: Yes. We've made a lot of commitments. Our spend is a little lower in Q1 than we expected, but we've started to push that work. we would be probably a handful of weeks behind, not a significant amount. We're still hoping Q3 of 2026. Maybe it ends up being more of the back half of Q3 rather than the front half of Q3, but we'll see how all that progresses over the next couple of months. Operator: The next question comes from Craig Stanley with Raymond James. Craig Stanley: I think you indicated you expect grades to pick up a bit at Terronera in the second half of this year. Is that -- are you going to be mining a little lose? Dan Dickson: Yes, Craig, good question. We're actually drilling La Luz right now. As you probably know, it's about 150,000 to 250,000 tonnes in our mine plan -- in our feasibility mine plan. So right now, we're actually drilling a little bit to depth, so we can come up with a more efficient mine plan just because of the scale and trying to figure that out. So we took the rigs out. We were drilling Terronera this past quarter, and those rigs are going back to La Luz now that we have assays, and that will drill a loose probably until midyear and then start building a mine plan for that. So I suspect because of how things are going in Terronera that La Luz will get pushed to Q1 or Q2 of next year. But again, we'll have drill results out before this quarter is out at Terronera and maybe some La Luz as well. Craig Stanley: Okay. And then were you saying on Pitarrilla, you're sort of hoping to get the final permits in the first half of next year and then start construction later in 2027? Dan Dickson: Yes. Ultimately, we have a very good idea because of what Pitarrilla is and the resources that there in the underground sulfide resources that we'd be mining it from an underground standpoint, I don't necessarily think the economic evaluation is going to be that far off than what we've historically known. But really, the gating item is the permit to build the tailings storage facility, which is going to be a dry stack facility. We've been going back and forth with the authorities on that, hoping we can get through it relatively quickly. Now at the beginning of the year, we thought maybe Q1 2027, we could get that permit. Things have seemed to be still sticky when it comes to permits in Mexico. We've heard a lot of our peers expecting permits in Q1, and that never came to fruition, then it was going to be early Q2, and we're almost halfway through Q2. So I'm getting a bit nervous on time lines when it comes to permits, just because it still have -- we haven't seen a real floodgates open, so to speak. But that's what we were targeting. And then if we could start building in next year, that would be great. Now we are still continuing forward with our construction cap this year. So we have ultimately a plan of 800 beds. I don't -- I think we're putting in maybe a little bit less than that to start with 250 to 300 beds, and we're still making our movements to purchase mobile equipment and plant equipment, so we can do the basic and detailed engineering properly when it comes to the plant. So we're still pushing ahead, but the real kicker for a construction decision is that tailings and permit. Craig Stanley: Okay. And then just the last thing for me. When you're out talking to institutional investors, does M&A come up more in regards to Endeavour Silver being a potential target? And because when you look at the silver space, you have a lot of these companies with much larger market caps like Pan American core HACA First Majestic and then it sort of drops off and you're sort of in this sort of middle stage before you get that into sort of the real smaller producers. Just curious like Terronera has now ramped up. Is that something that's in discussion. Again, more with clients. Dan Dickson: Yes. I mean, with the investors, people always ask, like how do we want to grow? And we say we want to be a senior silver producer and Terronera has ramped up hitting criteria through the plant. I think once those grades really start coming through, and we get our costs down to expectations, I think there's a lot more value in our shares there. We want to build that value in our shares. Ultimately, we're a pretty young management team. I think we're pretty still hungry to grow and find things, never say never. But it's such a small space. There's only a handful of people that can actually look at us, and there's only a handful of things that we can look at. So we have a pretty good corporate development guy. Some days, he works hard. He's sitting right in front of me. So we are always looking at things and trying to figure out the right combination for Endeavour. Operator: We have a follow-up question from Soundarya Iyer with B. Riley. Soundarya Iyer: Sorry for just about getting another question. Just curious on the capital... Dan Dickson: No problems at all. Soundarya Iyer: Curious on the capital allocation part. You had $200 million -- $250 million in cash. And then this has been a record operating cash flow. Is it -- how are you thinking about like some dividend buybacks, not this year, maybe, but in the future... Dan Dickson: Yes, I think it's very clear -- yes, that's a fair question. I mean, for us, we're still on a growth trajectory. We're really excited about what we have at Pitarrilla. I think the market is going to understand that when a feasibility study comes out in Q3. The expectations, the cost to build is going to be somewhere between $500 million and $600 million. If we keep generating cash at this rate, we'll have a good chunk of that built into our balance sheet by the end of the year and then obviously, cash flows into 2027. Until Pitarrilla is built and operating and providing its cash flow is probably the time we'd start looking at dividends or share buybacks. But at this point in time, our -- we feel like the rate of return that we can get out of Pitarrilla will be very valuable for our shareholders, and that's what the cash that we're generating is going to be used for. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Dan Dickson for any closing remarks. Please go ahead. Dan Dickson: Well, thank you, operator, and thanks for all our listeners today. I think Q1 was a good quarter for Endeavor, but we still have more expectations going back to the year. As you say, Terronera's grade should pick up in the second half of the year, [ Copa ] will be operating close to 2,500 tonnes per day. And we'll get more rhythm at Guanacevi, Terronera and [ Copa ] that ultimately, we expect a very strong next 3 quarters and specifically the second half of the year. So we're excited with what we have. We're excited where we're going, and I look forward to getting the feasibility to say out of it in the second half of the year as well. So thanks for joining today. Operator: This brings to end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Fluence Energy, Inc. Q2 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Shelton, Vice President of Investor Relations. Please go ahead. Unknown Executive: Good morning, and welcome to Fluence Energy's Second Quarter Earnings Call. Joining me on this morning's call are Julian Nabrita, our President and Chief Executive Officer; and Ahmed Pasha, our Chief Financial Officer. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, along with supporting statements, schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website at fluenceenergy.com. During the course of this call, Fluence's management may make certain forward-looking statements regarding various matters related to our business, including, but not limited to, statements related to our future financial and operational performance, future market growth and related opportunities, anticipated growth and business strategy, liquidity and access to capital, expectations related to pipeline, order intake and contracted backlog future results of operations, the impact of the -- on e Big Beautiful Bill Act, projected costs, beliefs, assumptions, prospects, plans and objectives of management and the timing of any of the foregoing. Such statements are based upon current expectations and certain assumptions and are, therefore, subject to certain risks, uncertainties and other important factors, which could cause actual results to differ materially. Please refer to our SEC filings for more information regarding these risks, uncertainties and important factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. Also, please note that the company undertakes no duty to update or revise forward-looking statements for new information. This call will also reference non-GAAP measures that we view as important in assessing the performance of our business, including adjusted EBITDA, adjusted gross profit and adjusted gross profit margin. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is available in our earnings materials on the Investor Relations website. Following our prepared remarks, we will conduct a question-and-answer session with our team. Thank you very much. I'll now turn the call over to Julian. Julian Jose Marquez: Thank you, Chris, and welcome to everyone joining us today. Turning to Slide 4. Since our February call, we made meaningful progress on order intake, our U.S. domestic supply chains and our product road map as we position Fluence to capture expanding global demand for energy storage. Our business model keeps us close to customers so we can anticipate their needs early and respond quickly with the right products, applications and commercial structures. This morning, I'll highlight our momentum across the business, and then Ahmed will review our financial results for the quarter and our current fiscal '26 outlook. Here are the key highlights for the quarter. First, order activity is accelerating versus fiscal '25. As of today, we signed approximately $2 billion of orders this year, which is double the amount signed through the same period last year. Our record backlog was $5.6 billion at the end of the second quarter, and we expect it to grow further based on execution so far this year. Second, second quarter adjusted gross margin was 11.1% which is within our full year expectation of 11% to 13%, a meaningful improvement versus Q1 and more reflective of the disciplined execution we delivered historically. Third, based on our first half performance and visibility into the remainder of the year, we are reaffirming our fiscal '26 guidance for revenue, ARR and adjusted EBITDA. And fourth, we ended the quarter on March 31 with approximately $900 million of total liquidity, reinforcing our strong financial position. Please turn to Slide 5 for more details on order intake. Our expanded commercial effort is translating to stronger conversion into signed orders. During the quarter, higher lithium prices temporarily slowed some customer decisions, but momentum reaccelerated as prices stabilized. For third quarter to date, we have signed over $600 million of additional orders. For the first 7 months of this fiscal... Year order intake totals approximately $2 billion, and we expect the total for all of fiscal '26 to significantly exceed the level from fiscal '25. Most of the orders this year have come from our core customer segment, developers and utility. It is important to note that 50% of our orders this year come from new customers, a signal of the early results from our expanding commercial app. Please turn to Slide 6, as I detail our progress with new customer segment. Since our February call, we executed master supply agreements with 2 major hyperscalers. The selection process for both of these MSAs was subject to multiple rounds of review, and in each case, Fluence was chosen after meeting criteria specific for each customer. In 1 case, the customers process began with 26 different best vendors, -- and Fluence was the first to complete all qualifications to sign a global MSA. In the other case, the customer had requirements which made it hard for many competitors to comply with. In both cases, we believe Fluence understanding of customer requirements, rapid response time and the peretiated products were key in driving this engagement. These MSAs established Fluence as a qualified supplier, positioning us to build on expected near-term data center projects for both hyperscalers with additional progress with 1 of these customers over the past few months, we expect to find the initial order from 1 of the data center projects within the third quarter. In addition, since our prior call, we have successfully developed a proprietary solution to handle the extreme power usage fluctuations experienced in data centers. Fluence excels at this based on our deep experience with advanced controls and track record managing fast response systems. Based on our discussion, we believe these capabilities will be an important differentiator for data center customers concerned with quality of power. Finally, we're seeing increase in interest in Smartstack for applications requiring longer duration energy storage. Smartstack density provides a competitive advantage for these applications because of its smaller footprint. Please turn to Slide 7, as I discuss our growing pipeline. A key piece of our commercial strategy have been the growth of our pipeline, which has increased by 35% in so far this fiscal year. We are seeing opportunities in the U.S. market beginning to outpace our other market with projects concentrated in California and Arizona, as well as the MISO market in the mid 1. Most of the growth is from our core customer base, as I mentioned earlier, but also in part by new customer segments, including data centers and other large energy users increasingly adopt historic solutions. Since our last call, our data center pipeline has increased by over 30%, including projects from both major hyperscalers, I just discussed. We expect data center projects to make an increasing contribution to order intake during the fourth quarter of this year, building on the initial order we expect in the next few weeks. Fluence business model is intended to keep us close to customer, which we believe puts us in a previous position to stop evolving needs early and to respond quickly. That insight informs our product design, the applications we support and the technical operational and commercial terms our customers require back by a sales organization with deep long-standing relationships. In short, we have positioned Fluence to be on the leading edge of best. We view the components with use as commodities, which we integrate into finished products to meet customer needs. Combined with our long-standing technical expertise, and hands-on experience and our deep understand of different markets around the world, we believe Fluence is uniquely positioned to deliver and help our customers maximize the benefit of invested in battery projects. We have evolved our product to accommodate a growing number of customer demand, including market-leading density, digital solutions, optimizing operations and profitability, reduce total cost of owners, large-scale fire testing and industry-leading reliability. Fluence was also the first to offer a complete U.S. domestic supply chain and important advantage for our U.S. customers. We offer a one-stop solution primarily project development through delivery and installation and continuing over the full operating life of each project. We combine in-house EPC expertise with a dedicated service organization that optimizes performance and extend asset life resulting in industry-leading operational net. Please turn to Slide 9 for an update on Smartstack. Product innovation remains another key differentiator for Fluence. Smartstack set the industry standard for energy density, enabling customers to feed more than 500-megawatt hours of storage per acre with additional improvement plan. With a science Smartstack to lower total cost of owners through modular architecture, easier maintenance accidents and more than 98% reliability delivering more electricity and more value to our customers. And a flexible design supports a broad range of cell types across multiple manufacturers, including pouch cells, commonly used in electric vehicles. Importantly, smart packaging and modular architecture addresses the density challenges. Typically associated with pouch form in stationary stores. I'm pleased to report that our first Smartstack has reached substantial completion and commence commercial operations. Our growing Smartstack backlog reflects this market's strong interest in our product. Please turn to Slide 10 for an update on our domestic supply strategy. As I just mentioned, we recognize the importance of a U.S. domestic supply chain early. Today, we have U.S. production for all major components, including battery cells from our supplier in Smyrna, Tennessee, which has been operating since '25. Building on our existing U.S. supply, as we announced in February, we signed an agreement with another source of domestically produced battery health beginning in fiscal '27. We believe this incremental capacity strengthened our supply position and supports delivery against our growing order book. We're also evaluating additional supply options to help support Fluence growth beyond '27. Our current position gives us flexibility as additional proposed U.S. supply comes online. Based on our experience, converted EV battery production to best cells can take a year or more. When exploring additional proposed supply lines, we plan to evaluate each facility stand line to first production, is run speed. It's technical characteristics and how its location could strengthen and optimize our core in U.S. domestic supply network. Let me also update you on PFE compliance for our cell supply in Smyrna, Tennessee. ASC closed a deal to sell a majority interest of its facility to fixed energy, a subsidiary of Lombard Capital. Ownership changed on March 31, 26 and the facility continues to produce sales that qualify for tax credits under the 1 Big Beautiful Bill act. We moved quickly to establish a relationship with a new owner and have signed a new supply agreement covering the next few years. We are confident in their plan to sustain the strong production level we see this year. Looking ahead, we believe we are well positioned to benefit from growing diversity in U.S. sales supply and the impact additional capacity may have on battery price internationally, we competed in markets that have seen meaningful declines in average sales prices for several years. And those lower prices expanded demand by enabling new applications. It's reasonable to expect similar dynamics in the U.S. Importantly, we have executed successfully through the inflationary pricing cycles before. With an approximate 50% decline in ASPs over the past 2 years we more than doubled adjusted gross margin. Although we expect ASPs to continue to decline for the balance of fiscal '26. We are forecasting approximately 50% revenue growth with adjusted gross margins in the range of 11% to 13%, reflecting the strength of our execution and operating mode. To conclude, we are seeing accelerating demand improving execution and expanding opportunity across both our core and emerging customer segments with a record backlog, a strengthening U.S. domestic supply position. and a differentiated product platform, we are committed to delivering for customers and creating long-term value for shareholders. With that, I'll turn the call over to Ahmed to discuss our financial results. Ahmed Pasha: Good morning, everyone. Since our previous earnings call, we have continued to capitalize on strong demand trends in our industry while maintaining our disciplined focus on delivering on our fiscal year 2026 commitments. We also maintained a strong liquidity that provides us flexibility to execute on our growth petitions. More specifically, starting with Slide 12. We generated Q2 2026 revenue of $465 million, up 8% year-over-year. Approximately $80 million of revenue was pushed into Q3 due to 2 issues. Specifically, roughly half was attributable to a customs issue in Vietnam, with the remainder due to shortage of loading equipment in Spain, both issues have self been resolved. The delayed shipments have been received, and we are current on the quarter's deliveries with no further delays. Also to confirm, we do not have any material exposures to the Middle East conflict as none of our shipments utilize the Strait of Hormuz. Our adjusted gross profit for the quarter was $51 million, representing an adjusted gross margin of 11.1%, this result is within our full year expectations of 11% to 13% and reflects a meaningful improvement from the first quarter level as well as comparable quarter for fiscal 2025. The primary driver of the improvement was consistent execution and operational discipline across our portfolio. Adjusted EBITDA for the second quarter was negative $9 million an improvement of $21 million compared to the second quarter of last year. The improvement reflects higher gross margin, lower operating costs and $6 million gain from unwinding and FX derivative. This offset a $6 million loss on the same FX derivatives recorded in the first quarter of 2026, with no net year-to-date impact. Turning to Slide 13 for an update on our adjusted gross margin progression and how disciplined execution translates to returns for our stakeholders. As you can see, our rolling 12 months adjusted gross margin is 12.4%, marking 2 full years of consistent double-digit returns. We believe this progression underscores the durability of our margin profile. -- even in the dynamic pricing environment. Importantly, it reflects the product, commercial and supply chain actions we have taken across the portfolio. These actions position us for continued margin improvement beyond this year. Turning to Slide 14 for an update on our liquidity position. We ended the second quarter with total liquidity of approximately $900 million, which includes approximately $430 million in total cash. During the quarter, we invested $220 million in inventory to support deliveries that underpin our second half fiscal 2026 revenue. In addition, we will invest approximately $100 million in inventory during Q3 to support second half deliveries. Liquidity is expected to return to $900 million levels by the fiscal year-end, driven by execution on our backlog and new orders. Bottom line, our lability position fully supports delivery of our fiscal 2026 commitments. Turning to Slide 15 for our fiscal year 2026 guidance. We are reaffirming our guidance ranges for revenue, ARR and adjusted EBITDA reflecting our strong visibility into the year and continued momentum we see across our business. More specifically, we expect revenue in the range of $3.2 billion to $3.6 billion, with a midpoint of $3.4 billion. We expect approximately 70% in the second half, consistent with the rating of revenue last year. We expect roughly 30% of second half revenue in Q3 and the remainder in Q4, again, consistent with last year. With all equipment ordered and production tracking as planned, we are confident in delivering on our customer commitments and our full year revenue goals. We expect annual recurring revenue, or ARR, to reach approximately $180 million by the end of fiscal 2026, up from $148 million in fiscal 2025. And we continue to expect adjusted EBITDA in the range of $40 million to $60 million for the full year. In summary, we are submitted to achieving core revenue and profitability outlook for fiscal 2026. We remain rather focused on ensuring disciplined execution for our customers and delivering value to our shareholders. With that, I will now turn the call back to Julian for his closing remarks. Julian Jose Marquez: Thanks, Ahmed. Let me close with a few key takeaways. First, strong execution. Our second quarter performance, record 5.6 billion backlog and on track production levels support our content in our fiscal '26 guide. We ended the quarter with approximately $900 million of liquidity, which we believe provides always the flexibility to fund growth. Second, all the momentum accelerated. Order intake has doubled year-to-date, led by orders from both new and existing customers, an indication of strong demand in the U.S. and the positioning of our business. And third, expanding customer base. We are in an excellent position to capture a portion of the rapidly expanding data center demand with the signing of MSC with 2 major hyperscalers after meeting all of their commercial and technical requirements. We expect to execute the first purchase order with 1 of these customers within the third quarter. In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders. With that, we are now prepared to take your questions. Operator: [Operator Instructions] Our first question comes from George Gianarikas from CG. George Gianarikas: My first 1 is on the competitive landscape. How are you viewing the recent trend of some cell manufacturers vertically integrating? And specifically, how are you looking at their push for market share and any impact on pricing? . Julian Jose Marquez: We have seen both CATL and BYD become common and integrate particularly we have not worked in the past would be way, but we have worked with the CAPL. It hasn't really changed the intensity of the market, if you talk the truth. The value the ability to meet customer needs at a reasonable price that hasn't changed effectively. So we continue -- we're growing our backlog. We're growing our winning projects the same as we are. And so we feel confident we haven't really made a big difference in the competitive American. So we attracted 50% of our new sales are new customers. So we are -- I don't see it as a challenge. It's not new, by the way. I mean, it has happened in the past. The change of CTL was they bought, but not a major change in the competitive landscape from our point of view. George Gianarikas: And maybe as a follow-up, first, congrats on the 2 hyperscaler MSAs. If you could -- you did this a little bit, but if you could pull back the curtain a bit on the mechanics of those wins? What did specifically what did the validation process look like? And what do you think was the primary differentiator for you that larger win theres? Julian Jose Marquez: Yes, two things. We went through a very strict commercial and operational and technical evaluation. In 1 of the cases, there were 26 players, I would say the majority would not make it -- so there's a limited number of people or companies that could meet this very stringent requirements. Our ability -- our deep knowledge, our deep experience managing fast response systems in Europe as special. And having the infrastructure and the technology capability to prove their case to them very, very quickly is a negative. We have the lab, we have the termination we do this every day. We know how the applications work. We understand how the critical work globally. And that made a big difference as we were the first one. So I think that we believe that will continue to be what will keep us ahead of the market because we are now -- some of our competitors are still trying to figure out how to meet the criteria. We're thinking how to exceed their what they need and trying to offer them more value and more capabilities, and that's what we bring to the table. Operator: Our next question comes from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: I got to hand it to you guys really kudos here, I'm seeing it through. In particular, look, I wanted to ask you, in particular here, as it pertains the hyperscale orders, what specific product are they following up with you guys with? I know there's been some ambiguity in the marketplace as to whether or not you have the right product and the product positioning for the hyperscalers to get this kind of confirmation with 2 as you guys have flagged, in particular, is quite notable. Can you speak to the specific deployment permutation that they're using you guys with. Is it a BTM FTM, -- is it a capacity support load shifting? And then also, how do they think about the domestic content or fiat compliance. Is that another nuance that we should consider? Just can you speak to the product and more broadly in these wins? And whether this is a leading indicator for further orders like this in coming quarters? Julian Jose Marquez: Yes. So in terms of what they're asking for different what I said in the last call, when we had, we're looking at a portfolio that was a little bit more mixed. Now that we concentrated in the hyperscalers, their main need is quality of power, helping them manage the fluctuation of the data centers and happen so quickly and effectively. So -- and that's what they need, and that's what we proved with our advanced controls and our products, we can prove very, very quickly to them that we can do it. I will say, if I can brought better than anyone else. And that's what is driving this. If you go beyond the hyperscalers into kind of the developers of the world, it seems to be that -- or seems to be what we have experienced more of speed to power and meeting great calls and and is a little bit more mixed, but when it's too hyperscale, it has been quality of power they may ask. In terms of domestic content, it wasn't a requirement from them or something that we're specifically looking at we clearly are selling it. And I think that as we have explained to them the competitive position of domestic content, the value it can create. And the tremendous branding opportunity of having a product that is built here by American for America here especially as this to hyperscalers most of the businesses in the U.S. I think they have -- they are seriously considering as -- but their objectives were meeting the quality of power, meeting their technical commercial objective, and that's where they concentrated on, and that's how we move it. In terms of these 2 MSAs, they have behind a significant pipeline, that we expect that within the next year, will convert into the orders. We won't necessarily win them all, but it will be a significant amount of demand that we see behind this that we will convert having these MSAs gives us puts us in a very, very good position to capture. This is the hard in order to compete. Now many people can do it. And I think this was a stop of approval that when we make an offer, they know that we will deliver what we are promising. Julien Dumoulin-Smith: Awesome guy. And quickly, Ahmed, can you speak to this slide has this interesting commentary that says you're going to invest additional inventory during the third quarter. but you're going to rebuild liquidity towards $900 million by fiscal year-end. When you say rebuilding liquidity, is that going to capitalize in some ways? Or is that just kind of cash flow? Ahmed Pasha: I would not. Julien, I would not read too much in between the lines there. I think it was more as we invest because we have roughly $2.5 billion of revenue in the second half. So we will be delivering that. We're building up the inventory. But as we deliver the inventory, we will be collecting -- so at the end of the day, our liquidity will be back at $900 million levels by the end of the year, consistent with what we told you when we gave our guidance for the year. So that was the intent there. Julien Dumoulin-Smith: Awesome. And just to clarify from earlier, how many other supplied MSAs with you guys? Julian Jose Marquez: I mean, very, very selective, Julien, they all fit in my hand, I think, and have fingers left. We don't know we have the significant information, but we understand they are very, very selective, very few people. I've been able to go to it, they might -- they're probably working on it, but let's see if they get it. Operator: Our next question comes from Brian Lee from Goldman Sachs. Brian Lee: Congrats on the strong backlog here in the hyperscaler updates. I had a couple of questions, I guess, on the hyperscaler MSAs. I'm not sure how much you can provide, but would love to maybe get some detail around quantification of the size of the deals, how many megawatts over what years -- and is it over multiple sites that are already identified? Maybe just if you could elaborate a bit more on kind of the scope of these 2 MSA deals and how meaningful they are in terms of quantitative impact? Julian Jose Marquez: SP1 Yes. So I'll tell you, the majority -- or the great majority of our pipeline is supported by deals that are behind these two MSAs, and these deals will -- and those -- that pipeline is several different data centers around that they have around the U.S. mostly. So that's what it is. In terms of financial -- and our current paper is 12 giga, so that'll give you a sense. We're not providing the financial numbers around it. As it's too early, and we are competing, as you know. So we are not providing those numbers today, but -- my expectation is that as we end the fourth quarter and bring hopefully, a good number of these projects, and I can offer numbers in included in everything and do not necessarily be providing commercial, I will provide you more financial metrics of this. Brian Lee: Okay. Fair enough. Yes, we'll look forward to that. And then maybe just zooming out a little bit because this is a new business for you, and obviously, very, very high growth potential. What's sort of the deployment schedule, I guess, can you help us kind of visualize as you go into some of these, whether they're RFPs or bake-offs -- what's the time line for submitting your design and your proposal to when 1 is finalized? And then when you get a PO to when you're going to deliver to sit kind of what are the the sequence of events and how long is that. Julian Jose Marquez: They are in a hurry, generally. Most of these projects, as I said, that -- I don't know if I mentioned about the pipeline we have, we believe will convert into orders during the year, evening a year, so quicker than generally, we're in a pipeline that comes into our things. And very, very tight schedules for delivery that we commit because we've been working on our speed for some time. So I cannot give you today a specific rule. This is the one. But generally, I will say a lot faster than the conversion rate we have for our order from pipeline to orders and a lot faster on the conversion rate for orders to revenue, than what we do in our normal utility developer to, especially with these 2 hyperscalers. The case of the developers, and it's a little bit different as those are more project tied they are looking for pyramids and stuff. So those will probably take a little . Brian Lee: Okay. Understood. Maybe last one, if I could squeeze in just on the gross margin bounce back. I know that's been a focus for you guys for a little while. So nice to see it back to the range, even on the lower volume here in 2Q, that was a pretty impressive gross margin rebound. What does that maybe entail for the back half of the year? Is there volume leverage and some of the efficiencies from this quarter that can spill over? And is there any potential upward bias to margins as you kind of move through the rest of the year? Ahmed Pasha: So in terms of the gross margin, you're right, an 11% gross margin we earned, which is higher than what we had in Q1. In year to go, we just reaffirmed our guidance where we said 11% to 13%. So we will be somewhere in the middle of that range a year to go. I think at least that is our goal is about 12%. So we will definitely be better than what we earned in Q2. Operator: Our next question comes from Dylan Nassano from Wolfe Research. Dylan Nassano: Just wanted to check on the broader data center pipeline. Any updated thinking there in terms of how much of that kind of fits your previous criteria of pipeline versus leads? And then I noticed there's this 6 gigawatt hour kind of target for what gets included -- just how did you come up with that number? Any thinking around there would be helpful. Julian Jose Marquez: I'll tell you that there a number for our pipeline it. Our pipelines went up like 30% from last quarter. we concentrated a lot on the hyperscalers. And so a good driver of that has been the hyperscalers who are roughly at 12 gig. And our leads are 3x generally the same as close to where essentially the same as we had last quarter, we come to some into pipeline and we were able to replenish as a rule. The 6 gig, I don't know what the you're referring to Dylan, sorry,. Dylan Nassano: It's on Slide 6 at the bottom, and just classified the system 6 gigawatts hours or more. Julian Jose Marquez: Let me check. But in any event, strong growth great opportunity here. And I think that by concentrating on hyperscale extra, we get the point on this. we are in a market segment that we expect will test faster and that we will convert into execution quick. Unknown Executive: Yes. Dylan, that's 6 gigawatt hours. That's -- it's not a pipeline, how we classify an LDS project. So anything over 6 gigawatt hour. Sorry. . Julian Jose Marquez: Yes, for long duration storage, yes, those are loan duration stores, so they need to be more than 6 hours, in order to be long duration as a definition of loan duration for 6 and more. Dylan Nassano: Yes, my mistake. And then just a follow up on the quarter. I mean, it looks like revenue was kind of lower than analyst expectations even kind of including this $80 million. So I just wanted to check, was there any other seasonality in the quarter beyond or other disruptions beyond the shipping stuff some guys noted. Ahmed Pasha: No, there was none. I think if you recall, when we gave our guidance in Q4, we did see about 1/3 of our revenue in the first half and the rest given fact that we don't give quarterly guidance, I think that was the only reason what is the difference. But overall, from an internal perspective, as I mentioned, the $80 million of this shipping delay was the only reason why we were lower on the revenue for Q2, but that we have the shipment we have already received. So we feel pretty good on year to go. . Julian Jose Marquez: And if I can add 1 point, our indication of where we see revenue divided among quarters more indicative, so you can model it and so, but we don't run the company on a quarterly basis to be very clearly. We'll run it on a yearly basis. That's why we intend to meet our yearly numbers. We try clearly to what we indicated to me about is not -- we do not provide quarterly guidance. I know it creates some confusion, but -- it's a way of try to help you model and at the same time, keep the flexibility to manage things effectively and efficient within the company. . Operator: Next question comes from Joseph Osha from Guggenheim Partners. Joseph Osha: I wanted to drill down a little bit on 2 product details. Julian, you said that hyperscalers and data center more broadly, tends to be more about product quality or power quality. So is the implication then that we're seeing shorter duration configurations, say, an hour or 2 as opposed to 4? That's my first question. And the second question, just to confirm, thinking about the inverters, are you generally being asked to deliver a response time of 10 milliseconds or less. Those are my 2 questions. Julian Jose Marquez: Yes. On the first one, they tend to be shorter duration, you're right. So they are -- I'll say, we don't provide anything smaller than 2 hours or 2 hours is what we and general that's where the market is trading, but they tend to be shorter than even though our main point to the data centers as we engage with them and the developer have test the great beauty of that our technology compared to other technologies that are trying to resolve is that we can stack business models on top. And we can do quality of power, help them with to some of the work of resolving some of the efficiencies of interconnection or backup. We can help them on solve them voltage. We can help them on many, many fronts. So -- that's -- I think that as we're looking at the assets, they are expanding also their view of what is on that was on that point. On the second one, generally, I will say that -- sorry, the second 1 can. We need to -- we're not providing the actual number, but it's very short, not the way over it. So we're not providing the actual number because it is proprietary to the solution and to the people we're working with, but it is very, very short, significantly shorter than 100 milliseconds, we tend to do for transmission systems and European Valifications. Joseph Osha: And just to follow up on that very quickly. That would probably assume create the need for inverters with wideband gap MOSFET you've got it off SP-5. Julian Jose Marquez: Yes. You need inverters. I can provide that. That capability is very much dependent on the inverter you use. We work with inverter companies that -- we have done this in Europe for many years, so we're not exactly who leave, how they do it and their strategy very well. So we have that. And our advanced controls work very well with these Abertis and have the processing time to ensure the whole system, response on that, not behind the inverter as healthy suppose. Operator: Our next question comes from Jon Windham from UBS. Jonathan Windham: Nice result. I was wondering if you could talk about the U.S. storage market continues to grow at a rapid pace. Where are you -- are you able to provide us sort of where you are on being able and sort of capacity in gigawatt hours to provide over the next 12 months? And then just sort of thoughts on the road map to keeping up with the market growth over the next 2 or 3 years. Julian Jose Marquez: Yes. Yes, we see the U.S. market growing expanding significantly. So that's right. What we have, we have, as you know, our domestic products, our flagship solution in the U.S. We have the ASE capacity, we enter with another supplier for additional capacity, and we are looking at additional capacity for the '28 going forward. So we have enough capacity to forward the pipeline we see and the conversion rate we affected we don't provide specifically the numbers, but we -- it's multigigacapacity, and we have seen no problems getting the -- and we are putting the whole infrastructure that delivers that multidealer the U.S. with our domestic content offer. We can also import equipment if we need to, but our preference is to do the domestic content solution. Jonathan Windham: Perfect. And maybe just a quick follow-up. There's been a lot of commentary on the gross margin. But historically, some of the issue has been that operating OpEx as a percentage of revenue has basically been offsetting the positive gross margin. So just your thoughts on internal initiatives to get the OpEx number down to drive bottom line profitability and free cash flow. Julian Jose Marquez: Yes. The operating costs are percentage of revenue is essentially a function of growth or growth of the top line. So if you follow it carefully, you'll see that our operated revenue goals it's very much vital. Our costs are very, very stable and how much of our cost represents that of our revenue depends on how much we can grow revenue. So we have seen -- and we have an operating leverage that we believe that we can grow this company that we can keep our costs down and half the rate of growth of our top line, which will be -- which adds tremendous value. And you'll see when you look at the numbers, it's very, very clear. It's an operating leverage formula. Unfortunately, as you know, last year, we didn't grow. So that's where the operating revenue -- the percentage of revenue of cost of revenue was a little higher than what we had parted. Ahmed Pasha: Our goal is that we basically create the operating leverage and we do have that as the revenue grows, our costs, we will maintain that cost discipline and cost will be reduced -- increasing less than half of the growth in our revenue as Julian just mentioned. So I think that's our key focus from my perspective. Operator: Our next question comes from Ameet Thakkar from BMO Capital Markets. Ameet Thakkar: It looked like ASPs, if we'll get revenue and kind of your revenue recognition megawatts for the quarter were up nicely quarter-over-quarter. And I was just wondering, was there a lot more EPC work this quarter? Or is this kind of maybe the level we should be thinking about for the balance of the year for modeling purposes? Julian Jose Marquez: This number, as you said, it moves up and down quarter after quarter based on the mix of the cells. So I wouldn't read too much on it. We are designed to meet our financial objectives independent of where the ASPs go up or down. And our planning assumptions that they will continue coming down. And we are deciding to make money and make it successful. And I'll say even more every time we have seen ASPs come down, what happens that demand is plans at a rate that is much bigger. -- the reduction in revenue at on the lower ASP. So we -- I wouldn't read too much on it. I know that something that you care about a lot, I mean, the analysts care a lot about, but -- it is not a big driver of our business financial results. . Ameet Thakkar: Great. And then I know you had mentioned earlier in answering 1 of the kind of questions before about kind of your long -- and I think you said that the vast majority of that is data center related. Is that right? Is it a little bit over half? Or is it substantially all of that 1 gigawatt pipeline is data center related. Julian Jose Marquez: Yes. Now we have a 12 gigawatt pipeline of data -- all of its data center related. What I said that a great majority was connected to the 2 MSAs that we just signed. So the 12 gigawatt hours are -- all of it is data center related, of which the great majority of more than 1 or been a good portion of it. I want to give a number come from the -- supports these 2 MSAs, which is high. Operator: Our next question comes from David Arcaro from Morgan Stanley. David Arcaro: I was wondering, are there other MSA opportunities that you're currently working on? Is that something that you would expect most hyperscalers to be pursuing on the storage front. Julian Jose Marquez: Yes. We're looking at it. These are the 2 that we have more urgent needs. And so -- but we're looking to work with all of them. So we believe the problems are similar and that we can meet their needs with our capacity. So we hope to work with all of them. David Arcaro: Yes, makes sense. Any -- are there any active now or any sense of timing as to when those opportunities might pop up? It seems like they're all very active on the data center side of things, and I imagine looking at storage. So is that also a near-term opportunity? . Julian Jose Marquez: I think that -- well, I cannot give you a real sense of time when it will happen as it would depend on where they are and what they do. I mean, -- the tool that we have signed are people are very clear what they need. They are in a hurry to win, and they seem to be ahead of the market if you ask -- so -- but we're working with everybody. We are contacting all of them, working with them, and the chassis to are ahead. David Arcaro: Got it. Okay. Great. And then the 50% proportion of new customers, I thought was notable. I was just wondering, could you give any characteristics of kind of who those customers are? What type of customers they are? Is it the traditional profile of developers and utilities that you would see or any specific locations? Curious if it's a new profile. Julian Jose Marquez: This is a result of the great work that Jeff Monde, who joined us as our VP of Growth has done since he arrived. It really had invested significant business development identify all these customers, which are -- I would say, we're not a typical we used to work before, for our deal developers or utilities, that we have not contacted in the past and now we have made significant progress. And this is a global effort that we're doing, not only in the U.S. but outside of the U.S. So -- but I would say that, as we said during the call, these are customers that are within our normal or core customer segments, utilities and developers growth. But great calls to our sales organization that has really invested into developing and bringing these new customers and into the mix. . Operator: Our next question comes from Ben Kallo from Baird. Ben Kallo: Could you just talk a little bit because of the specific product they're looking for in the size. If you could talk about just pricing and margin, how we should think about that all these better deals? And then also my second question just outside the U.S. where you see pockets of demand and then just remind us how margin compares internationally versus the U.S. Julian Jose Marquez: In terms of data center, I will say, as we said, duration shorter term. And I'll say the margin is in line with our guidance of 10% to 15%. That's what we'll say. So generally, that's what it is. And both of their needs are quality of power, which we do this for grades globally, we're doing for them here, and I think it worked well and versus -- so in terms of margins, margins changed market for market depends on the competitive environment. As we go in our 10% to 15% range, but there are markets that are a little bit more -- they go through more competition than us. I will say that markets like the U.S. and the U.S. is probably a little bit on the high side, the U.K. on the lower side. And so it changes a little bit on changes market per market. But our 10 to 15 range works for all these markets. . Operator: Our question comes from Maheep Mandloi from Mizuho. Maheep Mandloi: A question on the MSAs with the hyperscalers. Do they have any special requirements on the battery types is like the general batteries you have for the best industry? Or is it high searate? Just curious if -- on the supply side, if you need to make any changes on the sales sourcing of that. Julian Jose Marquez: We make any battery grade. We make any battery grade. So the battery is a commodity whatever they need. I think the main driver is Nitsure, and that comes our packaging, our capabilities. So no real need on -- clearly, the LFP to nobody as to the M&C for many reasons, but a brand or supplier is not relevant for them. Whatever battery we put in our systems, we can make it to [ Gen 6 ]. Maheep Mandloi: And then separately, like we saw some battery deployers proposing high ceded batteries, which go inside the data center for 800 volt TCs? Is that something of interest are you exploring? Or your're looking at outside that did so. Julian Jose Marquez: Yes, yes. We're looking at our product road map includes not only these many other elements that we're looking at to continue improving our offering to data centers and to our solutions, 1 option is this high seed rates batteries that will go into that. And they don't have some limitations, but it's part of our program that we have for the will happen or not, we'll see, but it's not any time soon. . Operator: Our next question comes from Moses Sutton from BNP Paribas. Moses Sutton: Congrats on the great update. Have these data center opportunities convert into reality, how do we think about the ratio at for what, meaning the loss of load to the watts of storage. We've seen examples out there of gig data center might need 800 megawatts of batteries and examples that could be of that, right, depending on their need. So what do these projects start to look like right now as we're connecting sort of a data center TAM in gigawatt terms do the storage opportunity that you're converting against? Julian Jose Marquez: Too early to give you a rule of thumb that we can calculate clearly have some views, but it's too early to give you -- too premature to give you a rule of thumb. How do you think a gigawatt would take this amount of battery. So we we will -- over time, I think that we'll be able to develop that as it becomes more clear, but today, we -- that we cannot do. What we have, as I said, 12 giga pipeline ahead of us, which we want to convert into orders a good portion of it within the next 12 months. So -- that's what we're concentrated on. And as we learn more about this and we see how the industry develops, we'll provide you a rule of thumb that will give you a better sense of the whole market. Moses Sutton: Got it. Got it. That's helpful. We'll look forward to that. And then on the MSAs, what's the nature of the exclusivity from what you've won? Are there multiple vendors? I couldn't tell if you were answering that in some of the earlier questions. So for those hyperscalers, are you 1 of the few players? Are you exclusive? Is that a geographic exclusivity... Julian Jose Marquez: One of a few players, 1 of a very, very limited number of players. But this is a competitive process. These are not directed at least not yet. I may be able to take them there and so forth very limited players and a competitive process as we moveforward. Well, thank you, everybody, for participating today, and we'll be available. Chris will be available, I also will be available to answer any questions you may have. Bye-bye. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Evaxion Business Update and First Quarter 2026 Financial Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO, Helen Tayton-Martin. Please go ahead. Helen Tayton-Martin: Thank you, and welcome, everyone, to Evaxion's Q1 2026 Business Update Call. I'm very pleased to be joined today by our CSO, Birgitte Rono and COO, recently promoted, we will talk more about that; and Thomas Schmidt, our CFO; and our Head of Investor Relations and Communications, Mads Kronborg. So if we move to the first slide, just to provide some orientation as to what we will cover today. We will spend a little bit of time on our achievements in the first quarter of this year and some notable changes that we have made in order to address and focus on our strategy. I will then hand over to Birgitte, who will talk through some of the recent highlights from our R&D portfolio and AI-Immunology platform. Birgitte will then hand over to Thomas, who will walk you through our Q1 financial results. And then we will have some concluding remarks before opening up the call for Q&A. So if I move to the next slide, just to reiterate, we may make some forward-looking statements on the call today, and investors and all listening are guided towards our SEC filed documents. So if I go past our introduction to Slide 5. I just wanted to, as before, emphasize our 4 key focus areas within the organization and give you a sense of the momentum as we perform an update in each of those areas. First of all, our core focus around business development and partnering is very much underway and strengthened. By the way, we have reorganized the organization somewhat, and I'll come on to that to focus on the external outreach and positioning of the company to a broader audience and also to raise the awareness of exactly what it is that Evaxion can deliver in terms of products and the platform. And I'm pleased to say that we have many discussions ongoing there, and we hope to report more on that later as the year progresses. Secondly, in our R&D focus areas, we are delighted to talk about our recent data from our EVX-01 lead program Phase II study in which we were able to update some of the translational data recently at AACR, and Birgitte will talk in more detail about the performance of the cells that we produce in relation to the vaccines given to the patients and the 86% immunogenicity conversion rate we have there. We also were able to present at AACR, a new set of data preclinically in collaboration with our collaborators at Duke University on the scope to use the AI-Immunology platform in glioblastoma. We have always felt that the approach could be applied to other high mutational burden tumors, but also to others where high mutational burden was not a feature, and that is very much part of how we were able to demonstrate the broader applicability of the platform in glioblastoma. And again, Birgitte will speak more to that. Finally, we were able to confirm the completion of the last patient, last visit in the extension phase of our EVX-01 program and our Phase II trial, and more to come on that later in the year. More broadly on the AI-Immunology platform, we continued to optimize and strengthen that around its ability to deliver products across our infectious diseases as well as oncology portfolio and again, also in autoimmune disease, again, where we'll update later in the year. But in this first quarter, I'm delighted to say that we were able to show some initial data on a new polio vaccine concept presented in collaboration with The Gates Foundation. And finally, as Thomas will come on to, we have maintained our disciplined allocation of resources aligned to our stated aims with the portfolio and the platform, and our cash runway remains unchanged into the second half of 2027. Moving to Slide 6. As mentioned, we have reorganized slightly inside the organization. I'm delighted to announce the promotion of Birgitte to the combined role of CSO and COO, which really reflects on how we organize the company and how well it's been run in recent times, but also to enable me, in particular, to have a greater focus externally on behalf of the company in terms of our business development and our investor interactions. Separately, and in parallel, we were able to welcome Jens Bitsch-Norhave to our Board of Directors. And Jens comes to us with a huge amount of experience in BD and corporate strategy and outreach in general, both from a biotech perspective but more recently from J&J and Hengrui, where he is currently Corporate VP and Global Head of Corporate Development. So we're delighted with the way that we've been able to strengthen the organization to focus on our stated strategy, to build and maintain what we have and build greater partnerships. So on Slide 7, just to summarize, we remain a lean and capable and focused team in terms of the management organization. Two of the members are here on the call with me today, and Andreas continues to support and drive the organization's innovation strategy around AI-Immunology. And our Board remains the same but with the addition of Jens, as I mentioned. Finally, moving to Slide 8 to set up our objectives and key milestones for this year. Just a reminder that Evaxion over many years now has the privilege of having a pipeline in Phase II in oncology with our EVX-01 asset in advanced melanoma, our personalized neoantigen-directed peptide-based vaccine, where we've got great data, which Birgitte will touch on in terms of now and what's to come. We have our EVX-03 program, which is a combination of personalized and IRF-based antigens on our DNA platform. And then we also have coming along in preclinical development, aiming for clinical readiness by the end of this year, our off-the-shelf vaccine program, EVX-04 targeted to AML, which will be a single vaccine approach for multiple AML patients. More to come on that. Infectious diseases, we remain focused on driving forward our preclinical assets, EVX-B1 against pathogen staph aureus, our B2 program against Neisseria gonorrhea and also in collaboration in -- with Afrigen on an RNA platform. EVX-B3, our options partner program continues to move forward with MSD. And before our more recent newer program on Group A Streptococcus is making great strides in initial early discovery component design. And our first viral program is continuing to make progress in terms of confirming the candidate components. So a lot going on in the organization. In Slide 9, I just wanted to remind the audience of our 2026 milestones and the fact that we have achieved the first one of those in our EVX-01 additional biomarker and immunogenicity data, and we remain on track in terms of updating on the approach of AI-Immunology in autoimmune disease, our 3-year data for the EVX-01 melanoma program, our planned strategy with the EVX-04 AML program and the early work maturing in our preclinical EVX-B4 program against Group A Streptococcus. And fundamentally, we are driving the partnership strategy to focus on the platform and the assets so that we can continue to build value in the company and focus on delivering those into early development where we believe we can add value. So at this point, I'd like to hand over to Birgitte, who will talk you through our R&D and AI-Immunology update. Birgitte Rono: Thank you, Helen. So today, I'll be focusing on our lead candidate, EVX-01. And as mentioned, this is our personalized neoantigen cancer vaccine currently in Phase II in advanced melanoma. And then I will present the exciting new data demonstrating the scalability of our AI-Immunology platform into the hard-to-treat deadly brain cancer glioblastoma. And lastly, I will showcase how we have applied AI-Immunology to design optimized vaccine antigens for an improved polio vaccine. So if you take the next slide. So as Helen mentioned, we presented EVX-01 Phase II biomarker and T-cell immune data at the AACR Annual Meeting here in April. And we reported that 86% of the EVX-01 vaccine target triggered a specific immune response, and this is substantially higher than what has been reported for other similar vaccine candidates. Furthermore, we also reported that 86% of the immunogenic vaccine target induced a de novo T-cell response, meaning that the EVX-01 vaccine specifically triggers novel T-cell responses and not just amplifying existing responses. And this is of great importance as induction of these novel responses have been linked to clinical benefit. Furthermore, we demonstrated a positive correlation between the predicted quality of the EVX-01 vaccine targets and the magnitude of the T-cell response induced by the vaccine targets. And this high vaccine target success rate, together with this positive correlation demonstrates the strong predictive power of our AI-Immunology platform. If you take the next slide. So EVX-01 continues to deliver strong data, adding to the already existing and promising clinical and immunological data package. So at ESMO last year, we reported a 75% overall response rate, including 25 complete responders and 92 sustained responses, indicating a durable benefit. So importantly, more than half of the patients converted into an improved clinical response upon EVX-01 treatment. And with the newly presented Phase II immune data, this further strengthens the picture with the 86% immunogenicity and the 86% de novo immune responses, demonstrating broad and consistent immune activation. So looking ahead, we have a clear development trajectory. We will announce 3-year data, including clinical outcome in the second half of this year. Further, we are evaluating and discussing additional relevant cancer indications and with further trials expected to be conducted in partnerships. And importantly, EVX-01 has already received FDA Fast Track designation, validating both the unmet need and then also the development potential. So overall, this positions EVX-01 very strongly as we move forward into the next phases of value creation. If you take the next slide. So let's turn our focus to the other promising data set presented at AACR. So in collaboration with Duke University, we demonstrated that our AI-Immunology platform scales beyond melanoma. And here, it's exemplified with glioblastoma or GBM. So GBM is the most common and the most aggressive primary malignant brain tumor. And despite surgery followed by chemoradiation, outcome remains very poor for these patients with a median overall survival of approximately 15 months and a 5-year survival below 10%. So using our AI-Immunology platform, we have evaluated tumor omics data from 24 GBM patients and demonstrated that a fully personalized vaccine design was feasible for all these cases. And importantly, these designs were based on 2 classes of antigens or classical neoantigens and also antigens derived from the dark genome so-called endogenous retroviruses or ERs. So in 21 out of the 24 designs, they included both types of antigens, 2 vaccine designs included only neoantigens and 1 design relied solely on the ER antigens. This analysis showcases the flexibility and the scalability of the platform to integrate antigen from different sources, fitting the patient tumor biology. So overall, the data demonstrate that AI-Immunology can address hard-to-treat low mutational burden tumors like GBM and it also supports broader applicability of the platform across different cancers. If you move on to the next slide. So another example of how AI-Immunology can be used to design improved vaccine was showcased at the World Vaccine Congress. And together with The Gates Foundation, we presented a new polio vaccine concept using AI-Immunology, we designed a novel hybrid capsid antigen and a novel de novo B-cell antigen with the aim of eliciting a strong and broad tumor response against all serotypes. And overall, this highlights the potential of AI-Immunology to reinvent classical vaccines with improved simplicity and also improved breadth. Take the next slide. So having highlighted progress across the key R&D program, let's step back for a moment and focus on AI-Immunology and the data validating its ability to generate high-quality product candidates. So AI-Immunology is clinically validated with positive outcomes in 3 out of 3 oncology trials. And preclinically, we have demonstrated proof of concept across multiple disease areas, including cancer with our IRF targeting off-the-shelf vaccine concept as well as in infectious diseases with several vaccine candidates targeting multiple bacterial and viral pathogens. And importantly, the EVX-01 concept is highly scalable with potential in other solid tumors beyond melanoma. Additionally, the platform's applicability in challenging cancer indications was further validated in GBM. So finally, AI-Immunology supports multiple modalities, including peptides, proteins and DNA and RNA, enabling both pipeline and also partnership potential. So in conclusion, we have demonstrated strong progress across our platform and our R&D pipeline, and we are looking forward to keeping you updated as we advance our programs further. So with that, I will now hand over to Thomas, who will present our quarterly financial results. Thomas Schmidt: Yes. Thank you, Birgitte. And as mentioned, I will now then present and take you through our Q1 '26 results. The highlights of the first quarter of the year really is a continued discipline that we have applied in our resource allocation, of course, aligned with our strategy and certainly investing into our value drivers. So really according to plan. And that also means that we are on track to deliver what we expect of an operational cash burn of roughly USD 14 million for 2026. That also underlines and reconfirms that our cash runway is into the second half of 2027 and remains as such. Also, as earlier communicated, not assuming any partnerships or deals that we will hopefully be making and communicating within that time frame. Looking at the P&L, we have operating expenses overall more or less in line with last year, but slightly reduced. It comes from our R&D with a minor increase as we continue, as mentioned before, to progress and advance our pipeline and programs according to plan. On the other side, our G&A expenses are slightly lower versus last year, also mainly driven by the fact that we have lower capital market costs in Q1 '26 versus the same period in '25. The first quarter resulted in a net loss of USD 3.6 million, again, according to our plan. On the balance sheet side of things on the next slide, reconfirming once again, our cash position and equivalent end of the quarter stands at $18.4 million, which confirms runway until the second half of '27. And the total equity has been reduced since year-end, really as a result of the net result of the first quarter, meaning that we have USD 13.2 million as equity at the end of the quarter. So all in all, financials according to plan, allocation into our main priorities and cash runway confirmed until the second half of 2027. With that, I hand it back to Helen for some concluding remarks. Helen Tayton-Martin: Thanks, Thomas, and thanks, Birgitte. And so I would just like to emphasize that we believe we've made a great start to 2026, achieving the first of our milestones with a really encouraging translational data from EVX-01. We've got various presentations that have been made that validate the capabilities and scalability of the platform, as Birgitte has explained. Business development remains a key priority in terms of engaging with organizations on the value of the assets that we have and the capability to develop those assets as we've talked a bit about. And the cash runway is maintained through to the second half of 2027. So we are rigorously following execution of our strategy and engagement externally and making great progress. So with that, I would like to hand back over to take some questions by the operator. Operator: Our first question comes from the line of Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Two for me. With respect to the 3-year EVX-01 data, ASCO is obviously too soon. But should we anticipate something like an ESMO readout? Or will you do it independent of a broader scientific meeting? Helen Tayton-Martin: So we will be updating in the context of a scientific meeting. We will not be sort of outside of that, that's not our intention. And we'll confirm which of the 4 conferences it will be once we're able to -- once abstracts are released. Thomas Flaten: I think the GBM data that you put out, albeit early, was very exciting, and obviously, a disease state and great need. Is it your strategic intent to take that into humans? Or would you seek a partnership based on the data you have now and perhaps some additional preclinical data? Helen Tayton-Martin: So we are very excited about the data. We agree it's really interesting and it's really exciting in a very difficult-to-treat disease. We would anticipate that that will be something that we will be partnering. It sort of strengthens the overall personalized approach that we have developed with EVX-01, but probably more to come on that as more data and discussions mature, but it would be a partnering approach for that one, too. Operator: Our next question comes from the line of Michael Okunewitch from Maxim Group. Michael Okunewitch: Congrats on all the great progress. I guess to kick things off, I'd like to ask just a little bit about expansion and I guess, your design philosophy and strategy around that. So first off, when thinking about targets for expanded indications in cancer, in particular, is the plan to go after other diseases where PD-1s have historically been ineffective due to that synergistic activity of directing the antitumor immune response? Helen Tayton-Martin: So I think we've taken a lot of parameters into account. But Birgitte, do you want to comment on how we have been marshaling the approach internally to focus on the rare diseases? Birgitte Rono: Yes. So as mentioned, we are looking at multiple different antigen sources currently, and there's further development in this area in the company. So we would like to be able to provide a cancer vaccine for all patients independently of their antigen profiles or landscapes. So we have so far looked at more than 30 different indications, mapping out their seasonal burden, their ERV burden, et cetera, and can see that for many of these indications, we're able to -- with the capabilities we have currently to design a high-quality vaccine. And of course, one would need to further dive into medical need and current treatment landscapes to find the optimal subpopulations where our therapies would fit, but not necessarily in PD-1 low patient, it could also be in high. So it's mostly -- we are mostly focusing on understanding the antigenic landscape and fitting our therapies towards these profiles. Michael Okunewitch: When thinking about designing new vaccines, do you find that it makes more sense to use one personal vaccine and then see if you could expand that to multiple tumor types with the same vaccine for more universal coverage? Or does it make more sense to go tumor by tumor and create a new back of targets that are directed specifically at the common target for that given tumor type like melanoma or like glioblastoma and have an individual vaccine candidate for each of those different cancers? Birgitte Rono: So the way that we are approaching this is to look into a lot of data from certain indication and understanding, as mentioned, the landscape. If we do see that there are these conserved antigens, so antigens that are shared across patients, we would definitely develop an off-the-shelf vaccine just due to the fact that the statistics are more simple and also the cost for the manufacturing would be way lower than for a personalized approach. Further on, you can -- if there's an off-the-shelf therapy, you can immediately treat the patients and not have to wait for that personalized batch to be ready. So that's -- everything comes back to the patient omics data and the profiles that we are seeing in our analysis. For some indications, we know that developing an off-the-shelf cancer vaccine would be very challenging. So it clearly depends on these different biological profiles. Helen Tayton-Martin: I think the EVX-04 illustrates just where in that setting, I think, the high level of conserved has enabled us to produce a single vaccine for those patients. Michael Okunewitch: I appreciate the additional color and looking forward to the 3-year data coming up later this year. Operator: We will now take our next question. And this question comes from the line of Danya Ben-Hail from Jones. Danya Ben-Hail: Congratulations on the update. You mentioned that there are several parallel partnerships and discussions. Can you provide more detail on whether these discussions lean toward broad platform licensing or specific asset-based collaboration in future? Helen Tayton-Martin: So we obviously can't say much at this point. I think we have stated the priority around partnership on EVX-01. But as you've heard, that has broader applicability than melanoma in our minds. And that has obviously also gathered interest externally with partnering conversations also. Across our infectious diseases portfolio there are a number of assets there, which are of interest to a number of companies. So we can't really provide any more details than that. Suffice to say that we are trying to be strategic around the way we have the partnering discussions in terms of maximizing the value, whether it's from an asset group in infectious diseases or the approach with something like the personalized EVX-01, EVX-03 cancer vaccines. So obviously, we will -- as soon as we can tell you more, we'll be delighted to do so, but we're pushing forward on a more strategic basis, if you will, around how to get the most value out of the assets that we can produce from AI-Immunology. Danya Ben-Hail: Just one more question on the autoimmune platform part. So we should expect more details in the second half? Helen Tayton-Martin: Yes, that's our current plan and aligns to -- as is always generally with Evaxion, generally aligns to scientific relevant conferences to report on data. Operator: There are no further questions for today. I will now hand the call back to Helen Tayton-Martin for closing remarks. Helen Tayton-Martin: Thank you. Thank you very much. And thank you to all those who listened into the call, and thank you very much for the questions that we received. I think in summarizing, we are very enthusiastic and excited about the performance so far in Q1 2026. We are really just getting started and we are achieving our milestones as we have stated them to be. So very excited about the initial data, very excited about the additional updates to come later this year. With that, I'd like to thank you very much, and I think we'll be closing the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the PAR Technology Corporation first quarter financial results. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Byrnes. Senior Vice President, Investor Relations and Business Development. Please go ahead. Thanks, Antoine. Chris Byrnes: Good afternoon, everyone, and thank you for joining us today for PAR Technology Corporation’s 2026 First Quarter Financial Results Call. Earlier today, we released our financial results. The earnings release is available on the Investor Relations page of our website at partech.com, where you can also find the Q1 financials presentation as well as in our related Form 8-Ks furnished to the SEC. Before we begin, please be advised that our remarks today will contain forward-looking statements. These forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, again, refer to our earnings release and our other reports filed with the SEC. In addition, we will be discussing or providing certain non-GAAP financial measures today, which we believe will provide additional clarity regarding our ongoing performance. For a full reconciliation of the non-GAAP financial measures discussed in this call to the most comparable GAAP measure in accordance with SEC regulations, again, see our press release furnished as an exhibit to our Form 8-Ks filed this afternoon and our supplemental materials available on our website. Joining me on the call today is PAR Technology Corporation’s CEO, Savneet Singh, and Bryan A. Menar, PAR Technology Corporation’s Chief Financial Officer. I would now like to turn the call over to Savneet for the formal remarks portion of the call which will be followed by general Q&A. Savneet? Savneet Singh: Thank you, Mr. Byrnes. I would like to start today with a core conviction. PAR Technology Corporation has fundamentally been miscast in the public market. Historically, we have been heads down, but starting today, for the first time, we will be providing additional forward-looking financial guidance along with our previously stated mid-teens ARR growth target, because we believe in the power of what we have built and how we are building to drive true shareholder value. Today, you will see that we are not focused on sleight-of-hand announcements, financial engineering, or AI-washing results. We are focused on execution, focused on the dollars and cents that are going to drive real value to our investors and to our customers. We fundamentally believe that our business is in an amazing position to capitalize on our future AI vision of PAR Intelligence. We have a strong foundation shielded from perceived AI market incursions, and the pipeline we have ahead of us is going to drive material upside to our financials. Now turning to our Q1 performance. Q1 marks a good start to the year, and a purposeful shift in PAR Technology Corporation’s operating strategy and execution. Our goals are clear: one, materially improve PAR Technology Corporation’s profitability via sustained operating leverage, and two, utilize PAR Intelligence to expand TAM and long-term growth. In Q1, we scaled our AI-first restaurant and retail platform, eliminated structural cost inefficiency, expanded recurring revenue, and delivered meaningful year-over-year improvement in profitability. Total revenue for the quarter was $124 million, representing 19% year-over-year growth driven primarily by strength across subscription services and hardware. Importantly, we improved adjusted EBITDA by nearly 2x year over year, reflecting tighter cost discipline and stronger operating leverage. This theme will continue throughout the year. OpEx will decline sequentially every quarter in 2026 while ARR, gross profit, and EBITDA all continue to grow simultaneously. In Q1, ARR reached $330 million, up 16% year over year with organic growth of over 11%. This performance reinforces the durability of our SaaS-based model and the increasing strategic value customers place on our omnichannel data-driven platform. Importantly, we continue to grow year over year while managing out the low-priced customers we referenced last quarter. While gross margin was impacted by hardware-related tariff and cost pressure, we are making real progress expanding profitability. Further, we are seeing improved success employing AI across G&A functions. OpEx as a percentage of revenue declined from 50% to 43% year over year, with Sales and Marketing at 9%, R&D at 16%, and G&A at 18%, respectively. As we scale and improve our fundamentals, our progress with AI has become an increasingly important driver of momentum, especially on the product side. PAR Technology Corporation serves multi-unit restaurant and retail operators competing in complex, margin-sensitive environments, and that is exactly where our Better Together and PAR Intelligence strategy is focused. Driving our competitive wins is not any single feature. It is the combined value of a core platform with expanded feature depth via Better Together integrations, as well as the premise of PAR Intelligence functioning as an agent harness that drives profitable actions. Together, we see our PAR Intelligence AI vision as an amplifier of our platform and future growth. In particular, we are more bullish than ever in our ability to drive sustained profitable growth through AI. Brands moving away from legacy solutions consistently tell us the same thing: fragmented technology stacks slow them down. When your core data lives in one platform like PAR Technology Corporation’s, you unlock the ability to deploy agents across the entire tech stack, not just with a single siloed product. Our multi-product enterprise deals are precisely possible because of the binding power of a modern point of sale tying together all the facets of the data tech stack. That is a structural advantage. Context equity is the cornerstone of winning in the AI era. Customers are signing near decade-long multi-product deals with PAR Technology Corporation precisely because they know the difference between an agentic platform based on deep workflows and shallow dashboarding. We believe these long-term contracts are a key proof point that we are becoming the trusted AI partner for our category. Let us dig into the Q1 performance in detail. On the Operator Cloud side, momentum was led by PAR POS and Data Central, with continued execution against the Burger King rollout and wins such as &pizza, Tijuana Flats, Charcoal Japan, and Pizza Factory. The PAR POS Burger King implementation is running at a sustained pace of over 400 sites per month, and we have a strong plan into more than 3,000 additional sites that will go live this year. We continue to work in lockstep with our most recent tier-one win, Papa John’s, as we kick off their dual POS and Data Central implementation plan late this year for all of their U.S.-based restaurants, and the full system will be live by 2027. We are seeing exciting pipeline traction in the pizza vertical, with this sector poised to be disrupted as the market is fragmented, lacking new entrants, and primarily run off legacy, custom-built tech stacks. PAR POS is the foundation of our platform, and we are quickly progressing with agentic OS capabilities. Across the portfolio, attach rates are the story, as nearly 90% of new Operator deals in Q1 were multi-product, yet the average customer still uses fewer than two of our core software solutions. PAR Technology Corporation is not reliant on home run tier-one deals to meaningfully drive growth. The continued expansion of multi-product cross-sell into existing accounts by itself provides meaningful runway. On the Engagement side, ARR growth is driven by cross-sell, upsell, and pricing actions, as well as the initial contribution from Bridge. In the quarter, Punch had a one-time strategic contraction that we previously called out on last quarter’s call. This offboarding of customers was necessary due to the materially unfavorable legacy pricing deals in place and the lack of pricing flexibility amongst a very small set of customers. In most cases, the pricing was an 80% discount from our standard subscription pricing. The proof point is that our organic ARPU in Engagement increased by 27% year over year. Another long-term benefit will be the reduced OpEx and more efficient gross margins over time. This represents another shift in our mentality from revenue at any cost to profitable growth. Excluding this, Punch had a solid growth quarter with a greater than 50% win rate on competitive deals. More than 80% of Engagement deals this quarter were multi-product, and the exciting thing is that it is becoming the norm. In Q1, PAR Ordering closed three brand new deals, all including multi-product attachment. The quality and scale of these wins matter. One of these wins is particularly notable. This was a competitive win taking share directly from the largest legacy ordering provider. It is a 70-plus unit brand driving meaningful ARR. That is exactly the profile we want: scale, intentional platform selection with the ability to sell in additional functionality, and meaningful economics. Another important example is the selection by Pizza Factory. This was an all-PAR full platform deal across 100-plus locations. Adding Ordering to our bag gives a strategic weapon versus POS- or loyalty-only players. Full platform plus pizza is a powerful combination and it is a strong validation of how well our solutions work together in a high-throughput, complex environment. We continue to see strong demand from brands migrating off legacy online ordering providers and standardizing on PAR Ordering. Moving to Retail. We continue to see strong momentum in our retail business in the fuel and convenience space, most notably with the success of Q1 launches of Stinker Stores, H&S Energy, and Parker’s. Pipeline for the remainder of the year remains strong, with several tier-one enterprise brands in active negotiation. In Q1, we released our Touchpoint self-checkout, including loyalty extension, and we are excited about the market opportunities as we expand our footprint inside the four walls of the C-store. On the AI front, PAR Intelligence is now live across nearly 1,700 retail sites, including enterprise-scale deployments at Parker’s Kitchen and Cumberland Farms. We are currently in discovery mode, using real-world operator data to refine our models and eliminate hallucinations. Our roadmap is aggressive. Following this initial scale-up, we will move into the action phase, introducing agentic program management and automated campaign creation—combining the agentic insights with the autonomous ability to act instantly—showcasing the power of AI orchestration, the agentic operating system, and our vertical software. Looking further ahead, we will add a strategy layer incorporating external signals like weather and market conditions to guide site-level management automatically. We are exceedingly confident that we will be the AI partner for our customers in this vertical. Overall, Q1 reflects continued progress in retail, and as we scale our customers, extend our product capabilities, and embed intelligence to the platform in ways that support ARR expansion and long-term value creation. Briefly on Hardware. Q1 was a remarkably strong quarter. We are ahead of plan, and the full year is tracking nicely. While tariffs continue to pressure margins at the edges, demand remains strong, and our PAR Wave terminal continues to serve as the enterprise standard during a major refresh cycle. Crucially, we are seeing continued partnership with Opsio and McDonald’s across both hardware and services sales. I also want to update you on our acquisition of Bridge, which is an integral part of the PAR Intelligence platform. Bridge is an identity resolution platform that enables multi-unit operators to unlock the value of first-party data by resolving identity across their entire transaction base, not just loyalty members. Today, most retailers only see a fraction of transactions through loyalty programs, which limits measurement, personalization, and ultimately monetization to a fraction of a retailer’s customer base. The value Bridge delivers to customers is best evidenced by our work with a large national retailer with over 15,000 sites, where our identity resolution supports a marketable base of 100 million customers and contributed to a reported 44% sales lift. Even in the brief time since we closed on the deal, we now have a strong pipeline across tier-one restaurants and other national retailers—existing PAR Technology Corporation customers. Bridge is crucial in our ability to drive AI outcomes for customers that we can monetize versus the basic dashboarding of our peers. Before turning the call over to Bryan for a deeper dive into the numbers, I want to emphasize the importance of PAR Intelligence for our customers. PAR Intelligence is not a new point solution, and it is not a generic AI tool. It is an agent harness that sits across and above the PAR Technology Corporation platform, unifying data, reasoning on real operator economics, and orchestrating outcomes across the business without adding additional headcount, hours, or manual effort. Traditional platforms stop at dashboards and alerts; PAR Intelligence moves from data to outcomes. PAR Intelligence unites data across point of sale, ordering, loyalty, payments, back office, retail, and third-party systems. All this is powered by something incredibly hard to replicate: PAR Technology Corporation’s ability to process more than 12 billion annual transactions and 640 million guest profiles in over 20 years as a data backbone of the largest restaurant and retail operations in the world. PAR Intelligence leverages enterprise-level context for its reasoning—unit P&L, labor constraints, menu performance, and guest interactions. It executes actions through agents, always within the defined rules of the operator. Adoption of PAR Intelligence is accelerating because the use cases are clear. The platform is moving from reporting what happened to recommending, and in some cases, automating what to do next. Customers like Parker’s Kitchen, a 100-plus unit C-store chain, are seeing immediate ROI, with Parker’s CEO highlighting, “Better outcomes are being driven by PAR’s agentic operating system.” Because PAR Intelligence sits across and above the PAR Technology Corporation platform, it is ultimately enhancing value, thereby the stickiness of our beachhead products. Importantly, PAR Technology Corporation does not have the same pricing exposure as some of our SaaS peers who have a per-seat monetization construct that can be undercut by AI and has a potential impact on customer team sizes. PAR Technology Corporation overwhelmingly contracts on a per-store basis. The viability of this model is tied to enterprise site counts, which remain stable, versus customer staffing levels. AI is not a separate initiative for PAR Technology Corporation. It is an embedded capability that expands our platform value and supports long-term profitable growth. PAR Intelligence will not cannibalize existing per-site software revenue. Rather, the continued introduction of intelligence-driven capabilities serves as a fully incremental revenue stream. Our confidence here comes strictly from the deep engagement we have with our customers and their rapid early adoption of our first set of tools. With that, Bryan will dive into numbers in greater detail. Bryan A. Menar: Thank you, Savneet, and good afternoon, everyone. Q1 marked a strong start executing to our 2026 operating plan. We continue to drive organic growth across our products and the verticals we serve, and our disciplined management of OpEx allowed the margin contribution to flow through to the bottom line. For the fifth quarter in a row, adjusted EBITDA has grown sequentially, with reported Q1 adjusted EBITDA of $8.9 million, a $4.4 million improvement compared to Q1 of the prior year, and we are well positioned for an accelerated trajectory as we continue to refine our operating model. Now to the financial details. Total revenues were $124 million for Q1 2026, an increase of 19% compared to the same period in 2025, including 15% subscription service revenue growth. Net loss from continuing operations for 2026 was $16 million, or a $0.39 loss per share, compared to a net loss from continuing operations of $25 million, or a $0.61 loss per share, reported for the same period in 2025. Non-GAAP net income for 2026 was $3.9 million, or $0.10 earnings per share, an improvement of $4.2 million compared to a non-GAAP net loss of $0.2 million, or a $0.01 loss per share, for the prior year. Adjusted EBITDA for 2026 was $8.9 million, an improvement of $1.9 million sequentially from Q4 2025 and $4.4 million compared to Q1 2025. Now for more details on revenue. Subscription service revenue was reported at $79 million, an increase of $10 million, or 15%, from the $68 million reported in the prior year, and represents 63% of total PAR Technology Corporation revenue. ARR exiting the quarter was $330 million, an increase of 16% from last year’s Q1, with Engagement Cloud up 20% and Operator Cloud up 12%. Total organic ARR was up 11% year over year. Sequentially, Q1 organic ARR was flat versus Q4 2025. The incremental ARR from our continued successful rollouts of tier-one Operator Cloud customers was offset by planned exits in Engagement Cloud. As we previously messaged, this quarter we managed planned exits for select legacy Engagement Cloud customers who were using a portion of our Engagement platform as a component of their solution. This has enabled us to increase ARPU and de-risk forward churn by exiting these low-priced, non-platform customers. As a result, organic Engagement Cloud ARPU increased 27% year over year. To connect overall ARR, please note at the end of Q1, we completed the acquisition of Bridge, which includes approximately $14 million of ARR. Hardware revenue in the quarter was $29 million, an increase of $7 million, or 34%, from the $22 million reported in the prior year. The increase was driven by both client refresh programs and partnership expansion with our legacy customer, as well as additional penetration of hardware attachment into our expanding software customer base. Professional service revenue was reported at $16 million, an increase of $3 million, or 19%, from the $14 million reported in the prior year. The increase was primarily driven by an increase in installation revenue associated with the rollouts of tier-one Operator Cloud customers. Now turning to margins. GAAP gross margin was $54.5 million, an increase of $6.2 million, or 13%, from the $48.3 million reported in the prior year. The increase was driven by subscription service, with gross margin dollars of $44 million, an increase of $4 million, or 11%, from the $40 million reported in the prior year. GAAP subscription service margin for the quarter was 56% compared to 58% reported in Q1 of the prior year. Excluding the amortization of intangible assets, stock-based compensation, and severance, non-GAAP subscription service margin for Q1 2026 was 66%, compared to 69% in Q1 2025. As we have discussed previously, our subscription service margin continues to reflect the impact of a fixed-profit contract we acquired from one of our 2024 acquisitions. The year-over-year decrease in margins reflects a shift in revenue mix driven by growth in this contract in 2025. Excluding margin related to this contract, which is not reflective of core operational performance, non-GAAP subscription service margin was 71% for the quarter, in line with what we have seen consistently in recent quarters. Hardware margin for the quarter was 22%, versus 25% in the prior year. The decrease was driven by a shift in hardware product mix and higher costs related to tariffs and increased demand in processor and memory chips. Pricing enhancement plans initiated in 2025 have partially mitigated these cost increases. We continued to expand the pricing plans in Q1 and will continue to evaluate our pricing strategy on a quarterly basis. We expect hardware margin percent to stabilize in the lower 20s moving forward. Professional service margin for the quarter was 28% compared to 25% reported in the prior year. The increase in margin year over year was primarily driven by improved margin as a result of reduced third-party spending and improved cost management. In regard to operating expenses, GAAP Sales and Marketing was $12 million, relatively flat from the $12 million reported in the prior year, as the benefits of cost reduction actions implemented during the quarter were largely offset by nonrecurring severance costs related to the restructuring events. GAAP G&A was $30.7 million, an increase of $21.4 million from the $9.3 million reported in the prior year. The increase was substantially driven by nonrecurring severance costs. GAAP R&D was $22 million, an increase of $2 million from the $20 million reported in the prior year. The increase reflects continuing investment in product development, including acceleration of PAR Intelligence innovation. Operating expenses excluding non-GAAP adjustments were $54 million, a modest increase of $2 million, or 4%, versus Q1 2025. Exiting Q1, non-GAAP OpEx as a percent of total revenue was 43.3%, a 650 basis point improvement from 49.8% in Q1 of the prior year, demonstrating our ability to scale efficiently and drive operating leverage. As mentioned in our prior earnings call, the realignment of our business teams into two verticals and the accelerated adoption of our operating AI toolset across our organization has enabled us to rethink the operating model within our OpEx teams. The realignment plan is two-pillared: simplify the organization and simplify the operations. We finalized the realignment plan at the beginning of Q2. The phasing of this plan will predominantly be in Q2, with the remaining transitions in Q3. Operational efficiencies and additional scale are already being realized. As such, we expect operating leverage to continue to improve throughout this year, driving continued expansion of adjusted EBITDA trajectory. Now to provide information on the company’s cash flow and balance sheet position. As of 03/31/2026, we had cash and cash equivalents of $77 million. For the three months ended March 31, cash used in operating activities from continuing operations was $17 million, unchanged from the prior year. Cash usage this quarter was primarily driven by seasonal net working capital needs, which included annual variable compensation of $13 million and a sequential increase in current receivables, driven by an $8 million increase in March billings versus December. In addition, as in prior demanding macroeconomic climates, we have strategically increased inventory $4 million to lock in pricing of chips and stabilize hardware margins for the year. As previously estimated, our DSO stabilized in Q1 and we are seeing meaningful improvement in Q2 as we execute our working capital improvement plan. We expect operating cash flow to improve meaningfully to positive quarterly operating cash flow for the remainder of the year, driven by continued profitability and the benefit from working capital with improved DSO and modest improvement in DIO. Said differently, our cash flow will receive a tailwind from working capital and continued profitability. Cash used in investing activities was $3 million for the three months ended March 31 versus $6 million for the prior year. Investing activities primarily included capital expenditures of $2 million for developed technology associated with our software platforms. Cash provided by financing activities was $18 million for the three months ended March 31 versus $11 million for the prior year. The financing activities primarily consisted of net proceeds from the 2031 notes of $257 million, of which $206 million was used to repurchase a portion of the 2027 notes and $33 million was used to repurchase shares of the company’s common stock. To recap our performance, Q1 marked meaningful profit improvement while continuing to grow the top line. This momentum is evident across the following key financial metrics: revenue grew 19.4% year over year; subscription services revenue up 15%; non-GAAP OpEx as a percent of total revenue improved 650 basis points from Q1 2025; and adjusted EBITDA was $8.9 million for the quarter, an improvement of $4.4 million from Q1 2025. Now let me share our expectations going forward. As Savneet mentioned, we are initiating formal financial guidance for the second quarter and full year of 2026. This reflects the increasing visibility we have into our business, the durability of the recurring revenue base, and our confidence in the operating model we have built. We are committed to providing guidance that reflects both our visibility into the business and the discipline we apply to our operating plan. For Q2 2026, we expect total revenue in the range of $122.5 million to $127.5 million and adjusted EBITDA in the range of $9.5 million to $11.5 million. For the full year 2026, we expect total revenue in the range of $500 million to $515 million and adjusted EBITDA in the range of $44 million to $47 million. A few points of context on our outlook. Our healthy backlog and pipeline provide us with strong visibility into revenue growth. On hardware, we expect continued momentum from tier-one rollouts and refresh activity, with margins stabilizing in the low 20s as our price actions continue to offset tariff and component cost pressures. On profitability, our adjusted EBITDA outlook reflects a meaningful step up from 2025, driven by both continued top-line growth and a structurally lower cost base. The reorganization we executed at the end of Q1 and early Q2, together with a simpler AI-enabled operating model, are expected to drive a step down in our organic operating expense run rate beginning in Q2 and continuing to the back half of the year. As a result, we expect adjusted EBITDA margins to expand sequentially from the Q1 starting point, with the full impact of our cost actions more meaningfully reflected in the second half. At the same time, we continue to invest in our highest return opportunities, most notably, PAR Intelligence and our agentic platform. But we are doing so within a disciplined framework that prioritizes durable, profitable growth. Our full year 2026 guidance also includes approximately $10 million in subscription service revenue from the recently completed acquisition of Bridge. The acquisition will have minimal impact on adjusted EBITDA. I will now turn the call back over to Savneet for closing remarks prior to moving to Q&A. Savneet Singh: Thanks, Bryan. At PAR Technology Corporation, AI is not just a customer-facing strategy. Internally, AI is fundamentally transforming everything we do as a company. One example is our ability to rapidly enhance our procurement function and pinpoint areas of vendor waste, with millions of in-year savings. Crucially, AI is also enhancing our development velocity and we are now seeing this translate into tangible output across the business. In our Engagement platform alone, the roadmap we committed this year is five times larger than last year, and we are delivering roughly twice as many incremental noncommitted features quarter over quarter. Capacity simply did not exist before. At the same time, speed and productivity are improving. Time to ship is down more than 25%. In parallel, we are investing in what we call an agentic software factory. An internal platform designed to orchestrate planning, development, and testing through autonomous agents—effectively enabling end-to-end backlog execution and improving daily developer output by 20% without sacrificing quality. This is not just about adopting AI tools faster than others. It is about building a fundamentally different development engine—one that we believe will become a durable competitive advantage over time. PAR Technology Corporation’s strategic value lies in the fact that we power some of the most complex, high-volume restaurant and retail operations in the world—technology that is both mission-critical and deeply embedded. As the industry continues to consolidate around fewer, more capable platforms, we believe PAR Technology Corporation is uniquely positioned to be a long-term system of record for our customers. PAR Intelligence unlocks a fully agentic operating model for every multi-unit operator. Our in-year adoption target for PAR Intelligence is greater than 50,000 sites. Aligned to this is our progress towards the Rule of 40. This is the clearest external measure that we are building a business that can both grow and compound value over time. For us, it is not about optimizing a single quarter, or choosing growth at the expense of profitability, or vice versa. It is about steadily improving the underlying economics of the model. The progress you are seeing today reflects deliberate execution, not financial engineering, and we believe sustained improvement in Rule of 40 performance is a strong indicator that PAR Technology Corporation is becoming a more durable and higher-quality software company. This quarter does not mark the finish line, but it does mark progress. We believe the market has us miscast today, and we intend to let consistent execution, quarter by quarter, correct that. Over the coming quarters and years, we will prove that PAR Technology Corporation offers an irreplaceable solution to brands, PAR Technology Corporation is adapting to the times of AI, and PAR Technology Corporation will deliver transformative results. With that, Operator, we can open up the call for questions. Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while I compile the Q&A roster. Our first question comes from Mayank Tandon from Needham. Please go ahead. Mayank Tandon: Thank you. Good evening. Savneet, Bryan, and Chris. Good to hear from you, and congrats on the print and also the guidance framework. I think that is very helpful. Savneet, let me just start with your expectations on ARR. Could you just unpack the various levers you have? So thinking about ARR, how should we think about pricing, location growth, and then also have you reflected any tier-one wins in your expectations of the reacceleration in ARR growth over the balance of 2026? Savneet Singh: Great question. We continue to target mid-teens ARR growth without the inclusion of any large mega deals in there. We continue to be conservative. Until those happen, we will not throw it into that target. In terms of levers of driving our growth, we really have two levers today: new site count and upsell into the base, i.e., ARPU. Where we are seeing really strong success is now being able to sell multi-product at the time of the initial sale, so more growth is being driven by the new customer motion, but that is primarily driven by the success of the co-sell/cross-sell motion that we have. At the same time, we are still upselling into our existing base, but I think it shows just how early we are in our TAM that new sales are still the majority of our revenue growth. Mayank Tandon: Got it. And then I have to get an AI question in, so let me ask you. You talked about the efficiencies with AI, but on the revenue side, as you launch PAR Intelligence, which I know is very recent, I am just curious, have you gotten any feedback from clients—what the interest level is? And is there a way to monetize this? Is that something we will see potentially in 2026, or is this more of a longer-term initiative to be able to drive revenue off this? Savneet Singh: Let me answer the second part because I think it is an important one. We would not be putting so much emphasis on it if we did not think we can monetize it. I think we feel far more convicted this quarter than we did last quarter or the quarter before that given our engagement with customers, we think not only that they enjoy the product, but they will pay for it. The way we think about it is today’s products give them, call it, AI discovery—the ability to interact, chat, and pull reports. But tomorrow’s products will give them predictions, and the future products will give them automated actions, meaning, can you run your store on autopilot? As we get to that point, we will absolutely get to monetize it. We look at AI as an incremental revenue stream that will happen this year. We do not assume massive assumptions within our guidance, but the mandate to our product teams and to our general managers is that revenue must come this year. The reason we are so excited about it is we believe it is going to be an incremental lever of revenue growth, not replacement and certainly not something that will cannibalize the value of the core products we have today. That confidence candidly just comes with the fact that we launched our retail product as an example this quarter and we had 1,700 stores already up and running on it. When we launch a product, it is adopted so much faster and it makes the entire base stickier. So, long answer, but it is something we will monetize, and it is something we expect to start monetizing this year. Mayank Tandon: Great. Thank you so much. Savneet Singh: Thanks, Mayank. Operator: Thank you. Our next question comes from George Sutton from Craig-Hallum. Please go ahead. George Sutton: Thank you. Savneet, you talked about an upcoming strategy layer. I wondered if you could just walk through what that might mean for you. Savneet Singh: It is related to what we are doing on Drives, which is in our retail suite, but I think strategy will eventually stretch across everything we do. The way we think about AI today, as I mentioned, is you have a first wave of AI tools within enterprise software which is ostensibly giving you that ChatGPT-like experience on the front of the product. I think it moves from there to the predictability of your business—“This is going to happen; you want to do this”—and then it moves to actions and autopilot—“Hot dogs are running out; it will automatically go order those hot dogs for you.” Where I think it is really exciting is this idea down the road where it becomes more of a strategic partner for you. It says, “There is a snowstorm coming next week; you want to load up on hot chocolate,” or it takes into account weather, traffic patterns, competitive dynamics, and promotions and builds out a strategy layer. We are building that out today. As I mentioned, we are still testing other models. We are still working through hallucinations. But we will be in market this year with a strategy component for our customers. It is really becoming a partner to our customers that live every single day in that store. George Sutton: Could you give us an update on the tier-one opportunities in your pipeline in terms of your level of confidence? Any sense of timing or move forward from the prior quarter? Savneet Singh: We continue to make tremendous progress there. There have been some good movements as it relates to personnel at these organizations that I think look fairly upon PAR Technology Corporation. We expect to have the outcomes in the second half of this year, and we continue to feel pretty good about it. Tier-one deals are always 50/50, in my experience. What I think I am excited about is we feel very confident about the move in those organizations, but, as I said, what we are even feeling more confident about is the ability to drive more growth through pushing multi-product to the customer base outside of that. The revenue growth side of PAR Technology Corporation is what is exciting us as we turn the first quarter here. George Sutton: Awesome. Thank you very much. Operator: Thank you. Our next question comes from Stephen Hardy Sheldon from William Blair. Please go ahead. Stephen Hardy Sheldon: Hey. Thanks, and I will echo: very good to see some formal guidance now. First, as we think about ARR, just any rough sense you can provide on the drag to ARR this quarter from offboarding those customers you mentioned? Was that predominantly around Punch, or was there any notable offboarding around other solutions? And then are you effectively through that process, or is there more to go in the coming quarters as we think about the ARR trajectory? Savneet Singh: We are through it. Think about it as deals that were lapsing at the very end of last year or the beginning of this year—January or February. We are through it. You will not see that impact again. It was heavily levered towards Punch—one particularly large customer. As you can see, ARPU jumped 27%. That is not because we repriced the base at a 27% increase. It is because we removed multiple customers that were at 80% discounts. We are through it, and I think it is amazing we still grew in double digits given the impact of that. What is great is we do not have any more of that, and as I said, the growth motions are still moving forward really, really nicely. Bryan A. Menar: Stephen, I will just add to that too. This acted like a pull-in of churn for us for this year. Over 60% of our churn for this year was in Q1, and so we were able to manage that out effectively, but we do not expect to have a higher rate of churn this year than we recently typically have. Stephen Hardy Sheldon: Okay. Got it. That is good to hear. And then just, as a follow-up, it would be great to get an update on your overall traction with convenience stores on the retail side. It sounds like you have multiple tier-one opportunities there that you are going after. So curious how convenience store revenue has been trending and the outlook for expanding that monetization beyond the primary source right now, which I think is still just predominantly loyalty. Savneet Singh: It is an optimal question. I would say we are very bullish on what is happening at C-store. Our loyalty product continues to grow. We have a strong tier-one pipeline, as I mentioned—multiple deals in negotiation, including within the major oil space. That is a business that, similar to Punch, we are the 800-pound gorilla where we have the best product, the best team, and the best outcomes. I think that will continue to grow at or above company rates. What is exciting is, for the first time, we have now expanded beyond that. We launched our Touchpoint product in Q1. Touchpoint, if you recall, we carved out the assets of a kiosk-like product about a year ago, and that brings loyalty in the store. Think of a screen in the store where you can engage loyalty, upsell, promotions, and so on. We will hopefully have our first customers on that this year. That will be an extension of loyalty, but more in the sense that it can also provide self-checkout. The really exciting part that I think we have discovered within retail is on the AI front where PAR Drive—our first product that is the agentic layer across C-store—already has 1,700 stores on it. We are using real data to refine that model, and I think we are going to have tremendous success pushing that through the retail side of the business. Our retail leadership is all-in on AI. We have rebuilt our product teams and engineering teams to be focused on it. I think you will see the retail side, if we are successful on this AI endeavor, grow at faster rates than the restaurant side. Stephen Hardy Sheldon: Great. Thanks for taking my questions. Operator: As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. Our next question comes from Maxwell Michaelis from Lake Street Capital Markets. Please go ahead. Maxwell Michaelis: Hey, guys. A few from me. First, can we go to Punch—50% win rate, I think you mentioned in the quarter. What is resonating with the customer base right now when you go to market? And then also, can you share historically what Punch win rate has been? Savneet Singh: Absolutely. The core reason we are winning has historically always been that Punch is the best product in the market. Obviously, I am subjective there, but I think objectively, through data, we are the largest product and continue to grow faster than market. That is not only the depth of the product, but the breadth of the product and what we can do with that product. Loyalty is a very robust initiative. It is millions and millions of profiles. If you are a large restaurant organization, or a retail organization for that matter, you are not going to go with something you have vibe-coded or a startup. You need something that has reliability, stability, and security that you need for that scale. We think we are the best in market, and we continue to take share. The other part is, as I mentioned on the call, this ability to sell ordering and payments alongside of it. It makes the product more seamless for our customers and gives them a single digital cockpit to manage their menus. It is a real unlock for our customers. What has been exciting about that is I think the ability to have a real ecommerce or online ordering product alongside Punch will help increase the win rates for both because it simplifies the journey for our customers. Again, in an AI world, I think you want your data for both those products in one place so that you can let agents run. I am pretty excited by the continued success there. Historically, win rates have been at, I would say, 35–40%. This is definitely a step up, and hopefully, that continues. Maxwell Michaelis: Perfect. And then last one for me. Obviously, you are going to be monetizing PAR Intelligence, but curious to know how you plan on pricing that when you go to your customers. Is that going to be subscription-based, or do you plan on instituting a usage-based model? Savneet Singh: It is a great question. One of the cool things that I mentioned on the call that we realized is at PAR Technology Corporation we price on a per-site basis. We are not tied to the amount of humans using a product. In fact, it is one of the reasons I think our AI products could be even higher margin than our core products because as we deploy AI at the corporate level, you need less and less people to engage with it. Specifically, the first products we are thinking will be SaaS-like billing because that is what our customers are used to. That is how we can upsell and bundle it into the existing contracts that we have. The customers that we are engaging with today—the customers that are letting us test their data—we have communicated that that is how we will be pricing it. As we move to this world where we are the strategic recommendation engine for them or running their stores on autopilot, we could explore other forms also as we figure out what the cost model will be. Right now, we are thinking about it as a SaaS model. Maxwell Michaelis: Awesome. Thanks, guys. Operator: Our next question comes from Andrew James Harte from BTIG. Please go ahead. Andrew James Harte: Hey. Thanks for the question. Can you hear me? Yeah. Thanks for the question. Just one from my end. Savneet, if you could just talk about how you feel the business is standing on better ground today than it was a few quarters ago, and what really gave you the confidence to provide quarterly guidance and annual guidance? Thank you. Savneet Singh: I think we feel incredibly confident about our market positioning today. We are, I think, unquestionably the furthest ahead when it comes to AI within the restaurant and within the C-store. We printed a $9 million EBITDA quarter, and as Bryan mentioned, we think that is going to expand meaningfully for the rest of the year. As Bryan mentioned, we are going to be cash flow generating—operating cash flow—for the rest of the year, and that puts us in a position that we have never been before. Our products are winning at rates they never won before. Our agentic capabilities are far ahead of our peers. We have a cash flow engine that we can use to create shareholder value. As we sit today, that confidence comes from market positioning but also, candidly, the scale of the business, the ability to generate cash, and nothing feels better than winning—winning in our category. We feel incredibly strong about where we are today. It will all come down to our ability to deliver products to our customers in this AI world that we can monetize and show the value there, and that is why we feel so confident. Andrew James Harte: Thank you. Operator: This concludes the question-and-answer session. I will now turn it over to Chris Byrnes for closing remarks. Chris Byrnes: Thanks, Antoine, and thanks to everyone joining us this afternoon. We look forward to updating you and speaking with you further in the coming weeks. Have a good night. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter Ascendis Pharma Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chad Fugure, Vice President of Investor Relations. Please go ahead. Chad Fugure: Thank you, operator, and thank you, everyone, for joining our first quarter 2026 financial results conference call. I'm Chad Fugure, Vice President, Investor Relations at Ascendis Pharma. Joining me on the call today are Jan Mikkelsen, President and Chief Executive Officer; Scott Smith, Chief Financial Officer; Sherrie Glass, Chief Business Officer; and Jay Wu, EVP and President, U.S. Market. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements that are intended to be covered under the safe harbor provided by the Private Securities Litigation Reform Act. Examples of such statements may include, but are not limited to, statements regarding our commercialization and continued development of YORVIPATH, YUVIWEL and SKYTROFA, as well as certain expectations regarding patient access and financial outcomes, our pipeline candidates and our expectations with respect to their continued progress and potential commercialization. Our strategic plans, partnerships and investments, our goals regarding our clinical pipeline, including the timing of clinical results and trials, our ongoing planned regulatory filings and our expectations regarding timing and the result of regulatory decisions. These statements are based on information that is available to us as of today. Actual results may differ materially from those in our forward-looking statements. You should not place undue reliance on these statements. We assume no obligation to update these statements as circumstances change, except as required by law. For additional information concerning the factors that could cause actual results to differ materially, please see our forward-looking statements section in today's press release and the Risk Factors section of our most recent annual report on Form 20-F filed with the SEC on February 11, 2026. TransCon PTH is approved in the U.S. by the FDA for the treatment of hypoparathyroidism in adults and the European Commission and the United Kingdom's Medicines and Healthcare Products Regulatory Agency have granted marketing authorization for TransCon PTH as a replacement therapy indicated for the treatment of adults with chronic hypoparathyroidism. TransCon CNP is approved in the U.S. by the FDA for the treatment of hypochondroplasia in children aged 2 years and older. Continued approval for this indication, which is based on an improvement in annualized growth velocity may be contingent upon verification and description of clinical benefit and confirmatory trials. TransCon hGH is approved in the U.S. by the FDA for the replacement of endogenous growth hormone in adults with growth hormone deficiency. In addition to the treatment of pediatric growth hormone deficiency and in the EU has received MAA authorization from the European Commission for the treatment of pediatric growth hormone deficiency. Otherwise, please note that our product candidates are investigational and not approved for commercial use. As investigational products, the safety and effectiveness of product candidates have not been reviewed or approved by any regulatory agency. None of the statements during this conference call regarding our product candidates shall be viewed as promotional. On the call today, we'll discuss our first quarter 2026 financial results, and we'll provide further business updates. Following some prepared remarks, we'll then open up the call for your questions. With that, let me turn it over to Jan. Jan Mikkelsen: Thanks [indiscernible] Good day, everyone, here from Copenhagen. The first quarter of 2026 was [indiscernible] inflection point for Ascendis, with the FDA approval of our third [indiscernible] product, YUVIWEL. Our revenues are growing rapidly. We are profitable. We have a pipeline of high-value product opportunities to support long-term growth. Three elements are cementing our position as a leading global biopharma company. First, our diversified product portfolio in one single therapeutic area. Following FDA approval of YUVIWEL, we have now achieved approval of 3 products in a row across 4 rare endocrine indications. Second, our rapid revenue growth from our existing endocrine rare disease portfolio, [indiscernible], YUVIWEL and SKYTROFA, each highly differentiated with long durability, we expect sustained revenue growth for many years to come. Third, expanding our pipeline. We have proven our ability to create transformative medicines, addressing unmet medical needs using our TransCon technology platform. To date, we have more than 20 ongoing or planned clinical trials, aiming at label and market expansion, including 4 new clinical entities in preclinical development. Turning now to YORVIPATH. Global YORVIPATH revenue in the first quarter reached EUR 197 million. YORVIPATH revenue for the first quarter was impacted by 2 onetime items. A temporary increase of U.S. patients supported by free drug caused by reimbursement disruption and onetime impact of Europe Direct related to expanded market. Scott will explain the financial impact of these two events in his remarks. In the U.S., new patient enrollment in Q1 remained in line with the strong uptake we have seen in Q4 2025, with more than 1,000 new patients prescribed YORVIPATH during the quarter. Through the end of March 2026, more than 6,300 patients have been prescribed YORVIPATH by more than 2,700 unique health care providers. March was our last revenue month ever for YORVIPATH, supported by an increased number of new patients, as well as patients returning to reimbursement from free drug. Importantly, the enrollment trend we saw in Q1 have continued through April, consistent with our guidance. Insurance approval rates and medium time to approval continue to improve. This strong support a strong foundation for revenue growth in 2026 and many years to come. Outside the U.S., YORVIPATH is available commercially or to [indiscernible] patient programs in 35 countries, including full commercial reimbursement in 6 of our Europe Direct markets, with additional launches expected through '26. Looking [ forward ] ahead, we continue to pursue multiple expansion opportunities for YORVIPATH in new markets and indications. This includes doses up to 60 micrograms in the U.S., global expansion to patients 8, 12 to 18 and continued development of once-weekly TransCon PTH for patients on stable YORVIPATH [ process ]. With 70,000 to 90,000 patients living with chronic hypopara in the U.S., and 5 to 10x that number outside the U.S., we remain highly confident in YORVIPATH's long-term global potential. I will now turn to our growth disorder [indiscernible]. With week our once-weekly growth hormone, SKYTROFA, we believe Ascendis is uniquely positioned to strengthen its leadership in those disorders. Our U.S. commercial infrastructure built and refined since SKYTROFA launched in 2021 has enabled a focused and high-impact launch for YUVIWEL, which became commercially available in early April. Since then, YUVIWEL has already been prescribed for more than 60 children by more than 35 unique health care providers. With children approved for reimbursement as fast as a few days, YUVIWEL has shown compelling results compared to placebo across multiple clinical trials in addition to linear growth outcomes. These results include improvements in final [indiscernible] dimensions, body operationality, physical function and health-related quality of life compared to placebo, without compromising safety or tolerability. We believe this outcome reflects YUVIWEL's unique ability to provide continuous systemic [ CMP ] exposure throughout the body over the weekly dosing interval. Looking ahead, we plan to make YUVIWEL available in selected international markets through early access programs using the U.S. FDA approval. As a reminder, our global infrastructure covers over 70 countries and has already generated product revenue for us in more than 35 countries. In EU, a regulatory decision on our marketing authorization application for YUVIWEL is expected in the fourth quarter of '26. We are also pursuing label expansion for YUVIWEL to ongoing trials. These include infants on the 2 years of age with hypochondroplasia and [ 7 with ] hypochondroplasia as well as geographic label expansion in clinical trials. Turning now to SKYTROFA. In the U.S., SKYTROFA maintained consistent performance as a premium product with [ 7% ] share of the overall growth hormone market, reflecting steady demand across pediatric and adult patients as the only once-weekly product delivering on [indiscernible]. With the expected label expansion that could double the addressable patient population in the U.S. and geographic expansion outside the U.S., we believe SKYTROFA will remain a cornerstone product in our growth disorder portfolio. Turning to our pipeline. This includes combination therapy with once-weekly TransCon CNP and TransCon Growth Hormone for children with hypochondroplasia. In our Phase II COACH trial, we have reported unprecedented results that exceeds the already compelling foundation established by YUVIWEL monotherapy. Week 52 data from COACH presented in January showed improvement in hypochondroplasia specific height score that indicates a triple of efficacy compared to TransCon CNP monotherapy, along with improvement in body proportionality. More recently, we shared additional week 52 data that showed improvement in lower limb alignment, as well as an [indiscernible] improvement in spinal can dimensions and an improvement in arm strength, not previously demonstrated with pharmacotherapy within a single treatment. Based on this finding, we believe our unique combination therapy of TransCon CNP and TransCon Growth Hormone could potentially eliminate the need for highly invasive procedure such as [indiscernible] and leg straightening surgeries. We believe that this combination therapy could become the preferred treatment option for hypochondroplasia. I will now briefly turn to oncology. In our Phase I/II [indiscernible] trial, we have elevated TransCon IL-2 beta gamma in combination with [indiscernible] in patients with late-stage [ platinum-resistant ] ovarian cancer or PRC. Median OS improved up to 10 months from 6 to 7 months from historical [indiscernible] with a general well-tolerated safety profile, validated the science on TransCon IL-2 [indiscernible]. As further internal oncology development does not align with our strategic focus, we have decided to discontinue internal development of TransCon IL-2 beta [ gamma ] in oncology and will explore other ways to maximize the value of these assets. Turning now to our partnership. Our once-monthly TransCon semaglutide with Novo Nordisk continue to advance towards the clinic and [indiscernible] TransCon anti-VEGF also remain on track to enter the clinic this year. These programs further highlight the broader potential of our TransCon technology platform to address product opportunities in larger indications. In closing, in the first quarter of 2023, we made significant progress across our business and our ability to make a meaningful difference for patients. We have 3 FDA-approved TransCon products across 4 indications, growing revenues, improving cash generation and a pipeline that supports long-term growth. I will now turn the call over to Scott to review our financial results. Scott Smith: Thanks a lot, Jan, and good afternoon, everyone. I will touch on some key points surrounding our first quarter financial results, which reinforce our confidence for growing operating profit and cash flow into the future. For further details, please refer to our Form 6-K filed today. YORVIPATH global revenue was EUR 197 million in Q1. The first quarter was characterized by steady global uptake and normal seasonality as well as 2 onetime items. Patients temporarily transitioned to free drug in the quarter in the U.S. and a onetime impact in Europe direct related to expanded market access. The combined impact of these 2 items was approximately EUR 15 million. SKYTROFA contributed EUR 44 million in Q1. On a sequential basis, performance reflected consistent underlying demand with the expected drawdown in channel inventory built in Q4. Including EUR 6 million in collaboration revenue, total Q1 2026 revenue amounted to EUR 247 million. Continuing to expenses. R&D expenses in Q1 were EUR 59 million, down from EUR 78 million in Q4 '25. R&D in Q1 was favorably impacted by a write-up of YUVIWEL inventory consisting of EUR 11 million due to U.S. FDA approval and lower clinical activity across the portfolio. SG&A expenses rose to EUR 145 million in Q1 2026, compared to EUR 136 million in Q4 2025, reflecting continued impact of global commercial expansion. Total operating expenses for Q1 2026 were EUR 204 million and operating profit was EUR 25 million, reflecting a 10% operating margin. Non-IFRS operating profit was EUR 55 million and non-IFRS operating margin was 22%. As revenue scales, we expect meaningful improvement in our operating margin, which will be visible over the course of 2026 and beyond. Net finance expense for Q1 2026 was EUR 63 million, primarily driven by noncash items, including remeasurement loss of financial liabilities of EUR 34 million. Net cash financial expense for Q1 '26 was about EUR 1 million. Net profit for Q1 2026 was EUR 629 million, which included recognition of a EUR 679 million deferred tax asset in the P&L. Refer to our 6-K for more detail. Non-IFRS net profit was EUR 18 million, or EUR 0.27 per share. We ended Q1 2026 with EUR 573 million in cash and cash equivalents, which includes the impact of EUR 60 million in Q1 from our previously announced share repurchase program and net settlement of certain RSUs. In April, we successfully completed our transition to a direct listing of our ordinary shares on NASDAQ. We believe this will broaden access to global investment in the company, which has the potential to further enhance institutional ownership and trading liquidity for Ascendis shares. In May, we completed the full redemption of all of our outstanding convertible senior notes. Finally, today, we announced that we entered into an agreement to sell our PRV for USD 187.5 million in cash. The PRV was awarded by the U.S. FDA upon approval of YUVIWEL in February. Turning to our commercial outlook. For YORVIPATH, we expect continued steady underlying increase in patients on therapy and the reversal of onetime factors seen in Q1 to drive strong growth sequentially in Q2. For SKYTROFA, we expect stable revenue throughout the year following a similar seasonal pattern to 2025. Regarding YUVIWEL, as Jan indicated earlier, we are encouraged by the early demand trends and look forward to sharing more with you on our Q2 call. With that, operator, we are now ready to take questions. Operator: [Operator Instructions] And our first question comes from the line of Jessica Fye of JPMorgan. Jessica Fye: I was wondering if you could help us estimate what U.S. YORVIPATH sales were in the quarter. I think in the past, you had run through an algorithm to consider, but I know the press release noted some onetime impact to Europe Direct as well. So just trying to get a better sense of the U.S. versus ex U.S. split this time around. Jan Mikkelsen: I think that Scott will give you just a little bit more background on the financial element, specific onetime in Europe Direct. And it's actually happening when we sometime and specific for one single country because we had an early access program that was running for nearly 15 months, 16 months. And it gave us a onetime event where we needed to write down for this single case. It's not something that really happening in other countries, but it was a single country event, which basically impacted our YUVIWEL, you can say, Q1 results. But Scott, you can give you a little bit more flavor on the financial numbers. Scott Smith: Yes. And just for modeling purposes, it's probably a little bit more of an impact. But I would say the best way to think about it is take the algorithm that we laid out where you add 4 to 5 a quarter. And for Q1, basically that addition was just shifted into Q2. And then from there, the algorithm continues. Jan Mikkelsen: But I think just one of the key element I will take into regard is basically the underlying patient demand. Because I think the key element is really that we continue the same successful, you can say, rollout of the launch, both in U.S. where we now -- as we have provided you the number of indicated new patients on treatment with YORVIPATH. And as we have given in our previous guidance, we're still 100% correct in that, where we really see the same stability. We see the same flow coming in. And Jay can comment about how he's already starting to improve both the time to reimbursement and the numbers. I do not, Jay, will you comment about your effort in really improving what you call the reimbursement situation for the U.S. Jay Wu: Sure. When you think about our reimbursement, we're seeing improved metrics across the board. So first and foremost, we've talked a little bit about our upstream coverage now expanding to about 80% of patient lives, which we're feeling really good about given the time on market. And I think, again, a testament to the compelling clinical value proposition that we have. We're also seeing continued rapidity as it relates to patients being approved for reimbursement upon entering the funnel. So again, over half approved within 8 weeks of enrollment. And we are seeing continued progress against patients moving through the funnel whether it's upstream as the enrollments are coming in, but also supporting patients as they're entering into the funnel. Operator: Our next question comes from the line of Tazeen Ahmed of Bank of America. Tazeen Ahmad: Mine will also be on YORVI, and maybe this is for Jay. Can you talk about the reauthorization rates that you're seeing now that patients are starting to annualize at this time of year? Any things to point out about things that were maybe unexpected or taking a little bit longer? And then can you talk about usage among physicians? So is there a way of providing a split between how much of use is coming from first-time physicians versus an increasing use among doctors who've tried your YORVIPATH before? Jan Mikkelsen: Okay. There was multiple questions. I hope you got everyone down. Will you start on some of them? Jay Wu: Sure. I think I heard a few questions. One, which maybe I'll start with towards the end, which is prescriber breadth and depth, I think, was the question. We're seeing continued traction across both. So as Jan mentioned earlier in the script, we've had over 2,700 prescribers, which again is an addition of about 300-plus quarter-over-quarter, which we're feeling really good about. So that would answer your question around new prescribers. And then within existing prescribers, we're also feeling really good because the average prescription per physician continues to increase as well. In fact, over -- about 10%-ish of prescribers have now over 5 enrollments for patients. Again, as you think about the provider landscape here, they all do have a different patient volume just given how diffuse the patient volume is. But generally speaking, we're seeing not only one additional prescriber sign on to YORVIPATH given the strong patient satisfaction scores that we're seeing. But then because of those positive patient experiences, we're also seeing providers expand their scope of who they deem to be eligible given that lab values alone are not the reason that patients should be treated. Tazeen Ahmad: Okay. And then reauthorization was the last one. Jay Wu: And reauthorization, yes, that was the first part of your question. We're not seeing any meaningful differences in terms of approval rates for re-auth versus necessarily a patient that's coming in at the top of the funnel. We typically, again, have shared that 4- to 8-week time frame. We've seen those numbers continue to increase in terms of speed, which I referenced earlier with the first analyst question, but we're not seeing any meaningful difference with the re-auth coming in versus a new patient coming in. Generally, what you'll see is if it's a re-auth of an existing payer insurance where there hasn't been a change in insurance, you might see some faster time line there. But if it's a brand-new insurance, then you're obviously going to treat it as just a brand-new case, so to speak. Operator: Our next question comes from the line of Yaron Werber of TD Cowen. Yaron Werber: Great. Maybe a quick follow-up and then a question on YUVIWEL. A follow-up on YORVI. So of the [ $15 million ], should we roughly kind of split it like half in Europe and half in the U.S.? I don't know if you can give us any sort of view on that. And then for YUVIWEL, in the ITC case is progressing, the bridge document, the briefs are out kind of back and forth. And it looks like the court is kind of siding with both parties. What -- I know you've been importing drug in the meantime. Any view sort of on how much capacity you might be able to have in the system by the time a decision is rendered? Jan Mikkelsen: First of all, I believe when you see the uptick in the prescriptions of in the U.S. We have more than 60 children being prescribed YUVIWEL treatment in less than 4 or 5 weeks. I think it illustrates the unmet medical need that exists in the U.S. related to an improved treatment in hypochondroplasia. And I believe what we have seen of clinical data in our multiple trials with YUVIWEL just as a monotherapy is really describing the reason why we see this take up. This is not just of having a once-weekly product. This is providing a tolerability profile and documentated effect on benefit beyond linear growth. And I think everyone is aligning with the unmet medical need, the public interest for this to have a product [indiscernible] in the market. We will continue to be in a position that we have such a strong belief that in this case here, too, like it was in Europe, we can prove that this IP case should never have existed and only is built on promises. So [indiscernible] I'm confident YUVIWEL is here to stay, and it will always be a treatment option for patients with hypochondroplasia in the U.S. I hope that answers your question related to that part. The other part, I think you are somewhere in the right estimate when you think about it. Operator: Our next question comes from the line of Gavin Clark-Gartner of Evercore ISI. Unknown Analyst: This is [indiscernible] on for Gavin. We have 2 quick questions. Number one is for the Phase III [indiscernible] and growth hormone combo trial, can you share any update on the enrollment speed? And secondly, what are you seeing in your discontinuation rates over time? Jan Mikkelsen: So when we talk about -- as I understood your question right, it was related to the combination trial, the Phase II trial we call [indiscernible] trial. And we basically are now -- I do not know how many years we are into the trial now, but I think we are 2 years in 1.5 years now. And I think we see basically an extremely high element of retention in this trial. To my knowledge, last time, it was 100%. And I think it's really been harder to get more than 100% in a clinical trial to my knowledge. And I think that's a very, very few trial where you have 100% retention after nearly 18 months. So from that perspective, I think it's really illustrating and addressing the satisfaction with the benefit you see in the treatment compared to the burden of treatment. And I think that is really the key element that we are always looking in the fundamentals. We want to see benefit for patients. This is why we're working, and we will continue to focus on that. Operator: Our next question comes from the line of Li Watsek of Cantor Fitzgerald. Li Wang Watsek: I guess on new patient adds you mentioned, steady growth. Is it reasonable for us to assume 1,000 is sort of the number that we should be looking at for the coming quarters? And will you be sharing new script number going forward? Jan Mikkelsen: That's a great question. Now some going back to the last time I said I will not come up with more prescription data for YORVIPATH because I believe that the revenue progression was so clear. And when I said that there was a big, big, what I call element of some interesting funds that pushed back and saying, I didn't want to come out with numbers because it must be really, really bad. And now we have illustrated for 1 quarter more that they are not bad. They are extremely good and exactly as predictable as we have said in this way. And I expect a steady state enrollment in all the quarters because that is what we expect. We are only touching a small amount of this patient group. We have some more patient that is coming new patients every, every, every year. So I'm somewhat giving up to say that I will not come out 1 quarter more because last time, I said we will not come out with one quarter and then I got basic press because I didn't want to listen to that, that we didn't want to come up with a number because they are bad. I don't hide anything. I always want to be transparent. And this is why I come out with a number, then you can see it. So I think we will continue to be so transparent on everything what we're doing. So you always have the best possible opportunity to see how well we are performing in our fundamentals. Operator: Our next question comes from the line of Alex Thompson of Stifel. Unknown Analyst: This is Patrick on for Alex. Could you guys just talk about the potential impact of the YORVI 60 micrograms being on the label? And maybe what percentage of those 6,300 patients in the U.S. is dose caps at 30 with, maybe less than ideal supplementation levels? Jan Mikkelsen: This is a question which are very difficult for us to answer today because we see different kind of [ up titration ] in both different situation in clinical trials and also sideration in what I call more real world. We are following it a lot. We are now open for enrollment in our trial where we are having 2 arms in our evaluation of dose titration 30 up to 60. And we will enroll that in a decent speed. We only do that in the U.S. because it's the only place where we restricted down to 30 and not have 60. And we believe that even if you are coming up to 30 micrograms, you still have a major benefit to be still on 30 microgram compared to many of the positive effect that YORVIPATH is still providing to it. So I think you can say, yes, there is someone that will benefit to go higher. But today, we're still providing the benefit to the patient that need to stop on 30 micrograms. Operator: Our next question comes from the line of Joe Schwartz of Leerink Partners. Joseph Schwartz: So some physicians we've spoken with have suggested that they might not want to put their office staff through the reimbursement challenges of switching their hypochondroplasia patients to a once-weekly injection only to then later switch them to a once-daily pill in the not-too-distant future. Is this a dynamic that you guys are aware of? And what can Ascendis do to help support the hypochondroplasia patient, or physician community rather and encourage uptake? And then have any -- my second question is, have any physicians prescribed YUVIWEL in combination with SKYTROFA since YUVIWEL was approved? Jan Mikkelsen: Answering your first part of the question, I think the number speaks for itself. When you think about it, more than 10 prescriptions per week [indiscernible] rare disease product. I think they talk about the unmet need and the willingness for basic physician in connection with the parents, in connection with the child to basically to have the desire to take them on a treatment with YUVIWEL. I think it says everything with numbers. You can go out and ask one physician. You can go out and ask one parents. I look at numbers from a statistic. The numbers talks for itself. Related to the last question, I cannot some way discuss an element we cannot promote. We cannot promote anyway [indiscernible] combination therapy. We have disclosed the benefit of the combination therapy. And that is up to the physicians if they really want to prescribe it or not prescribe it. And to my knowledge, and I can be pretty open about it, yes, it happens, and I understand why. This is the only way you basically can be in a position where you basically can avoid any kind of surgeries. Which I think is just a positive element for any child with hypochondroplasia to avoid the invasive surgeries. And I think this is the reason why the physician do it. And sure, we're looking forward to finalize the Phase III trial. We're looking forward to have it on label. So we really also can go and promote it. Operator: Our next question comes from the line of Ellie Merle of Barclays. Unknown Analyst: This is Jasmine on for Ellie. Just kind of a follow-up to the last question. For YUVIWEL, can you say how many of those 60 enrollments were new starts versus switches? And more generally, do you think the initial population is going to see more new starts or switches? And what kind of patients do you think are the most likely to initially want to switch? Jan Mikkelsen: The insight you're asking for is the insight we will develop in the coming months and quarter. After 5 weeks to try to come with a general statement about what kind of patient, what kind of preference they have to go on to YUVIWEL treatment. I think it's too early for us to come with a conclusion but it is such a topic. The only thing I can say, and Jay, you can add on, what we see is basically coming from everywhere. It's not just naive patients. It's not just [ switch ] patients. It's coming everywhere from where we expect it also to come from. And one of the things we have done at Ascendis that Jay has [indiscernible] impact on to help the physician, the patient is really to have a part that can go out and really help the physician, the patients everywhere to get through this journey to be sure they can come on the right treatment. Jay, do you have anything to add? Jay Wu: Yes. I think you summed it up well. The only 2 additional things I would add is, one, to Jan's point, we're seeing across all segments. And we've discussed before the 3 areas or types of patients that we envision coming are. One, patients currently on VOXZOGO that are switching over. Two, patients that were previously on VOXZOGO but since discontinued and were on no therapy. And then three, a patient that perhaps had never made the decision to start therapy at all. And we are seeing anecdotally that it's coming across all 3 of those groups. And I think really what that underscores is the continued and existing unmet need that exists in hypochondroplasia today even with the existing therapy on market, which I think emphasizes the value of having YUVIWEL on the market and the compelling value proposition that it offers patients. I think the second area that Jan was talking about is our continued investment in just making sure that everything we're doing is hand in glove with patients, both as it relates to partnerships with the patient advocacy groups, but also as it relates to our scaling up of our patient access liaison team, which is our patient-facing field group that invest in the support and the journey as they go through the continuum of prescription to ultimately being on therapy. Operator: Our next question comes from the line of Yun Zhong of Wedbush. Yun Zhong: My question is on the monotherapy for hypochondroplasia. I remember that there have been some changes in terms of approach for that program, whether you're going to pursue that indication at all and whether it's going to be mono or combo or maybe just -- wanted to know the -- are you able to share any information regarding the thought process behind the decision if this is the final decision that you are going to just using monotherapy to target hypochondroplasia? Jan Mikkelsen: Yes. I think the strategy that we have applied to [ achondroplasia ] where we started with monotherapy and the addition to combination therapy. I think you will see that there will be alignment between the strategic approach that we have used in [ achondroplasia ], we will likely also use in hypochondroplasia. I can basically tell you that we're using the same principle between the 2 indications. The 2 indication is very much aligned in the fundamentals of the disease. There's only, you can say, different mutation, different severity and other things like that. And we will implement the same thinking in treatment regime between these 2 indications. Operator: Our next question comes from the line of Luca Issi, RBC Capital. Luca Issi: Maybe Jay or Scott, can you educate us on the mechanics of the free drug for YORVIPATH? Who are the patients that got the free drug? For how long do they stay on free drug? And are you expecting any patients still on free drug in Q2? Or is this just a kind of Q1 phenomenon? Any color there, much appreciated. And super quickly, I think AstraZeneca has presented their Phase III data for [indiscernible] this week in the European Congress on Endocrinology. So wondering if you can comment on what are your expectations for that data? Jan Mikkelsen: Yes. I can start from the last question, and then I can move it up and then Jay can take over in the end. The compound we are talking about in the end is the amyloid compound. And we have discussed that on many earnings calls, the lack of information that was related to data. Now that is disclosed some kind of information of the data package 1 year after finalization of the Phase III trial. And for me, and I think the key question, do this data package provide an approvability of any way of this compound? And to my best judgment, I hope this product never will be approved, and I don't see really as possibility that it should be and going to be approved. So I think when we look on the competitive landscape for treatment in hypopara, I see YORVIPATH, our once-weekly approach to stable patient on YORVIPATH is really providing the fundamentals for a 20, 30 years treatment regime where I don't see anything that really can give up to the benefit we will see in the treatment with YORVIPATH or any other product that is currently in clinical development from that perspective. Related to the first part of your question, you're right. We started to take already December a group of patients over to free drug because the essential part of YORVIPATH is that you cannot stop we first have started taking over to basically the element on what we call the conventional therapy. This basically is a disaster for the patient. So if there was a hiccup in the reimbursement that was a hiccup and it's something we have done corrective action to ensure that we can handle it much better next year. We were in a position that we took, and Scott explained the impact of that here in Q1, to take already from December until March and series of patients on free drug, and they are now coming back to be fully reimbursed. And we are in a position that -- and the organization in the U.S. some way have built up network or other things that can help it that we're not ending in the same situation on time. Jay, have you any comments too? Jay Wu: Again, I think you summarized the need for bridge program well. I think just to clarify the earlier question, there is 2 types of [indiscernible] programs. We have bridge program, which again is pretty standard across the industry for those that have experienced a temporary insurance lapse. But we also just have our patient assistance program for patients that are underinsured or uninsured. So I think that's an important point to note because there will always be some patients that qualify for the patient assistance program. So we don't anticipate that, that will ever go away completely knowing that there will always be a certain level of patients that qualify for that. Jan Mikkelsen: Yes. I think that is a clarification. That's great from Jay, where we talk about this number of patients is only what we exceeded as success compared to the base level of patients. We always will help and provide free drug if there is an element of something where there is a disruption of the normal way to have drug. It's a drug for the patients that we are -- always will take our patient focus first. And if there's a patient that gets disrupted, we will do everything to help this patient. And that includes also to take them for a period of free drugs until the disruption getting solved, and we will always be there for the patients. Operator: Our next question comes from the line of Maxwell Skor of Morgan Stanley. Unknown Analyst: This is [indiscernible] on for Max. Given the relatively low treatment penetration in [indiscernible] in the U.S. to date, what proportion of patients typically initiate treatment at age 2 years or older? Jan Mikkelsen: I think some way to roll it a little bit back because you can ask the question why you have under treatment in the U.S? And I think actually this is the key question to find out how can we really help this patient better. And I think -- and we believe that the undertreatment is basically the cause of lack of the right efficacy to show real benefit beyond linear growth. Many of these parents, children don't see linear growth as a key element. They really want us to address all the [ comorbidity ], specific if you can avoid surgeries, or changing the pain [indiscernible] with leg bone. You can avoid [indiscernible]. And I believe by having this focus on these elements and here, I talk about the older children. If you go to the younger newborn, yes, if we can avoid any kind of spinal stenosis by having early intervention from newborn, yes, there will be a major benefit for treatment in the state. So I believe our product profile that we have generated [indiscernible] a product, clear benefit compared to placebo. It needs always to be placebo controlled because there is a development to. So you cannot say, we also improve a [indiscernible] child with actually have a big increase in arm length. So you always need to really show it compared to a placebo-controlled trial. It's the only way you can really just the benefit of the medical treatment in it. So the question and the answer to you is I believe will be appealing product to the vast majority of parents, children in the U.S. also because they provide a way to address the comorbidities. So important one, everything that you basically will see benefit for not only quality of life that's associated with it, but also the element of physical strength. Operator: Our next question comes from the line of Paul Choi of Goldman Sachs. Kyuwon Choi: Congrats on the good start with YUVIWEL. I was just wondering if you could clarify in terms of the 60 -- more than 60 prescriptions you've seen to date, whether it's more driven by treatment-naive patients or switches? Any quantification there would be great. And I'm also curious in terms of your early starts or through the quarter, if you're seeing potential utilization in the below 2 years of age population, even though that's not officially on label yet. Jan Mikkelsen: Yes. We need to come with a meaningful answer. We need longer time because we only have been there for 4 or 5 weeks now. And we want to be sure that what we see in the initial part of the launch is also being representative of what we'll see in the later stage of launch. So Paul, we can discuss it, as Jay said, in a perfect manner. We see patients coming in for all 3 different groups, which was in a new group, patients that have discontinued [indiscernible] and patients that come directly on switching for [indiscernible]. So out from that, we see it coming in for all 3 different groups in the initial launch, we will expect to see perhaps one mix and when we come a little bit longer into the launch, we will potentially see a switch in the different 3 classes. And this is why really to make it meaningful, we need to wait longer time before we can give you something you can do the right modeling on. But when I look at this number we're coming up more than 10 patients per week, it's an orphan drug indication. I'm extremely proud that our product profile is getting so well recognized in the society in this way. Under 2, I cannot comment on that currently. Unknown Analyst: For the 70% cumulative U.S. insurance approval rate that you previously cited, can you give us any more color on what that cumulative rate looks like today? And then second, the EUR 500 million operating cash flow target that you laid out previously, are you reaffirming that guidance given the Q1 trends that you're seeing? And how should we think about the contribution of [indiscernible] to that target? Jan Mikkelsen: [indiscernible] one, we would like to come back in Q2 because we have a lot of positive data coming in now. We have the selling of our PMV and launch of YUVIWEL going much, much stronger than even myself hope. So apart from that, we will come with that claims guidance, but we will prefer to do it after our Q2 call, and we will give you what will be reflected on '26. Scott is saying yes to me. And Jay, you can give the [indiscernible] number, how it's improving the overall numbers. Jay Wu: Sure. So the overall cumulative approval rate since launch has continued to creep up as well. I think we're now closer to mid-70%, which again is incredibly high for any rare disease asset, much less one that has been on the market for the amount of time that we have. A lot of that is just a function of time given the favorable access policies that we have. So even some enrollments that might be many months old are coming through on appeal online, which would affect the cumulative approval rate over time. But given that it is a lagging indicator, it will take quite a bit of time for that metric to mature. Operator: And our last question comes from the line of [ Cecilia Hernandez ] of [indiscernible]. Unknown Analyst: This [indiscernible] is on for [indiscernible]. So given the revenue now from commercial products, the redemption of the convertible notes and the sales of the [ PRP ], can you tell us anything on your capital allocation strategy? What is the order of priority for you guys? Jan Mikkelsen: I think Scott you want really to answer the last question for today. So Scott get this opportunity now. Scott Smith: Thanks a lot, Jan. Of course, as you've seen with our R&D success, a key component for us is to invest in R&D and allocate capital there to continue to sustain not only into the 2030s, but the 40s and beyond with the continuous flow of new products. I think Jan highlighted new NCEs in his prepared remarks, and you'll learn about more of those in the coming future. And of course, I think after we give an update after Q2, as Jan mentioned, to our outlook for the rest of the year, you may get more color at that point as well. Operator: Thank you. That's all the time we have for questions. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Inspired Entertainment First Quarter 2026 Conference Call.[Operator Instructions] Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the first quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. This also applies to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead. A. Weil: Thank you, operator. Good morning, everyone, and thanks for joining our first quarter conference call. Once again, we've prepared a slide deck to help focus the conversation, and Brooks and I will be using that for the balance of the program. So beginning with Slide 3. We continued in the first quarter to see the benefits of steps taken in 2025. As been reported previously, we took 2 important actions in 2025 to alter the balance of our portfolio. We sold the holiday park business, which we've discussed a number of times, and we restructured the pubs business to significantly reduce both capital and labor requirements. Overall, we've reduced company headcount by about 1/3 from over 1,500 to around 950 and cut our annualized capital spending from the mid-$40 million to the low $30 million. Adjusting for the onetime impact of the holiday park and pub restructuring, which I'll discuss a little bit more in a moment, our continuing revenue grew by 15% year-to-year, driven in large part by 38% revenue growth in Interactive. Our Q1 reported EBITDA grew by 29%. Our EBITDA margin expanded by 1,100 basis points. We paid down $13 million in debt, and we bought back close to 400,000 shares. So it was a very busy quarter. Slide 4 illustrates a little more clearly what's going on with revenue. The actions taken in holiday parks and pub together had the effect of reducing revenue in the first quarter of 2025 by about $10 million from $60 million to $50 million, as illustrated in the slide. And then driven importantly, but by no means exclusively by Interactive growth, discontinuing revenue of $50 million grew by 15% to a little more than $57 million in the first quarter of 2026. Interactive is certainly the primary growth driver, but as Brooks will discuss in more detail in a minute, our retail business has been performing very well in all its worldwide markets. The sustained interactive growth illustrated in Slide 5 has in turn been driven importantly by superior content development as has the retail business, though obviously to a lesser extent. In the retail business, the markets themselves are growing less quickly and particularly in the U.K. and Greece, our market share is much higher. In just a moment, Brooks will elaborate on our content strategy, including the bringing on stream of the new studio. But along with the focus on content development, we've been entering new markets, winning new customers, strengthening our accounts management team in order to maximize the benefit of our content. And with that, I'll hand it over to Brooks. Brooks Pierce: Okay. Great. Thanks, Lorne. And moving to Slide 6 and to build on the points you made. Our core strength and focus is on developing the best content and delivering it wherever it's consumed, including retail, online or in any number of geographies worldwide. One of our key markets is North America, which is now over 30% of our interactive GGR overall and continuing to grow. And as you can see on Slide 6, we continue to climb the ladder in the Eilers U.S. online report, moving up to fourth in the April report from #8 just a year ago. We're continuing to increase our share in both North America and the U.K. This is not-- is driven not just by content alone, but by a consistent road map of high-performing new game releases -- we've also enhanced our account management teams to work more closely with our operator partners on securing prime placements and supporting promotional activity for exclusives as a key part of our offering. On Slide 7, you can clearly see that we've built a portfolio of high-performing content across the last few years with growth accelerating since January of 2025. We've seen these trends continue into April, where we ended the month on a high note with our highest ever single day total value played. These continuing results validate our strategy, and we're excited to bring an additional studio online in the second half of the year to continue to feed our operator partners with more great content that they've come to count on. Turning to the U.K. As of April 1, the increased tax rate from 21% to 40% came into effect in our Interactive business. With just over a month of data, the impact we are seeing tracks exactly with what we had forecast. Importantly, despite the step-up, we saw our U.K. Interactive revenue grow in April, driven by our continuing share gains. Our U.K. GGR in April was more than 40% higher than a year ago, offsetting the tax increase and net-net resulting in our revenue growing by more than 10%. Where we see others retrenching in the U.K. market, we see opportunity to continue to grow our share, and we're committed to the resources to leverage this opportunity. Even with the tax headwind, the U.K. continues to demonstrate strength and resilience of this segment. Moving to Slide 8. We're seeing the benefits of both strong content and the rollout of new machines across several key customers and geographies in our Retail Solutions business, proving that this phenomenon exists beyond Interactive. In the U.K., William Hill, in particular, but frankly, our entire U.K. LBO business showed positive momentum in the first quarter, and we expect that to continue. We also added 2 new customers, Jenningsbet and Corbett's and signed a multiyear contract extension with Paddy Power early in the second quarter. In Greece, our win per unit per day increased 11%, led by our recently introduced Valor Slant top machine, and we will continue upgrading over the rest of 2026 and into 2027. We believe that this machine refresh will continue to drive growth in the Retail Solutions segment. In North America, we're cautiously optimistic about the expansion into Chicago and see the broader Illinois market as a good opportunity for us over the next 12 to 18 months. And combined with our growing footprint across several Canadian provinces, we're starting to see the beginning to -- of the--providing the scale that we really need in North America. So moving to Slide 9. As we've talked about over the last year, we've seen stabilization in Virtual Sports despite the ongoing headwinds in Brazil, which remains a key market for us. Unfortunately, growth we are seeing in other regions is currently being offset by performance in Brazil. However, we see a clear path to growth supported by additional key customers and upcoming product releases as well as the tailwind from the World Cup. Moving to Slide 10, which I think really validates what we've been talking about for some time, optimizing our portfolio is delivering the outcome we expected, divesting the lower margin, more capital-incentive -- Lorne keep your phone off -- Divesting the lower margin, more capital-intensive and less strategic holiday parts business, along with the restructuring of our pubs estate to be less capital and labor-intensive which had the exact impact we are expecting. As a result, the shift to higher-margin digital businesses, combined with improved retail performance is leading to overall growth in EBITDA, margin expansion and significant improvement in cash flow. And all of this is underpinned by our continued focus on delivering the best content to support this strategy. So I'll turn it back over to Lorne. A. Weil: Thanks, Brooks. Just to refocus a little on the numbers, Slide 11 is once again a snapshot of where we were at the end of the first quarter. Year-to-year growth in EBITDA was 29%. Digital accounted for about 60% of our EBITDA and our leverage had declined to 3x. More importantly, Slide 12 analyzes what happened with cash. We generated about $16 million in free cash flow, which we used to both repurchase stock and repay debt. Obviously, this won't occur every quarter because every other quarter, we have a semiannual cash interest payment to make. But over the course of the year, with cash generation being fairly steady and annual cash interest in the mid-30s and declining as we deleverage, our leverage free cash flow conversion as a percent of EBITDA is comfortably in the 20s and hopefully growing. Cash flow conversion and other key metrics are summarized in the targets on Slide 13. As we move through this year, we're projecting the underlying trends we've been seeing will continue. We expect to see steady sequential growth in EBITDA from Q1 onward now that most of the seasonality has been removed with the holiday park sale. And in parallel, we're targeting strong cash flow conversion and declining leverage driven by both the paydown of debt and growing EBITDA. In terms of asset allocation, we will look to continue to both debt repayment and share repurchase. And with that, we'll open the program up to questions. Operator: Your first question is coming from the line of Barry Jonas of Truist Securities. Barry Jonas: Thank you for all the helpful color so far. Just a couple for me. I think we've heard from some competitors about macro and geopolitical issues impacting the top line and perhaps the cost environment. But just -- I think I asked this last quarter, but I wanted to see if you had any updated thoughts there you could share. Brooks Pierce: No. I think we're probably aligned with pretty much everyone else, and it's something that we're watching very closely. We're not seeing the impact of it thus far, but we're obviously mindful of it. And I think the first quarter is kind of positively reinforcing that. But as we all know, you kind of have to keep your head on a swivel about this stuff. Barry Jonas: Got it. Okay. And then I think the ramp of Interactive has been fairly impressive over the past few years. But the Virtual business is one where I think years ago, we maybe had higher expectations. And maybe just wanted to kind of get your thoughts. I think before we saw some of the near-term challenges, we were thinking kind of like a mid-teens percentage of OSB handle was a decent long-term target for Virtuals. But curious if you have any updated thoughts about the longer-term opportunity here. Brooks Pierce: Yes. I think it's an interesting question. I think I would say that we're probably a little frustrated in the growth that we would have expected from Virtual Sports. Just to put it in a little bit of context, at least as it relates to North America, obviously, online sports betting is in 39 states. And right now, we're technically only allowed to go in a couple of states. So obviously, one of the things that we would hope is to add both additional states, but also additional operators. I think we have some product initiatives that are coming out that will help. We obviously expect to get some tailwind from the World Cup. That might have been aggressive to think that it was going to be a mid-teens percentage as a part of online sports betting. It's probably more like maybe mid- to high single digits is probably the right number to think about. A. Weil: I think there's another issue that I think is very important, Barry, too, which is that the opportunity for virtual sports is certainly in North America is not limited to basically a companionship with online sports betting. And that is in the lottery space. Without going into a lot of detail right now, I can tell you that we're seeing some very interesting developments with some of the most important lotteries in North America regarding the opportunity for virtual sports there. And I think definitely, as we move through this year, we'll see a couple of very meaningful developments that I think will be a tipping point for the virtual sports. Operator: Your next question is coming from the line of Ryan Sigdahl from Craig-Hallum Capital. Will Yager: This is Will on for Ryan. First wanted to ask on the guide. You reiterated adjusted EBITDA but increased the margin. So it implies that revenue a little bit lower than you expected. Curious what's the main factor going into that? Is it mostly U.K. iGaming taxes, Virtuals? Or is it something else entirely? Brooks Pierce: I think it's -- I guess, how I would characterize it is just a slight tweak. We're seeing the margins continue to increase. And obviously, you've done the math on the revenue, but I think that's it's just a guide. But we certainly feel very confident, and that's why we've upped the EBITDA margin targets. But I don't see this as a big fundamental shift of it by any stretch of the imagination. Will Yager: That's fair. And then just a quick follow-up. I wanted to ask sort of on the Interactive expansion you ended up launching in South Africa, Fanatics and West Virginia. Curious what the future expansion opportunities look like and how much more you think you have to run? Brooks Pierce: Yes. Sure. I think we've talked about this a number of times, and Lorne may want to add to my commentary because I know he talks about it a lot is look, we're going into the regulated markets where we think it makes sense, expanding in markets like West Virginia and South Africa. But I think what we feel over the longer term is there's going to be a large opportunity for expansion of iGaming in North America. Particularly with everything that's happening in terms of the states not getting the kind of support from the federal government that they've gotten in the past, and we think that there's going to be an opportunity for more and more states. Obviously, there was a whole big thing about this in D.C. recently. Virginia has talked about it. So I think it's an underappreciated -- no one knows what the timing of that is going to be, but we feel like there's going to be more states that will come on board. And frankly, if that were the case, that really takes no more for us from an infrastructure or cost standpoint to deliver these additional states other than a little bit of bandwidth cost. So we see that -- we don't know when, but we see that as a huge opportunity to be transformative for us. Operator: Your next question is coming from the line of Chad Beynon of Macquarie. Chad Beynon: Brooks and Lorne, I wanted to stick on Interactive, just given the -- how important this is and the growth that you highlighted here in the first quarter. Just thinking about the new studio, new game launches and how AI can build upon that. Could you help us think about maybe some of the tried and true games that have done well? And then with this new studio, will that all be incremental and how we use AI to just get games quicker to market for your partners? Brooks Pierce: Yes. No, thanks, Chad. That's a great question. And I think the reality is, yes, I think the single biggest thing from the Interactive side that we've been talking about for a while, and I think we've talked about this. We've looked long and hard for potential acquisitions in the space as a tuck-in to add more capacity and didn't find anything that made sense for us and finally decided that we were going to build the studio ourselves, and that's well down the path, and we'll start producing games in the second half of the year. And on your comment on AI, yes, I mean, for sure, the utilization of AI across the business, but certainly in the game development side of things accelerates the ability for us to deliver games faster, which is something that I think is going to be important for us as we go forward. So adding capacity, adding kind of different types and styles of games to broaden our portfolio and getting more games out faster through utilizing AI is clearly a big strategy of ours. Chad Beynon: Okay. Great. And then on the Retail business, focusing on units in North America. I know there were a few bills to grow the distributed gaming markets in a few states that didn't get across the end line, but you mentioned Chicago, which I think is coming in the fourth quarter. Where else can you go in the U.S.? Are you looking to get licensed in other markets? I know Louisiana, Georgia, Nebraska, et cetera, have similar types of markets that are growing on a same-store basis. But just wanted to know if you could help us on the TAM in that market. Brooks Pierce: Yes. I think what we've consciously tried to do here is to build at the right pace for us. We obviously mentioned in the release, we've got multiple Canadian provinces that are now kind of ordering machines on a yearly basis, and that's very important for us. Illinois and in particular, Chicago, assuming everything goes as expected, we will start in the fourth quarter and then will be a bigger part of next year. And I think we mentioned on a prior call that we had done or at least in a press release that we've developed in concert with Gaming Arts, a game that will go on their Class III cabinet. So we think that should be a proof point for us that our content will work in Class III. And then obviously, that opens up a number of opportunities across Class III and Class II. And then specifically, on the distributed question that you had, we kind of have to take it on a market-by-market basis. So each one has its own nuances. Montana, Nevada, Louisiana, each have their own kind of unique attributes. So we went with what we thought was the best and most likely place for success first, but we certainly are looking at not only the North American market for distributed gaming, but frankly, distributed gaming on a worldwide basis. At this time, there are no further questions. Operator? Operator: Your next question is coming from -- it's coming from the line of B. Riley Securities. Matthew Maus: This is Matthew on for Josh Nichols from B. Riley. I guess just on the Virtual Sports side, I was wondering, how should we think about the Playtech deal alongside the World Cup? Is the timing going to allow you guys to have content live on Playtech's network ahead of the tournament or maybe during it? Or is that more of like a second half and 2027 revenue driver? Brooks Pierce: Yes. I'd say it's more of a second half. We look -- we think this is a great opportunity for us to get our product into the Playtech network. I think our first customer should go live here shortly. But I would say it's much more of a second half and going into 2027 opportunity for us. Matthew Maus: Got it. And then also, I guess, in terms of like BetMGM Sportsbook tab integration in New Jersey, I mean pretty sure it's been live for a couple of months now. I'm wondering like is there any early reads that you see there on player engagement and how that can possibly lead to future operator signing with you guys? Brooks Pierce: Yes. I mean I think it's probably a mixed bag. I think the results from BetMGM in Ontario have been very good, probably not quite as good as we had hoped so far in New Jersey, but we're working with BetMGM in particular, about where we're positioned on the site and some promotional stuff. So I think it's a little early. I think maybe it's 4 to 6 weeks that we've been out with them. So it doesn't happen overnight, but we certainly feel very bullish, and we're having some conversations some of the other big sports betting operators, I think, that are looking to broaden their portfolio. And to just add on to Lorne's comment, we do think both on an online basis and importantly, in a retail basis that virtual sports or monitor gaming, as they call it, in the lottery industry is a very big opportunity for us that's underappreciated. So we would expect over the next kind of 6 to 12 to 18 months, having some pretty meaningful contribution coming from that as well. So even though the Virtual Sports business is relatively flat, there's a number of opportunities that we see that we think can get that business back to growing. Matthew Maus: Last question for me, just on the Interactive side. Maybe on the hybrid dealer pipeline, -- if I remember correctly, I think DraftKings and Betfred were expected soon to be signed. I'm wondering like where that stands and how the rest of the funnel is shaping up. Brooks Pierce: Yes, you're right about both of those. I would have expected that we would have them live at this point, but it's probably going to be June for that. So we'll start. And as we talked about before, this is the games that have the combination with our slot content that has done very well. The Wolf it Up game is the first one that will go out. And we'll be rolling it out to a number of customers starting in June. So when we have our next call in August, I guess, we'll be able to talk about that in a little bit more detail. Operator: There's no other questions in queue at this time, and that concludes our Q&A session. I will now turn the conference back over to Lorne Weil for closing remarks. Please go ahead. A. Weil: Thank you very much, operator. And again, thanks, everyone, for joining the call this morning. I think you can tell we're feeling very positive about where the business is. The one issue that had been a concern had been this issue of the U.K. tax, but at least so far in the second quarter, we've been able to more than offset the impact of the tax by our growth in gaming revenue in the U.K. So the business is really in very good shape. We're buying back stock. The leverage is coming down. The margins are going up, all the things that have been our objectives for a while. So hopefully, this will continue through the second quarter. And we'll look forward to reporting in 3 months. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Vontier First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. Replay will be made available shortly after. I'd like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Thanks. Good morning, everyone, and thank you for joining us on the call this morning to discuss our first quarter results. With me on the call today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Executive Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call, we will present certain non-GAAP financial measures. We'll also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to Slide 3, and I'll turn the call over to Mark. Mark Morelli: Thanks, Ryan. Good morning, everyone, and thank you for joining us on the call this morning. Let's get started with a few high-level takeaways from the quarter. Vontier delivered solid sales and orders growth to start the year as we continue to gain traction on our connected mobility strategy. We're expanding our integrated offerings to capitalize on strong secular tailwinds across our end markets. Core sales grew nearly 2%, slightly ahead of our expectations, driven by strong performance in our Environmental & Fueling Solutions segment. Orders were up approximately 5% on a core basis, including strong demand for fueling equipment and key wins in retail solutions. Adjusted operating margin declined 70 basis points below our expectations, reflecting unfavorable mix and timing of R&D expenses. Importantly, the underlying fundamentals of the business are intact, and we are confident in our full year outlook as well as our ability to achieve the $15 million in savings related to ongoing simplification and 80/20 efforts. We're seeing meaningful momentum in our convenience retail end market, which strengthens our visibility and reinforces our confidence in the growth opportunity ahead. We have market-leading technologies that optimize our customers' operations, unmatched domain expertise to solve high-value problems and best-in-class channels to market. Growth within this end market was led by Environmental & Fueling Solutions with double-digit growth in both dispensers and aftermarket parts. Dispenser demand is strong, supported by the ongoing build-out and modernization of retail fueling infrastructure. The pull-through from advanced payment technology is helping to drive replacement and upgrade demand. As an example of this, we launched the next-generation FlexPay6 outdoor payment terminal in the first quarter. While bolstering our cloud-connected industry-leading payment security, it features a larger flush-mounted touchscreen along with an integrated card reader and PIN pad. It also enhances our unified payment solution by offering a more interactive consumer interface that helps reduce transaction times and improves engagement at the pump. We're also seeing strong momentum for our innovative technologies inside the store. Retail solutions, part of Invenco brand delivered strong growth in payment, media and point-of-sale systems. The convenience retail end market is resilient even in uncertain economic backdrops. Over the last 25 years, this end market has consistently demonstrated durability through periods of volatility. Higher oil prices have historically been a net positive as higher fuel margins drive improved profitability for C-store operators, enabling them to prioritize modernization, food and beverage offerings and invest in the consumer experience. Industry data suggests high retail fuel prices typically result in more frequent visits, which creates an opportunity for greater conversion for in-store sales as consumers place more emphasis on value. In prior cycles, higher fuel margins, combined with the trade-down effect as consumers shift toward lower-cost C-store options have created tailwinds to generate more cash flow for C-store operators. In turn, we see robust capital expenditures for multiyear storefront build-outs and retrofits. This is particularly true of larger regional and national C-store chains where we have higher share and they focus on delivering an elevated consumer experience. We're seeing this play out today. A good example is 7-Eleven's recently announced intention to remodel 7,000 stores across North America through 2030, standardizing around their more modern food and beverage focused format. This is in addition to the 1,300 new sites they expect to build over that same time horizon. This kind of long-term investment reinforces the strength of the category and the opportunity for Vontier. This morning, we also announced an important step in our portfolio simplification strategy. We've announced an agreement to sell our global fleet telematics business, Teletrac, for a total purchase price that values the business at $220 million. The purchase price consists of $80 million in cash proceeds and a $100 million seller's note, and Vontier will retain an approximate 30% equity stake in the business. We've outlined those details for you on Slide 4. The sale marks the completion of a successful multiyear turnaround of this business. At the time of our spin, Teletrac was churning out about 25% of customers with declining profitability and negative free cash flow. Since then, the team has meaningfully improved the business by launching a new platform, significantly reducing churn, accelerating ARR growth to mid-single digits, improving profitability and generating positive free cash flow. This has been a major effort for the Teletrac team, and we're grateful for their contributions. We believe Teletrac is well positioned for its next chapter of growth with better focus and access to capital under its new ownership. We expect this transaction to close in June, and we'll deploy the cash proceeds consistent with our disciplined capital allocation framework with a focus on additional share repurchases and selective bolt-on acquisitions. Before I turn the call over to Anshooman, I want to reiterate our confidence in the full year outlook. While the geopolitical backdrop added some uncertainty, demand trends remain constructive. We're also strengthening the foundation of our business to drive more profitable growth over time through commercial excellence and innovation and a relentless focus on execution. As we finalize the remaining organizational changes and implement our cost actions, we still expect incremental savings to ramp in the second half of this year. Combined with disciplined capital deployment, we are confident in our ability to deliver double-digit EPS growth. With that, I'll turn the call over to Anshooman to walk you through a more detailed review of the quarter's financials and our outlook. Anshooman Aga: Thanks, Mark, and good morning, everyone. Please turn to Slide 5 for a summary of our consolidated results for the quarter. Total sales of $751 million and core sales growth of 1.7% were above our guide, driven by notable strength at Environmental & Fueling Solutions with Mobility Tech and Repair Solutions generally performing in line with our expectations. As Mark mentioned in his remarks, adjusted operating profit margin fell short for the quarter, reflecting unfavorable mix and timing of operating expenses within both Mobility Tech and Repair. We expect full year margins to be consistent with our previous guidance. Adjusted EPS was $0.80, up 4% year-over-year. Adjusted free cash flow was below our normal seasonal pattern and prior year. The timing of our semiannual bond interest payment of approximately $19 million was in Q1 this year versus Q2 last year. Additionally, Q1 had an extra payroll run compared to the previous year, along with higher incentive compensation driven by the strong performance in fiscal 2025. We expect several of these timing differences to level out during the year, and we expect free cash flow conversion of around 95%. Turning to our segment results, beginning on Slide 6. Environmental & Fueling Solutions started the year off strong, benefiting from solid industry demand and an innovative product portfolio, driving higher new equipment and aftermarket activity. Total dispenser sales increased low double digits on a global basis, led by strength in North America. We saw notable bookings and sales strength from large national accounts, evidence of stable CapEx budgets. Segment margin was flat at nearly 30%, with volume leverage and ongoing productivity actions offset by less favorable mix. Moving to Mobility Technologies on Slide 7. Core sales declined by about 1% as strong underlying demand for convenience retail technologies was offset by more than a $25 million headwind associated with higher shipments for our Vehicle Identification Solution, or VIS in the prior year. Our commercial pipeline is robust, and we continue to win new business for integrated solutions, including orders for our unified payment point-of-sale and VIS offerings. The consolidated Mobility Technologies segment margin declined 260 basis points, driven by unfavorable mix and higher operating expense. On the OpEx side, we incurred higher R&D expenses in order to accelerate new product launches. At the same time, our cost-out activities are ramping in Q2, giving us momentum for the back half of the year. On the mix side, product and geographic mix impacted margins in Q1, which we expect to recover in Q2 and the balance of the year. When you combine this with stronger volume growth and incremental benefits from our cost initiatives in the second half, we remain on track for solid margin expansion this year. Additionally, the divestiture of Teletrac will be accretive to margin performance for the segment and Vontier overall. Finally, turning to Repair Solutions on Slide 8. Sales performance was in line with our expectations with progress on our growth initiatives successfully offsetting pressure on technicians' discretionary spending. This was most notable in our Tool Storage, Diagnostics and Power Tools categories. Additionally, we are focused on quicker payback tools that improve technicians' productivity. The lower segment margin can be attributed to unfavorable product mix and a discrete bad debt reserve of about $2 million related to delayed collections caused by the implementation of a new financial system. We're making good progress in collections and would expect to recover a majority of this reserve over the next several months. Turning to the balance sheet on Slide 9. Adjusted free cash flow of $28 million was impacted by the working capital items I highlighted earlier. We accelerated share repurchase in the quarter, buying back $70 million given the market dislocation. While we will maintain some flexibility on cash, given an increasingly actionable deal pipeline at current valuations, buybacks remain a very compelling use of cash. To address the $500 million bond maturity at the end of the quarter, we used about $200 million in cash on hand to repay a portion of the bond and issued a new 364-day term loan for the remaining $300 million at a relatively attractive spread. We ended the quarter with over $200 million in cash on the balance sheet and net leverage at 2.4x. Please turn to Slide 10 to discuss our guidance for 2026 and Q2. Beginning with a look at our full year guidance. What is shown here is what our guide would have been prior to the Teletrac divestiture, the impact that divestiture will have on our P&L, landing on our official guide, which includes the removal of Teletrac's results in the last column of this table. Importantly, there are no changes to the underlying fundamentals of our previous guidance, and we are only adjusting our guide to reflect the removal of Teletrac. We are assuming the transaction closes in early June, which means we remove about 7 months of contribution. Following this adjustment, relative to our previous guide, we lose about $110 million in sales, bringing the midpoint of our new range to just over $3 billion. Teletrac has little to no impact on our organic growth, but will be accretive to our margin rate by about 50 basis points. We now expect operating margin to expand by about 130 basis points to approximately 22.5%, which includes the contribution from the $15 million savings initiatives over the balance of the year. On a gross basis, the transaction will be about $0.05 dilutive to EPS for the full year. However, the interest received from the seller's note and the benefit from share buyback offset that EPS headwind, so we leave our full year range unchanged at $3.35 to $3.50. Our outlook for adjusted free cash flow conversion remains at 95%, representing around 15% of sales. Looking at our guide for Q2 on Slide 11, we follow the same format. We expect sales in the range of $730 million to $740 million, with core sales down about 1% at the midpoint, which implies the first half at roughly flat, in line with the initial outlook we outlined for you on the Q4 call. As you may recall, shipment timing of the vehicle identification system in the prior year drove high teens growth in Mobility Tech, along with 11% core growth for overall Vontier. This compare issue starts easing in the third quarter. Margins will begin to accelerate in the second quarter, expanding approximately 80 basis points, reflecting lower operating expenses. EPS will be in the range of $0.78 to $0.81, including a $0.01 headwind from the divestiture. As we highlighted on our last call, the year-over-year organic growth rates will look better in the second half, accounting for first half compare issues at EFS and Mobility Tech and the timing of shipments on projects in backlog, which favor Q3 and Q4. As always, we've included some other modeling assumptions on the right-hand side of the slide, which have also been updated to reflect the divestiture impact on the top line and adjustments still below-the-line items. With that, I'll pass the call back to Mark for his closing comments. Mark Morelli: Thank you, Anshooman. We're encouraged by the start to the year and by the underlying momentum across our most important end markets. I'd like to thank the entire Vontier team for their hard work and dedication to delivering for our customers and each other. As we look ahead, one of the most important evolutions underway at Vontier is how we operate the business. Historically, we've operated largely through individual lines of business. Over the past 2 quarters, we've reorganized significantly from the customer back, streamlining operations, raising the bar on operational excellence and becoming a more integrated enterprise. Today, our go-to-market strategy is deployed around 3 core end markets: convenience retail, fleet and repair. This shift is simplifying how we operate and setting the foundation for greater scale over time. By aligning around our customers, we bring more depth and expertise to enable integrated solutions. We believe this customer-led model strengthens our competitive advantage, improves how we innovate and sell and positions Vontier to deliver more consistent growth, margin expansion and long-term value creation. We believe our connected mobility strategy is the right long-term strategy for Vontier, and we are focused on executing with discipline to convert that strategy into durable top line growth, stronger profitability and greater value for shareholders. We have strong leadership positions in attractive and resilient end markets that offer significant opportunities. That means we need to continue to drive commercial excellence while also maintaining a relentless focus on execution, simplification and disciplined capital allocation. As we do this, we believe we are well positioned to deliver on our commitments and create meaningful long-term shareholder value. With that, operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from David Raso of Evercore ISI. David Raso: Two questions. One about the mobility mix moving forward and also the use of the proceeds on the divestiture. On the margin mix, can you help us a bit how you're thinking about the various pieces within Mobility, the growth the rest of the year? Just the margin in mobility was a little bit lower than I would have thought. And you mentioned also some costs involved. So maybe if you can help break out that margin decline year-over-year and again, how to think about the mix for the rest of the year? And then lastly, on the repo, the share count for the full year, it looks like maybe you are assuming it depends on the, obviously, share price, but maybe another $75 million, $100 million of repo after the $70 million guide in 2Q. I just want to make sure I'm thinking about that correctly. Anshooman Aga: David, thanks for the question. So for Mobility Tech margins for Q1, there were really 2 items that impacted margins. One was mix and mix really was product, customer and geographic mix played out differently versus our expectations and also historical norms. The second piece is higher R&D expenses in the tune of a couple of million dollars. And this was really accelerated spend on launch of new products. In the prepared remarks, Mark talked about the next-generation FlexPay6 products, which brings a lot of customer benefits that we launched, but also the redesign of some of our printed circuit boards for the memory chip shortage working around that, that drove the higher R&D expense. Coming back to the rest of the year for Mobility Tech, we've already seen in April, the mix normalize back to what we would expect in our historical norms. And also on the OpEx, we're confident that we'll get our $15 million savings. Part of it is obviously in Mobility Tech, and we're seeing traction on some of those saving actions in Q2 as we speak. So we feel pretty comfortable that for the full year, our guide for Vontier is unchanged other than the change for the divestiture of Teletrac. In terms of share buybacks, we've assumed about $150 million of buybacks for the year in the guide. We did $70 million already in Q1. So you can expect majority of the proceeds from the Teletrac divestiture would go towards buybacks at the current share price, buybacks remain extremely attractive from a capital allocation perspective. And additionally, we'll be generating a significant amount of free cash flow for the rest of the year. So that does give us optionality that's not built into the guide. David Raso: Okay. So to be clear, the $150 million, you'll have $140 million done by 2Q. So there isn't much baked into the second half at the moment? Anshooman Aga: Correct. David Raso: I appreciate it. Operator: And your next question comes from Julian Mitchell of Barclays. Julian Mitchell: I just wanted to start with maybe a longer-term question. So if I look at Slide 4, you've done another divestment today alongside a bunch of portfolio changes that you put on Slide 4. But I guess if I look at just the overall kind of history of this since it's spun out, the PE, I think, the first year after the spin was about 13, 14x. Now it's kind of 9 or 10x. Operating margins for the company are about where they were 5 years ago. So just I wondered to what extent the management, the Board are thinking about more radical portfolio options perhaps than shaving off one brand a year, adding another brand? Because certainly, the multiple doesn't seem to be reacting based on the last 5 years to these types of changes. Just wondered, again, the appetite to do something broader. Mark Morelli: Yes. Julian, this is Mark. Thanks for the question. Look, I think the way we've internalized the strategy and the pieces of the portfolio, I think we -- as a good example from the Teletrac one, you get accretive margin, you're left with a growthier space with less spend on R&D and a better drop-through. So I think when you take each piece incrementally, the portfolio is getting stronger. And we constantly look at our strategy. I think it's a step-by-step approach. I think the work we put into Teletrac Navman enabled a good transaction here and a good -- a better positioning for the overall portfolio. And I think we constantly look at the portfolio. We constantly look at what are the next set of actions that we think will drive greater shareholder value. And I think what we've got right now with the connected mobility strategy and a good backdrop with secular tailwinds from the majority of our portfolio here that, that strategy is working, and I think there'll definitely be a payoff as we continue to focus on that and improve the results. Julian Mitchell: Great. And then maybe a short-term one. So I think the operating margins are guided to be up 80 bps or so sequentially, and you have the expansion in Q2 year-on-year as well. Maybe just kind of flesh out how you're thinking about the segment level there, particularly repair, I guess, it looked like some of the headwinds you saw in Q1 in terms of lower price point tools that may be something that persists over the balance of the year just because of consumer wallets and so forth. Anshooman Aga: Thanks, Julian. And that's correct. So when you think of Q2 margins, our overall Vontier margins will be up 80 basis points. 20 basis points of that 80 will be because of the Teletrac divestiture. So core business up 60 basis points. That increase will be driven by Mobility Tech, which will be at somewhere north of 120 basis points in terms of margin expansion. EFS will also have margin expansion, probably 80 basis points or so, maybe a touch higher. And then repair, I expect will be down year-on-year. Just as you mentioned, we're seeing a higher percentage of the portfolio on the lower price point, higher -- quicker payback items being sold. So there will be a little bit of margin pressure that will continue into Q2. That will start easing towards the back half of the year, where some of the mix really coming into Q3, Q4, especially Q4 last year was in line with what we're trending towards. Operator: And your next question comes from Andy Kaplowitz of Citigroup. Andrew Kaplowitz: Mark, just back to Mobility for a minute. I don't think the memory chip shortage under inflation has been getting better, but it sounds like you're comfortable around that issue for Mobility. I just wanted to sort of double-click on that. And then obviously, comps in Mobility get easier. I think last quarter, you mentioned a number of wins though that ramp up in the second half. Is that still the case? So you've got good visibility to ramp up? And maybe do you need DRB to ramp up as well? Mark Morelli: Yes. So Andy, I'll give a little bit of color on the second half ramp. So first of all, the end market mostly tied to convenience retail. And I think our remarks there on the call is pretty resilient, and that certainly helps the Mobility Tech segment as well. And when you look at it, it's not only a good compare or a better compare for second half, our seasonality is definitely the same. Sales at 48% to 52% as that's our historical average. And then good bookings clearly in the quarter were pretty solid. And when we go into April, we're also seeing really good bookings as well. So I think to your point, we're getting better leverage for the second half. And while we over got a little bit better in Q1 on the revenue side, and we've got cost takeout actions in place that will carry through to the second half, we feel pretty good about the setup. Anshooman Aga: Yes. I would just add, as you mentioned, the compare does get easier in the second half. If you go back to the prepared remarks, we had over $25 million headwind in Q1, and it's about the same in Q2 tied to the vehicle identification system, which eases into Q3 and has definitely gone by Q4. Importantly, bookings in Q1 were up 5% on a core basis at a Vontier level. A couple of those were larger projects combined for $15 million and majority of that revenue based on our customer schedule is in the second half. So we are feeling incrementally better for the second half as we continue to book and how our compares also play out. Andrew Kaplowitz: That's helpful color, guys. And then I think you explained the trade-down effect kind of from high oil and gas prices when you were talking about the potential duration of the cycle for C-store CapEx and your EFS growth and your EFS growth in general. But maybe you could give us a bit more color regarding how to think about EFS moving forward. I think growth was even higher than you thought for Q1. Does that higher growth actually continue given C-store behavior such as what you mentioned with 7-Eleven? I think any color would be helpful there. Anshooman Aga: Yes. With EFS, we're very pleased with our team's performance. We remain bullish on a multiyear CapEx cycle that's playing through, and it's really driven by our innovation and our channel strength, which are both reading through. Dispenser shipments were up low double digits in North America, leading the way with especially strong national account bookings that we had in the first quarter. We expect dispensers will continue to play out strong for the year. We also expect strength in the build-out of convenience stores in North America to continue. So overall, we're feeling pretty good about the business in EFS, and we'll continue to see growth in line with what we're projecting for the year. Andrew Kaplowitz: Appreciate the color. Operator: And your next question comes from Joe Ritchie of Goldman Sachs. Luke McCollester: This is Luke McCollester on for Joe. Just curious if you can share any early data points on customer reception from the new outdoor payment terminal. How is this product fit into the broader connected mobility strategy? And is this a replacement cycle product? Or does it expand the addressable market? Mark Morelli: Yes. Luke, this is Mark. So thanks for the questions here. I think one of the things we showed in NACS in October or the fall of last year was unified payment, and this clearly extends our addressable market by providing a payment kit with more capabilities, order at the pump is a great example of that. It is incrementally better than the FlexPay6 that we recently launched and the uptake from our customers has been quite favorable. I think this is an outgrowth of our Invenco acquisition, where we've been able to build off that through integrating that platform. So I think we're seeing this also as an excellent example of the connected mobility strategy at work and differentiation that we can provide through launching new products where we're getting really good uptake from it. Luke McCollester: Got it. Helpful. And then within convenience retail, are you seeing any change in the pace of consolidation activity or capital spending plans there in light of the current geopolitical and macro backdrop? And this consolidation kind of tend to be more of a net positive or net negative? Mark Morelli: Yes. I think consolidation tends to go in our favor. The people that are doing the consolidators is where we have higher share in the marketplace, and they tend to buy up some of the smaller players where we sort of split share in the market. And so we tend to get more out of that as our -- as the folks consolidating in the industry are consolidating off typically our technology platform. There's no real change to that. I think there's been a backdrop of consolidation that's been sort of ongoing, I would say, over the years. and would anticipate -- of course, some of the prices have changed with interest rates and other things are ebbing and flowing. But I think you could just look at it as a long-term trend where there's plenty of opportunity for consolidation over the next 5 years. Anshooman Aga: And on the CapEx trend, keep in mind, while our bookings might be shorter term from a book-to-bill perspective, our customers are really planning out 2 or 3 years in advance. They're going through their site acquisitions, permits, build-outs. So they're really looking out 2 or 3 years from a CapEx plan, and there aren't -- oil price volatility doesn't really change their longer-term CapEx plans. Operator: And your next question comes from Katie Fleischer of Key Capital Markets. Katie Fleischer: Can we talk a little bit about the progress on the internal cost initiatives? I know that R&D is a focus there. So just how to think about incremental savings within that and potential upside kind of balanced against some of those higher R&D costs that you saw in Mobility Tech this quarter? Anshooman Aga: Katie, thanks for the question. We are very confident on the $15 million in-year savings that we guided to last quarter. We're reconfirming that. About $1 million in savings played out in the first quarter. The Q2 number will be $3 million, maybe a little bit higher and then the balance of it coming in the back half of the year. We're already through some of the savings plans, but I think we're progressing really well to our plans. Q1 was a little bit higher in R&D, timing of the launch of some products. We talked about the new FlexPay6 launch, but also the redesign on some of the printed circuit boards related to the memory chip. We're trying to stay ahead of the supply chain issues on memory chips. And as a result, there's some redesign work out there. But again, we're pretty confident in hitting our $15 million in-year savings target for the year. Katie Fleischer: Okay. That's helpful. And then on Matco, when we think about those customers recovering, what's really driving the spend there? Is it just delayed CapEx purchases? Is it more customer activity that's driving higher in days? Just help us think about what it will actually take to see a flow-through of spending from customers in Matco. Mark Morelli: Yes. So Katie, the backdrop on Repair is relatively attractive. The car park continues to age. It's about 12.8 years going to 13 years. So a lot more used cars out there in the market changing hands. That's good for Repair. The complexity for Repair is good. And the demand for tech and the wages are also strong. So we know from last year, actually, shop visits were up. So we -- that's a great underlying backdrop for Repair. I think the issue that has been underfoot is that the consumer has represented the working class for the shop technicians that buy our tools has had a harder time with their pocketbook. But the areas that we're getting traction is in the areas of diagnostics and toolboxes, and we had a good run of that in the quarter, which is indicative there can be strength there. And then also more value-added items where they can get more productivity. The technician gets paid based on a standard hour of work if they can be more productive and we say, well, how does the toolbox help with these are these productivity cards that help them on the job site. And so those type things, there's good payback for them. And as we continue to introduce and be more effective at selling those kind of things, even in a fairly rough backdrop, then we can have decent performance out of Matco. Operator: The next question comes from Andrew Obin of Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. Just sort of thinking about the full year guide here, did your expectations on Mobility Tech, have they shifted a little bit? What are you thinking for organic growth for that segment for the year? Anshooman Aga: Yes. Mobility Tech, their growth for the year will be low to mid-single digits versus the mid-single digits we said, but it's really on lower intercompany sales. If you look last quarter, we guided to north of $90 million of intercompany sales, and we dropped that down to $80 million. Part of it was every year, you update the transfer price, and we did that in Q1, where the transfer price intersegment came down a little bit, and then there's a little bit of mix between FlexPay4 and FlexPay6 products also that we updated for. So the underlying core business, no change to that. David Ridley-Lane: Okay. And I'm surprised I'm going to be the first person asked this, but the changes to Section 232 tariffs, IEEPA tariffs, can you just give us around the world on what the impact of Vontier is going to be inside 2026 as you see it? Anshooman Aga: Yes. The tariff remains a very dynamic environment. And there's -- we're continuously evaluating both where we are the importer of record and where our suppliers are the importer of record. We also are taking into account other dynamics that are playing out, for example, the memory chip pricing, oil and gas price and the impact on transportation costs, transportation routes. So net of all of this, while a lot of pluses and minuses, puts and takes, there's no material change to our view for the year, just playing out on aggregate as we'd expected. David Ridley-Lane: Got it. And just since it's been mentioned a few times on the conference call, can you quantify just in broad brush strokes, sort of memory chips like 1% of your total cost? Or is that -- do you have that number handy by any chance? Anshooman Aga: Yes, I'll give you last year's price or cost on memory chips because I think that's a little bit easier. The market is pretty dynamic. We -- it's in the mid- to high single-digit million dollars. So it's not material from an overall cost perspective, but it's -- every cost we control and manage to the best of our ability. David Ridley-Lane: I know there's -- when you have a small item that's doubling or tripling or quadrupling in price, it sometimes catch you up. Operator: And your next question comes from Rob Mason of Baird. Robert Mason: I wanted to see if you could just relative to the second quarter expectations on core growth in the down 1%. Kind of discuss how you think that may play out across the segments? Anshooman Aga: Yes. The EFS business will continue to grow. We expect that will be up low single digits for the quarter. Mobility Tech will be down low to mid-single digits on the compare issue. Just keep in mind the $25 million in shipments for the vehicle identification system order last year, both in Q1 and Q2. And then on Repair Solutions, we expect there will be also low single-digit growth, maybe low to mid-single-digit growth for the quarter in Repair. Robert Mason: Very good. Just a follow-up. Mark, just any quick thoughts on the decision to retain a minority stake in the telematics business and how we should think about how that plays out in the future as well? Mark Morelli: Yes. Thanks for that question, Rob. Look, we're pleased on the transaction. It's the result of a multiyear turnaround, launching a new product technology into the space. I think we're getting real momentum in that space. I think retaining a minority ownership there also gives us some upside on the trajectory they're on. They ended the year with strong bookings. They got past the 3G to 4G transition in Australia, which was a big headwind for them as well, and that's now in the clear. So we're optimistic also with more focus with the new owner and our partial ownership here and legacy knowledge of that business that we can unlock further value. Operator: Thank you. And there are no further questions at this time. I'd now like to turn the call back over to Mark Morelli, Chief Executive Officer, for closing comments. Mark Morelli: Yes. Thanks again for joining us on the call today. We're off to a solid start in '26. We're confident we can deliver above-market growth and in our ability to drive margin expansion and free cash flow. We're proactively managing the portfolio and staying disciplined on capital allocation, all through the lens of creating shareholder value. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, and welcome to Riley Exploration Permian First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. It is now my pleasure to introduce your host, Philip Riley, our Chief Financial Officer. Sir, you may begin. Philip Riley: Good morning. Welcome to our conference call covering our first quarter 2026 results. I'm Philip Riley, CFO. Joining me today are Bobby Riley, Chairman and CEO; and John Suter, COO. Yesterday, we published a variety of materials, which can be found on our website under the Investors section. These materials in today's conference call contain certain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied in these statements. We'll also reference certain non-GAAP measures. The reconciliations to the appropriate GAAP measures can be found in our supplemental disclosure on our website. I'll turn the call over to Bobby. Bobby Riley: Thank you, Philip. In March, we announced that Riley Permian would accelerate growth in 2026, which was a natural result from our multiyear positioning, including deliberate inventory expansion and infrastructure readiness. Our 2026 development plan was designed when the WTI spot price and 1-year forward price were in the $60 range, and we saw meaningful value creation potential at those price levels. Since then, the oil supply picture and price outlook have changed completely, we have increased confidence in achieving our planned targets and the corresponding value creation potential has increased significantly. Our first quarter results provide an initial round of momentum for the year ahead. We executed well, delivering production exceeding the high end of guidance while spending less than the low end of our capital guidance range. With our excess capital, we reduced debt by $8 million and returned $12 million to shareholders through our dividend and share repurchases. Our first quarter activity levels increased materially over fourth quarter 2025 levels and second quarter activity will surpass first quarter, setting up for an accelerated growth. We forecast production growth continuing for each quarter through the year, culminating with full year growth of 30% at our new midpoint guidance levels. As we look further out to next year, we see the potential to grow production 10% year-over-year with only a 5% increase in CapEx, at least as one scenario being considered. We believe this could be achieved given the wave of second half 2026 volumes being generated. We have confidence in achieving this growth through accelerated development of both of our assets. In New Mexico, Targa has progressed on the engineering and design for the high-pressure trunk line to their processing plants, which will begin construction upon final regulatory approval. The project timing remains on track with a scheduled commercial operations date in Q3. We will be ready from the upstream side with wells ready to turn in line immediately following the pipeline coming into surface, which gets us closer to achieving our first earn-out payment. All of this activity is exciting as is the potential to unlock value from this asset. In the meantime, and in parallel, we will continue to push forward with drilling and completions within our Texas assets, where we continue to drive efficiencies and where infrastructure is in a more mature stage of development. Texas will comprise the bulk of our volume growth in 2026 and New Mexico should contribute more growth thereafter. Briefly on our ERCOT power project within our RPC joint venture, our first site, a 10-megawatt facility located in Ward County, Texas, is in the final commissioning stage with ERCOT. During the commissioning stage, we've been generating power into the real-time market and collecting a modest amount of revenue. We have a forecasted commercial operational date for later this month, after which we can begin regularly participating in the day-ahead markets. Our second site is fully constructed and is in the early commissioning stage. Our final 2 sites are scheduled for late summer. Over at our behind-the-meter project at Champions, we're saving approximately $200,000 per month or more on avoided negative gas sales at recent prices. Between these 2 power projects, our thesis remains intact here, and we see this as one small way to counter the weak regional gas pricing that we're realizing on our upstream assets. As always in our capital allocation process, we plan for optionality. As the year progresses, we will monitor the macroeconomic backdrop and industry conditions, and we will maintain flexibility to speed up further or slow down should conditions deteriorate materially. Keep in mind, the original accelerated plan was contemplated at a $60 price. These strong financial and operational results, along with the opportunities on the power side as well as additional new opportunities we continue to evaluate on a product of our exceptional operational, planning and technical teams. To our employees and our investors, we believe Riley Permian is well positioned for an exciting 2026 and beyond, supported by our high-quality asset base and strong financial position. I'll now turn the call over to John Suter, our COO. John Suter: Thank you, Bobby, and good morning. I'll briefly cover our first quarter operational results and how activity progressed through the quarter, and then I'll touch on how we're positioned as we move through the balance of the year. Safety remains foundational at Riley Permian. To start the year, our operations reported a 0 total recordable incident rate, and we delivered 96% safe days. Turning to operations. Development activity ramped meaningfully in the first quarter and was concentrated primarily in Texas. On a net basis, we drilled 15.6 wells, started completions on 12.8 wells and turned 8 wells to sales. Importantly, we delivered this increased level of activity with strong capital discipline. Total capital spend was $47 million, which was below the guidance range, driven primarily by normal timing dynamics, including selective deferrals and infrastructure timing and a small amount of activity mix changes that reduced spend without impacting our plan. From a production standpoint, net oil averaged 20.2 M barrels per day and total equivalent production averaged 35.6 MBOE per day, exceeding the high end of guidance. Volumes were essentially flat quarter-over-quarter as strong development well contributions offset normal base decline. Winter Storm Fern caused disruptions across the Permian among midstream providers and producers alike in late January and into early February. We, on the other hand, experienced minimal downtime with little to no impact on quarterly volumes. Within the quarter, development well performance was particularly strong. Initial oil volumes exceeded forecasts, and the outperformance was driven more by well productivity than simply timing. As we look ahead, we'll continue executing the plan with a focus on safe, reliable operations and disciplined capital allocation. In the second quarter, activity is expected to increase from the first quarter with 2 rigs running full time and 16 to 18 planned completions by quarter end, 30% more than in Q1. This level of completion activity will contribute to a production ramp that we will see later in Q2 and drive strong full year growth. Completions are expected to remain focused in Texas, while we work through gas takeaway sequencing in New Mexico, including the progress of the Targa gas pipeline project, which Bobby alluded to earlier. Looking into the back half of the year, our current plan contemplates releasing the New Mexico rig in the third quarter and continuing to drill in Texas with a return to New Mexico activity later in the year to align our completion cadence with infrastructure readiness and set up the broader New Mexico program. Now let's move on to operational performance in Q1. Lateral drilling performance continued its multiyear upward trajectory. A higher median lateral feet per day in combination with a tighter distribution demonstrates repeatable, scalable execution. Consistent use of multi-well pads and zipper fracs materially reduced downtime and per well cost while improving overall operational consistency. We drilled a record spud to TD well for a 1.5-mile Yoakum County San Andres well in Champions at 4.28 days and a separate spud to rig release record at 5.79 days. We also successfully executed drilling and completing 2 more 2-mile laterals, delivering the fastest drilled wells in the field at 1,456 lateral feet per day, validating the efficacy of longer reach designs. Well costs as it relates to drilling and completions year-to-date have been relatively stable despite inflationary pressure on service prices, primarily driven by efficiency in our operations. Diesel costs have obviously come up substantially in the last couple of months, driving many service companies to adjust pricing accordingly. Our ability to drill faster and complete more efficiently has allowed us to mostly outpace this increase thus far. LOE has gone up slightly quarter-over-quarter in Q1 when compared to Q4 2025, in part due to some elective workovers that were deferred from Q4. Bigger picture, it should also be noted that despite being up quarter-over-quarter on an LOE per BOE basis, we're still seeing a downward trend year-over-year with a 10% reduction in cost when compared with Q1 of 2025. The elective work I previously mentioned was primarily in our Red Lake asset, where many of our older wells have found new life following mechanical interventions. These workovers have resulted in nearly 500 net barrels oil per day of relatively flat production with some recent wells continuing to increase in oil cut. This is some of the most capitally efficient dollars we spend with economic metrics comparable to new drilled wells in the area. We estimate that to date, we've only realized 30% of the possible uplift of these older wells and between the sizable inventory in our New Mexico asset and the combination of higher commodity pricing, the magnitude of unrealized production growth could be even greater. We've also mentioned in past calls, our expectation of chemical costs coming down in New Mexico as part of a change in program we implemented in January. I'm happy to report that in just a few months, we've seen costs nearly cut in half on a per barrel basis compared to our 2025 monthly average spend. While we're starting to see that creep back up due to an increase in petrochemicals costs across the board, we're confident that the changes we've made will help minimize the effect going forward. Stepping back, the message is straightforward with several key takeaways. We're executing safely and efficiently while scaling activity with discipline. We delivered strong first quarter volumes and capital performance. We're seeing continued gains in drilling and completion execution that help offset service cost inflation. And finally, we're prioritizing Texas where infrastructure is ready, while sequencing New Mexico activity around the Targa takeaway build-out to protect returns and preserve flexibility as we move through 2026. I'll now turn the call to Philip. Philip Riley: Thank you, John. I'll cover first quarter financial results and provide an updated company outlook. Unhedged revenue increased by $17 million, or 17% quarter-over-quarter, driven by 18% higher oil revenue and partially offset by weaker natural gas and NGL revenues. Gas and NGL revenues after fees were negative $11 million and reduced our total net revenue by 9%. Structural gas egress constraints, combined with seasonal midstream maintenance programs negatively affected gas pricing for producers across the Permian. Our revenue net of derivative settlements declined by $3 million, or 3% to $102 million, driven by gas and NGLs, as hedged oil revenue was flat. Operating cash flow was $47 million or $55 million before changes in working capital. Analyzing quarter-over-quarter variances, this cycle may be less relevant given some unusual impacts in the fourth quarter 2025 related to the midstream gain and corresponding income tax impacts. Adjusted EBITDAX declined by $5 million, or 8% quarter-over-quarter to $61 million, driven by $3 million of lower gas and NGL hedge revenue, combined with $2 million of higher operating costs and production taxes. We're reporting a net loss on a GAAP basis of $70 million, driven by $127 million loss on derivatives, 91% of which was unrealized. We entered the year materially hedged to protect the 2026 capital program. The bottom line net impact should reverse over time as the mark-to-market loss is offset by increased revenues from corresponding production over the same contract periods. GAAP mark-to-market accounting can introduce significant period-to-period volatility that does not reflect underlying operating results or long-term cash-generating capacity. Most energy investors are familiar with these limitations and will evaluate performance accordingly. Our business continues to generate meaningful cash flow, which should increase materially in the coming quarters if oil prices remain elevated, as we're only about 67% hedged for the balance of the year. Here's one anecdote on the hedging to consider. We underwrote the acquisition of Silverback a year ago, when spot oil price was in the $60 range and the 12-month forward price was in the high 50s. We financed the acquisition using 100% debt with 0 dilutive equity. Many of the hedges we have today are a result of that financing. Since then, in this new price environment, and assuming closer to a $70 long-term price, the value of that asset and undeveloped locations have increased materially, which is not reflected in our reported financials. For example, consider the value of an undeveloped location. Incorporating an oil price of $70 versus $60 increases the net present value at a 20% discount rate by 60% to over 100%, depending on the type of well. Moving on to our investments. First quarter 2026 total accrual-based CapEx was $47 million, while cash CapEx was $31 million, only 2/3 of the accrual amount, which is not unusual in a cycle when you're increasing activity rapidly given the time lag of payables. We had several smaller acquisitions and divestiture deals for a net benefit of $5 million based on selling some small nonoperated assets. With remaining cash, we invested $4 million in the Power JV, or $2.5 million net of a small distribution, paid $8.4 million of dividends, reduced debt by $8 million and bought back $4 million of stock. Now let's discuss our outlook. We have a big second quarter of development activity, and we're guiding to $80 million of accrual CapEx. For the full year, we're increasing our full year guidance range by $10 million, representing a 5% increase at the midpoint of $210 million, driven by a mix of operated and nonoperated incremental activity and partially offset by some savings achieved. With our own operations, we're likely to have about 5 more wells drilled and 1 to 2 more completed as compared to the March outlook. We're also seeing a modest pick up in nonoperated proposals from adjacent producers. Incorporating these updates and based on confidence with the assets and optionality inherent with the development program, we're raising full year production volume guidance ranges by 5% to 22,500 barrels per day at the midpoint, corresponding with the 30% year-over-year growth that Bobby mentioned at the start. We see that growth beginning modestly in the second quarter, followed by the largest gain in the third quarter and another gain in the fourth quarter. Accrual CapEx looks to be weighted 60-40 between the first half and the second half of the year, while production volumes will have a lag effect given the nature of development and turning wells to sales, with oil forecasted volumes weighted at 45-55 for the first half, second half. This combination may lead to less free cash flow in the second quarter with stronger free cash flow in the fourth quarter. So this is dependent on execution, timing dynamics and market pricing. For the full year, we forecast a reasonable CapEx reinvestment rate of approximately 65% to 70% of operating cash flow before working capital and midpoint guidance and based on current forward oil prices. We anticipate the majority of excess free cash flow after the dividend will be allocated to debt paydown to further solidify our balance sheet and to provide future optionality with a smaller amount possibly allocated to stock buybacks depending on market conditions. Our measure of capital efficiency may differ from some larger companies looking to prioritize and maximize free cash flow, which implicitly calls for restrained investment. We're excited to invest meaningfully this year in our high-returning assets, which we believe will yield this differentiated growth profile that we've described today. Thank you all for your attention and interest in our company. Operator, you may now turn it over to questions. Operator: [Operator Instructions] Our first question comes from the line of Derrick Whitfield from Texas Capital. Derrick Whitfield: Congrats on a strong 1Q and 2026 update broadly. First, I wanted to focus on your activity plans as we're clearly in a very fluid situation in the Middle East. With today's revised activity plan and workovers and recognizing the strength of your -- and the growth of your program as it stands, how would you characterize your desire to further lean into this favorable environment from a workover perspective, nothing more? And then as you look out to 2027, is this level of activity a good run rate for the efficiency of your operations? Bobby Riley: Derrick, this is Bobby Riley. Let me start. Like I mentioned in our deal, when we looked at our activity level this year, we were faced with about a $60 current price and $60 outlook. And we thought at those numbers, we warranted developing at the pace that we are. I mean, like we talked about in the last couple of years, we've been in the acquisition mode to build inventory. And now we're sitting on a significant amount of long-term drilling inventory and the ability to capitalize on that value even at $60. So we would have to see a significant drop to adjust the direction we're going now. And with the efficiencies that we're seeing in drilling and completions, with sustained price in this level, we could actually add another 5 or 10 wells for the next 3 months. So I mean, we're a growth company. And I think you're going to receive long-term share value, the bigger we get organically. It's our highest rate of return. John Suter: Yes, Derrick. And to follow up on one of your other questions, can this efficiently move into '27? I think this year, we're running 2 rigs really just to hold a few things in New Mexico with some permits we had expiring and some lease obligations. But really just the fact that with our fast cycle times when we can drill 50-plus wells a year with 1 rig, we can easily do that. And certainly, a frac crew can frac up to, I don't know, gosh, 90 to 100 wells per year. I mean it's that efficient. So it doesn't take a lot of extra service company action for us to be able to stay at a pace that provides tremendous growth if we plan to just keep it going all year long. It's really not a matter of how much we add. It's just how much we use what we have for how long during the year. So I hope that helps. Derrick Whitfield: It does. Makes sense. And then just based on your current 2026 upstream capital plan, how should we think about the potential earnout of contingent payments from your midstream sales agreement? And when could you start to recognize that benefit? Philip Riley: Yes, Derrick, this is Philip. I think we have line of sight on that for early next year. The wells that John and Bobby are talking about in New Mexico, we've got a slug of those that will come on. There's a threshold that we cover for a period of days and then there's a little timing. But we feel pretty confident about hitting the first earn-out, which is $30 million in the first half of '27, with subsequent ones probably a year after each. Operator: Our next question comes from the line of Neal Dingmann from William Blair. Neal Dingmann: Sticking with the production question. My question is on your growth. I know, Bobby, for you or Philip, I know operationally and financially, you certainly have the ability to materially increase production if you choose. I'm just wondering how much is the decision and kind of the guide you talked about, how much is that influenced by -- you've had negative natural gas and NGL prices? And how much do other things like, I don't know, incremental takeaway or power fit into this growth decision? Philip Riley: Sure, Neal. I can start. Yes, look, the gas, it's frustrating, but we do see it getting better. I think what we and other producers experienced in the first quarter was a combination of the structural constraints I mentioned in prepared remarks and then some of that seasonality. You look at the strip, and it is getting better each month. We've got about 5 Bcf a day coming on among those projects that are widely discussed, GCX, Blackcomb and Hugh Brinson towards the end of the year, that should help. And then at the same time, I think you typically find the correlation between gas price or the Waha price even and oil price with most of the growth in our domestic gas coming from associated Permian. And so as the oil price is moving down here, I think the Waha price will become less negative. Like I said, it's frustrated not to be making more, but it still does -- margins and returns look very good at $70, $80 oil. So we'll continue with that. As far as there being a physical constraint, we've got the items we need lined up. John referenced some of that and power doesn't seem to be a problem right now. We've got both what we need, what we've built out solidly, but then you've also got the short-term type of generators and such that can even run on natural gas, which is quite economic these days. Neal Dingmann: Great. And then, Philip, just a second question on -- maybe for Bobby on M&A. Just wondering, much like organic growth, you certainly have the balance sheet now to support really an active M&A program if you choose. Just wondering are there active deals out there? How do they look in this environment? And maybe just with that same vein, what -- where does your current inventory depth sit? Philip Riley: Yes, I'll start on the M&A first. So typically, what we find in our industry is that M&A is tough in periods of high volatility. The high prices themselves are not a deterrent, but it's hard to underwrite when prices move around so much. When the prices were quite low, sellers were on the sidelines. I think we'll see a few more packages come to market at the high prices for people to so-called test the market. It can be tough to underwrite them, though, both with the volatility and even some steep backwardation. So we want to be careful. You're right, we do have a stronger balance sheet, and we have flexibility to do that should something come together. But we want to be mindful of how we're both underwriting deals and where in cycles we're buying them. We felt great about buying Silverback last year at $60. As I mentioned before and we feel good about that. We've done 3 deals in 3 years. We've got quite a bit of inventory. We've held back on the CapEx for a while as we digested those and got the infrastructure ready. And at this point, we're focused primarily on the organic development. And I think that's how you should think about it. It's primarily organic. If something should come together on M&A, we'll feel fortunate, but not holding our breath. Operator: Our next question comes from the line of Jeff Robertson from Water Tower Research. Jeffrey Robertson: Bobby or John, can you talk about the guidance of the production uplift in the sense of how much of the increase is due to timing versus performance-related issues with the wells that you're bringing on? Bobby Riley: Let me start, John, and then you can finish. Obviously, the acceleration is something to do about timing. We're -- we currently have 2 rigs running with a frac crew right behind one of them. So we're bringing things on a little bit quicker. But also performance so far that what we're seeing this year, I think all the wells that we've completed this year exceed our predrill forecast, some of them significantly. So John, you might add to that. But I mean, I think it's a combination of working a little faster and the wells are meeting or exceeding our production expectations. John Suter: Yes, absolutely. And just to follow that up with a little bit more specifics, we've drilled a number of 2-mile laterals this quarter, which have just been fantastic. You hope you -- a lot of times, 2 miles will keep things flatter, but we've actually seen some uplift in pressure and rate from these. So we're excited about that. Also, we've -- in Champions, the vast majority of our wells are child wells. And these wells, we've been finding out tend to cut oil faster and reach a higher oil peak sooner than our parent wells, which ends up delivering superior early time performance. So that's a lot of what we've seen this quarter to hopefully answer your question. Philip Riley: And then let me say one final thing, Jeff, on timing as far as how it all comes together for the company and in the quarters is we do have quite a bit of back-end weighted growth. So the first quarter, we've gone through that was roughly flat with the fourth quarter. We've got some modest growth here, 4% in the second quarter at the midpoint. And then it really starts to take off you can back into the math between what we've done so far and what we're guiding to full year. But you can see that the back half of the year is basically between 24,000 and 25,000 barrels a day, which suggests pretty material growth from where we are now and what we're guiding to. Jeffrey Robertson: Well, if there's any risk with respect to the production outlook in the second half of '26, is there much risk or much cushion built in for timing issues around Targa completing the projects? Philip Riley: Yes. I think we're in a good shape. As Bobby said earlier, we'll be doing Texas primarily. We've got some optionality built into the plan. John was describing how he's going to have some DUCs ready. But we've got a plan basically to hit this, so we believe should the timing work out either way. John, do you want to add anything there? John Suter: Yes. No, I mean, I think our Champions development is going to carry the day all throughout the year. But we expect the permit for Targa for the high-pressure line to come any day, which then will be a several month period of construction. And that's why we've said in Q3, it could happen slightly faster. But even if there's a delay in that, the high interest Champions wells where we already have infrastructure, that's going to solidify that second half, I think. But the New Mexico stuff will be kind of gravy on top of that. Jeffrey Robertson: John, with plans to drill 42 to 48 net wells this year. Can you talk about how your ground game is working to replace inventory? John Suter: Yes. Well, we are drilling some wells on the east side of Champions, and that is -- we're just now completing them. We've been buying some extra acreage out there, and we're really excited to see where that could lead us on the east side. But in New Mexico, really, we have very few PUDs booked. So there's going to be -- as we drill some of these wells, we add PUD reserves. And certainly, as we test various edges of the fairway, that's going to lead us to have the potential for additional leasing. What I love about New Mexico is that it's a forced pooling state, and we probably have 500 gross sticks, maybe a few hundred net. But with an active rig in that field, you can pick up -- oftentimes pick up a lot of interest from other people. That all just depends as we know, but we're excited to be an aggressive player out there in the Northwest Shelf and to hopefully be rewarded with picking up interest. Jeffrey Robertson: Lastly, LOE per BOE was $7.51 in the quarter, which was well below your $8 to $9 per BOE guidance. Can you talk about the drivers for that first quarter performance? John Suter: Yes. As I mentioned in my remarks, we've just in the first quarter, capitalized on some rebidding and some realignment of vendors. And in New Mexico, I think we've cut our per barrel chemical cost in half with this new change. Also straightened out some things in Texas. This chemical program has also helped us from -- it's actually working. That's less tubing strings you have to replace less ESPs to replace when you have to replace the tubing. So that really starts having a cumulative effect. And on the other side, the productivity of these wells has also helped us with, I'd say, some volume expansion has helped us on the divisor side of that per BOE metrics. But look, we're proud of what we're accomplishing. I think we're one of the best operators on the Northwest Shelf, put our team up against anybody as far as being able to get the most out of the wells that we purchase and the acres that we exploit. So no, we hope to make continued improvement. Operator: [Operator Instructions] Our next question comes from the line of Nicholas Pope from ROTH Capital. Nicholas Pope: Curious as you kind of look at the differences between Champions and the Red Lake area with one rig kind of running in each. What's the difference, I guess, in kind of total drilling complete costs between the 2 assets? I think it's -- there's a lot of mix going on between these 2, and it seems like it's shifting a little bit throughout the year. So I just want to make sure I kind of pinpoint kind of the spend differences between the 2 assets. John Suter: Yes. Typically, we drill 1.5 miles wells in Champions just because that's the -- that's how it was set up. And in New Mexico, we're pretty well generally limited to 1-mile laterals. Again, it's not impossible that if things line up right that we can drill more. Remember that New Mexico is at about 3,500 feet TVD. So 2-mile wells are possible, but you really can't do a whole lot of kickout and then drill 2 miles when you've got that little bit that small of a vertical segment. So cost-wise, it ends up being about, I'd say, $1 million more in New Mexico per lateral than it does in Texas. And I'll say that's at the moment, we are doing a ton of testing. We've done spacing tests. We're doing frac tests. The thing that makes New Mexico a bit more expensive is that in Texas, we do cross-link fracs there in San Andres. And in New Mexico, in the Paddock and Blinebry, we primarily do cross -- slick water fracs. The slickwater fracs take a lot more fluid, more pump time. And so we are looking and have already performed cross-link frac on a recent test are really encouraged about that. So there's more to come on that in the future. I mean, that in itself could be $0.5 million plus savings per well. But again, we also want to see what is the most oil recovered and be efficient in recovering our resources, too. So a lot of testing going on there in New Mexico, and I feel comfortable that our costs will be coming down over time. But that's kind of the primary difference between the 2 assets at the moment, cost-wise. Bobby Riley: Let me add one thing to that. In Texas Champions, we own roughly closer to 100% of each one of those wells that we drill in New Mexico, it's significantly less. So we have to drill a lot more wells to get the same net impact to make sure everybody understands that it's not one for one. We could have 50% to 60% working interest in New Mexico where we have 100% in Texas. So don't be alarmed by the well count because on a net basis, it seems more reasonable. Nicholas Pope: Got it. And then kind of digging a little bit deeper into kind of the rig cadence that you all are talking about with the Targa plant kind of scheduled start-up, it sounds like -- I'm just curious what stage you're getting the New Mexico wells to? Is it just purely drilling state in the completion for once the Targa plant comes online? And I guess, how many, I guess, wells are you all anticipating kind of having ready to go upon start-up of that Targa plant? It sounds like things are going to be held back until kind of you can let the field breathe a little bit. John Suter: Yes. So in New Mexico, we started up a rig at the end of the first quarter, I believe. And you're correct. We are drilling and getting these wells ready for completion, but just in sake of capital efficiency, there's no use completing them and letting them sit there until late Q3. And so we'll take a look at that as far as whether we start a little bit early fracking these wells, kind of depends on what the oil price is at the time and a number of other things. But we should have 20-plus wells. Again, these drill so fast that you're drilling a well a week and skidding over and knocking a whole pad out that way. So it should be 20-plus wells plus a substantial amount of volume that we have from existing PDP that's already there flowing to another processor. So when we get all of those wells that we're drilling in '26 now ready to go, we'll be a long way towards getting that volume to meet that first earnout. We do have to produce it steadily like that for over a quarter or for a quarter to get that earnout. So like Philip said, maybe the end of the first half of 2027. Operator: And our last question comes from the line of Noel Parks from Tuohy Brothers. Noel Parks: I did hear you mention earlier that you had seen some modest pick up in non-op participation, I think, from adjacent partners. So I was just interested in that I had heard something I think from another operator and just thinking maybe the decision-making is a little different compared to -- in the current price environment compared to how public operators are approaching the environment. Philip Riley: Yes, I'll start. Yes, I think you said the right word, public. So this is in New Mexico where I'm referencing that, and it's dynamic, John mentioned, which is forced pooling. You've got generally just more chopped up ownership, overlapping ownership, and it's not uncommon to participate in each other's wells out here. We got the majors, the largest oil companies in the world participating in our wells, to be honest. So yes, we've got a couple of proposals from some private operators, whether that's a coincidence or not relating to their desire to increase activity. It may just be this was somewhat on the plan. We weren't sure exactly when it come, but now they're here. So yes, we've got a few proposals. Those are coming now. We're happy to do it. These are great returns. No reason not to participate in those. Noel Parks: Okay. Great. And actually, I guess it goes for both New Mexico, we're talking about, but also interesting thinking about Champion. How many operators are also actively drilling in your vicinity for each area? John Suter: Yes, I'll take that. I would say in New Mexico, it would probably be 2 with -- one of them more sustained and the other one just every now and then. And then in Champions, we are by far the leading driller there. I think there is another company that might drill, I don't know, 4 or 5 wells a year. Yes, 2 at most, but they really don't compete with us in the direct area. Noel Parks: Okay. And not so much thinking about large-scale M&A, but just from an A&D perspective, is there -- I mean, I guess if you're -- if the burden of the land work and so forth is going on, is there considerable extra inventory just from -- I don't know if it's say abandoned properties, but just since especially Champions is such an old field, is there much else to do if the ownership could be, I guess, concentrated, bought out, out there? Philip Riley: I'll attempt to answer that. Champions, I'd say, it's mostly blocked up and spoken for. Look, all of this, I think, whether where we are in Texas or New Mexico or most likely throughout the Midland and Delaware, you have a few areas where there's just available unleased land, right? People have discovered where the resource is and have gone to try to capture that. There's always some work to be done to get that, and we give our thanks to our land teams to get that done. I think that's some of just the magic that happens with producers is getting that ready for drill and development. But it's a function of kind of piecing those together and getting them ready, finding whether it's old records or title or what have you. But it's not so much that it's just available and somebody hadn't thought to get it yet. John Suter: Yes. And I'll add on to that. But one thing to bring up in Champions that yes, we do control that, and we'll be drilling most all of that. As Bobby always mentions, there's a lot of upside left in Champions even once that thing is fully developed. I mean, we only recover 8% of the oil typically on primary. But it's a field where I think you'll find a lot more oil to recover once we deplete the pressure down a little bit where other techniques will benefit getting more oil out. And then certainly, in New Mexico, Bobby said we may have 60%, 70% of a lot of that acreage. There's always people willing to sell in the right situation or to trade. So there is upside there, too, from either acquisition or just some good land work. Bobby Riley: Also, we look at adding inventory when we're analyzing different benches and it's not so much in Texas, but in New Mexico. There is some work being done in one of the upper benches that could significantly add inventory. Noel Parks: Great. And just to clarify, is that -- when you talk about alternate benches, are those things that have sort of similar deposition to the benches you're producing? Or are they more intermittent up there? Bobby Riley: It's pretty much the same. It's just adding another zone that's been tested and produced vertically, adding it into the mix. So we're looking real hard at the number of wells per section that we'll be drilling in Texas, including based on our spacing test. We could be adding an additional Blinebry or maybe an additional Paddock and then additional uphole zone. So we're still actively -- I would not be concerned about the ground game. There's plenty of opportunity for us to add stick in addition to the numerous other organic projects that we have in-house. Operator: Thank you, everyone. That concludes our conference call for today. You may now disconnect.
Operator: Hello, everyone, and thank you for standing by, and welcome to Great-West's First Quarter 2026 Results Conference Call. [Operator Instructions] It is now my pleasure to turn the conference call over to Mr. Shubha Khan, Senior Vice President and Head of Investor Relations at Great-West. Welcome, sir. Shubha Khan: Thank you, Jim. Hello, everyone, and thank you for joining the call to discuss our first quarter financial results. Before we start, please note that a link to our live webcast and materials for this call have been posted on our website at greatwestlifeco.com under the Investor Relations tab. Turning to Slide 2. I'd like to draw your attention to the cautionary language regarding the use of forward-looking statements, which form part of today's remarks. And please refer to the appendix for a note on the use of non-IFRS financial measures and important notes on adjustments, terms and definitions used in this presentation. And turning to Slide 3. I'd like to introduce today's call participants. Joining us today are David Harney, our President and CEO; Jon Nielsen, our Group CFO; Ed Murphy, President and CEO, Empower; Fabrice Morin, President and CEO, Canada; Lindsey Rix-Broom, CEO, Europe; Jeff Poulin, CEO, Capital and Risk Solutions; Linda Kerrigan, our Appointed Actuary; and John Melvin, our Chief Investment Officer. We will begin with prepared remarks, followed by Q&A. With that, I'll turn the call over to David. David Harney: Thanks, Shubha, and good morning, everyone. Please turn to Slide 5. We delivered a strong start to 2026 with double-digit earnings growth for Great-West in each of our operating segments. These results reflect the structural progress we've made over the past several years, including our shift to a more capital-light business mix, the operating leverage across our platforms and disciplined capital deployment. This quarter, we delivered 20% year-over-year growth in base earnings and 23% growth in base EPS, driven by strong underlying business performance and the continued execution of our capital return strategy. Q1 marks another important milestone for Great-West as it is the first time we have achieved all our potential objectives we set out at our Investor Day last year. This is the direct result of our focused strategies and disciplined execution, and we are confident in the medium-term outlook for our business. Our strong cash generation and balance sheet continue to provide significant financial flexibility with over $2 billion in Holdco cash at quarter end, even after nearly $600 million of share buybacks during the period. Please turn to Slide 6. As I mentioned, we delivered base earnings per share growth of 23% year-on-year primarily owing to strong growth in our capital-efficient businesses. Notably, Empower base earnings grew 23% year-over-year in U.S. dollars, driven by strong retirement and wealth growth and operating leverage. While Capital and Risk Solutions saw 41% growth with continued momentum in its capital solutions business, highlighting our position as a leader in retirement services and wealth management. Great-West saw a 10% year-over-year growth in total client assets to $3.3 trillion, of which more than $1.1 trillion represents higher-margin assets under management or advisement. Robust capital generation continued to reinforce our strong financial position this quarter. Despite continued share buybacks, we ended with a solid capital base including a LICAT ratio of 129%, Holdco cash of over $2 billion and a stable leverage ratio. Please turn to Slide 7. At our Investor Day last year, we reiterated our objectives for base EPS growth and dividend payout, introduced a new objective for base capital generation and raised our base ROE ambition. Our first quarter results were in line with all our medium-term objectives with base ROE exceeding 19% for the first time this quarter. Our success can be attributed to the market-leading strength of our businesses, the continued shift towards capital-light growth and disciplined capital management. I am very pleased with the progress we have made as an organization over the past several years to drive stronger returns. While market conditions have been supportive in recent quarters, the structural progress we've made puts us on course to deliver 19% plus base ROE on a sustainable basis. Please turn to Slide 8. Each of our segments delivered against their growth ambitions in the first quarter. As I mentioned, Empower grew base earnings at a double-digit pace year-over-year with strong operating margins and net flows in Retirement as well as impressive growth of 65% in the Wealth business. Canada saw growth across all lines of business with double-digit growth in both retirement and wealth assets. In Europe, Retirement and Wealth and insurance earnings growth were propelled by strong client asset flows as well as strong retail annuity sales. In Capital and Risk Solutions, there continues to be solid demand across geographies and product lines for capital solutions, which coupled with strong insurance experience, drove 41% year-over-year base earnings growth. Overall, I am very pleased with the strong start to 2026. Double-digit growth across all four. business segments drives continued confidence for the remainder of 2026. Before Jon covers our first performance in more detail, I will pass it over to Ed to talk more about Empower's results and the work done by his teams this quarter to meaningfully strengthen the long-term growth profile of the Empower business. Edmund Murphy: Great. Thank you, David, and good morning, everyone. Please turn to Slide 10. Empower delivered another strong quarter with double-digit base earnings growth reflecting continued momentum across our Retirement and Wealth lines of business. This drove Empower's base ROE to 20.8%, a key contributor in achieving Great-West 19% ROE objective. In our workplace business, strong equity markets drove double-digit year-over-year growth in client assets. Net plan flows exceeded net participant outflows in the quarter and we continue to expect positive net plan flows for the full year 2026. Operating margins also improved by over 300 basis points from a year ago, helped by improved credit experience and underscoring the strong operating leverage in the business. Empower Wealth continues to see outstanding growth with base earnings up 65% year-over-year. Operating margins held steady at 39% despite increased brand investment in Q1, further demonstrating the scalability of our wealth platform. With significant momentum in our underlying businesses, we are increasingly confident that Empower can capitalize on the growing demand for Retirement and Wealth solutions in the United States. We were encouraged by recent policy developments to expand access to retirement savings and support long-term financial security, including new Department of Labor safe harbor guidance, the administration's April 30 executive order and growing momentum around solutions such as Trump accounts. Together, these efforts highlight the importance of public-private collaboration and helping more individuals build confidence in their financial futures. Turning to Slide 11. Empower has built a very strong foundation as the second largest retirement plan provider with $2 trillion in client assets and as a leading wealth manager. We are still in the early stages of deepening the relationship with our 20 million customers. A key theme at Empower is building customers for life. That means being there for our customers throughout their financial journey. We have previously highlighted the value we provide during client rollovers, and it continues to be an important lever of growth for the business. We expect nearly $1 trillion to roll off the platform over the next 5 years. A significant portion of that money in motion will be eligible for rollover, and we are the #1 destination for those assets. As we look ahead, the opportunity to create value for our customers is much broader. Customers hold roughly 3x more assets off platform than on-platform. We are increasingly focused on building trust with our customers to earn the management of those assets as well. Workplace, rollover and crossover represent highly complementary mutually reinforcing channels. For example, by strengthening engagement, while customers are still in plan and before life events occur, we can increase the likelihood that they stay with Empower when they roll their assets into an IRA or seek out additional financial solutions. Meanwhile, customers that are more actively engaged with our workplace platform are more likely to aggregate their other assets with us. Please turn to Slide 12. Our strategy is simple, engage customers earlier and more proactively, make it easier to do business with us and then earn their trust and the right to serve them across their entire financial journey. To advance our strategy, we have embarked on our journey to realign the organization to strengthening our offering for customers while ensuring the durability of Empower's growth profile. In the last few months, we established greater organizational alignment between our Retirement and Wealth businesses and started realigning teams to encourage earlier conversations with customers, drive deeper relationships that support better outcomes. These efforts position us to better serve our customers long term. Looking ahead, we're focused on executing across several levers to drive continued growth. First, we have built out our product offerings into new areas such as stock plan services and consumer directed health savings, making Empower even more relevant across a broader set of customers and needs. Secondly, we are expanding access to financial solutions through continued investment in digital and AI tools to support greater personalization and a seamless end-to-end customer experience. We are also building deeper partnerships with plan sponsors and their advisers to drive advocacy, increase engagement and do more for participants to build greater trust. We are highly confident in the outlook for the business and our ability to continue delivering on our growth agenda in the years ahead. I'll now pass it over to Jon to talk through the broader financial results for the quarter. Jon Nielsen: Thank you, Ed, and good morning. Please turn to Slide 14. Great-West delivered double-digit base earnings growth across all segments in the first quarter, demonstrating continued execution against our strategic priorities. The first quarter results were driven by strong performance across our Retirement and Wealth businesses, continued momentum in new business volume and favorable insurance experience at CRS as well as improved credit experience across our investment portfolio. These results were achieved despite heightened market volatility, underscoring the strength of our diversified, increasingly capital-light business mix as well as the benefits of disciplined capital deployment. Our capital position remains strong with stable leverage and ample liquidity to support both organic growth and capital deployment. During the quarter, we repurchased approximately $567 million of common shares contributing to the 23% growth in base earnings per share year-over-year. Great-West also delivered base ROE of 19.1%, an increase of 190 points from the prior year. As David highlighted, we achieved our medium-term objective of 19% plus for the first time. The results this quarter reflect high-quality earnings with close alignment between net and base earnings. Turning to Slide 15. We are pleased that total credit losses for the first quarter were down year-over-year and lower than our expected range of 4 to 6 basis points on an annualized basis. As a reminder, total credit experience is the aggregate of credit experience shown in our drivers of earnings disclosure as well as in our Retirement and Wealth P&L statements, all of which are included in the supplemental information package. We continue to expect under normal conditions, credit experience would be at the lower end of the range. Turning now to our results by segment, starting with Slide 16. Base earnings in our Canadian operations increased 11% year-over-year, with robust growth across all lines of business. Retirement and Wealth results were driven by higher fee income as well as improving retirement flows. Group Benefits earnings were driven by strong operating leverage and were impacted by modest insurance experience gains. Finally, insurance and annuity results were supported by higher sales than a year ago, favorable mortality experience and higher net investment results. Turning to Slide 17. In Europe, base earnings increased 10% year-over-year in constant currency, primarily driven by higher global equity markets, trading gains and strong growth of the Group Benefits in force book. Bulk annuity sales, which tend to be lumpy, did not contribute significantly to the base earnings growth this quarter. However, the second quarter pipeline is very strong, and we expect this to translate to higher insurance earnings in the coming quarters, augmenting solid underlying momentum across all the other lines of business. Turning now to Slide 18. Capital and Risk Solutions delivered another strong quarter, with base earnings up 43% on a constant currency basis. We continue to see strength in demand for our capital solutions business globally. The pipeline for these solutions remains robust, and we expect new business volume to remain strong through the remainder of 2026. The strong CRS results this quarter were also driven by favorable U.S. mortality experience. Overall, this business will likely exceed our medium-term base earnings objective in 2026. Turning now to Slide 19. As we've highlighted previously, organic capital generation remains a key strength of our businesses. In the first quarter base capital generation exceeded 80% of base earnings, while free cash flow was 85% of base earnings. We expect both these measures to continue to be strong over time, as the relative earnings contributions from our capital-light businesses grows, while attractive organic growth opportunities in our more capital supported businesses may impact capital generation in any given quarter, we expect Great-West to remain highly cash generative. Turning to Slide 20. Great-West's strong free cash flow generation continues to support ongoing share repurchases and provides capacity for further capital deployment through the year. During the first quarter, we repurchased $567 million of common shares. We expect the return of capital to shareholders to be at least in line with 2025, especially if compelling strategic M&A opportunities do not materialize in the near term. Turning to Slide 21. Our LICAT ratio stood at 129%, up from 128% at the end of the fourth quarter, driven by strong capital generation and favorable seasonality in our Reinsurance business. Looking ahead, we expect to maintain the LICAT ratio above 125% and under normal operating conditions, even with elevated Reinsurance new business volume. The robust capital position, combined with the leverage ratio that remained steady at 28% and a Holdco cash balance of $2.1 billion provides a foundation for continued growth and capital deployment. Overall, we're off to a great start to 2026 and are very excited about the continued strong performance across all of our financial metrics. With that, I will turn it back over to David for his concluding remarks. David Harney: Thank you, Jon. Please turn to Slide 23. The momentum we built in 2025 has continued into 2026, and our first quarter performance reflects the strength and durability of the portfolio we've built. We've achieved our 19% base ROE objective for the first time this quarter. And based on the structural progress we've made across the business, I'm confident in our ability to sustain strong returns in normal market conditions. Looking ahead, we remain well positioned to deliver against all our medium-term objectives. Empower is on track to again deliver double-digit base earnings growth this year as it continues to expand its leadership position in U.S. Retirement and Wealth. CRS continues to outperform its growth ambitions with strong demand for its capital solutions expected to persist through 2026. At the portfolio level, our continued shift towards capital-light businesses supports our expectation to generate 70% or more of base earnings from these businesses over the medium term. This, combined with strong organic capital generation provides us with significant flexibility to invest in the business, pursue strategic opportunities and to continue returning capital to shareholders. We've built a well-diversified, capital-efficient organization with strong growth platforms, disciplined capital management and experienced teams across all our businesses. I'm confident in our ability to continue executing on our strategy and creating long-term value as we move through 2026 and beyond. Thank you. And with that, I'll turn it over to Shubha to start the Q&A portion of the call. Shubha Khan: Thank you, David. [Operator Instructions] Jim, we are ready to take questions now. Operator: [Operator Instructions] We'll hear first from Doug Young at Desjardins. Doug Young: Question on CRS, I guess for Jeff, can you remind us what's driving the improved outlook for Capital Solutions business? And in the same vein, can you remind what percent of CRS' earnings are from Capital Solutions? I think it was 50% not long ago. I would assume it's kind of tilted more towards that. So -- and I've got a follow-up. Jeff Poulin: Thanks, Doug. To answer your last question first, the percentage has gone closer to 60% Capital Solution, 40% Risk Solution. And it's the nature of the Reinsurance business, sometimes some products are more in demand than others. And we have seen a lot of demands for products on the capital solutions side. And it's coming from different products in different jurisdictions. So we're seeing a strong demand in Asia right now because they've got new regulations that are putting more capital demand on the companies. We're seeing it in Europe, where I think the companies are a little strained and then we're seeing it in some segments of the U.S. market. So it's demand across the board, which is a good, a perfect storm from our perspective, that everybody is looking for the types of products we're offering. And it's -- 2025 was an absolute great year from a new business perspective for us and '26 is starting the same way. So the outlook is really good from a new business perspective. Doug Young: Yes. And we talked on this before. Maybe just -- when I see something growing in the insurance world really, really fast and I somewhat get a little nervous. And we've talked about the risk controls that you have internally. But what's the like simple answer that you would get for someone that would look at this and say, man this is growing really, really fast. And this is a fairly complex business. Like how are you managing this risk so that there isn't any surprises? Jeff Poulin: Yes. We've got pretty strong controls. There's lots of levels of risk management within our operation. And I think that's what made us very successful over the years. We've got at every level of a transaction, we have a review and we decide to proceed or not proceed not more than 10% of the transactions we look at get closed. So we have a very, very stringent process to look at that. We try to be flexible with the clients, but at the same time, we're very disciplined at the risk reward needs to make sense, hence the great returns we're seeing. So I think it comes in lumps, this business is like that. We've seen that before. We've wrote a large book of longevity business in the past relatively quickly, and we're still benefiting from it now. I think that it's the nature of the Reinsurance business. Sometimes the demand on a given product is really, really strong. And other times, it's not. So you need to be patient and disciplined. Doug Young: Okay. And then, Jon, can you define -- I think you did this last quarter, but can you define what you believe Great-West Life's or what you calculate Great-West Life's excess capital to be? And how much is at the Holdco because I know you've got an amount there, but I think you want to hold some liquidity. How much is that the Opco and how much is the U.S. sub? And specifically in the Canadian Opco, when you think about binding constraints, what is that binding constraint there? Jon Nielsen: Yes. Thanks, Doug. Let me walk you through the different components. First, as you rightly call out, we have about $2 billion -- $2.1 billion of cash at the holding company. We typically like to have a few hundred million of liquidity there through the cycle, but most of that cash would be readily deployable. We didn't have the regulatory excess capital across the regulated entities. I call that about $2 billion. So you're at $4 billion. In terms of the minimum, I would say you'd kind of look at it as 120%, but we typically like to operate north of there in most transactions, but we could go down to 120% for the right opportunity. So then the other thing I think that we should point out is right now, we're running below kind of a normalized 30% leverage level. So that's another, call it, $1.5 billion, so around $5 billion of capacity there. And then as you're aware, Doug, and special situations for M&A, we have in the past managed to take our leverage ratio up given the exceptional cash flow and capital generation that we have, and we've used that cash flow generation not just from the acquired business, but from our ongoing operations to quickly pay down the leverage, we could see that as another lever to pull and that would be around, call it, $3.5 billion of capacity. So we have got a lot of capacity. But I wouldn't just look at the balance sheet. Look, I would also look at the point out how strong our capital generation is. It continues to be above 80%. All of our segments are throwing off free cash flow. Our free cash flow was over 85% this year. We're exceeding kind of continue to meet and exceed that medium-term objective. It's fungible cash. You can see it come into the liquidity of the holding company. So we're in a really strong position. Operator: Our next question will come from Tom MacKinnon at BMO Capital Markets. Tom MacKinnon: Yes. The -- when we look at CRS and you see insurance experience gains aligned or that hasn't -- that's kind of just hovered around 0 and then we see $47 million in the quarter. Have you done anything different with respect to your terms and conditions with respect to what you're reinsuring here to, I guess, increase the volatility or what you might get from mortality gains, U.S. mortality gains? In other words, when you see a $47 million U.S. mortality gain, that's kind of outsized, could we get a $47 million U.S. mortality loss? Or have you -- is there anything to read in here that you've changed anything to increase the volatility associated with that line? Jeff Poulin: Thanks, Tom. I don't -- I mean, your question is pertinent, but we we've announced last year that we're not in the mortality business anymore. So we really haven't changed the contracts. It's a runoff block at this point. So I think we feel very confident about our assumptions and they should hover around zero. Having said that, I think we had an exceptional quarter from a mortality perspective. It's been very good. We saw another reinsurer -- strong reinsurer in the U.S. announcing the same sort of results yesterday. So I guess mortality was good in the U.S. overall for the quarter and trying to explain volatility on mortality is a difficult thing to do. It will happen. And -- but you should assume that I think our assumptions are legitimate. I think they -- we feel pretty strongly they are. In the last two years, we're running at about 100% of expected. So we feel pretty strong about that. So it is -- it's big volatility, but it's within the range that we estimate it could be. So no real variance there. And of the $47 million, it's only -- I think it's $35 million that is associated to mortality. There was another $12 million there that is due to our longevity block that we onboarded that have been in the books for a while, but that we have booked to expected. And so we had transacted with the company and they paid us expected cash flows for a while. And then once we trued up to the real cash flows, we got the benefit of that. So it shows that we had strong pricing on that transaction. And it was significant enough that it made a difference for $12 million this quarter. But I mean that's unusual so we don't expect that to happen again. Tom MacKinnon: Okay. And then just with respect to Empower Wealth, Jon, in the -- in your fourth quarter conference call, you had highlighted that the fourth quarter margin for U.S. Wealth at 39.4% was higher than normal on seasonality of marketing expenses. And you said an operating margin of 35% better reflects the near-term margin expectation for U.S. Wealth. So why was it not 35% here that you had sort of guided to in your last conference call? Why was it up at 39%? Was there any more marketing expense timing issue there? Jon Nielsen: I think I'll hand it over to Ed, but I think we were a little bit lighter on first quarter marketing, and we expect a little bit to come through the fourth quarter. It's not that significant terms. But maybe, Ed, do you want to give some details? Edmund Murphy: No, I think that's right. It's more deferred spending. We had -- we're embarking on a new campaign and we pushed that out somewhat. I mean I think in terms of the full year expectation will be closer to where we are today, certainly above last year. But it's more timing, Tom. Operator: [Operator Instructions] We'll go to Gabriel Dechaine at National Bank. Gabriel Dechaine: I have a couple of questions here or lines of questions rather. First, on the bulk annuities business in the Europe segment, it sounds like you're similarly bullish there on the sales outlook for Q2 anyhow. I'm just wondering how do you factor in or what comments do you have about that competitive environment where there's been a lot of write-ups about the private equity players getting into that business, and you would think that would maybe dampen your outlook, but doesn't sound like it? And sticking to that topic, just to get a sense for how important it is in that insurance and annuities piece of the pie, how much of that is comprised of bulk annuities versus payout? Lindsey Rix-Broom: Thanks, Gabriel, for the question. And as you say, there is -- there has been increased competition coming to the market over the last 12 months. However, there are still really only 11 players in the market and there's significant demand for bulk annuities, both now and for the future and for the outlook. So we are kind of pleased with where we are. The pipeline, as you say, for Q2 looks very strong and indeed for the rest of the year. So we're optimistic in the outlook for us. I think we remain disciplined in our pricing, as we've said before, and look to continue to be able to make good returns in this area going forward. In terms of individual annuities and bulk annuities, we've had a continued strong performance in individual annuities, particularly in the U.K. market. That outlook remains strong and positive as well. So looking for a balanced performance across both bulk annuities and individual annuities for the future. Jon Nielsen: I'd just add -- just a comment to add on Page 34 of the SIP, you'll be able to see the split of the two categories, individual and bulk. We've done that to be able to monitor the lumpiness of the folks. Gabriel Dechaine: Okay. Great. I was looking at the slide deck, but -- yes. So moving over to the Empower and, Ed, you were talking about the regulatory changes, the Trump IRA accounts and all that. And I mean, I don't know how -- if you could size that opportunity, if that's possible? But on the flip side to that, I'm just wondering because this is another topic that's come up is the suitability of some investment classes for retail investors, private equity and private credit, whatever. What sort of guardrails do you have in place or responsibility even for what you offer to the customers such that if there ends up being some sort of an issue with the suitability that doesn't affect you? Edmund Murphy: So your first question, we see it as a tremendous opportunity. There's different numbers that get referenced, but somewhere between 40 million, 50 million Americans don't have access to workplace savings. So clearly, under the Trump administration, there's been this bipartisan focus both in Congress, but also from a regulatory standpoint to try to drive access and improve coverage. We're right squarely in the middle of that. So we're very active in advocating for those policies. It's hard to size it because at least initially, those are going to be smaller accounts. But as you think about the matching and the compounding effect, it will grow over time. So I'm pretty sanguine about where we are in terms of coverage and expansion, I think it's very constructive. And as I said, we're very much a part of that. The second question you had, I think, is a very important one. I do want to make it clear that the role that we play is not a fiduciary role as it relates to the relationships that we have with alternative managers that are on our platform. We don't act in a fiduciary capacity, we essentially are giving access to these investments. But ultimately, the decision as whether to include any investment for that matter, whether it's public equity, the 40-Act mutual fund or whether it's an alternative asset class, that decision is ultimately being made by the plan sponsor and their adviser. And the other thing I would just add is we are not advocating for -- at this point, we're not supporting stand-alone alternative investments inside the defined contribution plans at Empower. These are all structured as a multi-asset class vehicle through a collective investment trust, and it's supported within our adviser managed account program where there is an adviser, a financial adviser that's attached to each one of these offerings and the typical cap of what might be allocated to that collective investment trust is somewhere around 15% to 20% of the assets. So there's plenty of liquidity, both inside the product itself and then outside where people would be investing in public equities and public debt. And then I would just add that we have about 1,000 plans right now that are in some form of implementation, either they have implemented a vehicle or in the process of implementing a vehicle. So it's still sort of in a nascent stage. But obviously, the directive that came from the Trump administration, I think gave some sponsors comfort that if they follow ERISA standards that and take a thoughtful and practical approach that they're comfortable in going forward. So that's what we're seeing. Gabriel Dechaine: And what about the Individual Wealth business? Are you not a fiduciary there? Is there a similar discussion to be had or differently? Edmund Murphy: Yes, in the individual wealth business, those investors have to be accredited investors. And yes, so they have to meet the credit investor standards. And in doing so, we do act in advisory capacity. We do offer products through a relationship we have with a third party. That too, I would say, is very much in its nascent stages. And the reason is that the preponderance of our client base tends to fall into that mass affluent category. So many of them don't necessarily meet the credit investor standard. So we haven't seen, at this stage, we haven't seen much in the way of adoption of alternatives inside our wealth business. I think that will change over time for sure, as people look to diversify. But at the moment, that's not the case. Operator: Our next question will come from Darko Mihelic at RBC Capital Markets. Darko Mihelic: I just wanted to revisit Empower's flow situation because it does -- it sort of does change my model when I think of it. I mean you had positive flows, which is great. But the way you had described it earlier was that just the general nature of the business is one that would typically have outflows. Maybe I think the number you used previously was like 2% and then some of your efforts and work would maybe grind away at that, but generally, you end up in a place where maybe 1% kind of outflows is like the long-term expectations. So I realize you're doing a lot of work there. Has anything changed and how I should think about the flows and how I should put that into the model? Edmund Murphy: Yes. I think -- let me start with -- I think what you're referring to is flows in our workplace business, specifically participant flows. Obviously, we saw net plan flows for the quarter, and we expect net plan flows for the full year as we experienced last year. With respect to participant flows, you do have a lot of seasonality in that first quarter because that's when you see very high contributions coming into defined contribution plans. You're seeing profit-sharing contributions and the like. So that's not unusual to see a more favorable result in the first quarter. That being said, I think as you look out to Q2 and beyond, you're going to see more normalized participant outflows consistent with the guidance that we've given you in the past. In fact, if you look at what the equity markets have done, particularly in the last 30 or 40 days, you've got higher balances. And so disbursement dollars will probably be higher, right, due to market appreciation, you'll have higher balances in those accounts. So underlying all of this is the sort of demographic dynamic that's playing out in the U.S., where you are seeing net outflows on the participant side across really every provider in the marketplace. We obviously have built what we think is a pretty compelling hetero-s-mid on the wealth side. So we aim to capture some of that money in motion for sure. But the way you should think about this is that there will be a consistent in roughly 1% or so in participant outflows. And I think that will -- you'll see that play out in Q2 and beyond. And then finally, I would just say we continue to grow the business. So we're adding billions of dollars on to the platform through our institutional sales efforts. Our year in 2026 will look very similar to what we accomplished in 2025 on that institutional side. And then when you layer in the market appreciation, you've seen what's happened to our AUA. In fact, since 2021, our assets under administration in our workplace business has grown at a compounded annual growth rate of 11.5%. I think that may be the highest in the industry. Darko Mihelic: That's a great answer. And it is -- I mean I think it's 13% year-over-year this quarter in terms of AUM growth, but the revenue growth lagged. Maybe can you touch on that? Jon Nielsen: Maybe I'll start and then hand it back to Ed. This is Jon. in the quarter, there was a refinement that we made to some data that impacted the classification of certain of the transactional fees so we implemented that in the third quarter. So what it did is it was basically a reallocation between the asset-based fees and the non-asset-based fees. It didn't impact total fees or our financials. But it did reduce asset-based fees and increase the non-asset-based fees. It was about $14 million during the quarter. This had about a 5% impact on the growth rate because we didn't adjust the prior periods. That, Darko, had we applied it. It was about the same amount in the previous -- most recent quarters. I'll hand it back to Ed to kind of give the business context of the fees as well. Edmund Murphy: Yes. Thanks, Jon. The other dynamic, and we've talked about this in prior calls, is just what I would call the mix dynamic and how the business is playing out. So if we have a disproportionate amount of large mega corporate clients, those tend to be fixed fee. They're not asset-based pricing with those plans. And that's what we've seen more recently, when we're winning these large mandates, the pricing is a fixed fee pricing versus down market, call it, plans under $50 million in assets or $75 million in assets, those tend to be asset-based fees in terms of the -- how we get paid for the services is being paid through asset-based fees. I will say in that $75 million space and below, we're #1 in the market, and we have -- we're growing 20%, 25% a year in that pace -- that space. So we're taking business away from the competition. But it does get overshadowed a bit because of the mix issue, as I say, when you win these large corporate and government mandates, which we're winning. Darko Mihelic: I see. Okay. But your sweet spot is still actually the smaller mandates. So I should be thinking of it as more or less growing in line with AUM with the occasional quarter or two where you get a massive mandate. Is that the way I should think of it? Edmund Murphy: Well, I guess the one caveat I would say is, so we're competing in all markets, the government market, the large corporate market, the mega corporate market, the small market, the Taft-Hartley Union. So you're going to see some balance there because if you win a $15 billion, $16 billion, $17 billion mandate, that's going to skew and that's a fixed fee arrangement. That's going to skew the mix, if you will, right? So it adds to your AUA, but it's not generating asset-based fees. Now there are other ways we generate asset-based fees which we can get into. But with respect to the record-keeping administration piece of it, that would be a fixed fee type arrangement. So disparity, if you will, because of the fact that we're a diversified player and we're competing in all segments of the market. Operator: And next, we'll hear from Mario Mendonca at TD Securities. Mario Mendonca: Ed, maybe I'd just stick with you for a moment. Thoroughly the goal here, which I think you've described is to move that rollover rate up to something more in line with where the leaders are, what is your -- and this may ask you to take a kind of a wild guess here, but can that rollover rate for Empower approach the mid-20s over the next couple of years? Or is this a much longer-term endeavor to get it to that level? Edmund Murphy: I'm not sure over the next couple of years. And I'll tell you why. I mean, I think -- we have 20 million customers. But one of the things that we -- there are several things we need to do. One of the things we need to do is to raise aided awareness and raise consideration to a level of some of the more entrenched players. And that's why we've made a concerted effort to invest in the brand and to invest in advertising, but also to create awareness among those 20 million installed base of clients on the workplace side because there's obviously a meaningful subset of those customers that are not necessarily fully aware of our wealth capability. So it's a work in progress. There's the branding, there's. The awareness element of it. I think in terms of the offering itself, it's very competitive vis-a-vis the competition. So it's just -- it's something that, obviously, we need to continue to work on -- but as we've said at Investor Day and we've said at other times, the opportunity here is immense. If we build the trust with the sponsors, if we serve those individual investors well while they're an active participant in the plan, they will think about us and they will give us consideration to be their adviser hopefully in perpetuity. So I think the high 20s -- in the mid- to high 20s in the near term is probably too aggressive. Mario Mendonca: Okay. And then -- and again, this might -- I'm not sure how much you want to get to this. I clearly don't expect you to name names when we're talking about potential acquisition targets and -- but the question is this, is that file sort of active? Like are there active -- are you actively looking at potential acquisitions in this space? Because there are -- there's just so much speculation around the space right now. Is it -- would you call it actively looking? Or is it dormant right now? David Harney: Yes. Maybe I'll take that question, Mario. Like yes, you're dead right, we don't comment on individual opportunities. Like obviously, we're alert and very keen on any opportunities to come to the market, and we look at all opportunities. And maybe just to take a step back, and this answer won't surprise anybody we've said it many times before. But just to reiterate, again, our sort of growth targets, our medium-term growth targets are not dependent on acquisition activity. And you can see that just in the very strong performance of the business this quarter and the growth in all of the segments, which is achieving those targets. But we have firepower as well. And if opportunities come to the market, we will certainly look at them. We've executed very well just on recent acquisitions, both in workplace retirement and on wealth acquisitions. And we're very confident of our capability to execute there again if the opportunities come along. And again, we've been very clear just on the requirements for our acquisition activity. It has to hit our return targets on where we can execute synergies, I think that makes that very possible. And then it has to sort of -- we have to be very confident on execution capabilities. And then the right targets will add scale and will add capability to our businesses, and we're keen to look for opportunities that come along. Mario Mendonca: Okay. And I'll be really brief on this one. Going back to CRS. There's mortality risk, there's CAT, there's longevity. Those are the three big ones I can think of that you're exposed to in CRS. Am I missing anything? Like is there any concentration that concentrated risk that I'm not picking up on? Jeff Poulin: I think those are the main risks that we have on the risk business. Yes. Operator: And at this time, we have no further signals from our audience. Mr. Khan, I'm happy to turn the floor back to you, sir, for any additional or closing remarks that you have. Shubha Khan: Thanks, everyone, for joining us today. Following the call, a telephone replay will be available for one week, and the webcast will be archived on our website for one year. Our 2026 second quarter results are scheduled to be released after market close on Tuesday, July 28, with the earnings call starting at 9:30 a.m. Eastern Time the following day. Thank you again, and this concludes our call for today. Operator: Ladies and gentlemen, we'd like to thank you all for joining today's Great-West First Quarter 2026 Financial Results Call. You may now disconnect your lines. We hope that you enjoy the rest of your day.
Scott Cartwright: Good morning, and welcome to Whirlpool Corporation's First Quarter 2026 Earnings Call. Today's call is being recorded. Joining me today are Marc Bitzer, our Chairman and Chief Executive Officer; Roxanne Warner, our Chief Financial Officer; Juan Carlos Puente, our Executive President of North America and Global Strategic Sourcing; and Ludovic Beaufils, our Executive President of KitchenAid Small Appliances and Latin America. Our remarks track with a presentation available on the Investors section of our website at whirlpoolcorp.com. Before we begin, I want to remind you that as we conduct this call, we will be making forward-looking statements to assist you in better understanding Whirlpool Corporation's future expectations. Our actual results could differ materially from these statements due to many factors discussed in our latest 10-K, 10-Q and other periodic reports. We also want to remind you that today's presentation includes non-GAAP measures outlined in further detail at the beginning of our earnings presentation. We believe these measures are important indicators in our operations as they exclude items that may not be indicative of our results from ongoing business operations. We also think the adjusted measures will provide you with a better baseline for analyzing trends in our ongoing business operations. Listeners are directed to the supplemental information package posted on the Investor Relations section of our website for reconciliations of non-GAAP items to the most directly comparable GAAP measures. [Operator Instructions] With that, I'll turn the call over to Marc. Marc Bitzer: Thanks, Scott, and good morning, everyone. During today's call, you will hear free message from us. First, we finished a tough quarter in our North American business. The month of March, which typically carries the quarter in North America, was exceptionally weak due to these 4 drivers, which I will discuss in further detail in the following slides. Second, we are taking decisive and bold actions to restore North American margins back to a healthy level. We have issued the largest price increase in more than a decade that raised prices by more than 10%, and we're doubling down and accelerating our cost actions despite higher inflationary headwinds. Third, our equity offering and a renewed revolver credit line, which we expect to finalize in Q2, puts our balance sheet in a strong position to weather this difficult industry cycle. Before we get into the numbers, I want to provide a bit of background about the macro environment in North America, not as an excuse, but as context for what happened in the second half of the first quarter. Turning to Slide 7. We can see that consumer sentiment has dropped to its lowest level in 50 years. The consumer sentiment was already on a very low level by any historical standard, but the war in Iran amplified consumer concerns about the cost of living. As a direct result, a consumer sentiment index in the U.S. plunged reaching the lowest level on record in March. Now while our view is that consumer sentiment is unsustainably low and should rebound from here, these events clearly pressured our industry and particularly discretionary demand. Turning to Slide 8, you can see the resulting impact on the U.S. appliance industry. The U.S. appliance industry demand declined 7.4% in the first quarter, with March being down 10%. This level of industry decline is similar to what we have observed during the global financial crisis and even higher than during other recessionary periods. Keep in mind that we are operating in an environment where the rest replacement demand drives more than 60% of the industry, and this part of the demand is relatively stable. So this gives you a sense about how dramatic the impact on [indiscernible] demand was. While we do believe that the negative industry demand in March was somewhat of an outlier, we do not anticipate a full recovery and are now forecasting the U.S. as the demand being down by 5% on a year basis. Turning to Slide 9. I want to share a snapshot of industry pricing over the past 15 months. This picture represents an aggregate view of literally thousands of price points which we collect weekly. It is based on publicly available retail sellout data. While it may be 100% accurate, it is, in our view, directionally correct. In 2025, the multiple changes in tariff policy, delays and [indiscernible] exemptions as well as the effect of inventory preloading by Asian competitors created significant volatility and promotion behavior. However, immediately after Black Friday, pricing improved slightly above pre-Black Friday levels. While the price changes were still below the level needed to fully offset the accumulated inflation and cost of tariffs about a positive development in line with our agitation coming into the year. As you can clearly see the small chart on the top right of the page, after the IEEPA ruling by the Supreme Court, promotion pricing reverted back in the following weeks. We believe the Supreme Court ruling, the broader skepticism about the durability of tariffs and the anticipation of refunds related to the tariff resulted in a resumption of an aggressive promotional environment. It is also obvious that price changes of 1% to 2%, as we've seen in February and March by the competition did not even remotely covered the cost of inflation and tariffs. You can also see that after the price changes, which we announced on April 17, Whirlpool set out prices, as determined by our retail customers have moved up by 10% compared to January 2025. At the same time, the behavior from our competitors has shifted more favorably. The key development for U.S. appliance industry this quarter was with change in Section 232 tariffs which brought clarity and predictability to the tariff landscape. We will later discuss these changes in detail. But what might appear as a small change in the 232 tariff has significant and lasting ramifications of the entire industry. Essentially, every imported appliance into this country, irrespective of where it comes from, will have to pay a tariff of 25% on full product value. And in the case of China, even more. The combination of drop in consumer sentiment, decline of consumer demand and the irrational industry pricing created an almost perfect storm during this first quarter. But we are taking decisive and bold pricing and cost actions we expect will bring our North American business back on its path towards healthy margins. With that, let me hand it over to Roxanne, who will discuss the first quarter results in more detail. Roxanne Warner: Thanks, Marc. Turning to Slide 10. I will provide an overview of our first quarter results. As Marc mentioned, our results in the first quarter were negatively impacted by the ongoing macroeconomic and geopolitical events that have developed since late February. We delivered an ongoing EBIT margin of 1.3% and an ongoing earnings per share of negative $0.56. Our earnings per share, in particular, was negatively impacted by approximately $0.32 from the noncash loss associated with our minority interest in Beko Europe B.V. Looking at our segment performance, MDA North America was severely impacted by a sharp decline in consumer sentiment and the costs associated with our inventory reduction actions. MDA Latin America margin was pressured by the intense promotional environment. This was partially offset by the gains associated with the [ default ] tax ruling in Brazil. Conversely, the SDA Global segment continued to perform exceptionally well. Our free cash flow was negative $896 million as the benefit from our inventory reduction efforts was more than offset by lower earnings. Finally, we returned cash to shareholders and paid a $0.90 dividend per share in the first quarter. Turning to Slide 11, I will provide an overview of our first quarter margin walk. Price mix unfavorably impacted margin by 275 basis points. This was driven by 2 key drivers. One, collapsing consumer sentiment further reduced discretionary demand and negative impacted mix. Two, the encouraging industry pricing progress we observed in the first few weeks of the year was heavily disrupted by the Supreme Court's IEEPA tariff ruling and the anticipation of refunds, which created further external volatility and the return of an intense promotional environment. Our net cost was negatively impacted by volume decline and onetime costs associated with the planned inventory reduction, resulting in 175 basis points of margin contraction year-over-year. We executed our originally planned inventory reductions and executed incremental reductions due to the unexpected industry decline. Overall, we drove 20% year-over-year volume reduction. Raw materials unfavorably impacted margins by 50 basis points, driven by inflation of steel, base metals and resins. The current and projected steel costs are now putting us at the maximum pricing of our long-term steel agreements. We experienced a neutral impact from tariffs in the first quarter as the incremental cost from changes to Section 232 implemented in the second half of 2025 were offset by tariff recovery and mitigation actions. Marketing and Technology was favorable 50 basis points versus prior year, driven by reduced transition costs and a pullback in spending as we saw consumer sentiment shifts. Currency was also favorable by 50 basis points, driven by the appreciation of the Mexican peso and Brazilian real. Lastly, transaction impacts was unfavorable 50 basis points to the noncash loss associated with our minority interest in Beko Europe B.V. It is important to note that based on the current carrying value of this investment, Whirlpool will no longer recognize any further losses from Beko Europe B.V. Now I will turn the call over to Juan Carlos to review our MDA North America results. Juan Puente: Thanks, Roxanne. Turning to Slide 12, I will provide an overview of our first quarter results of our MDA North America segment. In the first quarter, net sales decreased 8% year-over-year to $2.2 billion. Consumer sentiment collapsed into record lows due to the war in Iran prevented the recovery of the volume loss during the winter storms resulted in recession level industry contractions with discretionary demand down approximately 15%. The segment delivered breakeven performance with EBIT margins negatively impacted by the sharp decline in demand, higher-than-expected cost to reduce inventory and the return of an intense promotional environment after the Supreme Court IEEPA rule. . While we experienced high cost from the actions to reduce inventory levels and higher tariff costs year-over-year, these were partially offset tariff recovery and mitigation actions. As over 3 years of accumulated inflation continues to pressure our business, we have announced the largest price increase in a decade in conjunction with acceleration of critical initiatives to drive cost reduction. We expect these aggressive actions to put MDA North America profitability back on track. We'll share more details of those actions shortly. Now I'll turn it over to Ludo to review the MDA Latin America and SDA global results. Ludovic Beaufils: Thanks, Juan Carlos. Turning to Slide 13 and review the results for our MDA Latin America business. Excluding currency, net sales decreased approximately 4% year-over-year. This is the net impact of an aggressive promotional environment in the region and volume increases from a growing in share gains. Due to the promotional pressure, the segment's EBIT margin was 6%. This margin was supported by a favorable Brazil tax ruling and our ongoing cost takeout initiatives, which partially offset the unfavorable price/mix. Turning to Slide 14, and I'll review the results for our SDA global business. This business continues to perform exceptionally well, delivering approximately 10% net sales growth year-over-year, excluding currency. EBIT margins expanded an impressive 250 basis points year-over-year to 21%, driven by continued growth in our direct-to-consumer business, solid execution of cost takeout initiatives and some marketing investment timing changes versus prior year. We are proud to celebrate the sixth consecutive quarter of year-over-year revenue growth, clearly underscoring the strength of our product portfolio and our value creation strategy. On Slide 15, we showcase a few exciting new products that we're bringing to the market this year. We're proud to bring meaningful consumer-centric innovation to the stand mixer while maintaining our iconic design and heritage. The new Artisan Plus stand mixer is now featuring an integrated bold light and precise speed control. In our compact fully automatic espresso machine with iced coffee gives consumers the option to brew at a lower temperature, while also delivering a space-saving design that fits effortlessly into many kitchens. Now I will turn the call back over to Juan Carlos to review the critical actions we are accelerating to recover profitability in MDA North America. Juan Puente: Thanks, Ludo. Turning to Slide 17, I'll review some of our bold actions to restore MDA North America margins. On April 17, we announced the largest price increase in more than a decade. This price change is being executed in 2 steps. First, we executed a promotional price increase, which is already in effect of more than 10% relative to the first quarter prices. This is the most impactful change and is expected to start driving price/mix improvements in Q2, ramping up throughout the year. Secondly, we announced a lease price increase effective on July 9. The second wave represented an additional price increase of approximately 4%. This multistep plan is designed to offset the cost inflation accumulated over the last 3 years that has not yet been reflected in prices. the anticipated cost inflation in 2026 and some residual impact of tariffs. In addition to these pricing actions, we will continue to deliver product innovation and expand our mass premium and premium product [indiscernible]. The 30% incremental foreign gain on the back of the record year of product launches in 2025 is largely installed. And we are seeing the results of each major appliances continue to deliver strong sell-through performance year-over-year despite the softer industry. Our robust innovation pipeline was further validated by the outstanding award win performance at Cadis, where Whirlpool Corporation secured an impressive 23 awards. Turning to Slide 18. I will highlight the successful launch of our Whirlpool branded UV laundry tower, which we presented in our last earnings call. The national rollout of this product featuring the industry-first UV cleaning technology that reduces bacteria in the wash while keeping Fabric Care in mind has been exceptionally well received and is exceeding expectations. This innovation is driving rapid share gains, capturing approximately 5 points within weeks and increasing our balance of sales with trade partners who have floored the unit. This confirms the competitive advantage of our game changer, UV clean technology. Turning to Slide 19. I'm pleased to showcase the new kitchen intelligent wall oven, which earned the prestigious Best of Show Award, the highest owner at Tavis. This new wall oven is one of the many products available in our new KitchenAid suite, which began shipping late last year. This product allows consumers to experience cooking through a new lens with the intelligent cooking camera that identifies food, monitors [indiscernible] and remembers your preference for your favorite recipes. We continue to see strong sell out through our market share gains to trend towards the highest level in over the decade. Turning to Slide 20. I'll highlight exciting innovation coming to our incinerator business. The new LED Defense order fighting in flung features the UV-free LED light that kills 99% of common terms include an odor causing bacteria. These innovation features addresses one of the biggest consumer pain points of bacteria order. This is yet another product that we see recognition at Kabi this year and as the next-door neighbor to the dishwasher continues to position us well for the eventual housing recovery. Turning to Slide 21. Let me provide an update on the initiatives we are accelerating to bring our business back on track. As we navigate the current macro pressures, we maintain our commitment to deliver our $115 million in cost saving account in 2026, which will be fundamentally supported by our ongoing design to value engineering efforts. Given our current EBITDA margins, we're taking decisive structural actions across several key levers to accelerate our cost actions. First, we are heavily leaning into the vertical integration, automation and the optimization of our manufacturing and logistics footprint. As part of these initiatives, we announced 3 key products: one, our new strategic investment in Peres Group, Ohio. Two, the ongoing modernization of our Amana, Iowa plant; three, shifting production from Pilar Argentina to Rio Claro Brazil. Together, this footprint and integration moves are expected to unlock approximately $40 million in savings in 2026, while significantly improving our product quality, speed of invent and overall supply chain resiliency. Additionally, as we shared previously, we are renewing our strategic sourcing initiatives. We have already completed the first phase of this project, and we're making good progress on the second phase. We expect to capture roughly $15 million in savings in 2026. Finally, we're introducing a new measure which encompass targeted fixed cost actions within our corporate center. We expect to generate approximately $20 million in sales, which we will plan to share more details about it in the near future. Collectively, these actions will have a carryover benefit into 2027, ensuring that we are actively managing the element with our control to offset external headwinds and restore our profitability. Turning to Slide 22. Let me detail the accelerating of our vertical integration and how we significantly strength our U.S. manufacturing footprint. We recently announced that we are making a $60 million investment in our new state-of-the-art production facility in Perrysburg, Ohio. This represents our 11th factory in the U.S. and our sixth in the state of Ohio, reinforcing the legacy that we are incredibly proud of, we started in America and we stayed in America for over 100 years. The strategic investments will drive greater efficiency and is expected to deliver approximately $30 million in annualized EBIT benefits. Turning to Slide 23. We are executing critical factory footprint changes to unlock greater operational efficiencies within our regional manufacturing network. First, in Armada, Iowa, we are undergoing a multiyear modernization effort. This modernization will refocus our manufacturing of bottom on reiteration and optimize our card production and subassemblies, generating an expected annualized EBIT benefit of approximately $70 million. We're also optimizing our Latin America operations by shifting our [indiscernible] washer production from Argentina to our Rio Claro facility in Brazil. This strategic shift drives valuable manufacturing cost efficiencies and logistic cost optimization, which we expect to deliver an additional $20 million in an annualized EBIT benefit. Turning to Slide 24. Let me provide an update on Section 232 tariffs. While the Supreme Court overturned IEEPA tariffs in late February, the administration took significant actions in early April to strength Section 232 steel tariffs on home appliances. The UPDATE 232 framework represents a significant win for the U.S. manufacturing and lasting structure advantage for work. As a reminder, Section 232 steel tariffs were first implemented in 2018 and have proven the durability by remaining in effect throughout multiple administrations. While home appliances were officially covered under the framework in the mid-2025, the recent updates in April have increased the overall tariff rate on Home Appliances and greatly simplify both compliance and enforcement. Because we proudly manufacture the vast majority of our products domestically and continue to invest in [indiscernible] manufacturing, this trade policy strongly supports our position. We estimate that a 25% tariff impact on our competitors will now be between 10% to 15% of our competitors to a U.S. major appliance net sales. By contrast, the impact of our MDA North America business is estimated to only be about 5%. Ultimately, these changes bring much needed predictability to the industry and deeply strengthen our competitive advantage as by far the largest domestic appliance producer. Now I will turn the call back over to Roxanne to review our revised expectations for 2026. Roxanne Warner: Thanks, Juan Carlos. Turning to Slide 26. I will review our updated guidance for 2026. Given the rapid deterioration of the macro environment since late February, we have revised our expectations for our 2026 results. On a like-for-like basis, we expect revenue growth of approximately 1.5% in 2026 due to our revised expectations for the North American industry. Even though the industry has seen substantial degradation of a new product launches are expected to continue delivering growth in MDA North America. We expect our MDA Latin America business to regain momentum and expect continued strength in our SDA Global business. On a like-for-like basis, we expect approximately 70 basis points of ongoing EBIT margin contraction to a full year EBIT margin of approximately 4%. Free cash flow is expected to deliver more than $300 million or approximately 2% of net sales, driven by significant structural inventory optimization. We expect full year ongoing earnings per share of $3 to $3.50. This includes approximately $1 impact due to the recent equity offering alongside an additional $1 impact due to an adjusted effective tax rate of approximately 25%, which is an increase compared to 2025. Turning to Slide 27, we show the drivers supporting our 2026 ongoing EBIT margin guidance. We have updated our expectation of price mix to 150 basis points reflecting the current impact of collapsed consumer sentiment, offset by the impact of our Board pricing actions announced in April. We expect to substantially improve price/mix and as we progress through the year with the benefits starting in May and ramping throughout the year. Net cost takeout reflects the expectation of delivering more than $150 million supported by our accelerated cost actions. While we have long-term steel contracts in place, the current and projected costs are putting us essentially at the maximum pricing of those contracts. This has a minor impact on our full year RMI expectations. However, combined with the inflation of base metals on resins, we have updated our expectations to approximately 75 basis points of negative impact from raw materials. We expect approximately 175 basis points of negative impact from the tariff announced in 2025 and updated in April 2026. We expect the benefits seen in Q1 from the tariff recovery and mitigation actions to be more than offset by additional tariff costs due to the Section 232 tariff changes announced in April. It is important to note that these impacts represent currently announced tariffs and do not factor in any future or potential changes in trade policy. Our expectations for marketing and technology currency and transaction impacts remain unchanged. Turning to Slide 28, I will review our segment guidance. Starting with industry demand, we expect the global industry to be down approximately 3% in 2026. In North America, given the drastic decline already seen in Q1 and the anticipated prolonged inflationary environment, we now expect full year industry demand to decline by approximately 5%. Our industry expectations for MDA Latin America and SDA Global remain unchanged. For MDA North America, we now expect to deliver a full year EBIT margin of approximately 4%. The Board pricing actions we've taken and accelerated cost takeout initiatives are expected to drive profitability recovery in MDA North America. Margin expectations for MDA Latin America and SDA Global remain unchanged. Turning to Slide 29. I will provide the drivers of our free cash flow guidance. We have updated our cash earnings and other operating accounts, consistent with full year EBIT guidance. We have not changed our expectations for capital expenditures and continue to focus on delivering product excellence and investing in our U.S. manufacturing footprint. We have taken necessary actions to optimize our inventory and are updating our expectations to improve working capital by approximately $150 million to support cash generation in 2026. As seen in our first quarter results, our working capital initiatives are off to a very strong start and we expect these structural changes to improve our day-to-day inventory levels. Our expectations for restructuring cash outlays related to our manufacturing and logistics footprint optimization efforts are unchanged. Overall, we expect to deliver free cash flow of more than $300 million or approximately 2% of net sales. Turning to Slide 30. I will review our capital allocation priorities, which have been updated to reflect the current business environment. Investing in organic growth through product innovation remains critical to our business, and this will continue to be one of our top priorities. We will continue to invest in product innovation, digital transformation and cost efficiency projects with approximately $400 million of capital expenditure expected this year. Secondly, we are committed to reducing our debt levels no more than ever. We expect to pay down more than $900 million of debt in 2026, continuing our commitment to deleverage. Lastly, after careful consideration with our focus on ensuring financial flexibility during this challenging operating environment, we have made the prudent decision to pause our quarterly dividend starting in the second quarter. This decision is critical to ensure that we create the capacity on our balance sheet to pay down debt and fund organic growth. Turning to Slide 31. I will review how we are taking additional actions to manage our debt maturities and ensure liquidity in an uncertain macro environment. We recently executed a strategic equity offering that successfully raised approximately $1.1 billion in capital. The use of these proceeds was focused on debt paydown and accelerating our vertical integration and automation efforts. The proceeds were used as expected. We paid down more than $900 million in debt and began to invest in vertical integration with the acquisition of our Paris burg, Ohio facility. We are in the process of moving to an asset-based lending facility. As we transition, we entered into an amendment to our existing credit facility reducing our available line of credit from $3.5 billion to approximately $2.25 billion effective in May. This amendment provides us with a valuable near-term flexibility and ample borrowing capacity. We have strong lender support on the asset-based lending facility and are tracking well to closing the next credit facility over the coming weeks. These decisive actions demonstrate our continued focus on debt paydown as we work to drive our long-term debt below $5 billion. Now I will turn the call back to Marc for closing remarks. Marc Bitzer: Thanks, Roxanne. Turning to Slide 32. Let me summarize what you heard today. As we discussed, our first quarter results were heavily impacted by severe external volatility and onetime events. The sudden macro pressures from war in Iran, result in plant in consumer sentiment and the disruptions to industry demand and pricing all masked the underlying operational progress we have made. However, we're actively managing what is within our control. We have announced significant pricing and structural cost actions that are firmly in place to restore profitability to our MDA North America business. By driving over $150 million in cost takeout initiatives and executing our largest price increase in the decade, we're aggressively addressing our margin pressures. More importantly, our ongoing U.S. footprint optimization and the recent Section 232 tariff update meaningfully strengthened our competitive advantage as a domestic producer. Because we probably built approximately 80% of the products we sell in the U.S. here in America, we're structurally positioned to win in this new tariff landscape. Additionally, our SDA Global business continues to perform exceptionally well, remaining a bright spot in our portfolio, consistently delivering revenue growth and margin expansion. [indiscernible] in small appliances or our major domestic categories, we continue to hold a leading position supported by our portfolio of iconic brands and innovative products. Looking further ahead, we know the U.S. housing market drop will be over at one point, and the March read of housing starts may be an early indication of a more positive trend. The eventual tailwind from an inevitable recovery will be strongly catalyzed by our leading established position in mobility channel as well as the strength of our in since rate business. Now we will end our formal remarks and open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Michael Rehaut from JPMorgan. Michael Rehaut: I want to take a step back and just kind of -- my question is really just on the consumer. And you highlighted the all-time low in confidence impacting results. So far this earnings season, we've heard from other building product companies where volumes are down, but not to the extent that we're seeing in appliances and many have kind of reported that while the consumer confidence is shaky, demand trends have been somewhat more stable, perhaps than what you've seen in your own industry. So I was wondering if you could kind of contrast what the drivers are that maybe has created that greater amount of volatility in appliances as you see it from the consumer's perspective compared to other products like power tools, flooring, paint, plumbing, et cetera. Marc Bitzer: Yes. So Mike, obviously, I mean, just to repeat the numbers, we saw minus 7.4% industry demand in Q1, of which March was minus 10%. So that is even in our industry, as a point at a very, very unusual low level. I mean that's why we pointed. The last time you've seen minus 10% was during the global financial crisis. I think one of the key elements, which makes our category may be slightly different for other categories at the end of the day for the majority of U.S. households, appliances or the purchase of appliance or a significant portion of our disposable income. So ultimately, it's a decision against the confidence the consumer has about the financial future. So it's just a big ticket item. It's not a $50 purchase. And that, I think, explains a little bit what it's been seen right now in Q1. And while we're just a little bit more anecdotes, one of the strongest businesses, which we had in Q1 was actually our spare parts and repair business, which just as an indicated by even consumers are holding back, replacing products and rather repairing it. We've seen that also [indiscernible]. Now the flip side is consumer confidence is on a 50-year low, but we've seen in other phases, consumer confidence actually moves pretty fast. And I wouldn't expect that level of confidence, but also that level of industry demand being that much down for the rest of the year. So we do anticipate a recovery. But I mean the first 3 months already in use so much down, no matter how you do the math, if you anticipate kind of a more flattish environment going forward, that's why ended the minus 5%. So I do consider and I agree with you, March was probably an exceptionally low outlier, which we didn't expect. Will that be the same going forward? No, but it's not going to be an immediate recovery in consumer environment. Michael Rehaut: Right. And I guess Secondly, obviously, big price increases by yourself, and it looks like from Slide 9, the industry as well in the most recent couple of weeks. How are you thinking about second quarter EBIT margins for North America? And if your assumptions hold, what are you thinking about the trajectory for the back half as well? Marc Bitzer: So Michael, as you know, we're not giving specific Q2 margin guidance. But let me give you a little bit broader perspective on the pricing and what we're seeing and how it flows through our bottom line. So first of all, and I want to refer to a slide which we presented, this is the biggest price increase. I think we'll refer to decade, honestly, 3 decades in the company, I have not seen that level of price increase. Keep in mind, there's basic essentially 3 components of that price increase. One, a very significant promotional price map or PMAP increase of more than 10%. That's already out there, and you see that already reflected in the retailer pricing towards the consumer. . Two, we significantly reduced our participation in promotions. So for example, July 4, we're going 2 weeks as opposed to 3 weeks. And when participating in all house formation and promotions. And three, we have a list price increase also kicking in July on the vast majority of our products. So it's kind of a multi-tiered approach. I would say the first 2 weeks of what we've seen in consumer visible prices have been very encouraging. So you could use the term in the first 2 weeks, yes, the pricing is sticking. Needless to say, that is key to everything going forward on the EBIT margin. And if that holds, then we will be in a good place. Now keep in mind also, and this explains a little bit Q1, I mean you anticipate in Q2, that chart shows you consumer pricing. That is not exactly how it exactly immediately flows to our bottom line. What I'm referring to, for example, in Q1, you still pay the former promotional investment on Q4 because it's a delayed or trailing effect. So even more April price and consumer starts, you're still partially paying for the large promotions out there. So there's a little delay effect, which also will flow through Q2. But again, if the pricing holds, as we've seen in the 2 weeks, I think you will absolutely see the gradual recovery of our EBIT margin as we'll be kind of pretty much laid it out. Operator: Your next question comes from the line of David MacGregor from Longbow Research. David S. MacGregor: My first question was just on the guidance. And I guess a few parts to this, but can you explain why you're calling out the improving price environment at the same time taking down your full year price/mix guidance? And would you tell us how much of the price improvement you're including revised guidance. It looks like you've got kind of partial inclusion with the reduced PMAP, but maybe none of the July increase? And then how much are you specifically assuming for mix? And then I have a follow-up. Marc Bitzer: Yes. So David, first of all, the full year number, which you've seen on Page 27, keep in mind, we basically have 3 months of negative pricing. And you saw that in the earlier pricing margin walk. So you first have to overcompensate on a full year base of what you already lost in Q1. So put it differently, yes, on a full year basis, it looks like it's kind of 25 points down actually on the Q2 to Q4 point is significantly up. Did we factor in the full amount of a price increase? No, which also means the success of a stickiness of price will determine a lot, but we took, of course, there's a certain assumption, which we took into account here, but maybe not a full amount. But let's see how these things develop. The big uncertainty, and this is why we were still a little bit cautious, and you alluded to this one is mix. And let me explain that a little bit because that's probably on everybody's minds. I know some people will ask or may ask about what happens to price elasticity. Actually, in all previous years, we've not seen so much an impact on consumer price elasticity. For a simple reason, last time consumer board [indiscernible] of 10 years ago, by and large, the prices are very similar. So we don't see the big elasticity from a pure demand, particularly in replacement market. What you do see, however, that in particular in a distressed environment, that consumers enter the store with a budget in their mind. So what I mean is we have a budget like $600, and we're basically going to stick by that price point. So what you see as opposed to a product with used to cost $599 is now fixed for $599, but stick to a $599 price point. What it means is for us a mix down to [indiscernible]. So we saw in other circumstances, not necessarily impact on volume of demand, but you do management mix very careful. And that's what we -- but obviously, that's the kind of biggest uncertainty. That's why we didn't fully factor in what happens to mix, how much can we compensate? How can we mitigate? We have tools in place, in particular with our new products to manage the mix in the right direction. But that is really the consumer uncertainty about what happens to mix when you go out in an environment which from a consumer perspective is distressed. David S. MacGregor: Got it. Okay. Just as a follow-up, I guess this is maybe a higher-level question, but can you just update us on the path from where we are now to your 9% target for EBIT margins longer term? How does that 500 basis point bridge look in terms of price/mix, net cost, volume leverage, RMI, the framework you typically employ? Marc Bitzer: Yes. I mean, David, the first big step is actually what will have to happen in '26. I mean, as you can -- obviously -- and I know you're probably already did that. That guidance which we've given on 4% this year implies when basically you have an exit rate, which is very different from where we are today. And without getting into the details of quarter-by-quarter margin. And you're basically talking about an exit rate of, whatever, 6% plus for North America. That is the fundamental step on everything. So the question on your 9% starts with exit rate of Q4 this year. The pricing actions together with the cost actions will put us on the right trajectory. Olmocost actions and a lot of things which we talk today about, obviously, as you can imagine, have a lot of carryover benefits. . So all the manufacturing footprint, the vertical integration, the numbers for '26, as you could tell, are yes, they're okay, that gives some benefits, but the real benefits start '27 going forward. That's when you see a lot of these benefits. So we carry the exit rate into next year. We have additional cost actions. That puts us on a path towards the 9%. I'm not saying that's a '27 number, but it puts us on the right path. Operator: Your next question comes from the line of Sam Darkatsh from Raymond James. Sam Darkatsh: So the two questions. First off, around the RMI guide, I think you raised it by about $100 million versus prior. Does that contemplate current market prices for PVC and resin and base metals? Or does that contemplate some give back from current market prices in the second half of the year? And then I've got a follow-up. Marc Bitzer: Sam, the short answer, it does. Let me give you a little bit of context. So as you know, you know it very well. Our #1 purchase product is steel to Roxanne's point. We're kind of getting to a cap of our loan agreements. We were hoping maybe a little bit below the cap, but that's fully factored in, but it's not volatile going forward for us. On the resins, it does not reflect the current spot because the current spot and the way how we buy the steel be okay. But it anticipates that Q3 and Q4, we have some headwinds on our plastic components. It just ultimately results of what we're seeing on oil prices. There is another element which may be on a relative case, maybe a little bit more favorable for North America as opposed to Asia. I think there might be some supply constraints in plastics, in particular, for Asia, which ultimately will also drive prices on plastics. Sam Darkatsh: But they do -- the second half does contemplate like current market prices for resin and oil throughout the year, and then it just hits you in the back half, just clarifying that. Marc Bitzer: Yes, it implies an increase of plastic prices in Q3, Q4 versus where we are today. Sam Darkatsh: Got you. And then my follow-up, you cut out a lot of production, obviously, you get the inventories in better shape during the first quarter. The rest of the year, are you anticipating production and shipments to largely match? Or is there -- are there more production cuts to come? Marc Bitzer: Yes. So Sam, first of all, to clarify Q1, we already planned and we alluded to this one in January, but we want to bring down inventory to the right levels. Obviously, with industry being what it is, we had to cut even more production than we ever had in mind. That caused us in the quarter around $60 million. So it was massive. But the good news is right now in [indiscernible] And North America are what we call on a really good on a healthy, sustainable level. Now having said that, we are anticipating also on a full year base that the industry demand will not fully recover. So also going forward, we will produce less than we, for example, produced last year. But we know that now we can adjust accordingly. So there's not going to be a big onetime reduction in inventory, but it's just more we want to keep production in line with what we're seeing in the industry demand. Operator: Your next question comes from the line of Mike Dahl from RBC Capital Markets. Michael Dahl: I wanted to ask first about tariff dynamics of 2 parts. First is you didn't record a material tariff impact. And in first quarter and you're still lapping the tariffs from last year. So curious if there was any booking of refunds or anything other onetime in nature there? And then when you think about then the net tariff impact going up for the full year kind of despite that. Can you just help us parse out like what the -- like obviously, your competitors are more impacted by 232, but what your net puts and takes are around kind of the current guide? And what's contemplated and how much is specific to 232? Marc Bitzer: So Mike, so let me first talk about how it impacts us and then maybe broader 232 tariff and I'll read into this one. So first of all, as you know, we as a company, we pay 3 different types of tariffs. That's the 232 with 301 in the past was the IEEPA and now to some extent to 122. So it's always going to be a stack player of this one. In Q1, we had a number of favorable tariff mitigation actions. That's a combination of post-summary corrections. It's on tackling sales and tariff refunds on IEEPA piece, not only 301 or 232. So in Q1, there was actually a pretty neutral guy or put it differently, it pretty much helped offsetting the cost of inventory reductions. So it's a wash. . On a full year basis, we do anticipate, and that's now effective for 232 and also with 122 changes, but the tariff costs on a fully base go up 0.5 point. That's fully factored in. Now again, that's from today's environment, if something changes, when something will change, but that's pretty much we expect on a fully base. But keep in mind, in every given quarter, you may have ins and outs, that depends on shipment patterns, but it depends on what happens on the 3 different tariffs. But on -- at the current state, if the tariffs not stays able, I think 1.27% that's pretty much what you should expect. Now the broader comment I want to make on 232, Juan Carlos in his comments earlier already alluded to this one. I know we may feel to be outside, like this is a small change of 232. It is actually big in viremication thus for our industry. And let me just explain it once again. It's before it was fairly complicated. But the appliance first time were included in 232 last year in April. The way how it was set up with cleared steel value declared weight was very complicated. And I would say, left many doors on for maybe not a full declaration of real cost. What changed now is a flat rate of 25% against the full declared product value. That brings a lot of stability and clarity to the equation because the [indiscernible], which are very competent, they have a lot of history and understanding of full product declaration. So we built to kind of circle that are very limited. And 25% on every single imported appliance in the country is massive. Nobody can escape that. So -- and of course, with our domestic production footprint, that what I would call is finally the environment which allows the level playing field. Honestly, we've been waiting for this one essentially for a year. It's now as of April 6, finally in place. And I personally believe it will drive a lot of positive changes for us. Michael Dahl: That's helpful. My second question is more demand related and specific to North America MDA. The understanding March was kind of an acute weakness. What are the trends that you've seen kind of since March and April and midway through May, especially as you and others have tried to implement the price because I know you're saying that you're not assuming full recovery from a demand standpoint, but it still seems like to get to your full year revenue guide in trends in addition to price mix has to improve through the year. And it also seems to imply still some share gain while your own charts kind of show you trying to take at least at this point in time, more price than your peers. So I'm just hoping to get a better walk for kind of the more recent dynamics you've seen and how you're envisioning the balance of the year. Marc Bitzer: Yes. So Michael, obviously, Q1 was really rough from the industry demand and March, in particular, that March was just a fall off the cliff on demand. April slightly improved, but still a negative trajectory. And honestly, that's pretty much what we expect. It's -- as long as the consumer sentiment is that much down, I don't think you will see strong market demand patterns, but not to the level of obviously in March. March was just a shock to the system. So April is slightly improving. What we do see, again, the basic trends of this replacement market continues, what do we see is still mix being under pressure. Consumers are budget constrained. It doesn't impact necessarily volume of appliance sales sold, but it impacts the mix. That's what we've seen in Q1. That's what we're also seeing in April, and that relates back to my comments is we do go very aggressively on the overall pricing, but we've got to manage mix in the meantime. So that's a market trend, which I think you will see much Q2 and Q3, i.e., volumes being soft to slightly negative and mix being under pressure. Operator: Your next question comes from the line of Eric Bosshard from Cleveland Research. Eric Bosshard: Just a clarification of 2 things. One, the March and April, the demand -- this is an industry shipments, is that correct? Marc Bitzer: That is correct, Eric. Maybe to elaborate on this -- keep on going. Eric Bosshard: Yes. I was just going to ask. I was curious on sell-through. Is the sell-through at what you're seeing at retail down 10% in March in the summer level in April? Or is this just a shipment issue? Marc Bitzer: Yes. So Eric, you're pointing out a good point. So what I'm referring to is industry shipment into the trade. In Q1, and of course, we don't have industry inventory levels. We know our own product inventory levels with retailers. So I would say, estimate in the 7.4% down, probably about 0.5 point to 1 point of inventory reduction of trade included in there, but not more. But that's just an estimate from our side. I think I would say on our products because we don't have industry sellout data. Our products in Q1 actually held reasonably good ground. So I would say the last 13 weeks what we've seen is pretty much a flat to slightly down sellout, so a little bit better when we sell in. And that's what we continue to see. Again, with respect to we feel good about our product range. Our products are selling and what [indiscernible] showed earlier, the KitchenAid products, in that market is still growing at double-digit rates. So we know our new products are selling, but the sentiment is just weak overall. Eric Bosshard: Okay. And so the dramatic change, the impact from the war is on the sell-in and the sellout has not changed meaningfully. Is that your point? Marc Bitzer: Well, just I need to clarify on our products. But even in March for sell-out was maybe 1 or 2 weeks overall sellout, which were really down. our products right now overall, we sell out a little bit better when we see from a sell-in on a broader market, but we now need to see what's going forward. But I mean, again, March also sellout was not the strongest. Eric Bosshard: And then secondly, just to make sure I understand that you talked through the strategy with promotions and last weeks that you're going to participate. And all of that is than reflected in the industry down 5%. Is that -- and I know elasticity's not an industry that responds a lot to price and price is not that important as what I've heard you say. But in terms of your expectation on volume. That's all captured in this industry now down 5% versus 0. That's the expectation of these changes. Is that correct? Marc Bitzer: That is correct. And just again, it's in a market which is strongly replacement-driven, again, more than 60%, it just does not make sense to have promotions on July 4, which are 3 weeks on. You're not going to increase market demand. You pull forward at best but you're not going to change market demand. That's what our decision, but retailers make their own decision. Our decision is we will only support the July 4, 2 weeks and not 3 weeks. And we're also not going to promote in every -- or participate in every single house promotion. Again, retailers may make their own independent decisions. That's what I'm referring to is what we are supporting because in such a market, you will not increase demand by excessive promotions. Operator: Your next question comes from the line of Rafe Jadrosich from Bank of America. Unknown Analyst: This is [ Sean Calman ] on for Rafe. Just first one, you guys are raising price a little more than your competitors despite the higher tariff impact for them. Are you expecting them to have to catch up on the price increases? And then with that in mind, what are you guys expecting for share gains this year? Marc Bitzer: Yes. So Sean, first of all, I really want to be clear to the audience. We're raising price not just because of tariffs. We have 3 years of pent-up of inflation, which we have never reflected. The entire industry has not reflected that. Many people could argue that you have 20 years of inflation which have never been passed on consumer. So we're passing on 3 years of pent-up inflation, which, at one point, we just have to pass on to consumers in addition to tariffs. Now that mix of inflation and at may be different to competitors and they make their own decision. We know what we have to do because of our cost base. We will reflect the cost of our products in the consumer prices, and that's -- and your question about are we slightly higher on competitors. It's more -- yes, we also have a lot of new products, which serve a higher value. Unknown Analyst: Okay. That makes sense. And then on the 10% to 15% impact from 232 to competitors. How does that compare to what you guys thought the IEEPA impact was? Marc Bitzer: First of all, the IEEPA impact, I think there was a lot of uncertainty in terms of how much were we paid and how much flow through. For me, the more relevant point is, it's very stable. It's hard to circumvent and bypass. There is no country hopping, which will happen because of different rates. So normally, it's probably slightly higher, but in terms of real effect, I think you could call that tariff has gripped, and I think that's a very, very different landscape than what we've seen a year ago, very different. Operator: Your next question comes from the line of Susan Maklari from Goldman Sachs. Susan Maklari: My first question is on the strength that you actually saw in SDA, which seems to be quite contrary to what is going on with the me and your overall comments on demand. Can you talk about how much of that strength is driven by your product specifically in the investments in innovation versus the exposure that you have there of the price point? And how you're thinking about the sustainability of that given the environment? Ludovic Beaufils: Susan, this is Ludovic. Thanks for the question. So in terms of the overall industry, we have not observed as much of a compression in consumer demand in SDA as what we just discussed in MDA, be it in North America or in other regions. It's probably a couple of reasons for that. And actually, some of you alluded to it, we're looking at lower ticket items and so the consumer resilience is a little stronger. In that context, we're gaining share. And I think that's based on the fact that we're selling at a more premium prices where the consumer also has more resilience, number one. Number two, we're doing really well with our new products. So whether that's the carryover effect from launches last year in blenders, for example, or just now the effects that are starting to show up in terms of stand mixer innovation and compact espresso we're seeing just really strong numbers all around. So really pleased with how that's shaken out so far. We're going to continue to monitor the industry going forward. And -- but with the strategy we have and the launches we've done so far, we're pretty upbeat about the rest of the year. Susan Maklari: Okay. That's helpful. And turning to the dividend. Can you talk a bit more about the decision to spend that what needs to happen to perhaps start to bring that back in? And then just more broadly, your thoughts on the current capital structure post the offering. And I know you talked about that path to deleveraging. But can you just give us a bit more color on how you're thinking about the future of the capital structure and what that will mean for uses of cash? Marc Bitzer: So Susan, first of all, to clarify the dividend decisions are made by our Board. But as the CEO, yes, to suspend the dividend is a very, very painful decision. I mean just what it is. And certainly, it's not something which I want to keep for very many quarters in place. So we would like to resume a dividend as quickly as possible, but it's -- clearly, it's a board decision. What has to be true is, basically, we need to have a better ongoing operating margin, and we want to continue to pay down our debt. That's basically has to be true before we resume the dividend, but it's really a reflection of we want to pay down our debt this year. You saw earlier, $900 million, that's massive. . And at the same time, we want to continue to invest in our future in products, but we did not want to cut back our capital investments. That's why we took the difficult decision. It's the right decision with cap allocation and we will reassess as the operating margins will improve. But again, it's ultimately a Board decision. Roxanne Warner: Susan, to tap into your question related to overall what we would do with capital allocation post the equity offering. We do have, at this time, ample liquidity to operate the business in the uncertain environment. As you do know, we have the $3.5 billion unsecured revolver. At the end of Q1, we moved to a $2.25 billion unsecured revolver as part of our covenant amendment. With that revolver, we, as I said, have ample liquidity. But with that said, given the uncertain environment that Marc just touched on, we will continue to look at all opportunities to bolster our balance sheet, whether it be continuing to evaluate asset sales, as we mentioned in the last earnings call and then also continuing to look at financial alternatives like tapping in to the capital market as needed with our focus on ensuring that our net debt leverage continues to improve. Operator: Your final question comes from the line of Kyle Menges from Citi. Unknown Analyst: This is Randy on for Kyle. Yes, I was just hoping you could talk a little bit about what you're seeing in the promotional environment in Latin America. And I guess your expectations around how you'd expect pricing behavior to shape up in that market from here? Ludovic Beaufils: Yes. This is Ludo. So in terms of our -- the promotional environment in America, first of all, the general background is one of pretty significant growth in the market at this point. We're seeing growth in Brazil. We're also seeing growth in a large number of markets around that America. With that said, we're I would say with the outlook for the rest of the year, considering the political environment, a number of elections coming up, just general volatility in the region. I think the promotional environment has been particularly intense in Brazil lately with foreign competitors, in particular, and imports being pretty aggressive on the back of a strong real. So we're responding to this. We have product launches in -- particularly in the premium side of the market where we've got a nice lineup coming through that's being very successful right now and [indiscernible] in refrigeration and laundry, number one. And then number two, we have a lot of cost actions accelerating in order to provide competitiveness in this particular market, whether it's vertical integration, whether it's the Rio Claro production facility expansion to taking the front load volume that was previously built in our Argentina plant. So we're confident we're being the competitiveness that will enable us to be successful in a highly competitive environment. Operator: Ladies and gentlemen, that concludes -- please go ahead. Marc Bitzer: I think that pretty much concludes today's questions and the earnings call. So first of all, I appreciate everybody joining. I'm not going to repeat all the commentary we made, but you obviously saw we had a challenge in Q1, which was driven by a very, very rough environment in North America. But even more importantly, we took right bold and decisive actions. And we're talking about actions, which are not just transactions or hope we're already in place. And you see also the pricing chart, we start seeing the effect of this one. So yes, the Q1 was challenging, but the actions are in place, and we have 100% focus on reverting the current profitability trends in North America, and we have full confidence behind that. So thanks for joining me, and we will talk to you in July. Thanks. Operator: Ladies and gentlemen, that concludes today's conference call. You may now disconnect.
Operator: Good afternoon, and welcome to the Gevo, Inc. Quarter One 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, we will now open the call for questions. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Thank you. I would now like to turn the call over to Eric Frey. Please go ahead. Eric Frey: Good afternoon, everyone, and thank you for joining us on today’s call to discuss Gevo, Inc.’s first quarter and full year 2026 results. I am Eric Frey, Vice President of Finance and Strategy at Gevo, Inc. With me today, we have Paul D. Bloom, our Chief Executive Officer; Oluwagbemileke Agiri, our Chief Financial Officer; and Unknown Speaker, Executive Vice President of Operations and Engineering. Earlier today, we issued a press release that outlines our first quarter 2026 results and some of the topics we plan to discuss. Copies of the press release are available on our website at gevo.com. Please be advised that our remarks today, including answers to your questions, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those currently anticipated. Those statements include projections about the timing, development, engineering, financing, and construction of our alcohol-to-jet project; the potential expansion and debottlenecking of our Gevo, Inc. North Dakota plant; the potential expansion of our carbon sequestration well; our expected future adjusted EBITDA; our agreements with Ara Energy; and other activities described in our filings with the Securities and Exchange Commission, which are incorporated by reference. We disclaim any obligation to update these forward-looking statements. In addition, we may provide certain non-GAAP financial information on this call. The relevant definitions and GAAP reconciliations may be found in our earnings release which can be found on our website at gevo.com in the Investor Relations section. Following the prepared remarks, we will open the call for questions. I would like to remind everyone that this conference call is open to the media, and we are providing a simultaneous webcast to the public. A replay of this call and other past events will be available via the company’s Investor Relations page at gevo.com. I would now like to turn the call over to the CEO of Gevo, Inc., Paul D. Bloom. Paul? Paul D. Bloom: Thanks, Eric. Good afternoon, everyone, and thanks for joining us. This quarter was about advancing execution and strengthening the foundation for scale. Our team continued to build on the momentum of last year, strengthening our core business while advancing the next phase of our growth. We made measurable progress on our ATJ 30 project and our planned debottlenecking and expansion of Gevo, Inc. North Dakota. We continued to improve the performance of our existing business and refine our financing strategy. 2026 was our fourth consecutive quarter delivering positive non-GAAP adjusted EBITDA that reflected better than expected results with improved margins on top of solid production volumes. Our carbon business continued to deliver strong returns from low carbon ethanol compliance markets. In Q1, we sold approximately 57% of our carbon attributes attached to fuel. We also generated nearly 20 thousand tons of engineered carbon dioxide removal credits, or CDRs, to be sold into the voluntary carbon market and continue to see steady demand and relatively strong credit pricing for low carbon ethanol sales in markets where we participate. Our customers for CDRs continued to grow in Q1, including purchases and retirements by Amgen, Bank of Montreal, and PayPal, while continuing to advance more sizable long-term CDR deals. Importantly, we see continued growth this year even before our debottlenecking at Gevo, Inc. North Dakota comes into effect. Last year, we reported approximately $16 million adjusted EBITDA. For 2026, we expect approximately $30 million of adjusted EBITDA as we progress towards our previously stated target of achieving $40 million of adjusted EBITDA on an annualized run-rate basis from existing operations by the end of this year. The impact of our debottlenecking and other growth plans is incremental to this target. To further support our efforts, we have launched a corporate-wide initiative we are calling the EBITDA Challenge. This is about unlocking new revenue growth, improving operational performance, and managing costs across our organization. We look forward to providing more updates as we make progress on this critical initiative. Now let me turn to our alcohol-to-jet project that we call Project NorthStar, since I know that is top of mind. As previously announced, we made the decision to withdraw from the DOE financing process following a conversation with them around certain new requirements for the loan guarantee, including enhanced oil recovery as a business objective. These requirements did not align with our duty to maximize value for our stakeholders, from both an economic and timeline perspective. Withdrawing from the DOE process allows us to fully engage with a broader group of private capital providers while adding greater certainty and flexibility to our financing efforts. I am pleased to report that we have received nonbinding indications of interest from multiple lenders, which supports our goal of securing financing for Project NorthStar by the end of 2026. As a reminder, we are pursuing a combination of non-dilutive project-level debt and strategic capital options for Project NorthStar. Beyond financing, we are making good progress on our other key milestones that include engineering and offtake agreements. On engineering, we talk about front end loading, otherwise known as FEL, for which stage two has been completed. We remain on track to complete FEL 3 this quarter, which will further refine our capital cost estimates and position us to move forward to detailed engineering. Regarding offtake, we have already secured approximately half of the financeable long-term contracts for synthetic aviation fuel and carbon attributes for the project. Currently, we are at the term sheet stage for additional contracts which, upon completion, we expect will meet our financing requirements. We see a clear path to final investment decision, or FID, and based on our progress, continue to believe that Project NorthStar can deliver approximately $150 million of adjusted EBITDA per year once fully commissioned and online. Switching gears to our expansion projects, on March 30, we announced our intent to expand the capacity of Gevo, Inc. North Dakota by up to 75 million gallons per year, bringing our total capacity to an expected 150 million gallons per year. This expansion would effectively double the carbon capture and low carbon ethanol production and all the value that comes with that, from our original acquisition of the plant last year. To help finance the expansion, we entered into a preliminary agreement with Ara Energy, a global private equity and infrastructure firm focused on industrial decarbonization, to co-invest in the project. We still have to finalize the details, but we believe partnering with experienced capital providers will allow us to move faster than our balance sheet alone would support, while maintaining a disciplined approach to capital projects, avoiding dilution, and optimizing risk-adjusted returns. We expect construction of that expansion to take approximately 18 to 24 months following final investment decision. Lastly, let me touch on the debottlenecking and other site improvements that are currently in progress at Gevo, Inc. North Dakota. As previously announced, the volumes unlocked by our debottlenecking efforts should expand adjusted EBITDA in the Gevo, Inc. North Dakota segment by an anticipated 10% to 15%. We are on track to deliver the debottlenecking and operational reliability projects by the end of 2026. Site improvements are underway, and Unknown Speaker will talk more about that and our other operational and engineering highlights. But first, I will turn it over to Oluwagbemileke Agiri to run through the financial performance for the quarter. I will come back at the end to recap. Oluwagbemileke Agiri: Thanks, Paul. During Q1 2026, we reported revenue of $43 million compared to $29 million in Q1 last year, net loss attributable to Gevo, Inc. of $22 million, or $0.09 per share, which is coincidentally the same as it was in Q1 of last year. I would emphasize that first quarter results include debt extinguishment and modification of $11 million, and non-GAAP adjusted EBITDA of $9 million compared to a loss of $15 million in Q1 last year. Adjusted EBITDA largely reflects contributions from our carbon capture, low carbon ethanol and RNG operations, and corporate expenses. While our adjusted EBITDA for full year 2025 was $16 million, we continue to see adjusted EBITDA growth in 2026 and are excited to reaffirm our target of reaching an annualized run-rate adjusted EBITDA of $40 million this year. During the 12 months of 2026, we expect $30 million of adjusted EBITDA. Our first quarter results were better than expected due to strong production and margin performance, in spite of typical seasonal softness in ethanol margins. We are optimizing value from monetizing carbon, commodity, and tax credits, in addition to our strong focus on fiscal discipline and cost management. As Paul mentioned, we launched a corporate-wide initiative that we are calling the EBITDA Challenge. This is not just a cost-cutting exercise. This is about unlocking new revenue growth, improving operational performance, and managing costs across our organization. Going forward, we continue to expect some quarter-to-quarter variability in adjusted EBITDA, but overall, we reaffirm our targets. I also note that we see some potential upsides to our targets across a number of fronts, including unlocking revenue from expected new low carbon fuel pathway approvals we have been working on for over a year. Turning to cash flow and the balance sheet, we ended the quarter with approximately $39 million of cash and cash equivalents. We reported negative operating cash flow of $21 million. This reflects timing-related impacts, including $17 million of tax credits that have been generated but have not yet been monetized, and roughly $4 million of one-time costs tied to debt refinancing and extinguishment. Adjusting for these factors, operating cash flow would have been close to neutral, in line with our expectations and consistent with our path toward achieving our 2026 cash flow objectives. Refinancing our growth, we are taking a disciplined and methodical approach. Our priority is to ensure that any capital we raise aligns with our long-term strategy, preserves flexibility, and supports sustainable value creation for our shareholders. Regarding ATJ 30, we are actively evaluating indications of interest that we have received from private capital providers. This process is focused not only on securing funding, but partnering with capital providers who understand the strategic position of our project, share a commitment to our execution timeline, and help minimize dilution. On debottlenecking and other asset enhancement projects, we expect to spend $26 million this year that we plan to fund internally, as we have said previously. And as Paul mentioned, we expect to finance our expansion project with capital partners like Ara Energy. Overall, we believe our cash and cash flow put us in a strong place to execute this year and confidently pursue our long-term objectives. And now I will hand it over to Unknown Speaker to talk about operations. Unknown Speaker? Unknown Speaker: Thanks, Oluwagbemileke. From an operations standpoint, we saw consistent performance across our asset base in the first quarter. At Gevo, Inc. RNG, we produced about 92 thousand BTUs of renewable natural gas compared to about 80 thousand during the same quarter last year, or a 15% increase. Last quarter saw improved reliability as a result of our continued focus on operational stability. At Gevo, Inc. North Dakota, the plant delivered 18 million gallons of low carbon ethanol, plus 16 thousand tons of dry distillers grains, 51 thousand tons of modified distillers grains, and 5 million pounds of corn oil co-products. This was even better than expected as a result of our continued focus on operational excellence. The team remains focused on executing the debottlenecking and asset reliability projects that are expected to unlock incremental volumes and expand margins. During a planned shutdown in April, we succeeded in making the process tie-ins we need for these improvements. We believe we will not need any additional or unplanned outages to complete and commission the debottlenecking. That is great because we can start adding long-term production capacity without sacrificing our short-term volume this year. We are currently in construction of a new fermenter, liquefaction tank, beer degassing system, and a new milling building, which are all part of our plans to increase the plant capacity to around 75 million gallons per year of low carbon ethanol starting in 2027. For comparison, the current nameplate capacity is 67 million gallons per year, which we are already exceeding. We budgeted $26 million in capital expenditures this year for the debottlenecking and site improvements, funded by Gevo, Inc. North Dakota operating cash flows, as Oluwagbemileke mentioned, and we continue to expect about that level of capital spend. On our plant expansion from 75 to 150 million gallons a year, we are repurposing much of our work, design, and team from our previous ethanol project that was originally planned for South Dakota. We believe these efforts, while working with our existing network of partners, including Fluid Quip Technologies, will accelerate the expansion. Finally, on ATJ 30, we are on schedule to complete FEL 3, which will bring us to a plus or minus 10% estimate on the capital cost of the project, including the modularization work being done by Praj along with the Gevo, Inc. engineering team in India. Our U.S. engineering team and engineering partners are focused on completing the balance of plant design and integration of the entire project. In summary, we are focused on delivering operational excellence while also positioning our assets to support the next phase of growth. Now I will turn it back to Paul. Paul D. Bloom: Thanks. As you can see, we are in a much stronger position than we were a year ago. We have a solid operating base, a clear path to improving profitability, and multiple opportunities to scale our business in a meaningful and repeatable way. In addition, the conflict in the Middle East has highlighted, among other things, the relative inelasticity of jet fuel supply and demand, underscoring the critical importance of renewable alternatives like SAF. With the expected increase in global demand for jet fuel in the future, Gevo, Inc. has seen increased interest in our SAF and franchise strategy, both in our carbon management and our anticipated ability to supplement regional supply with our modular approach to deploying alcohol-to-jet capacity. Let me finish by saying our focus is clear. First, expand our cash-generating business. Second, secure a durable capital structure. Third, deliver our first commercial-scale SAF project. And lastly, build a repeatable platform for growth. With that, I will turn it back over to the operator to take your questions. Thank you. Operator: We will now open the call for questions. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Your first question comes from Amit Dayal from H.C. Wainwright. Please go ahead. Amit Dayal: Thank you. Good afternoon, everyone. Thank you for taking my questions. Good to see all the progress, Paul. On the debottlenecking front, should we assume that the impact from these efforts will reflect in the financials in 2027? Paul D. Bloom: Hi, Amit. Thanks for the question. Yes, that is the plan here because, like Unknown Speaker mentioned, we have already got the tie-ins done for the expansion. We are working on that construction today. That will be done at the end of the year, so that should immediately start in 2027 in Q1 to start delivering that extra 10% to 15% that we are talking about compared to where we end the year. Amit Dayal: Understood. Thank you for that. And with the efforts with Ara, does that require any capital commitment from you, or will that also be project finance? I am just trying to think through whether that puts any burden on the balance sheet or whether you have optionality to fund that through project financing and outside sources. Oluwagbemileke Agiri: Thanks for the question. High level, we are going to arrange project-level debt to complete the capital stack. So the combination of cash that we have on hand with capital from Ara Energy completes all the capital we need to complete that expansion project. Paul D. Bloom: Yes, we were really excited about that, Amit, to say we found what we think is a really good partner in Ara Energy. We are looking forward to getting that finalized so we can get started because the clock is ticking, and we want to get that done as soon as possible. Like we mentioned, we have a timeline of 18 to 24 months to get that completed, and that effectively doubles what we have at Gevo, Inc. North Dakota. That is a pretty exciting project for us, and we just cannot go fast enough. Amit Dayal: On that front, Paul, can we assume that if everything closes in a timely manner, work on the buildout starts this year in 2026 itself? Paul D. Bloom: Absolutely. We have already started to work on this project because, Amit, we had a lot of the team working on ethanol plant design back when we had the South Dakota greenfield plant. We have done a lot already, so we are repurposing the team. Unknown Speaker mentioned we are already working with Fluid Quip, for example. So we have already started. How do we get this done? What does that engineering look like on site? We started talking about that right after we got the acquisition done of the Red Trail assets, now Gevo, Inc. North Dakota. So this has been in the works and in the planning for some time, and we are ready to hit the ground running. Amit Dayal: That is good to hear. Just last question. Did not hear too much about Verity. Just wondering how that is progressing and if you are seeing traction with potential customers on that front? Paul D. Bloom: Sure. Thanks for the question on Verity. We love Verity. Verity has become part of our core franchise business for one because if you look at a bottle of Jet A and a bottle of SAF, they look the same because the molecules are essentially identical. The only difference is how we got there: what was the source of the feedstock, how we produced it, and the carbon intensity score, and customers want that proof. So as we build out our business, we will have Verity inside everything that we are doing, whether it is low carbon ethanol or on the SAF side. On Verity specifically, we have more customers. We had a couple of partnerships that we announced over the past few months. One was with Bushel, who basically services about 50% of the grain elevators in the United States and Canada. We think that is a really good way to take Verity and combine it with another software platform and get out to the market faster. We have also been working with a company called Cboe, and Cboe really helps with data acquisition, boots on the ground. We have signed up 8 customers so far. We are really excited about this. The one thing that we need to still see for Verity—because we designed this to take the benefits from the field to the fleet, or the field to the seat on the aircraft—is ag benefits, the 45Z ag benefits specifically included into 45Z. We have been waiting for that. We think we are getting closer, but we really need to see that, and I think that is a catalyst for Verity to really take off and grow in the marketplace because we have a tool that was designed to do that. Amit Dayal: Understood. Thank you, Paul. That is all I have. I will step back in the queue. Paul D. Bloom: Great. Thanks. Operator: Your next question comes from Jeffrey Grampp from Northland Capital Markets. Please go ahead. Jeffrey Grampp: Afternoon, guys. I am curious, with respect to the project finance opportunities for both the expansion project and ATJ, given that the timelines could potentially coincide a bit, are you evaluating perhaps a single source of capital for both projects? Does it make sense to have varying capital for different projects? Just curious how you are evaluating funding since it seems like there is perhaps some overlap. Oluwagbemileke Agiri: Thanks for the question. High level, we are evaluating all executable project financing plans, and some of the current project capital providers that we are talking to have expressed appetite in both projects. At the end of the day, we have a decision to make in terms of how we prioritize the capital providers that optimize our return for each of the various projects we have in front of us. We are really excited about the opportunities and the engagement that we have so far. Stay tuned. We will be sharing more definitively in terms of what those selection criteria are and the parties that we are going to be developing those projects with, especially ATJ 30, in due course. Paul D. Bloom: Thanks, Oluwagbemileke. Just to add on to that, Jeff, one of the things that we want to make sure of is we go as fast as we can on these projects. Making sure that we have the right options, whether they are together or independent, could change timelines on some things. Like we said, we are looking at all the options and are really excited and happy about the response that we have at this point. Jeffrey Grampp: For my follow-up, somewhat related to the financing but more specific to ATJ. It sounds like you have half the offtake in place and you are working on additional offtake. Is it safe to assume that is a prerequisite to closing anything on that side? And are there any other major obstacles or negotiating points outside of the offtake beyond just normal terms and conditions? Paul D. Bloom: The offtakes are the major gating item that we are still working through here, Jeff. We are focusing on delivering those bankable contracts that everybody is comfortable with on the financing side. We are pretty far along. We just need to finish up a few things that are at the term sheet stage. We will get that completed here, hopefully in the near future. I do not want to have everything under contract either for the ATJ 30 project. Project NorthStar we believe is going to be very accretive, and we want to make sure that we have some free to sell in the market so we can be opportunistic with those sales because who knows what those carbon values and jet fuel prices are going to be in the future. We will get enough to get where we need to be for the financing and go from there. Jeffrey Grampp: Understood. If I can sneak one more in related to that last point, what is that right mix? I understand there is not a single right number, but what kind of spot exposure makes sense for you? Oluwagbemileke Agiri: Ideally, you effectively do the math to understand what amount of contracted offtakes underpin the investments from our capital providers. It is a negotiation that we are going through. Typically, when you look at capital projects like ours, you see facilities under contracted offtakes somewhere between 70% to 80%. Maybe we will be in that mix. Maybe we can expose our volumes to more spot offtake volumes. That is yet to be determined. Did I address your question? Jeffrey Grampp: Yes, that is perfect. I will turn it back. Thank you, guys. Oluwagbemileke Agiri: Thanks. Operator: Before we proceed, again, if you would like to ask a question and join the queue, simply press star 1. Your next question comes from Derrick Whitfield from Texas Capital. Please go ahead. Derrick Whitfield: Good afternoon all, and congrats on the strong quarter. Paul, I am sure a lot of this was in process with your team before, but you have hit the ground running with this release. Paul D. Bloom: Thanks. We have been busy. It is a busy group. Derrick Whitfield: On the EBITDA Challenge, could you speak to the scale and scope of the program and what it could reasonably yield on the current platform before accounting for debottlenecking and expansion? Paul D. Bloom: Sure thing. We are pretty excited about this. It is focused on getting us to the run-rate of $40 million in adjusted EBITDA per year as soon as possible. We said we are going to do it, and the main thing is: how are we going to do it and measure it? We put process and an initiative in place for all Gevo, Inc. colleagues where we are capturing the metrics of what we are putting in place. It is part of an incentive plan that all employees have to drive EBITDA, not just to that $40 million but well beyond that. Think of this as phase one. It is getting us all to think about how we work, how we do our jobs the most efficient way, and deliver value—whether unlocking revenue, managing our costs, or coming up with better operational projects. We have a whole list already, and that list will continue to grow. I think it will go well beyond the $40 million that we set as a target by the end of the year. If you look at the investor presentation, after $40 million, we will have the debottlenecking. After debottlenecking, we are looking at the terminal for third-party CO2, and then we have the expansion with Ara Energy, and then monetizing that pore space fully. That gets to over $100 million in adjusted EBITDA that we are targeting. Again, think of it as a phased approach. We will continue this challenge. The challenge never ends; it will just go in phases as we work through it. Oluwagbemileke Agiri: One of the key points is we are targeting sustainable EBITDA growth. As we look at cost management, we also look at opportunities for investment to expand margins. Those are aspects that we hope to translate into recurring EBITDA growth and drive shareholder value. Paul D. Bloom: One other thing to reinforce: we have a number of fuel pathways today where we are selling low carbon fuel with the carbon attributes attached in compliance markets as part of our carbon business. Some of those recognize the value of carbon capture and sequestration, or the CCS value; some do not. We have made sure with our sustainability team that we have optionality to sell that value with or without the fuel, and we are getting more approvals. We expect additional approvals this year that should unlock substantial value. That is an example of a revenue unlock that could be quite substantial for us going forward. Derrick Whitfield: Along the same lines, are you seeing opportunities to further improve your ethanol netbacks? Ethanol is, globally, the cheapest octane in the world at present, and the global product markets are exceptionally tight. It seems like there are ways to make more economics just on the brown molecule as well. Paul D. Bloom: Absolutely. A couple of things are going on. We will see where the farm bill gets with E15, but that could increase ethanol demand by 5% just right there if we go to year-round E15. We have also seen other markets that are pulling for export, just extra demand. We see demand growth in Japan as they think about E10 and then moving on to E20. We look at marine markets where there has been a lot of talk and potential expansion. We are going to stay focused on the markets that we service really well because those are great markets for us, and we see new low carbon fuel markets open up. Hawaii just announced a low carbon fuel standard. We have New Mexico that is starting to take shape. The Canadian market is really strong today on their credit pricing and demand, and they are a large importer of U.S. ethanol. We are well positioned to take advantage of that growth. Unknown Speaker: I would add, as we look inside the fence and drive operational excellence, we are very focused on energy consumption—how we can be more energy efficient—and also how we can drive value in our co-product valorization. One project is how we can be even better with our corn oil recovery. Paul D. Bloom: That operational excellence piece is important. The Red Trail assets and the team there have done a phenomenal job over time. We are bringing our team and combining forces now as Gevo, Inc. North Dakota to drive operational excellence. These are not just small incremental amounts. These are step-change kinds of improvements we could see. Corn oil recovery is a big one. As we look at things like D4 RINs, we will see how that continues to drive values for things like distillers corn oil as the D4 RINs in the recently announced RVO have gone up. That is also good for potentially jet fuel in the future because we believe that RVO increase, with SAF anticipated to qualify for a D4, is all moving in the right direction. Derrick Whitfield: With respect to project financing plans, how much of the total project CapEx could you reasonably cover with project financing? And should we think about the cost of financing as, let us call it, 200 to 300 basis points wide of DOE funding? Is that the right way to think about it? Oluwagbemileke Agiri: We are targeting a leverage ratio of around 60% of the total project cost for ATJ 30. That is our target, and our engagement with private capital providers is on that basis. We think that tracks what the market will bear and what we are going to transact. On pricing, what you are triangulating is close to fair. The cost of debt that the DOE brought to us will erode a little bit as we engage with private capital providers. Some of those reasons you know: the subsidized capital and the guarantee structure that DOE had does not exist with other parties, and they have to charge closer to what the market rate is. The range you gave is close to where we might end up. Derrick Whitfield: Fantastic. Great update, guys. Thanks for your time. Operator: There are no further questions at this time. I would now like to turn the call back over to Paul D. Bloom for the closing remarks. Please go ahead. Paul D. Bloom: Thanks again, everybody, for joining us for this quarter’s update. We are really happy with the team’s performance. We are headed strong, and you will see continued focus on our EBITDA growth, which is one of the critical things for us. Stay tuned for more updates on our ATJ 30 financing—Project NorthStar—as we get that done by the end of this year. Again, great quarter. Really pleased with the progress that everybody is making, and thanks for joining us. Operator: Ladies and gentlemen, thank you all for joining. That concludes today’s conference call. All participants may now disconnect. Thank you.
Operator: Good afternoon, and welcome to The RMR Group Inc. Fiscal Second Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Bryan Maher, Senior Vice President. Please go ahead. Bryan Maher: Good afternoon, and thank you for joining The RMR Group Inc.’s fiscal second quarter 2026 conference call. With me on today's call are President and CEO, Adam Portnoy; Chief Operating Officer, Matthew Paul Jordan; and Chief Financial Officer, Matthew Brown. In just a moment, we will provide details about our business and quarterly results, followed by a question-and-answer session. I would also like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on The RMR Group Inc.’s beliefs and expectations as of today, 05/07/2026, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to forward-looking statements made in today's conference call. Additional information concerning factors that could cause differences is contained in our filings with the SEC, which can be found on our website at rmrgroup.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, we may discuss non-GAAP numbers during this call including adjusted net income per share, distributable earnings, and adjusted EBITDA. A reconciliation of net income determined in accordance with U.S. Generally Accepted Accounting Principles to these non-GAAP figures can be found in our financial results. I will now turn the call over to Adam. Adam Portnoy: Thanks, Bryan, and thank you all for joining us this afternoon. Yesterday, we reported second quarter results reflecting distributable earnings and adjusted EBITDA at the high end of our expectations, despite operating in what remains an unsettled economic environment. Our second quarter results were highlighted by distributable earnings of $0.44 per share and adjusted EBITDA of $18.5 million. Although we continue to navigate market volatility and geopolitical uncertainty, The RMR Group Inc. has been very active this year executing on our clients’ strategic initiatives. The markets continue to recognize our efforts as both DHC and ILPT remain among the best performing REITs in 2026 from a total shareholder return standpoint, extending the significant outperformance they each achieved in 2025. As a result, The RMR Group Inc. earned incentive fees for 2025 of $23.6 million, and we are on track to earn incentive fees again this year, as both DHC and ILPT accrued incentive fees this quarter. I would now like to go over some recent highlights at our managed REITs. Before turning the call over to Matthew Paul Jordan to provide an update on our private capital initiatives, at DHC, following the successful transition of 116 senior living communities to new operators in 2025, it has continued to focus on improving SHOP operating performance while also strengthening its balance sheet. In the first quarter, DHC generated normalized FFO of $33 million, or $0.14 per share, and adjusted EBITDA of $74 million, both exceeding analyst consensus estimates. SHOP performance showed positive momentum with year-over-year same-property NOI growth of 13.5% and occupancy increasing by 110 basis points. In March, DHC completed the sale of 13 unencumbered non-core communities for gross proceeds of approximately $23 million. Following an active 2025 in which DHC completed approximately $605 million of asset sales, we expect asset sales to decelerate in 2026 with management focused on improving NOI across the retained portfolio. Lastly, in April, Moody's upgraded DHC's debt ratings and revised its outlook to positive from stable, underscoring the company's improving operating performance and balance sheet. At SVC, we recently made significant progress improving its balance sheet and covenant ratios. The RMR Group Inc. was instrumental in helping SVC complete a $575 million equity offering, which accelerated its deleveraging strategy, eliminated near-term refinancing risk, and provided SVC additional flexibility to optimize its hotel performance and execute further asset sales. With the net proceeds, SVC eliminated all of its unsecured debt maturities until 2028. As it relates to SVC's equity offering, I would highlight that The RMR Group Inc. participated with a $50 million anchor investment, further aligning our interests with shareholders and demonstrating our confidence in SVC's business plan. Following several years of strategic capital investments to reposition the retained hotel portfolio, SVC is now transitioning toward an earnings recovery phase supported by new hotel leadership at Sonesta that is focused on improving operating performance. ILPT continues to deliver strong results with first quarter normalized FFO of $0.33 per share and adjusted EBITDA of $87 million, both exceeding the high end of management's guidance. ILPT also executed approximately 862 thousand square feet of leasing during the quarter at rental rates 26% higher than prior rents. Additionally, The RMR Group Inc. recently assisted ILPT with the refinancing of $1.6 billion of new debt for its consolidated Mountain joint venture, which replaces floating-rate and amortizing debt with interest-only fixed-rate debt at an attractive 5.7% interest rate while also extending ILPT's debt maturity profile. Seven Hills, our mortgage REIT, has been actively deploying capital from its December rights offering. During the quarter, Seven Hills originated three loans totaling $67.5 million and generated distributable earnings of $0.24 per share. Total loan commitments increased to approximately $776 million in the first quarter, achieving a record high for the portfolio. Originations thus far in 2026 are at the highest net interest margins achieved over the past four years, which reflects the benefits of our focus on middle market lending where there tends to be less competition for high-quality loans. Lastly, OPI recently received court approval for its plan of reorganization, and we expect it to emerge from bankruptcy by the end of the second quarter and for its shares to be publicly traded. We also expect The RMR Group Inc.’s contract with OPI to be consistent with our previously disclosed terms. More specifically, The RMR Group Inc. will continue managing OPI for a five-year term, with The RMR Group Inc. receiving a flat business management fee during the first two years of $14 million per year, and our property management agreement economics will remain unchanged. To conclude, we are pleased with the progress The RMR Group Inc. has made assisting our clients with their financial and strategic objectives. While there remains more work to do, we are encouraged that the markets recognize the significant improvements at both DHC and ILPT. It is important to remember that our publicly traded perpetual capital clients provide The RMR Group Inc. with stable cash flows, which we are using to pursue new growth initiatives in the private capital space. The private capital segment of our business has grown from essentially zero AUM in 2020 to nearly $12 billion today, and we anticipate this segment will be a key driver of our future revenue and earnings growth. With that, I will now turn the call over to Matthew Paul Jordan to provide added insights on our platform and private capital growth initiatives. Matthew Paul Jordan: Thanks, Adam. As it relates to our private capital initiatives, with a global in-house sales team firmly in place, we are spending the necessary time building The RMR Group Inc. brand awareness. As an example, I recently had the privilege of joining Peter Welch, who leads our international fundraising efforts in Southeast Asia, meeting with potential partners and participating in events where The RMR Group Inc. stood side by side with larger, more well-established international brands. In aggregate, our international outreach has resulted in our leaders meeting with almost 100 global investors representing almost $7 trillion in AUM. With that said, the ongoing conflict in the Middle East has disrupted fundraising. This disruption has played out in the global fundraising data, as fundraising in 2026 dropped 50% from the same time last year. The positive news for The RMR Group Inc. is that North American real estate still garnered 65% of all dollars raised and value-add strategies represented 56% of all fundraising. Within our residential business, which today represents over $4.7 billion in value-add residential real estate across 18.5 thousand owned and managed units, in April we closed on the acquisition of a multifamily portfolio in Greenwich, Connecticut for almost $350 million. The transaction was sourced off market and marks our entry into one of the most supply constrained and affluent housing markets in the country. The RMR Group Inc. Residential will assume property management and will execute a multiyear strategy focused on modernizing the communities, enhancing the resident experience, and unlocking embedded efficiencies. The acquisition is part of a joint venture where The RMR Group Inc. is a co-general partner and, in that capacity, made a $6 million investment for a 5% ownership interest. The remaining equity of approximately $120 million was raised from two institutional partners. The RMR Group Inc. will recognize revenues from this transaction of $600 thousand in our third fiscal quarter and, as general partner, we will earn ongoing operating fees of approximately $750 thousand annually. Longer term, the venture is expected to generate annual cash-on-cash returns of approximately 7.5%, and we expect to receive carried interest from the venture as certain investment hurdles are met. Finally, the venture will not be consolidated given our ownership is limited to 5%, and a portion of our GP interest may become part of The RMR Group Inc. Enhanced Growth Venture. As it relates to the Enhanced Growth Venture, which was launched last fall with the goal of raising approximately $250 million of third-party equity, there remains significant interest in both U.S. value-add multifamily real estate and our seeded portfolio of assets. This interest has resulted in ongoing diligence with a number of potential investors, with the hope that we can provide a more meaningful update on our next earnings call. As it relates to the operating performance within our residential business, we, along with our joint venture partners, remain pleased as occupancy approaches 94%, with resident retention currently over 70% and retained residents absorbing rental rate increases of over 3%. Operating performance at these levels will continue to help with the fundraising in the highly competitive residential space. I would like to also highlight a new disclosure we have made in our investor presentation that emphasizes the discount our shares trade at when looking at our business from a sum-of-the-parts perspective. As we illustrate, if one were to back out the cash and investments held by The RMR Group Inc., our shares are currently trading at only five times the EBITDA generated from the durable cash flows associated with our 20-year evergreen management contracts from our perpetual capital vehicles. This is materially below EBITDA multiples at which our peers trade. We are hopeful this new slide illustrates the significant upside embedded in our shares. In closing, it remains an active time for our organization as we continue to invest in our people, technology, and brand awareness. We are leveraging these investments to reinvent our operating structure, materially increase productivity, and ultimately drive down operating costs to deliver meaningful EBITDA growth. With that, I will now turn the call over to Matthew Brown. Matthew Brown: Thanks, Matt, and good afternoon, everyone. For our fiscal second quarter, we reported adjusted EBITDA of $18.5 million and distributable earnings of $0.44 per share, which exceeded or were at the high end of our guidance. I would also like to note that we reported adjusted net income of $0.11 per share, which fell $0.01 short of our guidance. Going forward, we will no longer provide guidance on adjusted net income, as our investments in leveraged real estate have significantly reduced the usefulness of this metric as we incur depreciation and interest expense on these investments. Recurring service revenues were $42 million, a sequential quarter decrease of approximately $1 million driven primarily by hotel sales, a decrease in the enterprise value of SVC and DHC as they strategically paid off debt, and the wind-down of Alaris Life's business. Next quarter, we expect recurring service revenues to increase to approximately $44 million, driven by approximately $100 thousand of revenue from the multifamily portfolio acquisition in Greenwich, Connecticut that Matt discussed, increased construction management fees, and enterprise value improvements at certain of our managed REITs. Turning to expenses, recurring cash compensation was $37.7 million, a modest sequential quarter increase driven by calendar 2026 payroll tax and benefit resets. Looking ahead to next quarter, we expect recurring cash compensation to remain consistent with the second quarter. Recurring G&A this quarter was $10.1 million after excluding $600 thousand in annual director share grants, which is a slight sequential quarter decrease driven by a reduction in normal course legal and professional fees. We expect recurring G&A to remain at these levels for the remainder of the fiscal year. It is also worth noting that this quarter's income tax rate was elevated at 22% driven by the impact of certain fair value adjustments that we recognized during the quarter, mainly our investment in Seven Hills, that are subject to different statutory rates than our income. For modeling purposes, we may continue to see fluctuations in our income tax rate each quarter as these adjustments impact the timing of tax expense recognition. However, these fluctuations are not expected to materially impact our full-year estimated tax rate of 17% to 18%. Aggregating the collective assumptions I have outlined, next quarter we expect adjusted EBITDA to be approximately $19 million to $21 million and distributable earnings to be between $0.48 and $0.50 per share. As Adam and Matt highlighted earlier, subsequent to quarter end we participated in SVC's equity offering by acquiring nearly 42 million shares for $50 million and acquired a $6 million co-GP equity interest in the Greenwich, Connecticut multifamily joint venture. Our investment in SVC will result in approximately $420 thousand incremental quarterly dividends. Accounting for these transactions, our current liquidity is approximately $133 million, including $75 million of capacity on our revolving credit facility. We continue to be well capitalized with a strong dividend and look forward to executing on our strategic objectives and taking advantage of opportunistic investments as they arise. That concludes our prepared remarks. Operator, please open the line for questions. Operator: Thank you. We will now open the call for questions. We will begin the question-and-answer session. Today's first question comes from Mitchell Bradley Germain at Citizens Bank. Please go ahead. Mitchell Bradley Germain: Thank you for taking my question. Adam, there is a whole bunch of multifamily assets that are owned in different syndications. I am curious, is the expectation of one transaction if you can lock in a larger fund? Is the expectation that this all kind of cleans up with that, or is there the potential for some of these to just continue to remain as one-off investments? Adam Portnoy: Hi, Mitch. Thank you for that question. It is a good question. I think you have to keep in mind part of the way you answer that question is how we put together the portfolio that is our multifamily portfolio. It is the only asset class that we manage that is 100% private. We do not have a public vehicle around multifamily. That portfolio was originally, well, mostly constructed as part of the acquisition of our residential platform about a little over two years ago. Most of those investments are in joint ventures, one-off joint ventures per investment. A few of them are small portfolios. That is how that whole business has been structured, similar to the way we bought it. I expect that we will continue to have many of those joint ventures be the form of the investments we make, especially over the short term. But I think what you are seeing in terms of the Enhanced Growth fund that Matthew Paul Jordan talked about and we have talked about on many calls is we are starting to try to put together a portfolio among the approximately $4.7 billion, which is mostly joint ventures, into, let us say, a fund that we can raise money around. So we are trying to do both. I do not think you will see a transaction that will suddenly, let us say, roll up all $4.7 billion into a new public vehicle— I am not sure if that was your question, but that is not where we are going with that. It is likely to all stay private, likely to continue to be joint ventures, one-offs, small portfolio joint ventures, and our hope is that we can start to build a more dedicated fund around that strategy as well. Mitchell Bradley Germain: Taking that a little bit further, I think the last couple of quarters you seemed a little bit more positive on a potential venture in, I guess we will call it commercial mortgage, as well as, I think, you have mentioned development. Are those two products just a little bit behind multifamily right now with regards to your priorities? Adam Portnoy: They are all top priorities. I will tell you, we are continuing to talk to investors and partners about development projects. I think in the current market environment, the returns required for development projects are pretty high. Development is always difficult when you have a lot of uncertainty, and it is hard to predict the next quarter, let alone 18 months from now, which is typically what you have to sign off on for development projects. So we are continuing to work on those. I expect we will, in the course of the year or so, have some joint venture development projects underway. It is just that today, in the multifamily space, with the portfolio that we have assembled, we are generating the highest amount of interest around that. One comment on the credit that you mentioned, Mitch. We are also very active in talking to investors around credit as well. I would not say it is less of a priority, but we have a lot of money to put out in our Seven Hills mortgage REIT right now, and I think the number is close to $500 million of capacity over the next year of new investments that we are going to be able to make between new money coming into that vehicle and expected loan payoffs. So we have a pretty good pipeline and capacity with our existing vehicles there. We are still talking to investors around credit. There has been a general pullback around credit, given what is going on in the marketplace around some other funds that are in the credit space, especially retail-oriented funds, and so there has been some hesitancy among investors to take those conversations further at the moment. But that is okay from our perspective because we can do a lot of work there anyway. We can put a lot of AUM to work otherwise. Mitchell Bradley Germain: Gotcha. Last one for me. I think at one point you might have had close to $300 million of cash on hand. I think that, obviously, that balance has come down a bit as you are buying some of these assets and warehousing them on balance sheet in anticipation of some of your fundraising. Where are you with regards to how much cash you want to keep on hand for some sort of rainy day? Are we getting close to an amount where you are starting to become a little bit more conservative with allocating capital, or are you still all systems go if the right opportunities are presented? Adam Portnoy: More the “all systems go” if the right opportunities present themselves. We have over $100 million of liquidity between cash on hand and undrawn capacity on our revolver. We are also fairly optimistic that we will be getting some cash back, especially as we are hopefully successful in syndicating the Enhanced Growth value-add fund that we have built up around the multifamily strategy. We have just under $100 million of capital committed to that venture, and if we are successful in syndicating that and getting that fund launched— and we are optimistic that we will get it done— a lot of cash will also be coming back to us, we think. Thank you. Operator: Thank you. Our next question today comes from Christopher Nolan at Ladenburg Thalmann. Please go ahead. Christopher Nolan: Hi, guys. Adam, is Seven Hills participating in the Greenwich project, providing debt financing? Adam Portnoy: Hi, Chris. No. Seven Hills is not providing any sort of financing with the multifamily acquisition in Greenwich. No. Christopher Nolan: And then, I guess, Matthew Brown, did you say adjusted EBITDA in the next quarter will be $19 million to $21 million, or did I mishear you? Matthew Brown: Adjusted EBITDA in the fiscal third quarter is expected to be $19 million to $21 million. Christopher Nolan: Great. I guess as a follow-up in general, Adam, how would you characterize the market for raising equity for commercial real estate as opposed to raising debt for commercial real estate? Adam Portnoy: It is a great question. First, I am going to let Matthew Paul Jordan answer that question. Go ahead, Matt. Matthew Paul Jordan: Well, in terms of the debt, there is a lot of debt available to lend against real estate. We have no lack of interest— just having done this on the Greenwich asset. Adam touched on fundraising around credit, which is very challenging right now for a number of reasons, including a lot of supply in the market in terms of organizations like ours going out with credit vehicles. Fundraising for equity is a very challenging effort right now. The volatility in the Middle East has taken a large number of folks that were putting a lot of money out and put them on the sidelines. Volatility is not a good thing for those that are fiduciaries of deploying capital. The money and the allocations to real estate will be there in the long term, but right now a lot of the conversations we have had are continuing but have slowed significantly. And to Adam's point on the Enhanced Growth venture, I just think it is elongating the fundraising cycle for what we are doing. But there continue to be significant allocations— as we highlighted, we have met with a significant number of global LPs. The RMR Group Inc. itself is still a new brand, so we are spending a lot of time getting our name out there. People are amazed at the capabilities we bring and the breadth of our organization. But things are just going to take longer until the Middle East settles down. Christopher Nolan: Okay. And then I guess as a final question, you are seeing with some private equity shops that they are setting up distressed commercial real estate funds. Is that a potential strategy that you would consider? In my view, that tends to be preparing for some sort of, you know, down cycle. Adam Portnoy: Chris, it is not something we are actively pursuing at the moment in terms of setting up a distressed real estate fund. We have limited pockets within The RMR Group Inc., in the different funds that we manage and groups, that if a really attractive distressed opportunity presented itself to us, we could seriously consider executing on it. But we are not building out a strategy around that today. Christopher Nolan: Okay. Thank you. Operator: Thank you. And our next question today comes from John James Massocca at B. Riley. Please go ahead. John James Massocca: Maybe sticking with the big-picture fundraising theme, you have seen some pullback in some other types of credit funds, private lending being the most notable. Are you seeing any indications of that capital potentially being reallocated to things that are a little more tangible like real estate, or is that just an unrelated phenomenon in your mind? Matthew Paul Jordan: Yeah. I do not think they are related. It is interesting— when you meet with LPs, lending may not even sit in the real estate bucket. It may be in fixed income and other pockets within these large organizations. So we have not yet experienced where credit allocations have been redeployed in a way that has benefited us on the equity side. John James Massocca: Okay. And maybe switching gears a little bit, going back to a little bit of Mitch's last question, what is the appetite today for more wholly owned assets, or at least consolidated assets on balance sheet, to help create the base for funding either the multifamily-focused fund or even maybe a retail fund going forward? Just kind of curious if you think you are at a good point in terms of the wholly owned assets you have today, or if there is more capacity to continue to add to that? Adam Portnoy: Yeah. I think there is a little more capacity to add to it. I do not think we will be adding— until we are successful syndicating the Enhanced Growth venture— wholly owned multifamily assets on the balance sheet. But you mentioned retail. Retail is an area that we could maybe add a couple more assets to the balance sheet if it was the right type of asset. So that is an area that you could see us do some more asset-level acquisitions on The RMR Group Inc. balance sheet to help get that retail strategy further along. John James Massocca: Okay. And then thinking about the quarterly financials, you predicted a little bit— construction supervision revenues were down pretty big, certainly quarter over quarter, but even year over year. How much of that is just the new normal, how much is maybe one-off, and how much is seasonality? Any color on how you would expect that to trend over the remainder of the year? Matthew Brown: Yes. When you look at our construction management fee revenue sequentially, it is really just driven by the start of the year generally being a little bit slower for us as budgets are reset. As we look year over year, at some of our managed public vehicles we had some pretty extensive capital improvement projects going on— mainly within DHC and SVC— that have largely wound down. Those REITs are now forecasting less capital spend in 2026 than they were. We do expect a little bit of a ramp next quarter as we progress throughout the year. John James Massocca: But maybe the year-over-year decline as you think about comparing it to the comparable quarter in 2025 is kind of a good way to think about it going forward? Matthew Brown: Yeah, I think that is a good run rate. Operator: Thank you. And that does conclude our question-and-answer session. I would like to turn the conference back over to President and CEO, Adam Portnoy, for any closing remarks. Adam Portnoy: Thank you all for joining our call today. We look forward to seeing many of you at our upcoming industry conferences, including NAREIT in June, and we encourage institutional investors to contact The RMR Group Inc. Investor Relations if you would like to schedule a meeting with management. Operator, that concludes our call. Operator: Yes, sir. Thank you very much, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Operator: Greetings. Welcome to Shake Shack's First Quarter 2026 Earnings Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Alison Sternberg, Head of Investor Relations. Thank you. You may begin. Alison Sternberg: Thank you, operator, and good morning, everyone. Joining me for Shake Shack's conference call is our CEO, Rob Lynch. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release and the financial details section of our shareholder letter. Some of today's statements may be forward-looking, and actual results may differ materially due to a number of risks and uncertainties, including those discussed in our annual report on Form 10-K filed on February 26, 2026, and our other SEC filings. Any forward-looking statements represent our views only as of today, and we assume no obligation to update any forward-looking statements if our views change. By now, you should have access to our first quarter 2026 shareholder letter, which can be found at investor.shakeshack.com in the Quarterly Results section and as an exhibit to our 8-K for the quarter. I will now turn the call over to Rob. Robert Lynch: Thanks, Alison, and good morning, everyone. I want to start by thanking our incredible team members across the globe who continue to bring enlightened hospitality to life every single day. Your dedication to serving our guests with care and kindness is what makes Shake Shack special. I'm grateful for everything that you do. Turning to our results. I'm pleased to report that our first quarter performance showcases continued sales momentum in our company-operated Shacks and meaningful progress against our 6 strategic priorities for 2026, which are building a culture of leaders, optimizing restaurant and supply chain operations, driving comp sales behind culinary marketing and digital innovation, building and operating our Shacks with best-in-class returns, accelerating our license business and investing in long-term strategic capabilities. For the first quarter, we grew total revenue by more than 14% -- much of this growth came from same-Shack sales growth of 4.6%, including a 1.4% traffic growth. These strong sales and continued traffic growth were achieved despite significant weather impacts that contributed 240 basis points of negative comp in the quarter, negatively impacting our EBITDA for the quarter. Despite these headwinds, our sales and traffic momentum continued, and we have now delivered 3 straight quarters of traffic growth. At the core of our sales performance is, first and foremost, strong restaurant operations that deliver guest satisfaction. Secondly, is culinary innovation that differentiates our brand. And lastly, our investments in targeted digital media to create awareness of our guest value proposition. In Q1, we increased investments in delivering guest satisfaction, driving comp and opening new Shacks. And despite elevated beef costs that continue to persist, we were able to expand our restaurant-level profit margin by 50 basis points year-over-year to 21.2%. We continue to show our ability to grow both top line sales and operating margin, primarily through ongoing traffic driving programs and operational and supply chain productivity. We also delivered our largest first quarter of new units ever with 17 new Shacks. We continue to successfully bring Shake Shack to new and underpenetrated markets, many outside of our historical footprint. Given our strong current cash-on-cash returns and expected future returns, we will continue to accelerate our company-operated development efforts. Consistent with this strategy, we are now guiding to 60 to 65 new company-operated Shacks for 2026, an increase from our prior guidance of 55 to 60 Shacks. I would call out that opening this higher number of new Shacks in Q1 did increase our total preopening costs, which weighed on our adjusted EBITDA for the quarter. Throughout the quarter, we made strategic investments to support our sales driving initiatives and new unit openings, both of which support our multiyear growth plans. These investments allow us to bring Shake Shack to more communities and create awareness of what makes our food and hospitality so special. These investments continue to enhance our strong value proposition and drive traffic in this value-oriented environment. As we work to continue to enhance our value equation in a very competitive marketplace, we're focused on making the right investments in our food, our assets, our team members and our traffic-driving strategy. As a result of the weather headwinds that we experienced and our investments in additional new store openings, our first quarter adjusted EBITDA did not meet our short-term quarterly expectations. That being said, we are confident that the foundation that we are building today positions us for long-term growth, and we remain confident in our long-term strategic plan. Still, given the volatility in the global and domestic marketplace, we are broadening our 2026 adjusted EBITDA guidance to a range of $230 million to $245 million. Despite that volatility, I am excited to share that our sales momentum is building in Q2 and that we are reiterating our 2026 guidance for Shake-Shack sales, restaurant level margins and our long-term financial targets. After making the strategic decision to focus our traffic-driving investments in May and June, we're excited to see very strong performance to start May behind the launch of our Baby Back Ribs Sandwich and anticipate strong sales growth in June as we expect to leverage the incremental traffic in some of our largest markets driven by the World Cup. And despite a slower start in April, driven in part by the shift in spring break timing associated with the Easter holiday, we're confident in our guidance for Q2 at 3% to 5% comp growth. Over the last 2 years, we have built a best-in-class executive team. A performance-driven restaurant operating model, a sales engine that can consistently drive transaction growth, a supply chain that is increasing productivity and a domestic development capability that is profitably accelerating the growth of our restaurant count on our way to 1,500 company-operated Shacks. Shake Shack is well positioned for the balance of 2026 and beyond. Now I will discuss our progress against our strategic priorities. At Shake Shack, our performance is directly correlated to the quality of our team members. I've invested a significant amount of my time over my first 2 years cultivating an executive team that is uniquely positioned to achieve our ambitious aspirations. Today, I'm excited to announce the newest member of our executive team. Michelle Hook will be joining Shake Shack as our new CFO next week. When we set out on this search, I thought that it would be very difficult to find a new CFO that met every criterion that was important to us. I'm ecstatic that we found a candidate that does. Michelle comes to Shake Shack with over 25 years of public company restaurant experience, including the last 5.5 years where she has served as the CFO of Portillo's. Michelle's experience leading FP&A, accounting, treasury and IR, coupled with her long track record of leading teams with a commitment to building a strong culture will allow her to hit the ground running and make an immediate positive impact on our organization. I look forward to introducing her to our investment community over the coming weeks. As we look to the balance of 2026, our focus will be on delivering significant value to our guests, leveraging both the numerator and the denominator of the value equation to accomplish this objective. We will employ a balanced approach leveraging premium core ingredients, culinary forward LTOs and a focus on guest satisfaction through enlightened hospitality to drive the numerator of the value equation. For the denominator, we will continue to focus on decreasing our reliance on base pricing and employ strategic focused price pointed offerings like our 135 platform to profitably grow our transactions in a value-oriented macro environment. We continue to make strategic investments in marketing to drive traffic and frequency. These investments have been primarily focused on creating a foundation for long-term revenue growth as opposed to short-term traffic burst. We are accomplishing this by motivating new guests to enter into our app and digital channels. We have also seen a frequency increase amongst our current guests in these channels. This increase in the population of our digital community will support the launch of our loyalty program towards the end of this year, and the results of these investments have exceeded our expectations. We have grown both our digital channel guest count and app downloads by over 35% year-over-year. Even more importantly, the lifetime value of our digital channel guests has grown by approximately 20%, driven by an increase in frequency from this highly engaged group. These guests visit us more often and spend more on an annual basis. With these strategic platforms, we are offering an improved value equation across all household incomes, which we believe will result in a broader guest base, sustained loyalty and greater lifetime value. These are long-term benefits from our current investments. On the brand building front, our We Really Cook campaign is resonating. We are seeing significant quarter-over-quarter increases in guest engagement on key media platforms as we refine our targeting and creative execution. This campaign reinforces what sets us apart, our commitment to fresh premium ingredients, cook-to-order and true culinary craftsmanship. Our culinary team continues to deliver bold flavor forward innovation. Adding to our successful return of the Korean-inspired menu launch in January, we introduced our Clubhouse Pimento Cheeseburger and Pimento Chicken Sandwich in March, which was inspired by a Southern Classic and reimagined with a Shake Shack Twist. These items performed strong nationwide and contributed to our sales growth in Q1. In late April, we announced the return of our Smoky Barbecue menu platform, anchored by a first-of-its-kind barbecue boneless Baby Back rib sandwich, along with a new Mac & Cheese side. This premium protein innovation is indicative of our ability to successfully deliver more than just the best burgers in the business. The BBQ Rib Sandwich is made with 100% baby Back pork ribs that are hand deboned, slow cooked for 9 hours and marinated in a proprietary barbecue spice blend with apple cider vinegar. It's a perfect example of our ability to develop and execute innovative Shake Shack-only recipes at scale without disrupting our operations. I'm happy to report that both the Baby Back Rib Sandwich and the Mac & Cheese have significantly exceeded our expectations and are driving outpaced traffic and ticket growth in May. We're also expanding into new beverage occasions intended to increase relevancy in all dayparts. Our new sparkling cucumber basal lemonade, our first sparkling lemonade, provides a delicious refreshing offering to complement lunch and dinner, but also gives us a platform to drive more afternoon beverage occasions with expected strong guest satisfaction and strong margins. All of this innovation is supported by our disciplined stage-gate process that has resulted in a 12- to 18-month pipeline of innovation, which positions us to deliver a consistent cadence of high-impact menu items. Our innovation strategy is driving both near-term performance and long-term brand relevance as we continue to differentiate Shake Shack through culinary leadership. We will continue to drive sales and traffic growth while improving our productivity across the company, and we are confident in our ability to drive continued margin improvement in a competitive inflationary environment. Foundational to those objectives is the recently announced Project Catalyst. Our comprehensive technology initiative designed to make us more productive across our company, which will be critical to creating long-term G&A leverage. Through strengthening our digital, data and operational framework, we expect to improve restaurant execution, deepen guest engagement and unlock enterprise productivity, all while enhancing our ability to deliver enlightened hospitality. Let me walk you through the key components. First, we're modernizing our restaurant systems. We've partnered with Q, a cloud-native unified commerce platform to upgrade our point-of-sale and kitchen display systems. These new systems will improve throughput, order accuracy and consistency, particularly during peak periods. They'll also enable better orchestration across digital and in-Shack ordering channels, giving our team members faster, more reliable tools so they can stay focused on what matters most, delivering hospitality to our guests. Second, we're building Shake Shack's first-ever loyalty platform. This will be a very meaningful platform for our brand. Our objectives in launching this new platform are to drive frequency, retention and lifetime value while enabling more personalized guest communication and enlightened hospitality. It's not just about points and discounts. This capability supports our continued journey towards data-driven targeted engagement that resonates with our guests and creates deeper connection with the Shake Shack brand. It will help us to reinforce the core principles of enlightened hospitality that launched Shake Shack as a company and continue to differentiate us in the marketplace. Third, we're investing in a new generation of proprietary AI capabilities, embedded directly into daily operations. These AI tools will provide real-time operational insights, alerts and recommendations at the Shack level and for our above Shack operational leaders, enabling faster and better informed decision-making for our restaurant operators and support teams. This intelligent operating layer will deliver measurable productivity gains and form the foundation for ongoing performance enhancement over time. Finally, we're advancing a unified data and analytics platform that brings together operational performance, guest behavior and advanced analytics. This data backbone will support improved service speed and accuracy, more personalized guest experiences and the continued expansion of AI-driven capabilities at scale. We expect to begin rolling out these systems in the second half of 2026, and these investments position us to deliver an even better experience for our guests and team members. Turning to operations. Our operations have never been stronger, and I couldn't be prouder of our team. In March, we hosted our first ever Operations Leadership Summit, where we celebrated an outstanding 2025, recognized best-in-class leaders across our company and outlined our vision to meet both our short- and long-term goals. Our operational focus in 2026 centers on 2 things our guests value every single time they visit us, our hospitality and the accuracy of the order that we deliver. Over the past 2 years, we've driven meaningful gains in speed of service, and we are now averaging under 6 minutes on ticket times of cook-to-order food, a significant improvement. However, speed cannot come at the expense of accuracy, food quality or hospitality. With the tools that we are putting in place, we expect to not only get faster, but to also get better, delighting our guests, which will in turn drive frequency and loyalty over the long term. Our operations performance scorecard continues to serve as the backbone of how we drive continuous improvement, and we've updated the metrics to reflect the sharpened focus on hospitality and accuracy. Even as a growing share of orders flow through our kiosks and digital platforms, we refuse to let efficiency come at the expense of connection. We've intentionally redeployed labor toward guest engagement through our front-of-house hospitality champion role. It's a deliberate investment to ensure there's a human touch point in every Shack, regardless of how the order was placed. I'm also happy to report that our team member tenure and retention has continued to steadily increase. You might think that more rigor and operating discipline would create more turnover, but it's just the opposite. Our team members are experiencing a high-performance environment, seeing opportunities to advance their careers and they're staying longer. That tenure builds experience, which makes them better able to serve our guests, and that makes us a better operating company. It also allows us to develop the leaders of tomorrow, which will support our continued new Shack growth. This culture has led to improved guest satisfaction across restaurant cleanliness, friendliness and overall experience. And we're delivering these results by making sure that we have the right labor in the right Shacks at the right time. Supply chain optimization continues to deliver the highest quality ingredients in a more productive way. We've restructured our internal teams to unlock productivity across every node of the supply chain model. And we've built a strategic sourcing capability that is fully connected end-to-end, delivering the cost visibility that we need to make smarter, faster decisions. We're partnering in new ways with both new and current suppliers, optimizing our distribution network and leveraging our scale to drive efficiencies, all while maintaining the quality standards that define our brand. In Q1, we realized cost savings through strategic sourcing initiatives, successfully transitioning key ingredients to new suppliers who meet our rigorous specifications while providing better economics. Before making any changes, our culinary, quality assurance and operations teams test and validate that if there is any change in taste or guest experience, it is for the better. These improvements are flowing through to better unit economics and directly supporting our priority of building and operating our Shacks with best-in-class returns as we scale. Turning to our license business. Our license business continues to be a long-term strategic engine for EBITDA growth. However, the short-term results have been and will continue to be impacted by the ongoing conflict in the Middle East, driving some of our rationale for a broader adjusted EBITDA guide in 2026. The conflict has led to business disruptions ranging from temporary closures to reduced operating hours and delivery-only operations for periods of time. Beyond these impacts, inbound tourism has slowed substantially, which has further pressured sales, particularly at high-traffic locations. Despite these near-term headwinds, we stand side-by-side with our license partners and the long-term opportunity in these markets. We've seen some delays in opening time lines, but as of now, we still plan to achieve our target of 40 to 45 licensed unit openings in 2026. We will continue to monitor the situation closely and provide additional updates as we move through the year. Domestically, our company-operated development pipeline remains robust. As I mentioned, we had a momentous first quarter with a record 17 openings compared to 4 openings in the first quarter last year. We also opened new markets, such as Naples, Florida; Tucson, Arizona; Athens, Georgia and East Lansing, Michigan. This is the start of a record year of growth for Shake Shack as we march toward opening 60 to 65 new company-operated Shacks. We continue to see strong results from our cost containment strategies and see similar build costs for the class of 2026 as compared to last year. We also continue to invest in our existing Shack base through targeted remodels and refreshes that enhance the guest experience and improve operational efficiency. I'm energized by the momentum in our business and the opportunities that lie ahead. We have a clear strategy focused on driving same-Shack sales growth and transactions, expanding our footprint with disciplined development and improving profitability across the enterprise. Project Catalyst will provide the technological scaffolding that we need to scale efficiently while enhancing the experience for our guests and team members. Our marketing investments are building brand strength and driving consistent traffic growth. Our culinary innovation is creating excitement and brand affinity, which differentiates us in the marketplace. And our operational improvements are delivering better guest experiences and stronger unit economics. Most importantly, we have an exceptional team executing with discipline and passion. From our restaurant team members who serve our guests every day to our leadership team driving strategy and innovation, we have the right people focused on the right priorities. I've never been more confident in our ability to build Shake Shack into the best restaurant company in the world. Our premium quality enlightened hospitality and a focus on supporting our team members drives prosperity for Shake Shack and our shareholders. And with that, I'll turn it over to Alison to provide more details on the quarter. Alison Sternberg: Thank you, Rob, and good morning, everyone. Our first quarter results showed the resilience of our business in the face of a challenging macro environment and inclement weather. The quarter marks our 21st consecutive quarter of positive Same-Shack sales growth alongside continued year-over-year restaurant level margin expansion. First quarter total revenue reached $366.7 million, up 14.3% year-over-year, supported by the opening of 17 new company-operated Shacks and 5 new licensed Shacks, leading to 14.1% year-over-year growth in system-wide sales. Our licensing revenue was $12.7 million in the quarter, with licensing sales of $204.3 million, up 13.8% year-over-year, driven by continued strength in Asia, U.S. airports and the United Kingdom. Sales growth was partially offset by the ongoing conflict in the Middle East, where we had temporary closures in 17 licensed Shacks in Q1 with 3 locations at airports and a transit center remaining closed from the onset of the conflict through the end of the quarter. In our company-operated business, we grew Shack sales 14.3% year-over-year to $354 million. we generated roughly $72,000 in average weekly sales, flat year-over-year. We delivered 4.6% Same-Shack sales growth with 1.4% positive traffic and 3.2% price/mix. Our Same-Shack sales growth was driven by the success of our culinary and marketing initiatives despite a 240 basis point headwind due to inclement weather in Q1. Our pricing remained disciplined. And in March, we rolled off the price we took on our delivery channels last year, an approximate 1% impact. In-Shack menu prices for the first quarter came in at about 3%, while blended pricing across all channels increased approximately 4%. This compares to approximately 5% last year, demonstrating our ability to deliver positive Same-Shack sales with less dependence on price increases. April AWS was $75,000, down 2.6% year-over-year and Same-Shack sales decreased by 0.6%. The month Same-Shack sales were negatively impacted by approximately 200 basis points, largely due to the shift of Easter weekend spring breaks into March this year compared to last. Additionally, we continue to see declines in tourism in our largest urban markets, particularly in New York City. First quarter unit development was strong with 17 new company-operated Shacks ahead of our guidance for 12 to 14 new Shack openings. As a result of these Shacks opening earlier than planned, preopening costs were higher in the first quarter to support our strong opening schedule for 60 to 65 new Shacks in 2026. First quarter restaurant level profit was $75.1 million or 21.2% of Shack sales, expanding 50 basis points versus last year. Strong benefits from our labor management strategies alongside procurement-driven cost improvements and other items in our commodity basket helped offset higher beef costs and demonstrate our ability to sustain profitability despite beef headwinds. That said, restaurant level margins came in slightly below our expectations for the quarter due to higher other operating expenses, mainly due to the timing of investments in repairs and maintenance expenses to support our Shacks and some mix impact of our marketing initiatives. In the first quarter, food and paper costs were $100 million or 28.3% of Shack sales, 50 basis points higher versus last year. The increase year-over-year was mainly driven by the mix of promotional activities to support our culinary innovations during the quarter. Blended food and paper inflation was down low single digits with beef costs up low teens and paper and packaging costs down low single digits year-over-year. Through proactive procurement and cost mitigation initiatives, our teams meaningfully offset continued beef inflation without taking additional price. Labor and related expenses totaled $92.7 million or 26.2% of Shack sales, representing a 180 basis point improvement year-over-year, driven by more efficient scheduling and deployment through our labor management strategies. As we move through the year and fully lap the benefits of the implementation of our new labor model, the year-over-year improvement in the labor line will be more muted with our supply chain initiatives driving restaurant level margin expansion going forward. Other operating expenses were $57.5 million, or 16.2% of Shack sales, 60 basis points higher versus last year, largely driven by the timing of repairs and maintenance expense and the growth of third-party delivery. Our digital sales mix increased to 39.9% in the first quarter. Occupancy and related expenses were $28.7 million or 8.1% of Shack sales, 20 basis points higher year-over-year. First quarter G&A totaled $53.6 million or 14.6% of total revenue, reflecting incremental investments in marketing and technology as well as continued investments in our people to support growth and strategic initiatives. As we mentioned on our fourth quarter call, our marketing plan for 2026 is more evenly distributed across the year. As a result, our quarterly G&A expense is expected to remain relatively steady from an absolute dollar standpoint each quarter of 2026 and will be relatively consistent with what we spent each of the last 2 quarters to land within 12% and 13% for the year. This results in a higher year-over-year G&A step-up in the first half, tapering off in the back half of the year. As we discussed last quarter, we plan to deliver G&A leverage in 2027. Equity-based compensation was $5.2 million, 13.6% higher year-over-year with $4.6 million hitting G&A. Preopening costs were $6.9 million, up 113.5% year-over-year, reflecting 17 new Shack openings in Q1 2026 versus 4 in Q1 2025. We have approximately 37 Shacks under construction and the largest pipeline of new Shacks that we've had in our company history. Adjusted EBITDA of $37 million or 10.1% of total revenue declined 9.3% year-over-year, resulting from sales underperformance due to weather and macroeconomic factors alongside strategic investments to support our multiyear growth plans. Depreciation was $29.1 million. The increase in depreciation year-over-year, both in the first quarter and throughout 2026 is a result of more new company-operated openings, coupled with new technology investments. Net loss attributable to Shake Shack, Inc. was $290,000 or a loss of $0.01 per diluted share. Adjusted pro forma net income was $88,000 or earnings of $0 per fully exchanged and diluted share. Our GAAP tax rate was 33% and our adjusted pro forma tax rate, excluding the tax impact of equity-based compensation, was 25.5%. We ended the quarter with $313.7 million in cash and cash equivalents on our balance sheet. Now on to guidance for the second quarter and full year 2026. Our outlook assumes no major changes to the macro or geopolitical environment. For the second quarter of 2026, we expect system-wide unit openings of 24 to 27 with 16 to 19 company-operated openings and approximately 8 license openings. Total revenue of $424 million to $428 million with same-Shack sales up 3% to 5% licensing revenue of $13.5 million to $13.7 million and restaurant-level profit margin of 24% to 24.5%. Our pricing plans for this year remain modest, assuming no outsized macro changes. We plan to exit the second quarter with approximately 4% overall price and continue to expect price across all channels to be up approximately 3% for the full year. We will continue to evaluate the need for pricing as our dynamic cost structure continues to evolve, but our intention is to take a limited amount of pricing. On to our full year 2026 outlook. Given the impacts that we've seen in the first quarter, we now expect to open 60 to 65 company-operated Shacks this year as our new Shack openings are tracking ahead of plan and more heavily weighted to the first 3 quarters of the year. We continue to expect total revenue of approximately $1.6 billion to $1.7 billion, driven by low single-digit same-Shack sales growth year-over-year. Given headwinds in the Middle East, we now expect licensing revenue of $57 million to $59 million. We still plan to open 40 to 45 licensed Shacks this year. We expect restaurant level profit margin of 23% to 23.5%. We are planning for food and paper inflation to be down low single digit year-over-year after accounting for our own supply chain strategies. Beef inflation is expected to continue at the high single-digit levels. We expect labor inflation to be in the low single-digit range. G&A investments are expected to be toward the higher end of our guided range of approximately 12% to 13% of total revenue to support our strategic investments in growing the business and driving greater brand awareness. We continue to expect approximately $28 million of equity-based compensation expense with about $25 million in G&A. We expect full depreciation of $124 million to $128 million and preopening of approximately $26 million to $28 million. We expect net income of $50 million to $60 million. Altogether, we now expect adjusted EBITDA of $230 million to $245 million, representing 10% to 17% growth year-over-year. Thank you for your time. And with that, I will turn it back over to Rob. Robert Lynch: Thank you, Alison. I want to thank our teams again for their hard work and passion for Shake Shack, which is the engine behind our ability to achieve our long-term goals. Thank you to everyone on the call today for your interest in our company. And with that, operator, please open up the call for questions. Operator: [Operator Instructions]. Our first question is from Brian Vaccaro with Raymond James. Brian Vaccaro: So just on the first quarter comps, and can you elaborate on the underlying cadence that you saw through the quarter? Any changes in consumer behavior that you've seen more recently that might be tied to higher gas prices and the Iran conflict? But also maybe provide some more color on how the value initiatives like 135, Chicken Shacks on Sundays performed in the quarter. And just curious how that might be positively impacting value perceptions or frequency among certain consumers. Robert Lynch: Thanks, Brian. Great question. We had relatively consistent sales rates throughout the quarter. We didn't see significant changes. We did see a little bit of softening in the back half of March, but not at a significant rate. And so we were -- we made a lot of our investments in February behind the launch of our Korean launch and some of the innovation that we were planning. So most of the weather impact we saw was January and March. We had anticipated even higher sales heading into Q1. So we made a lot of investments heading into Q1 with a sales plan that we would have achieved had we not seen those weather impacts. So our app and digital channels continue to drive significant value for our guests and are growing rapidly. We've seen over 35% growth in our digital channel entrance rate, so 35% downloads of our app, and that is driving a lot of our traffic growth. And we feel great about that. We feel like that is a long-term investment that we're making. It is not a short-term promotion. These folks are coming into our digital community and they're staying. And their frequency is higher than our nondigital guests. And when you think about the value prop that we offer today in our app, you can get a Shack burger fries and a beverage, a Coca-Cola for around the same price as you can get a lot of our other competitors for the same thing. So on average, an $8 Shack burger, $3 fries and $1 drink, you're talking about a $12 combo meal, if you want to call it that, we don't call it that. That makes us really competitive. That puts us in the universe of other brands that can persevere through these value challenged and value-oriented times. So we feel great about level setting that value equation. We also feel great about launching very premium culinary innovation. I would tell you, and I highlighted in the comments, we launched a $12.99 BBQ Rib Sandwich a week ago, and we're seeing huge demand for that innovation at that price point. So we really feel that we can play at both ends of the barbell -- we can deliver great value on our core and continue to drive traffic through new guest acquisition and repeat, but we can also drive frequency and check growth with our most engaged guests through our premium innovation. So we feel like the sales engine is in place, and that's why we've stayed committed to investing behind it. Operator: Our next question is from Christine Cho with Goldman Sachs. Hyun Jin Cho: Rob, it's really encouraging to see 3 consecutive quarters of positive traffic growth and really appreciate the quarter-to-date color. But could you elaborate on the key factors driving your confidence in that Q2 same-store sales growth guidance of 3% to 5% as well as the sustainability of this momentum through the second half of the year? And I think you mentioned a potential lift from the World Cup. How much of that benefit is currently embedded in your guidance? Robert Lynch: Yes, you're welcome. So we are highly confident in our guide for Q2, driven by what we're seeing both on our core business with our app driving a lot of growth and strength in our digital channels, complemented by the success of our premium LTO innovation. So we are -- we saw last week with the launch of this innovation, we saw 8% comps and 5% traffic. So we are seeing huge demand for the culinary forward innovation that we're bringing while underpinning that being able to go out and also deliver a great value proposition for a different consumer and primarily a newer consumer, right? Our new guests, when they come to Shake Shack are going to want to try the best burgers in the world. Like that's what they come for. They come for the Shack burger fries and Coca-Cola. And when they get there, we have to have a value proposition that allows them to come in and feel great about the money that they paid for that. And so that's what the app is designed to do. And we're using that app as a guest acquisition tool. But we also need to continue to differentiate ourselves in the space. We are not going head-to-head with the likes of the QSR value players from a holistic business proposition. We are going to continue to offer premium ingredients and culinary innovation and the best hospitality in the business with great assets. So when our guests come, it's a different experience than you typically see in traditional QSR. So that balance is working, and we're going to continue to invest behind it. On the World Cup side, I mean, we're not going to get into specifics about what our model looks like. But our -- the markets where the World Cup is being played are all markets where Shake Shack has a high degree of penetration. And Shake Shack in markets where we have a high degree of confidence in our ability to drive traffic to our restaurants regardless of whether there's the World Cup or not. So that influx of traffic is just going to benefit and accelerate the business that we do in those -- some of our best markets. So we're really excited about Q2. As we look to the back half of the year, we have more innovation coming. We have great items across our shakes, beverages, core sandwiches, and we're going to continue to invest in the marketing fuel that is driving a lot of this traffic. Operator: Our next question is from Michael Tamas with Oppenheimer & Company. Michael Tamas: It seems like your same-store sales are implied to be a little bit slower in the second half of the year versus the first half of the year. So can you sort of speak to the confidence in hitting that full year margin guidance of 23% to 23.5% as sales moderate a little bit in the second half of the year? And maybe how you're thinking about that split between COGS, labor and other OpEx? I mean, is it about COGS deflation that's going to drive the majority of that expansion? Or how do you want to think about that? Robert Lynch: Yes. I mean I would tell you that the 50 basis points growth that we had in Q1 was a bit muted given some of the revenue shortfall that we saw from some of the weather. So just the leverage impact. As we look forward, we continue to be able to -- we continue to see the path to continue to expand those margins. We have a lot of supply chain work going on that is already flowing through in a big way. So obviously, beef prices are elevated, continue to be elevated, although the rate of growth on the beef pricing that we're seeing is less than it was last year. And we're actually seeing a lot of cost mitigation and other items in our basket. And some of that is the macro markets and a lot of it is the work that we've done in our supply chain. So from a cost side, we're doing a lot to mitigate the cost of the inputs into our business model. On the revenue side, you're right. We delivered 4.6% comp in Q1. We're guiding to 3% to 5% in Q2. We're guiding to low single digits for the year. So that does imply a softer comp in the back half. And the reason for that is we're going to start lapping some of the marketing investments that we made in the back half of last year versus being fully incremental. So we're accounting for that. We still have a lot of confidence in our ability to drive strong performance on the top line. We're seeing continued momentum build. So we want to make sure that both our broadening of our EBITDA guide as well as the reiteration of our low single-digit comp guide takes into account some of the macro risk. I mean the reality is none of us know what's going to happen tomorrow, much less what's going to happen 3 months from now. So there's consumer sentiment driven by a lot of the macro factors. There's cost in commodities driven by macro factors. So we really thought very carefully about our guidance for this call because we want to make sure that we're informing our investors that we are very confident in our organic business model, but we recognize that there is volatility in the marketplace, and we want to express our guidance and show the risk of that volatility in that guidance. Operator: Our next question is from Brian Mullan with Piper Sandler. Brian Mullan: Congrats on the CFO hire. Congrats to Michelle. Related to that, Rob, last call, you said the new CFO would, I think, share some sort of G&A plan when he or she begins. Just to better understand, has that plan already been largely formed? Or would the new CFO need to kind of undertake that work from scratch once she begins? And you talked about Project Catalyst in the prepared remarks. I just -- are these one and the same? Or are these kind of just 2 separate topics? Any color would be great. Robert Lynch: Project Catalyst will definitely be an asset for us as we create G&A leverage moving forward. we have built these tools that I highlighted in the comments, and we shared with our Board last week, and we rolled out to our team members 2 weeks ago. The technology -- we've made a lot of investments. Like I want to be clear. The G&A is up $13 million this quarter versus a year ago, all right? Like I don't think about that lightly. Some of that investment was the Operations Summit that we had this year, which we haven't had before. So we had to obviously pay for that. But we felt like it was important for -- to recognize the great job that our operators did last year and lay out our vision for the future. So that was incremental. We obviously are investing in marketing, but we're also investing heavily in tech and Project Catalyst is a big part of that. And the infrastructure that we're building is going to make us dramatically better. It's going to make us better from an operating standpoint. Our operators today don't have a lot of the tools that they need to make real-time decisions. Our above-restaurant operators are spending huge amounts of time pulling reports and sourcing data to be able to have conversations with our GMs about their business. All of that time is going to be significantly reduced. And our folks in the field are going to be able to have real-time information to make informed decisions. So that's going to improve the quality of those decisions. It's also going to reduce the amount of capacity necessary to build those conversations. So there is a huge amount of value creation in Project Catalyst for us. And so to your original question around Michelle, Michelle is going to come in and have a lot of great work on her plate. And she obviously has all the experience and all the capabilities to be able to contribute in a big way to the work that's going on here. G&A, we obviously have a plan. We have a road map. We have things that we're doing and how we're thinking about it for the balance of this year and moving forward. But Michelle is absolutely going to come in and weigh in on all of that and have a point of view. Michelle and I are committed. We had a big discussion about this. We're committed long term to growing EBITDA faster than revenue and making sure that we're continuing to enhance our operating margins as a company. So that's going to be the work we're doing. And in order for us to continue to do that, we have to get better on the G&A line, but we have to make sure that we're making the right investments to drive the long-term outcomes. And right now, it's all about battling for share in this marketplace. we cannot afford to lose guests right now. And so we are making those investments. And yes, none of us are super excited about the way the EBITDA showed up this quarter. There's a lot of moving pieces there. There's a lot of timing. Opening up a lot more restaurants this quarter cost us a lot more, but we wouldn't make the decision not to do it. So we made some decisions knowing that this was going to be the outcome, but we have the most confidence we've had on the path forward. Operator: Our next question is from Peter Saleh with BTIG. Peter Saleh: Rob, I did want to circle back on that last comment you made on the decision to pull forward some new unit growth. Can you guys elaborate a little bit on that decision and maybe the impact that you saw in the first quarter from pulling forward some new units? And then I had a quick follow-up as well. Robert Lynch: Got it. So it's not necessarily that we pulled them forward. We just built them better, faster. So we obviously guided to a range for the year and gave guidance on how many we would open in Q1. And we're just getting better at opening restaurants, frankly. We're getting better on the construction side, on the equipment procurement side and on the operations and preparation it takes to open up a restaurant successfully. So we're just moving faster, and that's why we're able to take our guide up for the year. It's not just pulling forward from 1 quarter into this quarter. It's actually building restaurants faster. So with the same quality. So that really -- it wasn't as much a pull forward. It's just we're accelerating. On the amount that it cost, I mean, we opened 4 more restaurants than the midpoint of our guide. So you can kind of do the math on historically what we -- our preopening costs are for those restaurants. And it's not exactly 1:1 because we have a lot of preopening costs that flow from quarter-to-quarter because we're incurring preopening costs right now for next quarter. And as you think about the rate of acceleration and the fact that we're opening up so many restaurants in Q2, some of those preopening costs actually hit Q1. So that acceleration is great. We wouldn't change it. We're going to continue to build more restaurants. We love the returns. But it is a different cost profile on a quarterly basis, which did impact our results in this quarter. Operator: Our next question is from Sara Senatore with Bank of America. Sara Senatore: I guess maybe just 2 questions on the margins. One is you mentioned that cost of goods were -- the inflation was negative low single digits, but you did see some margin pressure there. So is that promotions or the in-app value menu? And I guess the related question is, as you think about supply chain initiatives, and I think you said those will be the primary driver of margin expansion going forward versus labor. The dynamic was reversed in the quarter. So what -- I guess, what's still ahead of you? And how should I think about sort of the mix of those 2 margin components in the next few quarters? Robert Lynch: Yes. Great question. So we did grow the margin 50 basis points, right? So we did make improvements. It was -- when we say we missed on margin, it's just relative to our guide. So we did anticipate higher margins than we delivered despite growing the margins 50 basis points. And a lot of that was just sales deleverage relative to our plan that formed our guidance. So we came into this quarter with a significantly higher sales rate than what came -- what the outcome was. And that was primarily the weather. And if everyone recalls, we had some bad weather in 2025. Q1 2025 was not a great quarter for anyone. wildfires, blizzards, the whole thing. So we didn't plan for a huge negative weather impact in Q1. So if you add that 240 basis points to what we delivered, it's pretty strong comp growth. And so our plans were based on that. the investments that we made in marketing, the guidance that we gave on margin was driven by what we anticipated on the top line revenue. And when that revenue didn't come through, you saw some -- you saw less than -- it was 10 basis points. It's not like we missed it by 100 basis points, but we take it seriously, 10 basis points relative to being within the guide. And the supply chain is driving a lot of the margin right now in addition to continued operational improvements. We've done a ton of work, a ton of work. And that work has also required G&A investment. We had to rebuild a procurement team. We had to hire distribution people. But all of that work is why we have a very high degree of confidence in being able to deliver at least 50 basis points of margin enhancement throughout the rest of the year. Operator: Our next question is from Jeff Bernstein with Barclays. Anisha Datt: This is Anisha Datt on for Jeff Bernstein. As you prepare to launch a loyalty program by the end of 2026, what customer or behavioral insights have been most influential in its design? And how will the program differ from purely points-based or discount-driven offerings? Robert Lynch: Yes. So we've been thinking a lot about -- it's a great question. We've been thinking a lot about this. And we have a big decision to make on -- does the loyalty program, do they just kind of turn into one thing? And we made a strategic decision that, that's not going to be the case. So the app as it list today is going to be a continued way for us to drive value and acquire new guests. The loyalty platform is really intended to drive brand affinity, brand engagement and frequency amongst our most valuable guests. So those 2 objectives will drive a different approach to our app and our loyalty platform. Now the folks that are already in our app will all transition into our loyalty platform because they're current guests. But we will communicate and approach the promotions and marketing that we do on the app differently than the loyalty platform. So the loyalty platform will not just be a way to send discounts. It will actually be a way to drive brand engagement, giving loyalty members unique and special representations of hospitality to drive further engagement, drive affinity and drive frequency. So we're looking at all kinds of different opportunities to do that, whether it's through some of our partnerships with some of our things we've done with partnerships and collaborations in the past, whether it's offering first access to special things that we do. So all of those things will flow through our loyalty platform and the app will kind of stay as a new guest acquisition tool. Operator: Our next question is from Margaret-May Binshtok with Wolfe Research. Margaret-May Binshtok: Just a 2-parter here. I just wanted to ask a little bit about the paid media that you guys have done, the location targeted paid media, how you guys are seeing that tracking in some of your newer markets versus more established markets? And then just wanted to follow up on the remodels that you guys have mentioned are underway, I think, in New York City. Any early reads on what you guys are seeing and any sort of cadence for the rest of the year? Robert Lynch: Great question. So our media, we don't have big national market media budgets. So we have to be very choiceful on what and where we invest. And so right now, our media is invested in 2 ways. One is guest acquisition through delivering a value proposition that's compelling for new guests, and that's primarily marketing our app and our 135 platform. And then it is driving frequency and check benefit through our LTO innovation. So it's a balanced approach in different markets depending upon our market penetration, depending upon the number of guests that we have in the app platform today, which is how we kind of measure the number of current guests versus new guest potential. That will drive a lot of the decisions on how we make -- on how we invest our media. On the remodels, we've been really pleased. We're continuing to invest in remodels. We're 2-year-old company now, and we're starting to see some of these great restaurants that have been in markets like New York for a long time and continue to deliver great revenue and some of our best margins, they get a lot of traffic. We want to make sure that, that traffic is when they show up, they're getting hospitality. And so it's not about making everything brand new and fresh, but it is about making sure that the restaurants feel cared for, making sure that the restaurants are welcoming. And then in addition to that, we're also leveraging remodels as an opportunity to optimize the back of house, right? We've done a lot of testing on kitchen and equipment and kitchen flow. And so when we go in and we know we're going to touch the restaurants, we're going to make sure that those restaurants are set up for the most productivity possible. And so that also can be a revenue driver as we increase throughput because of optimized back-of-house flow. So we're making both of those investments, and we're really happy with where we're at there. Operator: We have reached the end of our question-and-answer session. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Hello, and welcome to the Aemetis, Inc. First Quarter 2026 Earnings Conference Call. Joining us today are Eric McAfee, Chairman and Chief Executive Officer; Todd Waltz, Chief Financial Officer; and Andy Foster, President of Aemetis Advanced Fuels. I will now turn the call over to Todd Waltz. Todd Waltz: Thank you, and welcome, everyone. Before we begin, I would like to remind you that during the call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risk and uncertainty that could cause actual results to differ materially from those expressed or implied. Please refer to our earnings release and SEC filings for a discussion of these risks. For 2026, revenue grew 27% to $54.6 million compared with $42.9 million in 2025, with growth across each of the three reportable operating segments. Gross profit was $2.8 million in the quarter, a year-over-year improvement of nearly $8 million from the gross loss of $5.1 million in 2025. Operating loss improved approximately 60% to $6.3 million compared with $15.6 million in the prior period. Net loss improved to $21.7 million compared to $24.5 million in 2025. Production tax credits under 45C contributed $4 million of operating income during the quarter, $1.4 million in dairy RNG and $2.6 million in California ethanol, representing our first quarter of ongoing credit generation tied to quarterly production since 45z eligibility was established in 2025. Adjusted EBITDA for the quarter was negative $1.3 million, reflecting typical winter seasonality with stronger revenue and margin performance later in the quarter. Adjusted EBITDA and a reconciliation of EBITDA to net loss are described in our earnings release issued earlier today. Cash and cash equivalents at the end of the quarter were $4.8 million, comparable to year-end 2025. Capital investments in carbon intensity reduction and dairy digester construction totaled $6.5 million during the quarter. With that overview, I will turn the call over to Eric. Eric McAfee: Thank you, Todd. I want to highlight three key takeaways from 2026. First, Q1 was a financial inflection point. We grew consolidated revenue 27% year-over-year, posted positive gross profit, and improved operating loss by more than $9 million. All three of our reportable operating segments contributed to this result. Second, we benefited from the California Air Resources Board approval of seven new Low Carbon Fuel Standard pathways for our renewable natural gas business at an average carbon intensity score of negative 380 compared with a negative 150 default, which has been providing additional revenue at the higher LCFS value each quarter since Q3 2025. Six additional biogas digester pathways are nearing approval. These LCFS pathway approvals substantially expand the LCFS credit generation per MMBtu of RNG produced and will continue to drive meaningful revenue increases as we scale production. Third, our capital projects are advancing. We received the initial deliveries of dairy biogas pretreatment skids in April under our $27 million fabrication contract. Major equipment for the $40 million mechanical vapor compression project at our Keyes, California ethanol plant has arrived on-site and construction has begun. In dairy RNG, we sold 110 thousand MMBtus in Q1, a 55% increase over the same quarter last year. With H2S cleanup and biogas compression equipment contracted for 15 additional digesters, and four of the equipment units already delivered by the vendor, we are on track to double our operating dairy network with construction into 2027. At our ethanol plant, the MBR project is on track for completion later this year. The system will use on-site solar and grid electricity to displace approximately 80% of the fossil natural gas consumption at the plant. We expect MBR commissioning later this year to add approximately $32 million in annual cash flow from operations, including additional 45z and LCFS uplift from the expected reduction in the carbon intensity of the ethanol produced by the plant and cost savings on natural gas. In India, biodiesel revenue rebounded to $10.5 million in Q1 with the resumption of Oil Marketing Company shipments under new contracts. This revenue growth supports our planned initial public offering of the India subsidiary, Universal Biofuels Private Limited, for which we have retained legal, accounting, and IPO advisers. Looking ahead, our focus for 2026 is scaling production, monetizing the stacked credit value of our renewable fuels platform, completing the India IPO, and the refinancing of existing debt into long-term financing. The principal catalysts we are tracking through the year include the publication of the updated 45z GREET model by the Department of Energy to significantly increase revenues and margins, commissioning the MVR at the Keyes Ethanol Plant, rising LCFS credit prices caused by continued quarterly credit deficits, and progress on the India IPO. Thank you to our shareholders, analysts, and partners for your continued support. Operator, let us take some questions. Operator: We will now open the call for questions. Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if you are listening on a speakerphone to provide optimum sound quality. Please hold for just a few moments while we poll for any questions. Your first question is coming from Matthew Blair with TPH. Please pose your question. Your line is live. Matthew Blair: Thanks, and good morning, Eric. Certainly a lot of things going on at your company, but I was hoping you could talk about the possibility of the RD and SAF plant that has been on the table for a few years now, just in light of the very robust 2026 and 2027 RVO that materially increased the biomass-based diesel requirements. How are you thinking about that RD and SAF project? And maybe you could refresh us on how much it would cost and what kind of capacity it would provide. Thank you. Eric McAfee: Thank you, Matt. The capacity is 80 million gallons a year of SAF, or if we run it only in renewable diesel mode, it is 90 million gallons. And as you know from previous reports, we have 10 different airlines we signed definitive agreements with, etc. We got full permitting approval for construction to begin in 2024. However, market conditions in renewable diesel and SAF were hampered by a new president being hired that, of course, happened in late 2024. That caused the financing markets to take a delay in looking at SAF and RD. You have done a very good job covering margins at renewable diesel producers. Just yesterday in California, Phillips 66 announced they are running above their nameplate capacity on their renewable diesel plant. And certainly, the events since March 1 have driven the price of the molecule up substantially. LA quotes SAF in neat form at $9.80 a gallon as of yesterday. So the market conditions have moved in our favor significantly compared to where we were in late 2024 with a new president being hired who certainly had a policy position that needs some clarification. We are definitely in a position right now in which there is frankly a lot of interest in new SAF production. I would say that the uncertainty in the last few months has given a new certainty to the need for domestic production of renewable fuel and a clarity that airplanes are not going to fly on hydrogen, batteries, nuclear power, or any other sort of energy source other than liquid fuels for the foreseeable number of decades. So we positioned this project specifically for the conditions we are in right now: high price of crude oil alternatives and, frankly, coalescing enthusiasm for the renewable version, which is sustainable aviation fuel. So we are definitely making progress on the financing; that is actually the only remaining part of this. We have the authority to construct permit in place for the facility, and market conditions continue to be in favor of that. That 80 million gallons, of course, if we are selling at $9.80 a gallon, is almost $800 million additional revenue. And I think the industry today is reporting roughly $1.60 a gallon of operating margin. So, obviously, a very positive improvement in our company’s overall revenue and EBITDA growth. But I am going to wrap this up by saying that there are actually four different sources of revenue for that plant, and 45z, the clean fuels provision, is still an unknown. We do not have the updated 45z. It is absolutely expected anytime soon, certainly before June, that the Republicans need to post it. And since there are four revenue streams—you sell the molecule, you sell the California credits, the federal credits, and then receive the 45z production tax credit—that is having an impact on the timing of our financing. Most lenders especially are interested in knowing what the 45z revenue is for this project. Federal law is passed. Treasury adopted their guidance in February 2026 for 45z, but the actual calculator on the Department of Energy website is going to be—that spreadsheet needs to be posted with the updated rules in the spreadsheet in order to finalize that fourth leg of the stool. I want to put that note on the table that that is having an impact. Of course, right now, the business works great without 45z, but people are curious to know what your total revenue is if we are doing a project of that size. Matthew Blair: Sounds good. And then the India biodiesel operations—nice to see them restarted in the first quarter. It looks like profitability is essentially breakeven, maybe a little bit below. Could you talk about your expectations for the second quarter? Do you think volumes will be in a similar range as the first quarter? And I think we typically see some margin improvement in the second quarter as you are able to shift different feedstocks. Do you think that will happen in the second quarter this time around? Thank you. Eric McAfee: Thanks, Matt. Let us talk about the overall trend in India, because it is very important for investors to understand that India is a socialist country, and they have elections that occurred in May. In order to support the existing government, a decision was taken by the government to set the price of diesel at the same price in March and in April as it was in January and February. There is no change in the price of diesel. I think most people on this call would understand that the price of diesel and crude oil dramatically increased in both March and April, but in India, it did not. So as of today, when you go to the pump in India, you do not know that the Iranian war happened from the price of the diesel at the pump. That means that the government is running a very large negative from their expected tax collections from diesel, and the Oil Marketing Companies are losing a very large amount of money every single day on selling diesel because they are buying crude oil at high prices and then selling it at prices below cost in India. That is about to change, and it should happen in the next few days that the price of diesel in India dramatically increases. The Oil Marketing Companies and the Ministry of Petroleum have known about this for two months and have been proactively meeting with the biodiesel and renewable diesel and sustainable aviation fuel producers—or to-be producers—in the country in order to come up with a much more solid program for us to be able to utilize all of our production capacity. We have an 80 million gallon plant that has been operating recently at 10% capacity. There has been a renewed focus on domestic renewable fuels in India. With the policies already in place, the National Biofuels Policy is 5% blended biodiesel in a 25 billion gallon market. That is about 1.25 billion gallons. Unfortunately, they are not at 5%; they are at a 0.5% blend right now, and that is rapidly changing. So you asked about second quarter. I would put it in the context of the trend of this year. We are seeing dramatic increases and, frankly, signing larger contracts and going back to the cost-plus contract model, which is what is in process right now in India. During the course of the next few months, I think you will see that kind of certainty come into play. Our IPO is really being built around us working on that reality that those policies need to be known and need to be adopted. We are setting up our IPO to be directly correlated with when those policies are adopted. I think it will have a very positive impact on not only the valuation of our business but how much money we raise. We are seeking for the IPO in India to be truly a breakout opportunity. We are looking to build the first global diversified renewable fuels business ever to go public in India and certainly anticipate that that will be the positioning we have and that the events of the last two months are having a very significant impact on India and focusing them on redirecting themselves to these policies that they have already got in the books but they have not been fully enforcing. Matthew Blair: Sounds good. Thanks for your comments. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Nate Pendleton with Texas Capital. Please pose your question. Your line is live. Nate Pendleton: Morning. Do you provide more color around the financing commentary from the release? Just looking to better understand some of the options that are available to you on addressing the debt broadly. And then more specifically, what are you looking at with regard to Keyes and then the status of the refunding for the dairy RNG projects? Eric McAfee: The improved margins and, frankly, now recovery of confidence in the need for domestic renewable fuels is directly expanding our refinancing opportunities. We have been funded and supported for the last 18 years by roughly a $3 billion fund out of Toronto that holds our senior debt, except for the $50 million of U.S. debt that we have, and our expectation is that we will continue to have very positive trends toward having municipal bond financings available to us. Municipal bonds have been used by the renewable fuels industry for a variety of basically greenfield projects. We, of course, are not greenfield; we are expansion. We are actively in the market right now working on a municipal bond type refinancing of our existing bridge financing we got from Third Eye Capital. The Renewable Energy for America Program at USDA is active, but they have slowed down their expansion in renewable fuels in a portfolio review process. The timing of that seems to be changing on a regular basis. As they make a review of their portfolio goals, they will be expanding or not expanding—it is really quite uncertain, to be frank with you. The rapid expansion of interest in the municipal bond and even commercial credit markets, certainly private credit markets, all of which we have had active discussions with, I think are going to overshadow our Renewable Energy for America Program funding. I think we will be seeing much larger financings and moving much quicker than what the USDA program currently looks like for our company. Nate Pendleton: Understood. Thanks, Eric. And then I just wanted to get your perspective on LCFS prices for a moment. While the market has flipped to deficit generation recently, prices have broadly remained quite muted. Can you talk about your expectations for that market going forward? Eric McAfee: I think we are going to see a rapid price increase during the summer and early fall. What muted the deficit—that is, we had our second quarterly deficit on April 30, and that was for the fourth quarter of last year. So there is a trailing deficit announcement. It is literally four months after the end of the physical quarter when the announcement happens. But the price being muted was an expectation by traders that people would not drive as much with high gasoline prices. Interestingly enough, on a formulaic basis, gasoline currently represents roughly 2% of the income of the average American, and I think traders over-traded on this one. They were not anticipating that the Iranian war would actually not be as big of an impact on driving as what it has—or they thought it would have a bigger impact than what it really did. It did not have as big an impact, especially in California. LCFS credit deficits, however, are not driven just by consumption of gasoline. It is also driven by how many credits come from renewable diesel. Renewable diesel is the reason we got such a large 40 million credit bank, and renewable diesel has underperformed in Q4 last year and the first part of this year. I expect it to underperform in credit generation. So if you have fewer credits being generated, quite frankly, it was a lot more of a deficit than what was expected because there were fewer renewable diesel credits generated. We think the LCFS price trend is absolutely upwards. The question of pace has been impacted by the Iranian war. That play did not quite work out, and so we do expect increases to continue. There are plenty of credits in the market; it is not that issue. The issue is: do you want to pay $200 for it 18 months from now when there are very few in the credit bank? So it is a question of major oil company traders over the next 18 months at some point in time reaching a tipping point at which they decide they do not want to have to be buying $200 credits. They might as well get out there and buy whatever they can on the market. When that happens, you will see a very rapid price rise. I would not be surprised at all to see $150 in 2027 as traders see the cap as $268, and they want to get their book filled up as soon as possible. Nate Pendleton: Got it. Thanks for the color, Eric. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Sameer Joshi at H.C. Wainwright. Please pose your question. Your line is live. Sameer Joshi: Hey, good morning, good afternoon, Eric. Thanks for taking my questions. On the MBR, I understand it is going to be deployed before the end of the year. Are there any additional certifications or verifications needed to be done before you can start generating that $32 million annualized return from it? I know some of it will be immediate because of lower natural gas consumption, but for the other incentive-based cash flows, do you need to do anything? Andy Foster: Thank you for your question. No, there are no additional certifications necessary. We received an authority to construct from the air district, which is really the big number that we have to get crossed off before we can proceed with the project, and that was received last year. We have some local permits that are sort of ongoing as you do construction, but we do not have any requirements for additional permitting or authorization in order to proceed. Construction has begun. We have begun demolition on existing concrete structures. As Eric mentioned in his comments, we have received most of the major equipment stateside now. We received the turbofans from Germany last week. The main evaporator was received from PRASH in India about a week ago. It is currently in transit to the Keyes plant. All of the big-ticket items that take a long time to fabricate are either on-site or will be on-site within the next week or so. Sameer Joshi: Got it. Thanks for that, Andy. Moving to the India OMC activity there—thanks for the color that you provided, Eric, to the previous question. But in terms of pricing that will be available for you, do you expect it to be premium pricing relative to what you got in the last year, for example, or are getting currently? Eric McAfee: Yes, there is definitely premium pricing, actually. The next contract is already being discussed. The structure of a cost-plus contract—which we did $112 million of revenue and about $14 million of positive cash flow last time we had a cost-plus contract—is being strongly considered as a replacement for what they have done in the last couple of years, which was this uncertain sort of pick-a-number-and-see-what-happens kind of structure. We covered this a couple of years ago with investors, but just a reminder: the cost-plus structure was after many years of working with the government to come up with something that was going to expand capacity utilization in India. It worked very well. Then the India government passed a 20% tariff on the feedstock that was being used by the industry, and therefore the price of the formula went up 20% after they had issued us a contract. The Oil Marketing Companies did not want to take a loss, so they just did not take delivery. That created confusion in the market. That confusion has now gotten more clarified because of the very high-cost diesel and the need for them to start getting utilization in the biodiesel industry, and that is the resolution that is being worked out right now. We do expect to return to better conditions for full capacity utilization. India imports over 90% of its crude oil and really needs to expand its domestic production of renewable fuels. Sameer Joshi: Understood. Thanks for that. And then just one last one. You did mention you got seven LCFS pathways approved for the negative 380. Six are being worked on. Should we expect those to occur in the first half, or is it a second-half event? Eric McAfee: There is a strange delay in the process. We expect the approvals to occur, but then they are a look-back a couple of quarters. If we get an approval, for example, at the end of the fourth quarter, it is a look-back to the beginning of the third quarter. So an approval by December is actually effective July 1. Strange situation, but the reality is, yes, we do expect by the end of the year to see appropriate progress here with a look-back that looks like a six-month look-back because they do it the quarter after the closing of the quarter. We will keep the market apprised of progress here, and of course, we are focusing on moving it through the process as quickly as possible. Sameer Joshi: Understood. So that would potentially be a lump sum that you get if it is approved in the fourth quarter for the previous quarter? Eric McAfee: Yes, there might be a one-quarter catch-up, but in essence, it is just the delayed approval for the previous quarter—the way the government looks at it. Sameer Joshi: Thanks a lot. Thanks for taking my questions. Eric McAfee: Thank you, Sameer. Operator: Your next question is from Dave Storms with Stonegate. Please pose your question. Your line is live. David Joseph Storms: Good morning, and thank you for taking my questions. I wanted to stick with the dairy digesters. I believe you mentioned on the call you are expecting another 15—doubling your digesters by 2027. Can you just remind us when you actually get the investment tax credits related to those investments, and maybe just your thoughts around the monetization of those net credits? Eric McAfee: Good question. We get the tax credits upon the completion—the what they call in-service date—for each single digester. So we do not have to build all 15 of them and then add six months to that or anything. As we build each digester and it goes in service, we generate the section 48 investment tax credits. We have sold about $95 million of these tax credits. We tend to sell them in $5 million or higher increments, though that is not absolutely required, and we do expect to have a single party this year acquire each one of the investment tax credit projects that we generate. We will be seeking to do at least once a quarter. There is a potential to do it more than once a quarter depending on how many new units are completed. We expect this to be probably a third-quarter contribution but could be quicker than that. The market is moving quickly, and we have some refinancing activities going on that certainly are very positive for the business. We have already fully financed the construction of $27 million of H2S and compression skids. The process is going on; we have received four of them already and have more coming. We are rapidly executing on portions of this project right now. The investment tax credit delay is a month or so after the in-service date if we were doing it in the ordinary flow of business, so not a whole lot of delay between when the project is completed and when we get the cash. David Joseph Storms: Understood. That is very helpful. And then just sticking with those potential new digesters, do those come online at the negative 380 qualification status? Or how does that process look? If they do not come on at the negative 380, what do you think the current timeline is from the negative 150 to the negative 380? Andy Foster: Are you speaking about the new digesters that are not built? Correct. Given the temporary pathway score of negative 150, then once we go through the process with CARB—which hopefully now that they have moved to a Tier 1 approval process will be significantly shorter than what we have experienced in the last few years, which is this kind of 24- to 36-month approval process—it should be more like nine months. Then we would get the benefit of that higher—or lower, however you want to look at it—CI score. So initially it is a negative 150, and as you work your way through the approval process, then you go to the blended rate of the negative 380. David Joseph Storms: That is perfect. Thank you for taking my questions. Eric McAfee: Thank you, David. Operator: Your next question is coming from Ed Woo with Incendiant Capital. Please pose your question. Your line is live. Edward Moon Woo: Yeah. Congratulations on all the progress, guys. My question is, as we are getting closer to the India IPO, what are your priorities, or what have you allocated in terms of what you are going to do with the capital raised? Eric McAfee: The India IPO is primarily designed to support the expansion of the existing projects in India and in California. Our existing projects in California, specifically focused on dairy RNG, would be a use of some of the proceeds of our India business. That is one of the reasons why it will be the first global diversified—not just biodiesel, but multiple different fuels—company to go public in India that offers the India investor access to a very well-established incentive environment here in California called the Low Carbon Fuel Standard. The federal government support of the Low Carbon Fuel Standard in California is matched by the Renewable Fuel Standard at the federal level and the 45z production tax credit and the value of the molecule. So the Indian investor has access to arguably one of the best markets in the world for renewable fuels, and that is a diversification of the growth in the India business. Another point we have made publicly is that as the largest biodiesel producer in India, we happen to be very well-positioned to build the conversion of a biodiesel facility into sustainable aviation fuel. So our India IPO not only is biodiesel and dairy renewable natural gas, but also a conversion into a SAF producer in India in addition to expanding biodiesel. It is a diversified business. The India market is very deep and wide and right now is about to have the shock of its diesel life with an incredible percentage increase in diesel costs as a result of what has been going on in the world. It is a perfect storm in favor of us as a producer in India who has been there for 18 years to open our opportunity to the public markets. We are making excellent progress, and certainly market conditions will determine the actual timing of what we do, but market conditions are trending in our direction. Edward Moon Woo: Great. Well, thanks for answering my questions, and I wish you guys good luck. Eric McAfee: Thank you, Ed. Operator: There are no further questions in queue at this time. I would now like to turn the floor back over to Eric McAfee for closing remarks. Eric McAfee: Thank you to Aemetis, Inc. stockholders, analysts, and others for joining us today. We look forward to talking with you about participating in the growth opportunities at Aemetis, Inc. Todd Waltz: Thank you for attending today’s Aemetis, Inc. earnings conference call. A written and audio version of this earnings review will be posted to the Investors section of the Aemetis, Inc. website. Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward-looking statements and non-GAAP financial measures contained in the earnings materials or made on this call. John, please go ahead. John Ciroli: Thank you, and good day, everyone. Welcome to Montauk Renewables earnings conference call to review the first quarter 2026 financial and operating results and developments. I'm John Ciroli, Chief Legal Officer and Secretary of Montauk. Joining me today are Sean McClain, Montauk's President and Chief Executive Officer, to discuss business developments; and Kevin Van Asdalan, Chief Financial Officer, to discuss our first quarter 2026 financial and operating results. At this time, I would like to direct your attention to our forward-looking disclosure statement. During this call, certain comments we make constitute forward-looking statements, and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed in or implied by such forward-looking statements. These risk factors and uncertainties are detailed in Montauk Renewables' SEC filings. Our remarks today may also include non-GAAP financial measures. We present EBITDA and adjusted EBITDA metrics because we believe the measures assist investors in analyzing our performance across reporting periods on a consistent basis excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide presentation and our first quarter 2026 earnings press release and Form 10-Q issued and filed on May 6, 2026. These are available on our website at ir.montaukrenewables.com. After our remarks, we will open the call to investor questions. We ask that you please keep the one question to accommodate as many questions as possible. And with that, I will turn the call over to Sean. Sean McClain: Thank you, John. Good day, everyone, and thank you for joining our call. I am pleased to announce that we have commissioned our Montauk Ag renewables project in Turkey, North Carolina and are producing gas. We expect the production and sale of renewable electricity from our syngas to commence in May 2026 with revenue generation triggered upon the calibration of the sales meter from the interconnection utility. We have operated the full production line as part of the commissioning process and expect to be able to produce our targeted first phase of 47,000 megawatts, and 120,000 recs annually with approximately 50% of our installed reactor capacity. Our capital investment expectation for this first phase of the project remains unchanged at $200 million. We expect a ramp up in production volumes throughout 2026 directly related to additional feedstock collection. Our joint venture, GreenWave continues to address the limited capacity of R&G utilization for transportation by offering third-party RNG volumes, access to exclusive, unique and proprietary transportation pathways. During the first quarter of 2026, GreenWave's matched available dispensing capacity with available third-party R&D volumes, separated RINs and distributed RINs to the partners of GreenWave. We received approximately $1.4 million in separated RINs and distributed from GreenWave in the first quarter of 2026. In April 2026 we sent a letter confirming termination of our contract with European Energy North America, EENA, for the delivery of biogenic carbon dioxide. The termination was due to EENA failure to provide certain contractual assurances and notices related to the construction of their Texas-based methanol facility. We are currently exploring alternative offtake arrangements with interested parties at our [indiscernible] location. The timing of capital expenditures will be [indiscernible] with the finalization of replacement offtake agreements. We continue to anticipate a capital investment of between $30 million and $40 million. While we continue to diversify the company, our production of renewable energy from landfill feedstock remains a priority focus. The U.S. EPA issued the final rules for the 2026 and 2027 renewal fuel standard on March 27, 2026. The 2025 cellulosic volume requirement was reduced from $1.376 billion to $1.210 billion D3 rents with cellulosic waiver credits also having been made available for 2025 compliance. Hinocellulosic biofuel volume requirements for 2026 and 2027 were established at $1.360 billion and $1.430 billion D3 RINs, respectively. These volumes also represent an increase of $60 million and $70 million, respectively, from the preliminary RVO previously issued by the EPA. These volumes reflect the EPA's assessment of expected regeneration capacity and the related pathway and strengths of the end-use demand for CNG LNG transportation fuels derived from biogas. The EPA did not provide reallocations of D3 RINs as part of the 2026 and 2027 RVO in the final rule. This is primarily due to the statutory conditions on cellulosic biofuel volume requirements which do not allow the EPA to set the total applicable volume of cellulosic biofuel at a volume that is greater than the projected volume available, which necessarily excludes carryover cellulosic rents. And with that, I will turn the call over to Kevin. Kevin Van Asdalan: Thank you, Sean. I will be discussing our first quarter 2026 financial and operating results. Please refer to our earnings press release Form 10-Q in the supplemental slides that have been posted to our website for additional information. Our profitability is highly dependent on the market price of environmental attributes, including the market price for RINs. As we sell market a significant portion of our RINs, a decision not to commit the transfer of their low RINs during a period will impact our revenue and operating profit. . We sold all of our 3.9 million RINs generated and available for sale from our 2025 RNG production in the first quarter of 2026 at a realized price of approximately $2.42. We will not be impacted by the EPA making available cellulosic waiver credits from 2025 production. We have entered into commitments to sell approximately 60% of our expected RIN volumes in the 2026 second quarter. Total revenues in the first quarter of 2026 were $46.4 million, an increase of $3.8 million or 9% compared to $42.6 million in the first quarter of 2025. The increase is related to environmental attribute revenue of approximately $4.2 million from RINs sold related to RINs distributed from Green Wave and the RINs related to pathway dispensing. We had no such RINs in the first quarter of 2025. Our first quarter of 2026 RNG volumes sold under fixed floor price contracts decreased approximately 82.1% as compared to first quarter of 2025 as a result of the expiration of fixed-price pathway contracts. Our RNG commodity revenue decreased approximately 49.3%, which was offset by an increase in RINs sold of 25.5%. Total general and administrative expenses were $8 million in the first quarter of 2026, a decrease of $0.7 million or 8.4% compared to $8.7 million in the first quarter of 2025. The decrease was primarily driven by vesting of certain restricted share awards in 2025. Turning to our segment operating metrics. I'll begin by reviewing our renewable natural gas segment. We produced MMBtu during the first quarter of 2026, flat compared to 1.4 million MMBtu during the first quarter of 2025. Our Galveston facility produced 41,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of 2025 as a result of the landfill host assuming responsibility of wellfield operations and maintenance beginning in the first quarter of 2026. Our [indiscernible] facility produced 43,000 MMBtu more in the first quarter of 2026 compared to the first quarter of 2025 as a result of landfill host well food operational and collection system enhancements. Our Apex facility produced 37,000 MMBtu more in the first quarter of 2026 as compared to the first quarter of 2025 as a result of the June 2025 commissioning of our second Apex facility and increased feedstock gas from improvements we are making to the landfill collection system. Our McCarty facility produced 88,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of as a result of landfill host well-filled bifurcation and changes to the wellfield collection system. Revenues from the Renewable Natural Gas segment during the first quarter of 2026 were $38.1 million, a decrease of $0.4 million or 1% compared to $38.5 million during the first quarter of 2025. Average commodity pricing for natural gas for the first quarter of 2026 was 38.1% higher than the first quarter of 2025. In the first quarter of 2026, we self marketed 12.4 million RINs, representing a $2.5 million increase or 25.5% compared to 9.9 million RIN self marketed during the first quarter of 2025. Average pricing realized on RIN sales during the first quarter of 2026 was $2.42 compared to $2.46 during the first quarter of 2025, a decrease of 1.6%. This compares to the average D3 RIN index price for the first quarter of 2026 of $2.41 being approximately 0.6% lower than the average D3 RIN index price for the first quarter of 2025 of $2.43. At March 31, 2026, we had approximately $0.4 million MMBtu available for RIN generation, 0.2 million RINs generated but unseparated to 79,000 RINs separated and unsold. At March 31, 2025, we had approximately 0.3 million MMBtu available for RIN generation, 1.5 million RINs generated but unseparated and 3.9 million RINs separated and unsold. Our operating and maintenance expenses for our RNG facilities during the first quarter of 2026 were $14.4 million, an increase of $0.3 million or 1.8% compared to $14.1 million during the first quarter of 2025. Our Rumpke facility operating and maintenance expenses, operating and maintenance expenses increased approximately $0.4 million, primarily related to preventive maintenance media changes. Our Apex facility operating and maintenance expenses increased approximately $0.3 million, primarily related to increased utility expense, which was partially offset by decreased preventative maintenance media changes. Our Itasca site facility operating and maintenance expenses increased approximately $0.2 million, primarily related to wellfield operational enhancements. Our Dowerston facility operating and maintenance expenses decreased approximately $0.6 million, which was primarily related to the timing of maintenance of gas processing equipment and preventative maintenance media changes. We produced approximately 43,000 megawatt hours in renewable electricity during the first quarter of 2026, a decrease of approximately 3,000 megawatt hours or 6.5% compared to 46,000 megawatt hours during the first quarter of 2025. Our PECO facility produced approximately 2,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to the decommissioning of one of our engines in the second quarter of 2025 due to the shift towards boiler heat digestion process. Our Bowerman facility produced approximately 1,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to original equipment manufacturer required life cycle maintenance of 1 hour engines beginning in the first quarter of 2026. Revenues from renewable electricity facilities during the first quarter of 2026 were $4.1 million, a decrease of $0.1 million or 0.8% compared to $4.2 million in the first quarter of 2025. The decrease was primarily driven by the decrease in production volumes. Our renewable electricity generation operating and maintenance expenses during the first quarter of 2026 were $4.5 million, an increase of $1.1 million or 33.8% compared to $3.4 million during the first quarter of 2025. The increase is primarily driven by an increase in noncapitalizable costs of $0.8 million at our Montauk Ag renewables project. Our [indiscernible] facility operating and maintenance expenses increased approximately $0.4 million, which was related to the timing of gas processing preventive maintenance. We recorded approximately $4.2 million in the first quarter of 2026 related to the cost of RINs distributed from GreenWave when sold and the cost related to pathway dispensing associated with the dispensing of R&D. There were no such expenses incurred during the first quarter of 2025. During the first quarter of we recorded impairments of $0.4 million, a decrease of $1.6 million compared to $2.0 million in the first quarter of 2025. The decrease primarily relates to the first quarter of 2025 impairment of an R&D development project for which the local utility no longer accepted RNG into its distribution system. We did not record any impairments related to our assessment of future cash flows. Operating loss for the first quarter of 2026 was $1.6 million compared to operating income of $0.4 million in the first quarter of 2025. R&D operating income for the first quarter of 2026 was $8.7 million, a decrease of $1.7 million or 15.7% compared to $10.4 million for the first quarter of 2025. Renewable electricity generation operating loss for the first quarter of 2026 was $2.2 million, an increase of $1.2 million compared to $1 million for the first quarter of 2025. Other income in the first quarter of 2026 was $1.3 million, an increase of $2.5 million compared to the first -- compared to other expenses of $1.2 million in the first quarter of 2025. In the first quarter of 2026, we recorded approximately $3.3 million in income related to our joint venture investment in GreenWave. There was no such income reported during the first quarter of 2025. We received approximately $1.4 million in RINs distributed from GreenWave in the first quarter of 2026, of which approximately $0.4 million remain unsold. We sold approximately 1 million RINs in recorded revenues from those RINs sold of approximately $2.4 million. Additional information on GreenWave can be found in the supplemental slides that have been posted to our website. On March 9, 2026, we entered into a 5-year new security credit facility with a wholly owned subsidiary, Hannon Armstrong Capital LLC, HASI that consists of up to $200 million in senior indebtedness. These proceeds were used to repay all our outstanding debt. We expect to have an additional $45 million in proceeds drawn upon the conclusion of certain engineering review and operational requirements of our Montauk Ag renewables project in North Carolina. As a result of this refinancing in the first quarter of 2026, we recorded debt extinguishment cost of $1 million. We are only required to make interest payments during the first 2 years of the agreement, which matures in March 2031. We expect to work with has in the future to secure additional project-based financing for our current and future development projects. Turning to the balance sheet. On March 31, 2026, $155 million was outstanding on our new security credit facility with [indiscernible]. For the first 3 months of 2026, our capital expenditures were $38.6 million, of which $33.1 million and $1.8 million, respectively, were related to the ongoing development of Montauk Ag Renewables and our Bauerman-RNG facility. We had approximately $19.6 million in capital expenditures included within our accounts payable at March 31, 2026. As of March 31, 2026, we had cash and cash equivalents net of restricted cash of approximately $25.9 million. Our new senior credit facility with [indiscernible] requires us to meet liquidity and have quarterly minimum cash balances as defined in the agreement. We had accounts and other receivables of approximately $5.2 million. We do not believe we have any collectibility issues within our receivables balance. As of March 31, 2026, we held approximately [indiscernible] distributed from GreenWave in inventory on our balance sheet. Adjusted EBITDA for the first quarter of 2026 was $10.8 million, an increase of $2 million or 22.8% compared to adjusted EBITDA of $8.8 million for the first quarter of 2025. EBITDA for the first quarter of 2026 was $9.4 million, an increase of $2.7 million or 40.3% compared to EBITDA of $6.7 million in the first quarter of 2025. Net income for the first quarter of 2026 was $5,000, an increase of $0.5 million as compared to a net loss of $0.5 million for the first quarter of 2025. The difference in effective tax rates between the first quarter of 2026 and the first quarter of 2025, primarily relate to the change in our pretax book loss for the first 3 months of 2026 as compared to the first 3 months of 2025. I'll now turn the call back over to Sean. Sean McClain: Thank you, Kevin. In closing, and though we don't provide guidance as to our internal expectations in the market price of environmental attributes, including the market price of D3 RINs we would like to provide a full year 2026 outlook. We are reaffirming our RNG production volumes to range between $5.8 and $6 million MMBtu with corresponding R&D revenues to range between $175 million and $190 million. We are reaffirming our renewable electricity production volumes to range between 195,000 and 207,000 megawatt hours, with updated corresponding renewable electricity revenues to range between $33 million and $37 million. that reflects our current expectations of production at our Montauk renewables facility in Turkey, North Carolina. And with that, we will pause for any questions. Operator: [Operator Instructions] Our first question comes from Matthew Blair at TPH. Matthew Blair: I was hoping you could talk a little bit about this fixed price contract that appears to have rolled off. And I think there was a mention of that in the release is there any prospects for renewing that contract? And can you say if that contract was above current market rates? Like should we think of that roll off as being dilutive to your ongoing margins? Kevin Van Asdalan: Thanks, Matthew. In short, if you -- I'm going to point you to our operating highlights table within our 10-Q the rolling off of the fixed price contract is consistent with our moving and our ability to find homes for our RNG volumes in the transportation market. It's in concert with a quarter-over-quarter reduction in RINs that we're sharing with counterparties through our pathway. That has come down in the first quarter of 2026 yielding increases in RINs sold in 2026 over 2025. That's sort of a general understanding of a product mix moving away from fixed pricing into a more commodity and merchant availability of RINs generated from the production that we're getting as we are dispensing volumes in the transportation space and retaining more RINs and able to sell more RINs related to the roll-off of those fixed price contracts. Operator: Our next question comes from Betty Zhang at Scotiabank. Y. Zhang: Can you talk about the Montauk ag renewables? It looks like the revenue generation seems to be pushed out by about a month and that's also factored into your annual guidance. Can you just speak to what may have contributed to that? Sean McClain: Yes. Thanks, Betty. The adjustment to the revenue guidance is solely attributed to the timing of the commissioning that was completed at the end of April as opposed to the end of the first quarter with revenue commencement activity starting in May instead of April. So that's the month shift that's reflected in that updated guidance. Operator: Our next question comes from [indiscernible] at UBS. Unknown Analyst: With the North Carolina project coming online and production expected to begin this month. Can you help us think about the ramp profile from here? I know you mentioned in your opening remarks and in the press release that you expect ramp up in production volumes throughout 2026. But can you give us additional color into that? Kevin Van Asdalan: Thanks, Richard. As we've alluded, we have a certain amount of hog spaces that we're targeting to support our production expectations under a first year. We had announced that there were some weather delays on our call in our first -- at the end of the year in March. Some weather delays have delayed some installation of the own arm collection equipment as well as delaying some of our ability to timely assemble our dewatering equipment related to those sort of weather delays in installment of our feedstock collection and dewatering equipment. Our ramp throughout 2026 is contingent upon us getting caught up and meeting some internal expectations associated with our own farm installation related to feedstock collection and transportation to our production facility. Operator: Okay. I'm showing no further questions at this time. I would now like to turn it back to Sean for closing remarks. Sean McClain: Thank you, and thank you for taking the time to join us on the conference call today. We look forward to speaking with you again when we present our second quarter 2026 results. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's Results Conference Call for the First Quarter of 2026. [Operator Instructions] With us today are Francis Dufay, CEO of Jumia; and Antoine Maillet-Mezeray, Executive Vice President, Finance and Operations. We'll start by covering the safe harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our annual report on Form 20-F as published on February 24, 2026, as well as our other submissions with the SEC. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I will hand the call over to Francis. Francis Dufay: Good morning, everyone, and thank you for joining Jumia's first quarter 2026 earnings call. 2025 was the year we demonstrated the resilience and scalability of our model and '26 is the year we plan to demonstrate our path to profitability. Q1 '26 showed that our momentum towards profitability is continuing and in several important ways, accelerating. Over the past few years, Jumia has been building an e-commerce model designed specifically for Africa, adapted to the unique structural supply, logistical and consumer realities of our markets. In 2025, we proved that this model delivers scale with improving economics and Q1 '26 confirms that the flywheel is turning. This foundation drove our strong operating momentum in the first quarter. GMV grew 32% year-over-year adjusted for perimeter effects. Growth was broad-based across our core markets, reflecting the continued strengthening of our marketplace fundamentals and efficient execution. Profitability metrics continue to move in the right direction. Adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. The business absorbed higher volumes with increasing efficiency while maintaining a disciplined approach on costs. Excluding the onetime costs related to our Algeria exit in February '26, adjusted EBITDA loss would have been $9.7 million, reflecting an underlying improvement of 38% year-over-year in our core business. Based on the progress we made in '25 and the momentum continuing into Q1 '26, we remain focused on achieving our target of adjusted EBITDA breakeven and positive cash flow in the fourth quarter of '26 and delivering full year profitability and positive cash flow in '27. I should also note that we are monitoring the broader macro environment, including cost increases in memory chips and the ongoing geopolitical tensions in the Middle East as well as the potential effects on global supply chain, shipping costs and commodity prices. While we have observed limited impact on our business to date, we remain attentive to downstream risks, including potential pressure on smartphone components availability and transport costs. We believe the resilience of our model and the diversity of our supplier base positions us well to navigate this uncertain environment. Notwithstanding these external matters, we reiterate our guidance for 2026. Let me walk you through the key highlights of the quarter. Usage trends remain strong across our platform. Adjusted for perimeter effects, physical goods orders grew 31% year-over-year, driven by expanding in-country geographic coverage, improved assortment and sustained consumer demand. Our focus remains clearly on physical goods, which accounted for nearly all orders and GMV this quarter. Digital transactions through the JumiaPay app now represent a residual share of our orders as we continue to prioritize transactions with stronger economics. Relatedly, TPV and Jumia Payments gateway transactions have become less meaningful as indicators of our operating performance and effective as of the first quarter of '26, we will discontinue the quarterly disclosure of these KPIs. Adjusting for perimeter effects, quarterly active customers increased 25% year-over-year, reflecting continued traction in both acquisition and retention. Repeat behavior continued to improve with 47% of new customers from Q4 '25 making a repeat purchase within 90 days, up from 45% in Q4 '24. Demand was broad-based across electronics, home & living, fashion and beauty and consistent across most countries, reflecting a similar quality of execution and inputs across our markets. Adjusted for perimeter effects, GMV grew 32% year-over-year in reported currency. Average order value for physical goods increased to $36 from $35 in Q1 '25. Revenue totaled $50.6 million, up 39% year-over-year, driven by higher usage and improved monetization. First-party sales represented 46% of total revenue, supported by continued strength from international partnerships, including Starlink in Nigeria and Kenya. Now turning to profitability. The progress made over the past 3 years continues to translate into measurable operating leverage. Cost improvements across general and administrative, technology and fulfillment are structural. In addition, we renegotiated third-party logistics contracts in February and March and implemented increases in commissions and take rates across most countries in mid-January '26. This reflects the scale of our platform and improved service levels delivered to sellers. Importantly, these commission increases had limited impact on growth, validating our strategy of progressive monetization increases on the back of greater volumes and better seller experience. We also drove meaningful growth in higher-margin revenue streams with marketing and advertising revenue up 44% year-over-year and value-added services revenue nearly tripling, which both reflect improved platform monetization. These changes are consistent across markets and reflect stronger marketplace fundamentals. Fulfillment cost per order was $2.06, flat year-over-year on a reported basis or down 10% year-over-year on a constant currency basis. This reflects productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Most fulfillment operating expenses are incurred in local markets and denominated in local currencies. Technology and content expenses declined 8% year-over-year, reflecting ongoing headcount optimization, automation, platform simplification and the benefit of renegotiated seller agreements, including cloud infrastructure. As a result, adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Quarterly cash burn increased to $15.3 million in Q1 '26 compared to $4.7 million in Q4 '25. The shift from the previous quarter is consistent with typical seasonal dynamics. This compares favorably to the $23.2 million decrease in liquidity in Q1 '25, demonstrating the improvement in our financial trajectory. Now turning to operational highlights and execution at the country level. Q1 '26 demonstrated continued execution strength across our markets. Supply fundamentals remain solid with improvements in both local and international sourcing. Growth was supported by strong performance across multiple categories with fashion and beauty among the top contributors to items sold growth year-over-year and with international items continuing to gain share. Efficient marketing deployment, including CRM, paid online, SEO channels, supported customer acquisition at attractive unit economics. In the first quarter, we sold 4.9 million gross items internationally, up 87% year-over-year adjusted for perimeter effects. This reflects the continued scaling of our Chinese seller base as well as growing volumes from our supply base from affordable fashion in Turkey. Operationally, we continue to extend our reach beyond major urban centers. Orders from upcountry regions accounted for 62% of total volumes, up from 58% in the prior year quarter, both adjusted for perimeter effects. These regions are delivering strong growth while benefiting from a cost structure that scales efficiently with volume. In secondary cities, we are addressing clear customer pain points, including limited product availability and elevated prices from local traders. As a result, our value proposition continues to resonate strongly, driving both adoption and repeat purchase. Now at the country level. Nigeria delivered a strong quarter. Physical goods GMV increased 42% year-over-year. Sustained growth was driven by a broad range of categories with home & living performing particularly strongly alongside continued traction from a country expansion, where a large part of the addressable market remains untapped. We opened over 80 additional pickup stations during the quarter, further extending our delivery network. I should note that Nigeria experienced a significant increase in local fuel prices during March, which created headwinds in our 3PL cost negotiations. However, consumer demand remains sustained and strong. Kenya performed strongly with physical goods GMV up just below 50% year-over-year. Performance was driven by continued strong supply fundamentals and efficient marketing despite similar headwinds to other countries in the phones category. Strong performance in home & living driven by local suppliers and in fashion, driven by international suppliers more than offset the tighter supply in phones. Kenya remains a relatively underpenetrated market for Jumia with vast opportunities up country and we continue to invest in expanding our reach. Ivory Coast growth gradually moderated over the course of the quarter. Physical goods GMV was up 16% year-over-year. Growth was affected by 2 converging headwinds. First, supply disruption in appliances, which is market specific and in smartphones, which is a global dynamic, both felt directly in the market where we have our highest penetration levels. And second, a sharp decline in regulated cocoa farm gate prices down nearly 60% effective in March '26, which reduced the purchasing power of a large share of the upcountry population. Cocoa is the primary export of Ivory Coast and approximately 6 million people depend on it for their livelihoods. This is a meaningful demand side headwind that we expect to persist in the second quarter. However, we remain confident in the fundamentals of our business in Ivory Coast, where we hold a very strong position with a trusted brand and healthy monetization. Egypt's performance this quarter confirmed sustained recovery. Physical goods GMV grew 3% year-over-year, excluding corporate sales, which were still material in Q1 '25, but has since been deprioritized. Physical goods GMV grew 56% year-over-year, confirming genuine market level recovery. Very strong dynamics on the supply side of our marketplace are driving top line acceleration, supported by improved assortment and seller engagement. Our buy now, pay later offering continued to gain traction with strong penetration in high-value categories. Egypt experienced a fuel price increase in March as well, which we are monitoring. However, core marketplace dynamics remain positive. We are also expanding our delivery network through pickup stations in more remote regions, which are poorly served by physical retail. Ghana delivered an exceptional first quarter with physical goods GMV increasing 142%, driven by a country expansion, the scaling of local marketplace and strong supply from international sellers. Ghana was largely unaffected by the disruption in the electronics segment. Our current focus is to continue building logistics capacity to sustain this rapid expansion with stronger customer experience and cost efficiency. Our other markets portfolio also performed well, collectively delivering 10% physical goods GMV growth. Uganda experienced a nearly 1-week internet blackout during the quarter, temporarily impacting volumes, though the market still delivered growth for the period. In February '26, we completed our exit from Algeria, which represented approximately 2% of GMV in '25. The winddown resulted in total onetime exit costs of approximately $1 million, reflecting employee termination benefits and asset impairment, which were all recognized in our Q1 '26 results. Over the medium to long term, this decision simplifies our footprint and improves operational focus, allowing us to allocate resources more efficiently towards markets with stronger growth and profitability profiles. We have not seen significant changes in our competitive environment in Q1 '26. The softening of competitive intensity trends observed in the second half of '25 has continued with competitive intensity remaining subdued across our core markets. The recent disruption of air freight going through the Middle East is expected to create headwinds for non-resident platforms that rely on direct international shipping, contributing to a more level playing field for locally embedded operators like Jumia. Most of our supply comes via sea freight, which was not impacted. We are also seeing increased regulatory scrutiny on cross-border platforms across several of our markets, further reinforcing this dynamic. We are navigating an international environment that is evolving quickly with 2 main developments having the potential to impact our business. First, the memory chips and CPU price increases. We saw a delayed impact on entry-level phone prices and the availability of components for products like smart TVs taking place gradually over Q1. Phone prices increased by approximately 20% between late '25 and early April. We do not see this as a fundamental long-term shift, but it is impacting our business in the near term as supply chains reorganize. Distributors remain temporarily reluctant to release fresh inventory, while prices may increase further and older, cheaper inventory in some markets is still temporarily competing with our more recent supply. We are mitigating this by diversifying our supplier base for smartphones and scaling our marketplace across both local and international sellers. Second, the war in the Middle East. The most immediate impact was the disruption of air freight through the UAE from Asia, which affected some smartphone distributors. Supply routes have since reorganized through other hubs. There are also delayed effects. Disruption to helium supplies creates additional uncertainty for chip production and the majority of our markets have seen fuel prices begin to rise from March, which is expected to weigh on local logistics costs, particularly for middle-mile trucking operations run by our local partners. The impact on our Q1 P&L has been limited with extra costs primarily in Nigeria. If high fuel prices persist, we should expect greater pressure in Q2, potentially partially offsetting the savings from our 3PL rates renegotiations. That said, our strategy of building pickup stations throughout countries is very helpful in this regard as it means that we have already decorrelated a significant share of our delivery costs from fuel prices. In particular, 74% of our ship packages are fulfilled through pickup stations rather than door delivery in Q1 '26, up from 67% in Q1 '25, both adjusted for perimeter effects. We have also taken steps to electrify our last-mile delivery fleet in Uganda and we are looking to replicate this successful pilot in more countries as we continue to reduce our dependence on fuel in logistics operations. '25 was the year when we showed that our business model is on the right track. It delivered growth and improved economics at the same time. '26 is the year when we intend to show that this model will take us to profitability. In this regard, Q1 is a strong data point that is consistent with Q4 '25 trends. We see sustained growth despite an uncertain environment, continued operational leverage and improved unit economics across the whole P&L, resulting in significantly reduced losses. We are committed to delivering trajectory to breakeven by chasing more scale in a disciplined way, improving operational execution and further streamlining our fixed cost base. While we are currently navigating an uncertain international environment, we believe that our business fundamentals, which were rebuilt from '22 to '25, mostly in much tougher times than this are strong. We do expect some temporary disruption, but it does not change our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. With that, I will now turn the call over to Antoine to walk you through the financials in more details. Antoine Maillet-Mezeray: Thank you, Francis, and thank you, everyone, for joining us today. I will now walk you through our financial performance for the first quarter. Starting with revenue. First quarter revenue reached $50.6 million, up 39% year-over-year or up 28% on a constant currency basis. Results reflect sustained customer demand and consistent execution across our platform. Marketplace revenue for the first quarter totaled USD 27 million, up 50% year-over-year and up 35% on a constant currency basis. Third-party sales were USD 23.2 million, up 45% year-over-year or up 31% on a constant currency basis. Growth was driven by solid performance in the marketplace, including healthy usage trends and higher effective take rates. Marketing and advertising revenue was USD 2.2 million, up 44% year-over-year or up 31% on a constant currency basis. The improvement was driven by continued growth in sponsored products, supported by strong tools rolled out in mid-2025 that increased seller adoption, improved return on ad spend and drove greater density and competition on our marketplace. With advertising revenue currently representing roughly 1% of GMV as we are improving this figure, we see meaningful opportunity to scale this profitable source of revenue. Value-added services revenue was USD 1.7 million in the first quarter of 2026, compared to USD 0.6 million in the first quarter of 2025, driven by strong growth in warehousing fees, reflecting higher volumes flowing through our storage infrastructure, largely driven by demand from Chinese sellers and improved monetization of our warehousing services. Revenue from first-party sales was USD 23.1 million, up 30% year-over-year or up 21% year-over-year on a constant currency basis, driven by strong momentum with key international brands. Turning to gross profit. First quarter gross profit was USD 29.4 million, up 48% year-over-year or up 33% year-over-year on a constant currency basis. Gross profit margin as a percentage of GMV increased by 160 bps to 13.9% for the quarter compared to 12.3% in the first quarter of 2025, reflecting continued progress in marketplace monetization. As we enter 2026, we implemented broad-based increases in commissions across most countries, leveraging the scale and improved service levels we have built with sellers. Q1 2026 was already tracking the expected impact with gross profit margin expanding by 160 bps year-over-year, marketing and advertising revenue up 24% and value-added services revenue nearly tripling. We expect these trends to continue supporting gross profit growth going forward. Now moving to expenses. We continue to see the benefits of our cost initiatives in the first quarter with additional improvements expected to materialize over the coming quarters. Fulfillment expense for the first quarter was USD 12.2 million, up 29% year-over-year and up 17% in constant currency, primarily due to higher volumes. Fulfillment expense per order, excluding JumiaPay app orders, was $2.06, flat year-over-year or down 10% year-over-year on a constant currency basis, reflecting productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Sales and advertising expense was USD 5.1 million for the first quarter, up 64% year-over-year and up 54% in constant currency. We view this increase positively. We are scaling high ROI marketing investment on the back of stronger product fundamentals, improved quality of service and higher platform reliability, driving not only top line growth, but also better unit economics as higher volumes and improved customer retention contribute directly to operating leverage and margin improvement. Technology and content expense was $8.9 million for the first quarter, representing a decrease of 8% year-over-year or a decrease of 10% on a constant currency basis, driven primarily by continued headcount optimization and ongoing renegotiated seller contracts. First quarter G&A expense, excluding share-based compensation expense, was $16.8 million, up 4% year-over-year and down 3% on a constant currency basis. The year-over-year increase was primarily driven by staff costs with general and administrative expense, excluding share-based compensation expense, which increased by 16% to USD 9.1 million, driven by approximately USD 0.8 million in onetime termination benefits related to our Algeria exit and the appreciation of local currencies against the U.S. dollar compared to the first quarter of 2025. We continue to streamline the organization. The total headcount has declined by 8% since December 31, 2024, with just over 1,980 employees on payroll as of March 31, 2026. At the end of the fourth quarter of 2022, when current leadership was installed, we had 4,318 employees. We are actively working to further reduce headcount, continue process automation and leverage AI tools. We expect to reduce our headcount by at least an additional 200 full-time employees over the next 2 quarters. More broadly, AI and automation are becoming meaningful drivers of efficiency across Jumia. We are deploying AI tools across our operations, finance processes, headcount efficiency programs in our technology organization, encompassing cybersecurity monitoring and software development, which supported the net FTE reduction and drove efficiency gains year-over-year. Importantly, AI is also helping us solve problems on the ground. In logistics, it improves routing and reduces failed deliveries. In customer services, it enables faster resolution with fewer agents and in sellers operation, it streamlines onboarding and compliance monitoring. This is not only reducing cost but also improving the quality of service we deliver to customers and sellers, reflecting our ongoing commitment to structural cost efficiency. Turning to profitability, adjusted EBITDA for the quarter was negative $10.7 million or negative $10.9 million on a constant currency basis. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Turning to the balance sheet and cash flow. We ended the first quarter with a liquidity position of $62.6 million, including USD 61.5 million in cash and cash equivalents and $1.1 million in term deposits and other financial assets. Our liquidity position decreased by $15.3 million in Q1 2026 compared to a decrease of $23.2 million in Q1 2025. Net cash flow used in operating activities was $12.5 million in the quarter, including a broadly neutral working capital contribution. The improvement reflects the continued strengthening of our marketplace flywheel driven by higher volumes, improved payment flows and stronger bargaining power with large third-party accounts. In summary, we delivered another quarter of solid execution and strong top line growth while continuing to improve cost efficiency. Progress on structural cost reductions, automation and cash discipline reinforces our confidence in meeting our near-term objectives and moving closer to profitability. Looking ahead, we remain focused on operational discipline, margin expansion and prudent and informed capital allocation, positioning Jumia for sustainable growth and long-term value creation. I now turn the call back over to Francis for a discussion of our updated guidance. Francis Dufay: Thank you, Antoine. Let me now turn to our expectations for 2026. Our focus for '26 remains on accelerating growth, driving further operating efficiency and continuing our progress towards profitability. We are seeing continued strong momentum validated by our Q1 results, which give us confidence in reaffirming our full year '26 outlook. We are navigating an evolving international environment. While we expect some temporary disruption from memory chips and CPU price pressures and the ongoing conflict in the Middle East, our business fundamentals are strong. Our Q1 '26 results demonstrate continued execution and we have not changed our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. For the full year '26, we anticipate GMV to grow between 27% and 32% year-over-year adjusted for perimeter effects. On profitability, we expect adjusted EBITDA to be in the range of negative $25 million to negative $30 million. We confirm our strategic goal to achieve breakeven on an adjusted EBITDA basis and positive cash flow in the fourth quarter of '26 and to deliver full year profitability and positive cash flow in '27. Looking specifically at the second quarter, GMV is projected to grow between 27% and 32% year-over-year adjusted for perimeter effects. Thank you for your attention. We will now be happy to take your questions. Operator: [Operator Instructions] Your first question for today is from Jack Halpert with Cantor Fitzgerald. John Halpert: I just have 2, please. So on the memory chip inflation, are you maybe able to quantify this at all in terms of the impact in the quarter? And maybe how much of this has been resolved already versus expected to continue in 2Q and beyond? And just is it more about consumers like deferring purchases trading down? Or is it more of a supply availability issue? That's the first question. And then the second question, just on the AI efficiency you guys mentioned and I think the planned 200 reduction in headcount. First, just how much of this headcount reduction is tied to the Algeria exit, if at all? And then maybe on the AI side, what are a few examples of areas you're seeing the most efficiency in the business from AI currently? Francis Dufay: Let me take the 2 questions and Antoine will also comment on the AI impact across our business. Starting with memory chips, CPU prices inflation. So to quantify the impact, you can look at our presentation where we show the share of smartphones category in our mix. You'll see that the whole smartphones category, I mean, is directionally roughly 10% of our sales in GMV. This is usually a category with lower unique contribution. It's lower margins than, let's say, fashion, for example. So it definitely has -- I mean, it's not 10% of our gross profit, as you can imagine. It's not the whole category that's in danger. Obviously, it can impact the growth of the category and it has in the first quarter. It's likely to continue in the second quarter. But we're not talking of a major impact over the whole top line of Jumia, okay? It's something that we have to flag because it's global trends and it's relevant for our business, but we're talking impact on a fraction of our total business and it will not wipe out like half of the sales, obviously. It's limited. And most importantly, we see it as temporary. The timing here is that we had delayed impact really. A lot of people asked us questions, sorry, late 2025 and in the first month of '26 and really not much was changing on the market at this time. And then prices -- the price increase of directionally 20% that we've mentioned on entry-level smartphones was mostly felt in the month of March across key countries. So that's directionally what happened. We believe it's a matter of timing. I mean we're used to those kind of supply disruptions and market reorganizations. So it doesn't last forever, but we know that for a couple of months, supply may be disrupted. Some brands may be doing better and some brands may be more disrupted, which we've seen in the market. Some brands will be running out of stocks. Some brands will still be available with sometimes lower price increases. For example, we see that Samsung has had lower price increases because they have much better integration of the whole supply chain. But basically, we see it as temporary disruption as the supply chain reorganizes. And when it comes to consumer impact that you were asking, we see a mix of both, right? We see a mix of, of course, prices increasing, so consumers are trading down. When people are still buying smartphones, that will never change, but they are buying lower specs with the same amount of money in their pocket. And on the other hand, we also see supply -- I mean, pure supply availability issues on very specific brands in very specific markets. So as we mentioned in the -- earlier in the call, we've been more impacted in the Ivory Coast, for example, than in Kenya in terms of pure supply availability. So all of that is having an impact, some level of impact, but we see it as clearly temporary. It's not -- I mean, it's not a long-term challenge. We will keep on selling smartphones and the market will reorganize. And what matters is that we have access to the best supply, the best prices and our distribution is a huge advantage when it comes to selling smartphones across Africa. And then to your second question about headcount, the 200 target is not tied to Algeria. So most of the impact on Algeria is already behind us. So the 200 headcount reduction that we mentioned has nothing to do with the exit from Algeria. Antoine, do you want to comment on the use of AI across our team? Antoine Maillet-Mezeray: Yes, I can take this one. Thank you. Obviously, we're using AI in tech, be it in cybersecurity or coding. We are able to be much, much more productive thanks to the different tools that we are using. We pay a lot of attention to be agnostic in terms of tools so that we don't end up with 1 or 2 suppliers that will change pricing policy overnight. But we are going much further than pure tech. We're using AI in accounting, for instance, to automate bank reconciliations. If you want a very pragmatic example, we're also using AI in HR. Basically, we have a lot of database, which are very structured and ready to be used consumed by AI, allowing us to produce smarter reporting in a much faster way and being able to share the information across our very large footprint, resulting in better efficiency. Operator: Your next question is from Brad Erickson with RBC Capital Markets. Bradley Erickson: Just a couple of follow-ups on that first question. I guess with maintaining the full year guide, it looks like maybe a little bit of deceleration built in there through the year. I guess would you say that outlook kind of reflects this idea that some of these headwinds you're talking about are sort of dynamic and adjusting and reflected in Q2, but then sort of stabilize through the year? Or is there any contemplation in the range that maybe things get worse? Francis Dufay: Well, in the current international environment, if you -- Brad, if you know for sure what's going to happen, please tell me. We could make a lot of money. Well, more seriously, we acknowledged some level of uncertainty in the international environment with very specific aspects that can have a negative impact on our P&L. We mentioned chip prices and fuel prices. We remain confident in the range that we have given as guidance for the full year and for the second quarter. It accounts -- I mean, it covers, it includes some level of uncertainty. But I think it reflects -- I mean, the fact that we stabilized that range reflects our opinion that most of the disruption we're seeing is temporary. So we're seeing real headwinds like the demand side headwinds in the Ivory Coast due to cocoa prices is real and can be felt on the ground. Smartphone price increases and supply disruption is real and can be felt on the markets. But we all see that as quite temporary and really not disrupting the fundamentals of our business, neither the midterm or long-term opportunity. So we -- and we're also seeing continued strength in the trends in several countries, especially Nigeria, which is still growing over 40%; Ghana, which is growing over 100%. So in short, those headwinds and that level of uncertainty is not structurally challenging our business and it's not something we expect for the long run. So this range of 27% to 32% top line growth that we're giving for the second quarter as well is our best assessment in the current environment based on the early results of the quarter that we're already seeing and reflects the level of confidence in our business model. Bradley Erickson: Got it. And then you called out marketing and being a strong point in your prepared remarks. I guess just within your outlook, how much kind of flexibility do you think you have on marketing given some of these other headwinds you're talking about? And I guess how much kind of like offense do you feel like you can play here in 2026 in terms of putting your foot down on marketing? Or is it still fairly measured given how some of the macro factors you're talking about? Just kind of the upside, downside considerations there with marketing spend. Francis Dufay: Yes. I think 3 things on the marketing side. So first of all, I think we remain at spend ratios that are very reasonable for an e-commerce company of our size, right? Our ratio of spend is slightly lower than much, much bigger peers in emerging markets, which shows frugality and efficiency in that field. So we were very -- I mean we're confident in our ability to spend very efficiently our marketing budget and driving strong returns. Second, we still have major improvements coming over the year in terms of efficiency and the better use of our marketing channels, especially online. And third, we are very reactive as well. A large part of those budgets are spent on online channels where it's very easy to pilot on a monthly, weekly, daily basis. So we are able to make decisions if needed, if we see lower traction in a given market. We're very dynamic in reallocating budgets when we need to on a daily or weekly basis. At this stage, we believe we still have -- I mean we do have sufficient traction and that justifies the amount that we're spending. But we are very flexible and we can be extremely reactive if we see different trends. Bradley Erickson: Got it. And then one last one. Just when you think about the journey to cash flow positive in the next year, you talked about the headcount reduction here in the next few quarters. Besides that, just what are kind of some of the major pain points on reaching that goal that you still -- you feel like you still have to get through? Francis Dufay: You mean the goal of cash flow positive? Bradley Erickson: Correct. Francis Dufay: I would not talk about pain points. I mean I'll let Antoine comment as well, but I think the path is pretty clear, right? I mean if you look at our numbers, now it's just -- it's not just us talking. You have very clear verifiable numbers showing that we're able to scale, we're able to improve the unit economics, get operating leverage and further reduce the fixed costs. So that's a very clear trajectory that takes us to breakeven. It's mostly an execution game. It's mostly an execution game. I would not say we have blockers or pain points. We know very much what we're working on. We need to keep on scaling the top line and keep on delivering those improvements in the unit economics and further reducing in absolute terms of fixed costs. I think you can see a clear trajectory in the last 2 quarters. It's extremely consistent. It's all about execution unless there would be a major macro disruption that we're not seeing at this stage, it's really about execution. Operator: Your next question for today is from Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Very nice quarter and execution. Laundry list of, let's call them, crosswinds, some headwinds in Q1 into Q2. Outside of those, it feels like the business is actually outperforming because you reiterated the guide, you outperformed in Q1. Q2 guide is in line despite kind of all of those challenges. So I guess trying to take a step back and maybe normalizing for a lot of those outside factors, how you feel about the progress thus far in the year internally? Francis Dufay: Yes. Thanks, Ryan, for putting it this way. I mean we -- Antoine and I are very deeply in the business and we -- it's sometimes good to step back and realize the progress. I mean we have a tendency to look more at the problems than the successes, but it's how we managed to push it forward. But yes, I think there are very clear bright side this quarter. It's very clear and that's what you see in our presentation on the operating leverage. And we see that we, again, this quarter, just like in the fourth quarter of '25, we're able to show significant GMV growth. So the business model is working while clearly improving all the unit economics. So 31% GMV growth that translates into a significant improvement of 64% of all gross profit after fulfillment and marketing costs. So that's real operating leverage and we're able to further reduce our fixed cost, thanks to pretty hard work on tech specifically this quarter, but also a lot happening in G&A that will pay off in the coming quarters. You see the 1/3 32% improvement in adjusted EBITDA. So I think the bright -- I mean, the key message of this quarter is we're able to show very consistent improvement after Q4 with significant growth that's sustained in spite of the environment and continued progress on the unit economics and fixed costs. And we expect that to continue. There's no reason why the trend should change in the coming quarters. Ryan Sigdahl: Very good. We've noticed -- you mentioned Nigeria strength. We've noticed an expanded pickup station footprint there, particularly in secondary cities. Can you talk about Nigeria, but also you mentioned it in Kenya and others, but kind of the upcountry expansion, how you think about that strategy with pickup stations? And then if maybe that strategy has evolved or changed in recent kind of months as you guys have rightsized the cost structure, infrastructure and overall company? Francis Dufay: So I'll talk about Nigeria right afterwards. But overall, across countries, we keep on expanding our reach. So basically opening new pickup stations in new cities that we're not covering or densifying the network in existing bigger cities. This is a very important component of our growth plan because it basically increases the addressable market, right? We are building our distribution network and partnering with local entrepreneurs. And if we don't have -- I mean, if we do not build the distribution network in a given city, it means that city is outside of our addressable market. So by expanding this network of pickup stations, we are increasing our addressable market, which is arguably one of the easiest and cheapest ways to grow our top line. This is happening across all countries, but Nigeria is the most striking example. A few months back, Nigeria, we are still covering about 1/3 of the addressable market of the population. If we look at the cities where we had established distribution, the total population was about 1/3 of total population, which is massive room for improvement. In our more mature markets, we're close to 60% in Ivory Coast, for example. So it gives you an idea of the potential that's still untapped in a country like Nigeria. So we're very -- I mean, we're happy about the growth in Nigeria. We believe we can still get more than that. The growth in Nigeria is largely driven by up country. So distribution expansion, that's a big driver. But we're also seeing very favorable trends across categories and supplies. We mentioned home & living as a strong category this quarter in Nigeria. We're seeing strong engagement on our local marketplace. We're seeing increased supply from international vendors, mostly from China, but also from Turkey in Nigeria. So I think we have lots of tailwinds in Nigeria and the hard work of the past couple of years is really paying off, which is critically important in a market where, first of all, there's so much potential to address. Second, the competitive intensity has reduced around us. And third and quite importantly, it's a market where we have good unit economics after -- especially after the devaluations over the past few years, local unit costs are fairly low and while it's quite profitable to scale in Nigeria to put it this way. Operator: Your next question is from Fawne Jiang with Benchmark Company. Yanfang Jiang: First of all, your international seller growth appeared very strong. Just wonder how should we think about the merchant ramp-up and the typical lead time from onboarding to more meaningful GMV contribution, particularly considering you are opening a new sorting center [indiscernible] and how would that potentially impact your take rate going forward? Francis Dufay: Yes. So that's an important question, guess -- so how can I put it? So the growth we're seeing today in volumes items sold and the whole business from international sellers is actually the result of the last 3 to 4 years of work. Typically, the timelines when a supply -- when a new Chinese vendor is onboarded, we expect meaningful contribution after more than a year, sometimes 2 years or more to deliver volumes and margins. It's because we onboard vendors who don't always -- I mean, don't know very well our markets. They need to test the waters first, they send small supply to the countries. And then gradually, they will scale their inventory in our most important countries. So this process does take time. So they learn the market and they commit more and more working cap and inventory to our countries. And so what you see today is really the result of like 3 to 4 years of real hard work. What we see on the ground in China, I mean, since the whole tariff thing last year, we've seen that strong -- I mean, much stronger enthusiasm and strong engagement with Chinese vendors. We've seen more and more vendors willing to join our platform and sell on Jumia. The trend has been very well maintained over the past quarters and consistent now. And this increased -- this increased volumes of onboarding of vendors is going to reflect over time, but it's not yet fully felt in the numbers. So the good news here is that we really have a pipeline of vendors and the pipeline of supply coming to Africa that will get -- should get stronger over time due to the medium- to long-term structural nature of the work we're doing with our Chinese vendors. And in terms of margins, as we mentioned in the past, the rise of international supply is accretive to our margins. These vendors typically operate in categories that have higher -- sorry, gross profit ratios such as fashion, accessories, home & living and so on. They are also much better contributors to our margins when it comes to purchasing advertising services and using our storage services. So at the end of the day, it enables us to get higher monetization from those sellers and from the local marketplace. Yanfang Jiang: Understood. Another, I guess, topic I want to touch upon is actually your fulfillment leverage. You guys continue to show the leverage there. Just given you are going to very high growth momentum, especially in some of the countries, how sustainable is, I think, the fulfillment leverage? Are any logistic capacity constraints or upcoming investment we should be mindful? Francis Dufay: I'll spend some time on fulfillment. It's an important one because it's our biggest cost bucket. So first of all, I mean, we're still seeing some leverage on costs this quarter with the fulfillment cost per order that's declining 10% in local currency and it's almost all local OpEx. So the local currency view is relevant. But we're not happy with the progress, right? In dollars, we're flat year-over-year at $2.1 per gross order. We want to do better than that. So just to set the stage, we're not happy with the progress here, although there is some leverage that visible in local currency. We believe those cost per order should keep on going down going forward. And scale should play in our favor. There can be very specific temporary cases where like very high volumes lead to some level of inefficiency, but that's really not what should happen across countries and over the long run. So looking specifically at the improvements and the leverage we have on that fulfillment cost per order, we have a lot of work that has -- well, that has been ongoing over the past 2 quarters already. On the fulfillment -- so on fulfillment staff cost, which is about 1/3 of the cost here, we have a big push for higher productivity and more automation. We're rolling out at the moment, for example, new tools at the warehouse to increase productivity and tracking of the workforce. So we believe we have some potential to improve there. And on the transport side, which is around 2/3 of the fulfillment staff cost, about 60%. So on transport, which is basically all the money we're paying to our local logistics partners. We have recently implemented a renegotiation of all the fees, I mean, a reduction of all the fees. Some of that will be partly offset by the fuel price increases, which will lead to surcharges in some countries. But over the long run, as prices will normalize, we expect the surcharges to go away. And we are working to improve also the efficiency of our local partners for logistics, so we can renegotiate their fees. So we're working on new tools to make middle-mile trucking more efficient for our partners so we're able to split the savings with them. And this will be operational later this year. So we still have a lot to do and we still have a lot of efficiencies to capture there. It's a lot of hard work, right? We're using more and more AI to make it more efficient in supply chain as well. Part of it depends on tech progress, which we're seeing on the ground and scale should be a tailwind in this regard. Yes, I hope that answers the question. Yanfang Jiang: Yes, that's very helpful. Lastly, more on housekeeping. Can you provide some color on the FX -- latest FX trends for your key countries? Francis Dufay: Yes, Antoine, do you want to take FX? Antoine Maillet-Mezeray: Yes. So you can see that we've had a disconnect between the progress we made on the adjusted EBITDA basis and the net loss before tax. And this was driven by Forex exchange, which was noncash. If you compare to Q1 '25 last year, we had a net FX gain of USD 2.1 million. And this year, we have recorded a loss of $3.5 million. Again, that swing is not cash-based. There is no cash impact. And this reflects the impact of FX swing on intercompany balances that we have between the total holding and the operations. We are working actively on this one to reduce the impact of the Forex by accelerating repatriating cash and other restructuring operations. This was for the finance and accounting part. On the business side, before Francis comments, if you want, we see some impact, but what is important for us is that the movements are not too violent so that our vendors do not hesitate to import in the countries, which has been the case this year. So so far, we are able to handle properly the FX swing that we are seeing. Francis Dufay: Yes. I'll just add briefly on that. We've seen huge swings in FX over the past 4 years across our key countries like Nigeria and Egypt. There's no such thing happening right now. Local currencies have been behaving much more strongly even over the past few months. And as Antoine mentioned, the most important part here is that it's not impacting suppliers' confidence. It's not impacting customers' purchasing power in any significant way and we're not seeing any disruption in the business because of this. Operator: We have reached the end of the question-and-answer session and conference call. You may disconnect your phone lines at this time. Thank you for your participation.
Operator: [inaudible] Welcome to Warner Music Group Corp.'s Second Quarter Earnings Call for the period ended March 31, 2026. At the request of Warner Music Group Corp., today's call is being recorded for replay purposes. If you object, you may disconnect at any time. Now I would like to turn today's call over to your host, Kareem Chin, Head of Investor Relations. You may begin. Good afternoon, and welcome to Warner Music Group Corp.'s fiscal second quarter earnings call. Kareem Chin: Please note that our earnings press release, earnings snapshot, and Form 10-Q are available on our website. On today's call, we have our CEO, Robert Kyncl, and our CFO, Armin Zerza, who will take you through our results and then answer your questions. Before our prepared remarks, I would like to remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group Corp. regarding future events and financial performance. We plan to present certain non-GAAP results, including metrics that are adjusted for notable items, during this conference call and in our earnings materials, and have provided schedules reconciling these results to our GAAP results in our earnings press release. All of these materials are posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, or projections will be realized or achieved. Investors should not rely on forward-looking statements as they are subject to a variety of risks, uncertainties, and other factors that can cause actual results to differ materially from our expectations. Information concerning these risk factors is contained in our filings with the SEC, and with that, I will turn it over to Robert. Hello, everyone, and thank you for joining us today. Robert Kyncl: Our strong Q2 results prove that our strategy is working. With a 12% increase in total revenue, a 24% increase in adjusted OIBDA, and over 200 basis points of margin expansion, we are demonstrating the benefits of our transformation. This growth is underpinned by an increase in recorded music subscription streaming revenue of 15% on an adjusted basis. This was bolstered by the combination of broad-based strong execution by our operating units, and by the successful implementation of contractual PSM increases that began in the quarter. We continue to make progress on our three strategic pillars: growing our market share, increasing the value of music, and becoming more efficient and effective. And we use AI to help us achieve all three of these, which I will touch on throughout my remarks. Starting with market share growth, which remains a primary objective, we are driving gains through developing new talent and delivering consistent creative success with emerging and established artists and songwriters across multiple geographies, improved monetization of our catalog, and increased focus on distribution. Our execution across all of these has delivered strong year-over-year share growth in our fiscal Q2. Overall, U.S. streaming share grew 1.1 percentage points, and U.S. new release share grew 2.7 percentage points. Our creative success is evident in recent high-profile wins, including Bruno Mars dominating four Billboard charts simultaneously, PinkPantheress securing her first Global 200 number one, and Don Toliver scoring his first number one album. Like Bruno, many of our current superstars are homegrown—Dua Lipa, Charli XCX, and many more—and you can go back decades in our history to artist discoveries like Led Zeppelin, Grateful Dead, Madonna, Prince, and many others, who have launched and sustained highly successful careers at our labels. Flash forward to today, we continue to introduce the world to breakout chart-topping stars like PinkPantheress, Sombra, Billa Kay, The Marías, and Alex Warren. These are just a few of the many examples of our outstanding track record in artist development. We have successfully transferred this capability around the world, delivering a string of number ones with local artists in Italy, Poland, Sweden, France, Spain, and Mexico. Our rising Mexican star Junior, for example, just launched at number one on both the Spotify Global and U.S. Top Album Debut charts. Turning to catalog, which represents about 65% of our recorded music streaming revenue, we have delivered growth across shallow and deep vintages. Our always-on marketing approach, reimagined for today's younger generation, is yielding results as we find new ways to continuously revitalize our timeless repertoire. In addition, we have great success introducing iconic artists to younger audiences through new releases. Madonna is just one great example. She became a Warner Music Group Corp. artist more than four decades ago, and we are about to release her 14th studio album, Confessions II. As a result of our catalog marketing campaign leading into the new album, we have seen her weekly streams increase 24% versus baseline, with under-28-year-old fans accounting for 35% of her Spotify streams. Her new duet, Bring Your Love, with Sabrina Carpenter arrived last Friday and is Madonna's highest-charting track yet on Spotify, and fueled her biggest-ever streaming day on the platform. Additionally, our catalog is home to over 1 million tracks from more than 70 thousand artists. AI tools that we have developed make it possible for us to stimulate engagement with this vast treasure trove of content quickly and cost effectively through the use of motion art, visualizers, lyric videos, and many more. At the same time, we are using our proprietary model to determine where our marketing activities should be focused. Our ability to create these assets quickly and inexpensively, combined with our focused marketing activities, enables better and deeper monetization of our catalog, ultimately amplifying our market share growth. Enhancing our distribution offerings through strategic partnerships and investments is an important driver of our market share growth strategy. Our recent deal with TwoStream, a leading independent force in the música Mexicana space, and our acquisition of Revelator, which Armin will discuss in more detail, not only enhance our capabilities, but also help us to establish a powerful pipeline of emerging talent and catalog while creating new pathways into our global ecosystem. Our publishing business grew 10% this quarter, continuing its strong momentum. From our songwriters Mac and Scott Dittrich contributing to Bad Bunny's number one song on the Billboard Hot 100, to our deals with Grammy winner Levy, R&B hitmaker and Grammy-winning producer Dre Harris, and chart-topping singer Ernest, Warner Chappell's hot streak continues. We have also expanded our global presence by launching publishing operations in India. A brand-new way for us to drive share is through long-form programming. Last quarter, we announced a multiyear first-look deal with Netflix to produce documentaries. And today, we announced a multiyear first-look deal with Paramount to produce theatrical live-action and animated feature films. I would like to give big thanks to our partners at Unigram and at William Morris Endeavor who helped us structure both partnerships. I look forward to our continued collaboration. These agreements represent new and exciting ways to tell amazing stories about the lives, music, and legacies of our most popular artists and songwriters. In doing so, we are introducing them to new fans all around the world, building their brands, and expanding engagement with their music. Moving to our next pillar of growing the value of music, when I joined the company, I identified the need to increase the value of music. Today, we are doing this in a number of ways. These include PSM increases, deals with emerging AI platforms like Suno, and premium tier offerings with traditional DSPs that feature AI. We have made meaningful progress in several of these areas. First, after more than a decade of volume-driven growth, we are now seeing PSM increases, which contributed to our mid-teens subscription streaming growth in the quarter. These increases provide greater certainty around our economics, irrespective of retail pricing. Beyond traditional streaming, AI represents an important step towards enhancing the value of music. There has been a lot of discussion about whether AI will have an accretive or dilutive impact on our industry. Numerous DSPs have reported that the ever-growing volume of AI music being uploaded is seeing very limited engagement and therefore has minimal dilutive impact. Of course, we are closely aligned with our DSP partners to ensure that contractual protections are in place to prevent or limit dilution. We have taken a leadership role in creating new monetization frameworks with emerging AI companies, and our pragmatic, experimental approach will deliver new revenue streams. Our partnership with Suno serves as a proof point for AI and incremental value creation. Suno's 2 million subscribers are paying an average of $12.50 per month, clear evidence of the willingness of superfans to pay more for interactivity. Not only are we building an ongoing consumption-based revenue model that enables us to scale as our partners do, we are also ensuring that AI models respect copyright, name, image, likeness, and voice to protect our artists and songwriters. Implementing clearly drawn boundaries is enabling us to harness AI technology for licensed models that ensure fair compensation to artists and songwriters. In fact, we were just named one of Time Magazine's 100 Most Influential Companies for our leadership through this AI era. Additionally, we are actively engaged with our traditional DSP partners to launch new AI-powered premium tiers that will benefit our artists and songwriters by allowing fans to engage more deeply with their music. We continue to believe that our industry-leading and thoughtful approach to AI will drive one of the biggest incremental value-creation opportunities for our industry. We look forward to sharing updates on future initiatives. Turning to becoming more efficient and effective, our ongoing journey to become more efficient is unlocking our ability to invest more in our core business. This drives our market share growth, which translates into improved top- and bottom-line acceleration and cash generation, and ultimately, shareholder value. We are not shying away from making tough decisions and doing the difficult foundational work necessary to drive a step change in our operational effectiveness. Our strategic reorganization and focused investments in tech, as well as the successful rollout of our financial transformation program, have enabled the profitable growth that is reflected in our results. For the second consecutive quarter, we have now delivered margin expansion above our full-year target of 150 to 200 basis points—further proof that our strategy is working. We are excited about our release schedule, which includes new music in Q3 from Charli XCX, Lizzo, Alex Warren, Sombra, Tiësto, Teddy Swims, Kehlani, and many more. In summary, our momentum is strong, our strategy is working, and there is a lot of runway. We are driving successful results by focusing on our three strategic pillars—growing market share, increasing the value of music, and becoming more efficient and effective—while using AI to power all three. The building blocks are in place to deliver on our growth targets, and we have established a growth culture to continue our momentum and to accelerate long-term value creation for our artists, songwriters, and shareholders. Before I hand it over to Armin, I want to share that starting tomorrow, in addition to continuing to serve as our CFO, he will also serve as our COO. His expanded remit will now include corporate development, central marketing, business and market intelligence, and WMX. I want to thank Armin for the impact he has had on the organization and business in a short period of time, and I look forward to continuing to partner with him to deliver operational excellence, growth, and value creation. Congrats, Armin. Over to you. Armin Zerza: Thank you, Robert. In my new expanded role, I look forward to partnering with you and the team to continue driving top- and bottom-line growth while strengthening our operational, commercial, and financial excellence at the company. I also want to start by thanking our teams for delivering an exceptional second quarter and first half of the fiscal year. We are seeing incredibly strong business momentum. Our second quarter was highlighted by acceleration in revenue growth, robust margin expansion, and strong cash generation. This is the fourth consecutive quarter where we have delivered growth in line with or above our sustainable growth model, led this quarter by a step change in growth in subscription streaming revenue. Total revenue grew 12% in the quarter, reflecting double-digit increases across both recorded music and music publishing. Recorded music revenue grew 13%, led by subscription streaming, which accelerated to 15% growth on an adjusted basis. Ad-supported streaming also was strong, growing 11% on an adjusted basis. Both subscription and ad-supported streaming benefited from healthy market growth and global market share gains. Subscription streaming also saw the benefit of PSM increases. Physical revenue increased 18%, driven by strong releases in the quarter, as Robert discussed. Artist services and expanded rights revenue increased 33%, driven by concert promotion revenue primarily in France, as well as higher merchandising revenue. Music publishing revenue grew 10%, led by 16% streaming growth. Total company adjusted OIBDA growth was 24%, and margin expanded by 230 basis points, ahead of the high end of our full-year target for the second quarter in a row, reflecting strong operating leverage, robust subscription streaming growth, and cost-savings delivery. In an ongoing effort to provide greater transparency around our performance, we will be disclosing adjusted net income and adjusted EPS moving forward. In the second quarter, adjusted net income increased 41%, and adjusted EPS of $0.44 increased 38%. We generated operating cash flow growth of 83% in the second quarter. Through the first half of the year, our conversion ratio is at 66% of adjusted OIBDA. As of March 31, we had a cash balance of $741 million, total debt of $4.7 billion, and net debt of $4 billion. In summary, our strategy is working, and our teams are executing with excellence. Looking forward, we are well positioned to continue delivering on a sustainable growth model, which is anchored in high single-digit total revenue growth, double-digit adjusted OIBDA and adjusted EPS growth, and 50% to 60% operating cash flow conversion as a percentage of adjusted OIBDA. As Robert mentioned, we will achieve this by focusing on our three strategic pillars to drive future growth, which I will discuss in more detail. First, on growing our market share, our priority remains investing into our core business—organically and inorganically—to accelerate shareholder value creation. We do this by focusing our investments on: first, the most valuable repertoire markets with the highest growth potential globally; second, high-margin, accretive catalogs, also leveraging our joint venture with Bain; and third, distribution capabilities, which enable us to serve the independent community profitably. We have made significant progress against each of these areas. On organic investments, we are growing market share broadly across DSPs, labels, and regions, with the exception of APAC, where we just recently appointed a new leader. On inorganic investments, following the upsizing of our joint venture with Bain, I am pleased to share that the joint venture has deployed $650 million to acquire a number of heavyweight catalogs which have an attractive return profile. We continue to maintain a strong pipeline of potential opportunities and look forward to sharing more updates in the future. On distribution, we have signed an agreement to acquire cutting-edge independent digital music platform Revelator, in line with our approach to pursue bolt-on acquisitions that elevate our distribution offering. With cloud-based tools that streamline operations and financial reporting for artists, labels, and distributors, Revelator will provide powerful infrastructure to help us better serve the critically important independent community. This will be an accelerant for profitable distribution revenue growth and market share expansion. Importantly, across our portfolio of organic and inorganic investment, we have now institutionalized a globally coordinated deal evaluation process. This process involves our creative, commercial, and operating teams, and allows us to look across our entire global portfolio of potential investments to target the largest and highest ROI opportunities. This disciplined approach to capital allocation has enabled us to generate returns of approximately 20% on these investments. Finally, in addition to driving enhanced shareholder value through our investments, we continue to return capital to shareholders through a quarterly dividend and an opportunistic share buyback program. Second, we see increasing the value of music as critical to growing our company. We are pursuing innovative partnerships with traditional DSPs and emerging AI platforms across several avenues, including: first, PSM increases on existing tiers; second, licensing agreements with innovative emerging AI platforms; and third, collaborating with scaled DSP partners on AI-centric premium tiers. In Q2, we began to see the impact of these PSM increases, which contributed 3 percentage points to our subscription streaming growth of 15% on an adjusted basis. Additional PSM increases across other DSPs will roll in throughout the balance of the fiscal year, providing further support for this important metric. In addition to driving value through existing streaming tiers, we see AI as an important driver of future growth as we partner with both AI platforms and existing DSPs on higher ARPU offerings. Our recent licensing deals with leading AI platforms, including Suno—which is currently generating $300 million in annualized revenue and has announced that it is planning to launch its fully licensed offering later this year—will begin to contribute materially to subscription streaming revenue growth starting in fiscal 2027. At the same time, we are actively engaged with our largest DSP partners around AI-centric offerings that will support higher-priced premium tiers, enhancing consumer experience and value creation for our industry. Third, turning to becoming more efficient and effective, we are focused on: first, our ongoing cost-savings program; second, driving profitable growth with a priority on core streaming growth; and third, operating leverage. I do want to spend some time today on our organizational redesign and related cost-savings initiatives. They are not only delivering on schedule, but at the same time accelerating growth, which is a testimony to our team's execution excellence around the world. Based on this, we now expect to achieve the high end of our 150 to 200 basis points margin expansion target in fiscal 2026. The success of this reorganization has made identifying and driving cost efficiency a part of our organization's DNA. We will share more details about our ongoing cost-savings initiatives in the coming quarters, but at a high level, the implementation of our global/regional/local organization model and ongoing transition to a more standardized data architecture and operating processes enables us to leverage AI more effectively across the company for process automation and better real-time decision making. This, in turn, has been freeing up more resources to focus on value-added work, ultimately leading to incremental growth at lower cost. As an example, we have started on this journey with our finance teams, leveraging our financial transformation initiative to use AI tools for advanced real-time forecasting and reporting, which has significantly accelerated decision making. Again, based on the progress we have seen here, we plan to use new AI-driven tools more to further streamline finance and other functions. These tools, in combination with our relentless focus on profitable growth, will contribute to our margin targets of mid-20s in the short term and high-20s over the longer term, further improving cash flow productivity. In closing, successful execution across our three strategic pillars—namely, growing market share, increasing the value of music, and becoming more efficient and effective—has enabled us to accelerate profitable growth, creating a flywheel effect that frees up more capital to invest at attractive returns, driving better results and enhanced shareholder value creation. At the same time, we are leading the industry in AI initiatives, which we believe will be a material contributor to our top- and bottom-line growth starting in fiscal 2027. All of this, combined with highly disciplined capital allocation and return thresholds, as well as rigorous cost and cash management, gives us confidence in our ability to continue delivering against our sustainable growth model in 2026 and beyond. We remain excited about the prospect of creating significant shareholder value and look forward to providing updates on our progress. With that, we will take your questions. Operator: Thank you. If you would like to ask a question, please press 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. Your first question comes from Peter Supino with Wolfe Research. Your line is open. Peter Lawler Supino: Hi. Good afternoon. An important piece of your conference call, your prepared remarks, was your successful market share developments, and looking back at the last year, you have had several quarters of improved market share. I wanted to ask if you could expand on your prepared remarks about what you are doing differently and how much of that feels sustainable versus the result of things—smart decisions done in the past—that might not be part of a repeatable process. Thank you. Robert Kyncl: Thank you, Peter. Before I answer your question, I want to take a small pause and recognize where our company is today. After years of doing hard, unsexy foundational work, after making tough organizational decisions and redesigns, and just doing lots of really tough, difficult decisions while growing the business, we have now hit our stride. You can see it—you said it yourself—fourth consecutive quarter of growth, printing solid numbers. I would say the numbers today are far more than solid—amazing. And it feels really good to be at Warner Music Group Corp. Because none of this is short term. This is a result of long, proactive work. And our team is amazing. Our infrastructure is getting stronger and stronger. We buy when we need to, but we do it prudently so we are not overspending. And we are having amazing creative success. We are firing on all cylinders, and it is amazing to be able to say that. And it is amazing to have the team that we have that underpins all of this. Our gains are not in one region or one country or one sales channel; it is broad based—other than APAC, as Armin mentioned—which is amazing to be able to say. And value is contributing to growth in addition to volume—that is amazing to be able to say. All of the things that we set out to do, we are doing, and they are showing up in our numbers. And they are showing up in our creativity. Our disciplined capital allocation is yielding results. Strong leadership is yielding results. And we feel incredibly confident about the present and about the future. Looking forward, we are really confident about our prospects because of three things. One, we have very strong pipeline management. That means we are looking at new release, catalog, artist deals, acquisitions, partnerships—all of that—holistically. And when we do that, we deploy resources to the best possible ROI opportunities. Two, we have a very focused catalog optimization program in flight, and it is yielding results. Catalog is 65% of our revenue; therefore, very important—it deserves all the attention that it gets. Within that, we have a new always-on marketing approach reimagined for today's young people. We are introducing iconic artists to younger generations through new releases, and we have developed AI tools that help us manage not only a small sliver of the top few hundred titles in our catalog, but the entire thing through the use of AI. We also have developed a model that helps us prioritize all this work. It is amazing to be able to drive gains this way. And three, we have a disciplined and strong focus on distribution. It has been a meaningful contributor to our growth. We continue to build features, acquired Revelator to accelerate in that area, and we have had a lot of success signing new partnerships. All of this makes us confident about the future and why we will continue to grow and gain share. Operator: Your next question comes from Benjamin Black with Deutsche Bank. Your line is open. Benjamin Thomas Black: Great. Good afternoon. Thanks for taking my question. I have one for Armin, please. Could you deconstruct your subscription streaming growth performance—how much did PSM increases, market share, and the fact that you had a somewhat easier comp versus the prior year contribute? And then looking ahead, how should we think about the growth rate there for the rest of the year? Thank you. Armin Zerza: Hey, Ben. First, I want to start where Robert started and say a big thank you to the team for the progress we have been making and the consistent growth in delivering top and bottom line. It is incredible to see the broad-based progress not just on growth, but also on margin and cash. So thank you again to our team around the world. To your question, if I deconstruct 15% growth: first, if you look at subscriber growth around the world, we think that is around 6% to 7%. Pricing this quarter, as I mentioned, contributed about 3 percentage points of growth. We think market share was about 3 percentage points of growth. You mentioned a lower base last year; we also think that is worth about 2 to 3 points. So if you take that out, we probably delivered about 12% to 13% growth on an apples-to-apples basis. We are very excited about the growth we have been delivering, as Robert and I mentioned, but we think there are many more opportunities going forward to continue to deliver growth for the company because, remember, this is really just based on subscriber growth and pricing. One, there is more pricing to come over the course of the year, as I mentioned before. Two, there is really no contribution from M&A in our numbers, and as you know, we have just deployed $650 million from our joint venture, and that will come to fruition over time. Three, as Robert mentioned, we have been acquiring a distribution capability through a company called Revelator that will start to show up within this calendar year. And then last but not least, we have done several deals with AI companies, and we are in the process of doing deals with DSPs to grow our business profitably—not just in DSPs and higher tiers but also with new AI companies. So we are really excited about the opportunity going forward and are very confident that we can continue to deliver numbers that are consistent with, and potentially higher than, our sustainable growth model. Benjamin Thomas Black: Great. Thank you, and congratulations on the expanded role. Operator: Your next question comes from Jason Bazinet with Citi. Your line is open. Jason Bazinet: Thanks. I just had three AI questions for Robert. First, you mentioned in your prepared remarks your agreements that limit dilutive impact from AI-generated music, but have you seen any so far? Second, is there any update you can give us on when you think Suno might launch their licensed offering? And then third, any color you can give us on when you think traditional DSPs might take advantage of the agreements with you to offer consumers the ability to create their own songs off of your IP? Thanks. Robert Kyncl: Thank you. Obviously, we are prudent in all of our negotiations, and we are building protections into those. But to answer your question directly: no, we have not seen dilution. We have been expanding our share consistently for the last four quarters, and so we have not been affected by it. I will use public data from Deezer and Apple. On Deezer, 75 thousand AI-generated tracks are uploaded every day, which makes up roughly 44% of daily uploads, but results in 1% to 3% of streams, and an even much smaller fraction of royalties—tiny—and 85% of those streams were actually fraudulent. So, no impact. On Apple, it is less than half a percent of listening. Those are two public stats I can quote. In general, we think that consumers like offerings that blend creation and consumption, which is why our DSP partners are looking into it, and we are talking to them about creating that. We love that future because it increases engagement with content, with artists and songwriters, and it drives our business. So it is a positive development for us, and we are excited about it. Nothing new to announce, but we are working on it with our partners. Operator: Your next question comes from Kannan Venkateshwar with Barclays. Your line is open. Kannan Venkateshwar: Thank you. Armin, maybe one for you. Can you provide a bridge on how you will achieve your longer-term margin targets and efficiency plans? And how much did savings versus operating leverage contribute to margin performance in Q2? Then longer term, some of those market share gains you have had over recent quarters—can the catalog deals help you make this structural and sustain this over time? Because in the industry, the market shares tend to be mean reverting over longer time periods. Can you actually sustain this over time? Thanks. Armin Zerza: Hi, Kannan. Let me start with margin. We are obviously very happy with the progress. Fiscal year-to-date, we are delivering ahead of our targets, and we are now confident to increase our outlook for the year to the high end of our target. In terms of drivers, the first one is really focus on profitable growth. I have said this many times: it is really important for us to ensure that we grow each of our businesses in a highly profitable way, and you see that in the streaming growth that we are delivering across the company. The second one is a continuous, ongoing focus on cost savings, and I mentioned this in my prepared remarks. There is really a culture of productivity now in the company that we are excited about—not just for the purpose of productivity, but also to be able to reinvest into growth and accelerate shareholder value creation, as I mentioned. And the third one is we are very disciplined in making sure that we do not add people when we grow; we drive operating leverage. That will continue in the years to come, not just next year. In addition to that, we have additional drivers that we are leveraging. One, you mentioned our catalog business. Catalog is not just about acquisitions. Robert talked about that. It is 65% of our business. We are now growing share in our catalog business without any acquisitions, and that is really critical to understand. This is a business which can grow for years to come at very, very high, above-average margins. It is part of our profitable growth strategy. The second big area we are focused on is how we innovate, create new business models, and drive pricing up. Robert has been championing pricing for the industry for many years. It is finally happening. And, frankly, he has also been championing us leaning forward on AI, and we believe that starting next year, we will see material benefits from that, not just on our growth but also on our margin. When I started here, margins in our industry were way too low—in the low 20s. Year-to-date, we are around 24%, so we are getting towards the short-term mid-20s target. I am very confident we can get to the high-20s target in the medium to long term. On your question on catalog, frankly, M&A is a very small contributor overall. What is more important for us over the long term is that we find new and innovative ways to grow catalog—on the larger ones that we are acquiring and growing now, and, as Robert mentioned, over the long term we are not just leveraging human manpower but also AI to better identify the opportunities and then support them. Net, we are really confident about the prospects that we have for our entire business. Operator: The next question comes from Kutgun Maral with Evercore ISI. Your line is open. Kutgun Maral: Good afternoon, and thanks for taking the questions. Armin, congrats on the expanded remit. I wanted to see if you could talk about your approach to capital deployment—what has enabled you to deliver returns in line with your targets, and what processes have you implemented since joining a year ago? Thank you. Armin Zerza: Thank you, Kutgun. In simple terms, we are driving productivity in everything we do, and we are using the same approach to capital allocation. How do we do that? It is really focused on three things. One, making sure we have a clear strategy and a clear growth model—we call that SGM, or sustainable growth model. Two, ensuring that we manage our portfolio tightly as a company. And three, creating a culture where people feel proud about spending less, including on A&R or M&A deals. Let me talk about each of them. On the strategy side, our priority is very simple: invest in our core music business organically and inorganically, and ensure that we are focused on the largest repertoire markets around the world where we see the biggest growth potential, and as we do that, also ensure we look at the biggest, most profitable, and most realistic opportunities. That is number one. Number two, on portfolio management, we are very focused not just on one individual deal—we are much more focused on ensuring that we optimize our portfolio overall. The benefit of that is it is like you as an investor—you are not investing in just one company; you are investing in a portfolio of companies. The benefit is that the outcome of our investment is much more predictable. So we actually know pretty well what the impact on top-line growth is, bottom-line growth and cash, cash conversion. Therefore, we can more predictably invest and double down on our growth strategy. The second important outcome for us is that as we look at our portfolio of deals versus just individual deals, we can work with our operating and creative teams to ensure that we optimize our portfolio and do not just chase one expensive deal. The third component is all about culture and operations—being proud about spending less and ensuring we deliver better returns. We are now working with our creative, commercial, and operating teams to review our portfolio basically every other week and have a view of somewhere between 12 to 36 months, ensuring they understand and develop a culture of how we spend less money while still delivering the growth. That culture is now perpetuating throughout the entire company. That is really our approach these days, and we are very confident with the outcome. As I mentioned in the prepared remarks, we are now delivering returns that are about 20% across our portfolio. Kutgun Maral: That is very helpful. Thank you. Operator: Your next question comes from Ian Moore with Bernstein. Your line is open. Ian Moore: Hi. Maybe for Armin. Can you detail the expected annualized revenue and adjusted EBITDA contributions you expect for the catalogs you acquired through the Bain JV, and maybe any return targets for those assets? Thank you. Armin Zerza: We generally do not disclose specifics around those deals since we have confidentiality agreements in place. But what I can say is we are very, very happy with our partner and the progress we are making. As I mentioned in my prepared remarks, we have deployed about $650 million of the $1.65 billion of JV capacity that we have. Those investments are very focused on iconic, high-margin catalogs, and importantly, those catalogs where we see growth potential. It is important for us to ensure that we deliver above-average returns. The return thresholds are very much the same that I just discussed on any investments, so we make them part of our overall portfolio analysis, and those returns are very attractive for us and our shareholders. Finally, it is not just about acquiring those catalogs—it is equally, if not more, important to ensure that we have a dedicated team in place that can grow those catalogs. Robert did something brilliant: he appointed a global catalog leader, Kevin Gore, who has been growing our catalog share over the last 12 months, and that is excellent to see because these are high-margin businesses that we love to grow. Operator: Thanks. Your next question comes from Doug Creutz with TD Cowen. Your line is open. Douglas Creutz: Hey. Thank you. One for Robert. I get questions from clients sometimes about the attractiveness of the distribution business, given that at least notionally they are lower margin. Can you talk a bit about how your distribution business fits into your overall business in terms of economic value creation and maybe address how Revelator and TwoStream deals fit into that strategy? Thank you. Robert Kyncl: Thank you. First, I think Armin mentioned the importance of portfolio management, and it does not just mean a portfolio of deals, but also a portfolio of deal types. We are very focused on this two-dimensional portfolio management, and distribution within that second dimension of deal types plays a significant role. It is a large part of the industry, and we have been investing into it on the technology side and on the talent side. About a year ago, we appointed Alejandro Duque to run ADA, our distribution arm. Alejandro actually has two jobs—ADA and Latin America. The Latin American market is very distribution-heavy. He has cut his teeth on that, and he has managed to run that territory on a margin which is the same as our company’s. He is the right person for the job, and he is already a year into it—he has proven it. It takes talent, technology, partnerships—the whole village—to really deliver this. What really underpins it is our holistic portfolio management and making sure that we are driving growth in distribution while also achieving our margin objectives, which are obviously important, and Armin has outlined those both in the short term as well as the longer term. We also focus on acquisitions, but we are very prudent in the way we deploy capital. One of those is Revelator, which is a technology and capability acquisition. The other one is TwoStream, which is focused on Mexican music and has a very significant position there. Overall, we are very happy with our progress here. We have great momentum and a very strong growth rate. It fits into our margin profile as discussed with you. Douglas Creutz: Perfect. Thank you. Operator: Your next question comes from Mike Morris with Guggenheim Securities. Your line is open. Michael C. Morris: Thank you. Good afternoon, guys. I wanted to ask first about the comment about the strong ad environment that you noted and showed up in your numbers. I am curious if you could expand on that because there has certainly been some inconsistency in growth across the industry, and with the Middle East conflict. Are you seeing strength from any particular partners or geographies? I would love to hear any outlook for the sustainability there. And then second, Armin, congratulations on the expanded role. I would like to direct the question to Robert, though. Robert, how do you see Armin further contributing to the business’ success with this new role, and how do you make sure that the financial function he is instrumental in strengthening remains strong? Thank you. Armin Zerza: Let me take the ad question, Mike. It is different across partners. There are some partners that have very, very strong ad revenue growth—that is the comment around the market—and we are growing share with that partner, so obviously we are seeing even stronger growth. There are some partners that are not doing well yet in ads, although there is a strategic intent to improve that, and I am sure you know who I am talking about. We are actually very confident that that specific partner will do that, so we are hopeful that they can contribute more to our growth in the future to continue to accelerate it. We are also growing share on that platform. On the social platform side, as you know, we did a new deal with one of our partners, and that is also contributing to ad growth. A lot of that is structural. We also believe that one of our partners will do a much better job in the future, and, therefore, we are confident this will become a bigger contributor to our growth. That is really important because we have billions of consumers that we serve around the world. With that, I will hand it over to Robert to talk about my work plan for the next 12 months. Robert Kyncl: I love this because I can do Armin's 360 review in front of everybody in a fully transparent manner. This is fun. First, Michael, great question. You should know I do not make decisions suddenly. This is something that has kind of been in practice, so this is nothing new—it is just the title change that reflects how we have been operating. Armin has added responsibilities along the way over the last 12 months, one by one. We do not make any change or announcement until things work. Now we have hit our stride. We feel really strong about what it is that we do here, how we got here, and, more importantly, our prospects for the future. We really feel like we need to double down on operational excellence across the company and simplification that then leads to a lot of automation through AI. That allows us to deliver more for artists and songwriters with the same team and grow our business rapidly. Having a strong alignment between our financials, our budget management, forecasting—it is all very closely tied to the operation of the company, and a role like that makes sense. It is reflective of how we have been already operating, so we are just making it official. Michael C. Morris: That is it. Thank you. Appreciate it. Operator: That is all the time we have for questions. I will turn the call to Robert Kyncl for closing remarks. Robert Kyncl: In closing, it feels great to be at Warner Music Group Corp. It feels great to work hard for years and now have consistent delivery and acceleration, and it feels great to have confidence about the future. As you know, I do not say this lightly. This is truly the work of a lot of people around the company. These are not isolated incidents. It is systemic. We have a growth-oriented culture in the company—very entrepreneurial—but at the same time mindful that we need to deliver on our margin expansion, have profitable growth, and innovate for the sake of our artists, songwriters, and shareholders. Thank you for your confidence. Thank you for your time, and we will see you next time. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Julia Vater Fernandez: Hello, everyone, and welcome to the Vtex Earnings Conference Call for the quarter ended 03/31/2026. I am Julia Vater Fernandez, VP of Investor Relations for Vtex. Our senior executives presenting today are Geraldo Thomaz Jr., Founder and Co-CEO, and Ricardo Camatta Sodre, Chief Financial Officer. Additionally, Mariano Gomide, Founder and Co-CEO, and Andre Colliolo, Chief Strategy Officer, will be available during today’s Q&A session. I would like to remind you that management may make forward-looking statements related to such matters as continued prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Certain risks and uncertainties are described in the Risk Factors and Forward-Looking Statements sections of Vtex’s Form 20-F and other Vtex filings with the U.S. Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we might discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our first quarter 2026 earnings press release available on our Investor Relations website. With that, Geraldo, the floor is all yours. Thank you. Geraldo Thomaz Jr.: Good afternoon, everyone. Thank you for joining us. Last quarter, we outlined a clear strategic framework centered on four key growth factors: global expansion, B2B, retail media, and AI. In the first quarter, we continued to execute against this strategy. Today, we will update you on several recent product launches that directly reinforce our positioning across these opportunities. From a financial perspective, our top-line results were in line with our guidance, while our profitability and cash generation both doubled year over year and exceeded our guidance. This reinforces the resilience of our model and our disciplined execution in a dynamic macro environment. While we acknowledge that recent growth has been below our long-term ambitions, we remain committed to executing with discipline and driving long-term value creation. Starting with our vision and product launches, we see our industry entering a new phase where artificial intelligence transitions from a conceptual layer into a structural driver of growth, efficiency, and competitive advantage. We see this as an attractive opportunity for Vtex. In the last technological revolution—the cloud—we architected our platform to fully embrace it from inception with a multitenant approach, avoiding the technical debt that constrains many legacy systems. Now a highly scalable foundation positions us to capitalize on the AI technological shift, enabling us to rapidly deploy innovation and operate at scale as we navigate this new era. At the heart of this transformation is our reinvented Vtex Commerce Platform. We are moving beyond the traditional software-as-a-service model to deliver what we believe is the first AI-native commerce suite—one that delivers simplicity, ease of use, and, most importantly, tangible and measurable business outcomes for our customers. This is AI with real impact. The command center for this new paradigm is the Vtex AI Workspace. This is where our agents for catalog, promotions, and search collaborate. They are engineered to do more than just flag problems: they autonomously diagnose root causes, architect strategic action plans, and execute them with minimal human oversight. For example, our catalog agent does not just manage data—it hunts for revenue opportunities. It systematically analyzes an entire product assortment by leveraging real-time shopper navigation data to understand precisely where and how the catalog should change to increase conversion. It sees where customers drop off, what search terms lead to dead ends, and how they interact with product attributes. Armed with these insights, the agent autonomously optimizes the catalog. It goes beyond simple data entry, performing tailored content improvements across millions of SKUs by enriching descriptions, standardizing attributes, and ensuring every item aligns with our brands’ merchandise guidelines. This allows our customers to maintain a high-quality, high-converting catalog at a scale and speed previously unimaginable, turning a traditionally labor-intensive process into a strategic advantage. This is just one of many intelligent experiences that are now possible. By laying this groundwork, we are paving the way not only to expand our own suite of agents, but to eventually enable a marketplace where customers and partners can deploy third-party agents, creating a truly open and extensible conversational ecosystem. And this intelligence extends far beyond the back office; it transforms the entire customer journey. For shoppers, our new storefront with an AI personal shopper combines conversational interactions, semantic search, and hyper-personalization to guide discovery and dramatically increase conversion rates. For our B2B customers, we are streamlining complex sales cycles with B2B commerce and AI order quotes, enabling sales teams to generate complete, accurate quotes instantly from a simple file upload or even a voice command. More broadly, our B2B and global expansion strategy are being significantly enhanced as the inherent complexity of managing multi-country, multi-currency operations is precisely the challenge our AI works is designed to address at scale. To capture demand wherever it emerges, our integrations with Google Universal Commerce protocol enable shoppers to discover products and check out directly within Gemini and Google web AI modes, with a native cart synced back to our platform. And to empower our entire ecosystem, we introduced the Vtex AI Developer Kit, embedding AI assistance directly into developer workflows across tools like Cursor, Copilot, and others, while connecting them to Vtex’s knowledge base to accelerate development and drive innovation. We are delivering a platform where AI enhances operators, drives conversion for shoppers, accelerates sales for B2B teams, and empowers developers to build faster. This is a complete end-to-end vision for AI-native commerce. But today, Vtex is much more than its commerce platform. We have evolved into a multiproduct company. Beyond our core commerce platform, we now offer two additional strategic solutions—our CX platform and our Ads platform—both enhanced with AI, where we have also introduced significant recent advancements. In our CX platform, we go beyond the traditional storefront to capture demand wherever it originates. The Vtex CX platform redefines customer experience through coordinated AI agents that operate seamlessly across the entire journey, making commerce more fluid and conversational. This includes a truly multichannel approach where AI guides discovery and transactions across web, WhatsApp, and other messaging interfaces. We have introduced a fully integrated WhatsApp store, enabling consumers to complete their entire purchase journey without leaving the conversation, as well as voice commerce for real-time interactions. Importantly, this capability extends into the post-purchase phase, where autonomous post-sales agents manage order status, exchanges, and returns with over 91% automation, allowing human teams to focus on more complex, high-value engagements. In our Ads platform, we are significantly enhancing the power of our platform by embedding AI across orchestration and campaign execution. This enables our customers to transform their digital environments into high-margin media assets and unlock new revenue streams. With our AI campaign management capabilities, retailers and their brand partners can move beyond manual workflows—simply defining an objective such as improving return on ad spend—while AI agents autonomously build and optimize multichannel campaigns to deliver results. This is further strengthened by AI-driven insights offering real-time visibility into performance attribution and market share, all within a privacy-first framework supported by a secure data clean room. Ultimately, we are helping customers convert their traffic into a scalable and strategic growth lever. While we have just launched these updates, we are already seeing some early but encouraging results. For instance, Whirlpool has leveraged our AI capabilities to identify underperforming products, diagnose content gaps, and automatically generate optimized assets, compressing what was two days of manual work into minutes while improving conversion. At TheCapsule, our promotions agent enables real-time competitive responses through automated campaign recommendations. Across these use cases, the pattern is clear: AI is poised to redefine how customers drive sales, accelerate execution, and capture new levels of operational efficiency. These outcomes are particularly relevant in the context of enterprise commerce, where operations are complex, mission-critical, and increasingly global. Customers are not simply selecting a software vendor; they are selecting a strategic backbone that can scale, adapt, and evolve with the next generation of commerce. With knowledge that it is early days and our excitement around this innovation is not yet reflected in our current growth rates, to be fully transparent, we are still evaluating the long-term transformational impact of these waves at scale. However, our commitment is to remain data-driven and grounded in reality, and we look forward to updating you on broader adoption in the coming quarters. We have embedded AI at the core of Vtex, transforming the company into what we believe is the first AI-native commerce suite. We believe Vtex is uniquely positioned to serve this role. Our multitenant software-as-a-service architecture, outcome-aligned business model, and deep transactional data foundation allow us to deploy innovation at scale and align directly with our customers’ success. With that, let me welcome some new customers who went live in 2026, including Central Gana in Argentina; Amadin Paraíba and L’unelli in Brazil; VPCL in Canada; HomeSentry in Colombia; and Omicás in Portugal. We also expanded our relationship with existing customers such as Whirlpool, which launched its Compre Geraeta Parceiros in Brazil, its official B2B channel for distributors, resellers, and authorized service centers; and Electrolux, which launched a B2B channel in Chile; Grupo Itchasac, which launched EBC Atacado de Beleza in Brazil, its official B2B channel for beauty professionals and resellers; Much Leiser, which launched the official OPPO store in Brazil, expanding the smartphone brand’s presence in the country; and Dafiti expanded to Chile, adding to its operation in Brazil. Now, before I hand the call over to Ricardo, I would like to express my sincere gratitude to our 1,147 Vtex employees, our customers, partners, and investors for their continued trust and support. Together, we are building the future of commerce. Ricardo, over to you. Ricardo Camatta Sodre: Thank you, Geraldo. Hi, everyone. I am pleased to share with you Vtex’s financial results. In Q1 2026, GMV reached $5.1 billion, up 17% in U.S. dollars and 7% FX-neutral. Subscription revenue was $60 million versus $52.6 million in Q1 2025, an increase of 14% in U.S. dollars and 4% FX-neutral. The moderation in GMV growth relative to last quarter was primarily driven by Brazil, where the high interest rate environment and persistent promotional marketplace behavior continue to pressure consumer demand in proprietary channels. In Q1, our non-GAAP subscription gross margin reached 81.5%, representing an expansion of 240 basis points year over year. This improvement is mainly driven by structural gains in AI-powered automation in customer support and, to a smaller extent, a positive FX tailwind. Our total gross margin, including services, reached 80%, an expansion of 400 basis points year over year. This continued improvement reflects not only steady gains in subscription gross margin, but also our deliberate de-emphasis of services, as our global partner ecosystem increasingly leads complex implementations with reduced reliance on Vtex-led services. Our expense management continues to reflect our alignment with long-term growth priorities. Total non-GAAP operating expenses in the first quarter were $38 million, up 6% year over year. While Sales & Marketing and G&A remained relatively stable, we deliberately increased investment in R&D, focusing on innovation, product development, and AI capabilities that reinforce our competitive positioning. In other words, even as we extend margins, we are simultaneously strengthening the foundation for sustainable, profitable growth. As a result, our non-GAAP income from operations reached $10.6 million, doubling from $5.3 million in Q1 2025. This also represented a non-GAAP operating margin of 17.4%, up 770 basis points year over year. In short, our operational discipline continues to translate into stronger margins and a more profitable growth trajectory while we focus on revenue reacceleration. Non-GAAP net income was $8.1 million in Q1 2026, up 51% year over year. This earnings step-up reflects strong underlying operational performance, driven by operating leverage and efficiency gains, reinforcing the sustainability of our model. This was partially offset by unrealized mark-to-market losses on our U.S. dollar-denominated investment-grade cash position held in Cayman, following a significant repricing of the yield curve toward the end of the quarter, which has already recovered in April. These continued profitability gains are showing up in our cash generation, which remained strong once again this quarter. Free cash flow for the quarter was $13.3 million, doubling year over year and reaching a free cash flow margin of 21.9%. We also maintained a disciplined approach to share repurchases. During the first quarter, under the $50 million 12-month share repurchase program for Class A shares approved in February 2026, we repurchased 2.5 million Class A common shares at an average price of $3.86 per share, for a total cost of $9.7 million. As we look ahead, our focus remains on disciplined execution as we work toward growth reacceleration, focused on our four growth levers: global expansion, B2B, ads, and AI. While macro headwinds persist—particularly in Brazil, where high interest rates and promotional marketplace behavior continue to weigh on GMV growth—we remain encouraged by the quality of new customer additions, our competitive positioning among global enterprise customers, and the compelling market opportunity across our four key long-term growth initiatives. Importantly, while this affects our near-term growth outlook, it does not change our conviction in the structural opportunity across our four growth levers, nor our ability to continue improving profitability. With that, for Q2 2026, we expect subscription revenue to grow at a low- to mid-single-digit percentage rate on an FX-neutral year-over-year basis; gross profit to grow at a mid-single-digit percentage rate on an FX-neutral year-over-year basis; non-GAAP income from operations to be in the high-teens to low-20s percentage margin; and free cash flow to be in the high-teens to low-20s percentage margin. For the full year 2026, we now expect subscription revenue to grow at a mid-single-digit percentage rate on an FX-neutral year-over-year basis and gross profit to grow at a high-single-digit FX-neutral rate, while maintaining our outlook for non-GAAP income from operations in the low-20s percentage margin and free cash flow also in the low-20s percentage margin. Assuming FX rates remain broadly consistent with April’s average rates, the FX-neutral growth guidance outlined above would translate into higher reported U.S. dollar subscription revenue growth, adding approximately 10.3 percentage points in the second quarter and 8.6 percentage points to the full year 2026. We continue executing with discipline, investing behind our four growth levers to drive durable growth and shareholder value, while improving profitability and maintaining a strong balance sheet. We will now open the call for questions. Thank you. Operator: We will now begin the question and answer session. To ask a question, simply press star followed by the number 1 on your telephone keypad. Please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question comes from the line of Lucca Brendim with Bank of America. Please go ahead. Lucca Brendim: Hi, good afternoon. Thank you for taking my question. I have two from my side. First, could you comment on the main drivers for the reduction in the guidance for top-line growth and gross profit growth for the year—was it mainly driven by macro and competition, or was there something else? Also, does this guidance incorporate anything from the new AI products you have been rolling out, or are those still not incorporated into the guidance? Second, could you give us an update on how you are seeing expansion in the United States and Europe, and the clients that were still in the process to go live—if everything is proceeding according to expectations or if there were any changes? Thank you. Ricardo Camatta Sodre: Hi, Lucca. Good afternoon. Let me start with the guidance. For Q2 and for the full year, we are aligning our short-term outlook with what we are seeing in the business today, while remaining confident in the long-term opportunity. For Q2, we are guiding subscription revenue growth in the low- to mid-single-digit range on an FX-neutral basis, essentially reflecting a continuation of recent trends, particularly in Brazil, where macro conditions remain challenging and continued marketplace promotional intensity is temporarily pressuring proprietary channels. For full-year 2026, we now expect mid-single-digit subscription revenue growth on an FX-neutral basis. The vast majority of this guidance adjustment reflects a lower growth outlook for Brazil GMV, as FX-neutral GMV growth in Brazil decelerated from mid-teens in Q4 to the mid-single-digit range in Q1, driven by a meaningful moderation in same-store sales. Looking beyond Q2, growth is expected to come primarily from the ramp-up of customers we signed in 2025, combined with continued execution across our four strategic growth levers—global expansion, B2B, ads, and AI. On the profitability side, we remain confident. We are targeting non-GAAP operating margin and free cash flow margin in the low-20s for the full year, supported by structural efficiency gains across the organization. While current market conditions affect our near-term growth outlook, they do not change our conviction in the structural opportunity across our four growth levers, nor our ability to continue improving profitability. The message here is realism in the near term combined with continued discipline and conviction in the long term. Geraldo Thomaz Jr.: On the AI contribution to revenue, our AI strategy is about transforming how we serve customers and deliver value through the product. The Vtex AI Workspace is the first product we are offering within this strategy. The idea is to rebuild Vtex from the ground up, informed by the AI revolution. We are seeing interest from a small group of early adopters, such as Whirlpool, Mobly, and Casa do Vidro, who are actively using the product. Our focus is deliberate: prove value creation and satisfaction for a small number of early adopters, then expand. There may be opportunities to monetize these products in different ways over time, but our expectation is that the biggest value after this AI-driven transformation will be acceleration of the sales pipeline as customers see a new way of operating commerce with Vtex. Mariano Gomide: Regarding the United States and Europe, we are seeing good momentum. We continue to close relevant enterprise brands, and we are building a strong and healthy pipeline in both regions. The demand environment from a strategic standpoint remains encouraging, although sales cycles are longer than in the past. Demand is solid for an AI-native commerce suite that delivers efficiency. Global markets—which for us are basically the U.S. and Europe—grew in the 20 handle in Q1. Although they represent a smaller portion of our revenue base, our global markets expansion is contributing disproportionately to our overall growth, and we expect that contribution to increase over time as it scales. As always, we will share more details and customer names as they go live. Overall, we are encouraged by what we are seeing. Operator: Our next question comes from the line of Analyst with J.P. Morgan. Please go ahead. Analyst: Hi. I would like to make two questions. Thank you for the opportunity. First, I would like to explore the B2B segment. Could you share more details about how your B2B strategy is advancing? We heard strong feedback from industry players regarding this market during your Vtex Day in Brazil, so it would be interesting to hear how your commercial pipeline is evolving, when we should see traction in revenues coming from this segment, and if the new logos of Whirlpool in Brazil in B2B and Electrolux in Chile should help unlock value in this segment. Thank you. Mariano Gomide: On B2B, we continue to see solid traction, particularly in the U.S. and Europe, where roughly half of our pipeline is already coming from B2B solution opportunities. In Brazil and broader LatAm, as expected, adoption has been slower. A big part of our effort there has been educating the market on the value of digitalizing B2B channels and replacing very old legacy interfaces for B2B. Encouragingly, we are now starting to see increased demand in Brazil and growing interest across the LatAm region. On the product side, we are focused on strengthening our B2B solutions, making them more robust, and supporting multiple B2B sales channels—self-service portals, call centers, sales teams, and automation, among others. Our goal is to be the transactional backbone for our customers across all B2B and B2C channels. As a data point, B2B grew roughly in the 20 handle in Q1. Although it represents a smaller portion of our revenue base, our B2B solution is contributing disproportionately to our overall growth, and we expect that contribution to increase over time as it scales. It is still early, but we are seeing the right signals in terms of both pipeline and market awareness, and we remain very focused and encouraged by the trajectory so far. Analyst: May I make just one follow-up? Another feedback we heard from the industry is that the B2B sales cycle should take longer than B2C. Can you share more details on this front—the differences between the sales cycle and the closing process—and your outlook for when this should appear more prominently in your revenue growth? Mariano Gomide: Overall, the sales cycle has been getting longer in recent years for both enterprise B2B and B2C customers, largely driven by macro conditions and what we describe as an “AI wait-and-see.” When companies make long-term infrastructure decisions, they want clarity on how AI will reshape their stack, so naturally decision-making is taking longer. On the other hand, AI is affecting implementations in a positive way—shortening the process of implementing the software. So while the sales cycle is getting longer—and we do not expect that to change soon while AI remains a major consideration—the implementation dimension is generating good signals for us. Importantly, we are not seeing deterioration in our win rates or churn; those fundamentals remain intact. Operator: Our next question will come from the line of Maria Clara Infantozzi with Itaú. Please go ahead. Maria Clara Infantozzi: Hi, everyone. Thanks for the opportunity. First, could you please explain how you intend to monetize your new AI launches going forward? Does it make sense to think about increasing take rates with AI products gaining penetration? Second, can you please give us an update on how you feel about the competitive environment both in Brazil and in Argentina? Thank you. Geraldo Thomaz Jr.: On AI monetization, it is too early to give very detailed information because there is still a lot of discovery happening in the market. Many say the path is to charge by outcomes, and that aligns with how AI creates value. In our case, we have charged by outcomes since 2012, and our Vtex CX platform also charges per outcome—particularly for services that do not require a human in the loop. We believe that as AI increases the output and results of our software, we will be able to charge more accordingly. Also, as we transform the product into an AI-informed, AI-based software suite, we expect customers to move beyond the wait-and-see and resume modernizing their commerce infrastructure—and we will be there to serve them, with sales normalizing over time. Operator: This is the operator. I apologize, but there will be a slight delay in our call. Please hold, and we will resume momentarily. You may resume the meeting. Ricardo Camatta Sodre: Continuing on the competitive environment, we have not seen a meaningful change in competitive intensity among direct commerce technology providers. We have taken a different approach to AI—rebuilding the platform to be AI-native rather than layering incremental features on top of legacy systems as we see some players doing. That allows us to deliver better usability and, more importantly, real outcomes to our customers. We feel our strategic positioning has strengthened with this approach. We are a geographically agnostic, comprehensive commerce suite with efficiency benefits driven by our engineering scale and a founder-led culture, which together give us the reputation to lead in AI commerce. Mariano Gomide: To complement, we look at competition across two dimensions. First, consumer behavior: traffic is fragmenting beyond traditional channels like Google, Instagram, and marketplaces. Messaging platforms like WhatsApp, LLMs, and emerging AI interfaces are playing a more relevant role. This shift may be slow and then sudden, and those new channels could take a significant portion of traffic. In a tough macro, high-interest-rate environment, brands and retailers are being challenged to find efficiency and be more conservative in growth, not financing consumers as before. Second, on technology providers, as Ricardo said, we do not see a significant change in competitive intensity. Our AI-native approach is the core of our differentiation. Operator: Our next question comes from the line of Analyst with UBS. Please go ahead. Analyst: Hi, everyone. Thanks for taking the question. It is about the roadmap of your AI investments. We have seen some margin expansion and an increase in R&D as a percentage of revenues. R&D is an ongoing investment, but should we expect this increase to be transitory or to persist in the interim? Any detail would be helpful. Thank you. Geraldo Thomaz Jr.: Thank you for the question. We recently introduced our Vtex Vision in 2026, laying out how we are approaching AI and turning it into real, measurable impact. At the core is a unified suite of AI-powered platforms orchestrating key commerce workflows across Commerce, Customer Experience, and Ads. This AI-native commerce suite is now available for selected customers. First, the Vtex Commerce Platform is powered by the AI Workspace—the new back-office front end that is evolving into an AI-native operating system. It allows customers to move from manually executing tasks to orchestrating outcomes with AI agents handling workflows like search optimization, catalog management, pricing, and data insights. Second, the Vtex CX platform extends into the customer journey with agents that drive discovery and improve conversion through conversational commerce while automating post-sales. In some cases, we are already seeing 90–91% automation levels in customer interactions, which translate directly into higher efficiency and better conversion. Third, the Vtex Ads platform brings AI into retail media, enabling retailers to monetize their traffic and giving brands more effective, data-driven campaign execution. From a roadmap perspective, we are expanding this ecosystem with new agents and capabilities across all three platforms—from search and content optimization to B2B assisted sales and advanced campaign management in ads. The key focus right now is twofold: keep innovating at high speed and drive adoption of what we have already launched so it translates into tangible results for customers. Regarding R&D investment levels, despite the significant product transformation underway, you are not seeing a meaningful increase in our R&D expenditures. This is also related to AI adoption by our teams. We are transforming internally to leverage AI to be much more efficient—improving throughput in product development, customer support, and sales. You are already seeing this in how we support our customers. The internal manifestation of this revolution is higher throughput, better bundling of products that deliver higher-level jobs, and converting what was previously a service into software-driven outcomes—for example, retail media campaign creation handled autonomously. There is a lot of work ahead—it is still early days for AI—but we are encouraged by the trajectory. Operator: This concludes our question and answer session. I will now turn the call back over to Geraldo for any closing comments. Geraldo Thomaz Jr.: As we step back, what we are building at Vtex is increasingly clear. We are redefining how commerce operates. The convergence of our cloud-native foundations with AI is enabling us to move from systems that support decisions to systems that execute them. We are still in the early stages of this transformation, but the direction is clear. AI is already delivering measurable impact across our customers—driving higher conversion, faster execution, and greater efficiency—and as adoption expands, we believe this can become a fundamental driver of long-term value creation for both our customers and our shareholders. At the same time, our evolution into a multiproduct platform—Commerce, CX, and Ads—positions us to capture a broader share of the commerce value chain while reinforcing our role as a strategic partner to global enterprise customers. Looking ahead, our priorities remain consistent: disciplined execution, continued innovation, and scaling these capabilities across our base. We are confident in our ability to translate this strategy into sustainable growth, margin expansion, and durable competitive advantage. Thank you all for your time and continued support. You may now disconnect.