加载中...
共找到 16,485 条相关资讯
Operator: Thank you for standing by. My name is Liz, and I will be your conference operator today. At this time, I would like to welcome everyone to the Outset Medical, Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to James S. Mazzola, Head of Investor Relations. Please go ahead. James S. Mazzola: Good afternoon, everyone, and welcome to Outset Medical, Inc.’s first quarter 2026 earnings call. Today’s speakers are Leslie L. Trigg, Chair and Chief Executive Officer; Derek Elliott, EVP of Commercial; and Renee M. Gaeta, Chief Financial Officer. The company issued a news release after the close of the market today which can be found on the investor pages at investors.outsetmedical.com. This call is being recorded and will be archived on the Investors section of the Outset Medical, Inc. website. All forward-looking statements made during today’s call are intended to be protected under the Private Securities Litigation Reform Act of 1995. Outset Medical, Inc. assumes no obligation to update these statements. For a list and description of the risks and uncertainties associated with the business, please refer to Outset Medical, Inc.’s public filings with the Securities and Exchange Commission, including its latest annual and quarterly reports. Leslie L. Trigg: Thanks, Jim. Good afternoon, everyone, and thank you for joining us. The first quarter reflected consistent execution across console utilization, new customer additions, gross margin expansion, and disciplined cash management. While variability in capital order timing impacted our capital sales performance in the quarter, we remain confident in our growth plan for the year, supported by the upcoming launch of the next-generation Tableau, a deep sales pipeline, and the addition of an experienced commercial leader in Derek Elliott, who I am pleased to personally introduce to you today. Beginning with the quarter, revenue of $27.9 million was down slightly from the fourth quarter due to the lumpiness of capital sales, but we are confident in our growth plans for the full year. Treatment and service performed exactly as we expected, and we achieved excellent gross margin expansion with product margin reaching over 52%, the result of our ongoing margin expansion programs and mix. More broadly, our end markets remain healthy and providers continue to allocate capital to projects that deliver clear benefits like those we offer. We are reaffirming our annual guidance today because we remain very confident in the depth, diversity, and maturity of our pipeline. In particular, we are in the late stages of closing several large new deals and also an emerging refresh opportunity with existing customers who have older Tableau consoles and intend to buy replacement units in future quarters and years. We had several key wins during the quarter and managed successful go-live implementations at both new customer sites and with existing customers expanding Tableau insourcing to new facilities within their network. A very recent example occurred just a few weeks ago in Texas. Over the course of two days, our team set up dialysis service lines at multiple hospitals owned by one of the largest health systems in the country. These facilities had a total of approximately 400 beds and required support to train the nursing staff, ensure replicable procedures were in place, and prepare the internal team to manage the new service line. Our service and implementation teams are truly the shining stars of Outset Medical, Inc. Extending our unique dialysis clinical expertise to customers, these teams ensure nurses are well trained, policies and procedures are in place, and that customers have a reliable, seamless transition from their outsourced provider to an insourced model. Here in the second quarter, our team is replicating this success with go-live implementations occurring at more than 30 facilities involving nearly 200 consoles. From an operational perspective, we are well prepared for the initial transition to next-generation Tableau later this quarter. We believe this platform is the first dialysis system cleared under the FDA 2025 cybersecurity requirements, and includes hardware and software enhancements that improve performance and system reliability. A dialysis system that meets FDA’s cybersecurity guidance helps protect hospitals by reducing the risk of compromise, limiting the risk of spread, and safeguarding patients. We view Tableau’s Secure by Design principles, layered access controls, and controls intended to reduce the risk of unauthorized access as a significant new competitive advantage. It provides yet another compelling value proposition on top of the cost savings and clinical outcomes improvements associated with insourcing that we believe will be recognized by health systems amid ever-increasing concerns over cybersecurity, continuity of care, and patient safety. We plan to begin with a limited release extending into the third quarter, then ramp to a full launch. In early customer discussions, there has been strong reception to the cybersecurity benefits and other enhancements that next-generation Tableau will provide. We are very excited for the rollout and will share additional details on our August call. Finally, I would like to reiterate our strong cash position and unwavering focus on reaching profitability. During the quarter, we expanded margins to record levels and remained disciplined in our spending, both of which contributed to a lower-than-expected use of cash. I am proud of the progress our team continues to make streamlining our supply chain and manufacturing operations, strengthening our service organization, becoming more efficient in every corner of the business, and expanding our partnership and presence with acute and post-acute care providers. Before Renee walks through the financials, I want to take a minute to introduce our new commercial leader, Derek Elliott. Derek has been on the job for a month and is already making an impact through his deep customer relationships, sales and marketing expertise, and disciplined approach to pipeline management. I would like to invite Derek to say a few words about himself and his priorities. Derek? Derek Elliott: Thanks, Leslie, and good afternoon, everyone. As Leslie said, I joined Outset Medical, Inc. about one month ago and spent that time conducting a deep dive into the business. I have met with our leadership and sales teams, conducted thorough reviews of our pipeline and forecast methodology, and visited many customers. One month in, I can say with confidence that we have a great team, a strong and differentiated product fit, and customers who are deeply interested in improving the dialysis experience for their patients and organizations. When Leslie first approached me about this position, it became clear that my background was a unique fit for Outset Medical, Inc. I have spent more than 30 years serving many of the same customers in sales leadership positions, including 17 years at Stryker across national accounts, capital equipment, and professional services. More recently, I have worked closely with customers to sell EMR connectivity, software, and data analytics across hospitals and health systems nationwide. It is all very similar to Outset Medical, Inc.’s business, customer call points, and value proposition. My near-term priorities include working with our commercial team to prepare for the launch of next-generation Tableau and being very involved at the customer level as we advance and close business in 2026. We have a meaningful opportunity to improve the lives of patients and the providers who serve them. I see how that mission motivates people across Outset Medical, Inc., and I am proud to now be a part of this team. With that, I will turn the call over to Renee. Renee M. Gaeta: Thank you, Derek, and good afternoon, everyone. Revenue in the first quarter was $27.9 million, a 6% decrease from $29.8 million in 2025, largely due to some lumpiness in the timing of capital orders. Product revenue was $18.6 million, down 13%. We anticipated this year-over-year dynamic on our last earnings call and also saw about $1 million in capital deals shift from the first quarter that are expected to close later in the year. Capital sales were $5.4 million, and consumable sales were a bit stronger than anticipated at $13.2 million. We remain very focused on our forecasting methodology for treatments, which, as I mentioned last quarter, now includes closer collaboration with our largest customers on their ordering patterns. Service and other revenue of $9.3 million grew 10% from $8.5 million in the prior-year period. Recurring revenue from the sale of Tableau consumables and service was $22.5 million, roughly flat sequentially and with 2025, both as we anticipated. Next, I will walk through gross margin and operating expenses for the quarter. Please refer to the table in today’s earnings release for a reconciliation of GAAP to non-GAAP measures. Non-GAAP gross margin expanded 620 basis points from last year, reaching 43.8% for the quarter. Product gross margin was driven by sales mix and increased 400 basis points to 52.4% from 48.4% in 2025. Service and other gross margin was 26.7%, increasing again sequentially and growing more than 1.6 thousand basis points compared to 10.3% in 2025. This reflects strong execution and keeps us on track for the next milestone of 50% company-wide gross margin. Moving to operating expenses, non-GAAP operating expenses increased nearly 4% to $25.6 million compared to $24.6 million in 2025, driven by investments in systems and people. Non-GAAP operating loss was $13.4 million, even with the prior-year period. Non-GAAP net loss of $15.4 million improved 32% compared to $22.8 million in 2025. These results reflect continued progress as we work to achieve profitability. Moving to our balance sheet, we ended the quarter with $161 million in cash, cash equivalents, short-term investments, and restricted cash. We used approximately $12 million during the quarter, which is less than we previously forecast due to ongoing expense discipline and working capital management. As we look ahead to our cash needs for the remainder of the year, we now anticipate using less than $40 million, which is roughly 15% better than we previously expected. Turning to our guidance for 2026, we continue to expect revenue to be in the range of $125 million to $130 million, a 5% to 9% increase over 2025, with the majority of the 2026 growth coming in the third and fourth quarters. For non-GAAP gross margin, guidance assumes that as we ship more consoles, gross margin will approach the lower end of the range, just as a higher mix of consumables will move gross margin towards the higher end of the range. Balancing these two factors, we continue to expect gross margin to be in the low- to mid-40% range for the full year. With that, I will turn the call back to Leslie for closing comments. Leslie L. Trigg: Thanks, Renee. I want to close by emphasizing Outset Medical, Inc.’s strong market position. With more than 1 thousand facilities using Tableau and more than 3.5 million cumulative treatments performed, we continue to gain ground as the leader of dialysis insourcing. We expect next-generation Tableau, as the only dialysis system we believe to have been cleared under the FDA’s rigorous guidelines for cybersecurity, will continue to solidify and extend that position. There are now more than 8 trillion data points in our cloud platform, which helps fuel our analytics and innovation engine, improve the customer experience, and ultimately enhance patient care. With insights from this data repository and our strong suite of professional implementation services, Outset Medical, Inc. is increasingly recognized as the trusted partner. We improve dialysis patient care while reducing costs and streamlining operations, and we get to see the results every day for customers of all sizes. For example, a regional 400-bed multisite health system reported an approximately six-fold decrease in their dialysis costs during their first year of insourcing with Outset Medical, Inc. and Tableau. This health system performs approximately 2 thousand dialysis treatments per year; the cost savings are substantial. As meaningful, they saw no central line bloodstream infections, improved their documentation and Joint Commission readiness, and operationalized a more sustainable staffing model. All of the progress we have made provides a powerful foundation for value creation over the long term, which we look forward to demonstrating in the coming quarters and years. We will now open the call for questions. Operator, please open the lines. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the queue. Your first question comes from the line of Rick Wise with Stifel. Please go ahead. Rick Wise: Good afternoon, everybody. Hi, Leslie. You will not be surprised that I am hoping you can give us a little more color on, as you described it, the capital order variability and lumpiness. Just when I look back to the fourth quarter, you characterized the pipeline as building positively — sounds like it still is — and a healthy balance of larger and smaller deals, new and existing customers, and I doubt that has changed. What resulted in lumpiness? Why the delay? And maybe help us better understand when we are likely to see those sales happen or what you are expecting. Leslie L. Trigg: Yes. Hi, Rick. Good to hear your voice. Let me start with the capital order variability and the pipeline. The pipeline did continue to grow in Q1 as well. We saw good sequential growth in new opportunities that were added to the pipeline. As you remember from Q4, the way we look at the health of the pipeline, of course, is in terms of its size, depth, the diversity, the size of each deal, new customers versus existing customer expansions, and then the maturity — the stage that the deals are in in that pipeline. Across all these dimensions, the pipeline for 2026 and beyond is robust. We, in particular, are in the late stages of several large new deals that we do expect to close in 2026, and are also at the cusp of an emerging refresh opportunity with existing customers who have older Tableau fleets and have conveyed an intent to buy replacement units in future quarters and in future years. In terms of the lumpiness of the capital order sales cycle, it is less predictable for us than Tableau utilization. We have talked in the past about the stability and predictability of the utilization of the consoles once sold and installed. That continues to serve us well — it served us well in Q1 — and yet again, the lumpiness of the capital sales cycle makes it less predictable. It is really around the close timing, which might be stating the obvious. Beyond that, all the other areas of our business performed exactly as we expected, and we do remain on track with our guidance for the year, because the couple of deals that we saw slip out of the quarter are expected to close here in the Q2 through Q4 timeframe. That gives us a lot of confidence in the guidance range, in addition to a couple of new tailwinds coming later in Q2 and through Q3 and Q4 in the form of the next-generation Tableau launch and the additional firepower our new commercial leader is going to bring to our organization. All of those things make us very bullish about executing Q2 through Q4. Rick Wise: Gotcha. Maybe just a second one for me. There is a lot to unpack here. But just on a more mundane level, help us think through the quarterly phasing — the quarterly flow. It sounds like it is going to be a more back half–loaded year based on your comments, or at least what we should assume today for the moment. It could happen sooner — some of those delayed orders, for example. But the second quarter — does the second quarter, as opposed to stepping up like it did sequentially the way it did last year — is it flat with the first quarter or down? And since you are holding guidance constant, if we take the midpoint of your $125 million to $130 million range, do we evenly step it up in the third, fourth quarter? And again, last year both were around $29 million. Are these going to be roughly equal quarters and whatever the remainder is to get to the midpoint of the guide? Help us think through the phasing. Thank you. Renee M. Gaeta: Sure, Rick, I am happy to give some color here. As we sit here today with just one quarter in, we have spent a lot of time looking at not only the pipeline, as Leslie mentioned, but of course all of the factors that roll up into our full-year guidance. At this point in time, we would say that Q2 would be a modest step up, and then, as we indicated on the call, Q3 and Q4 will see the larger percentage of the growth. Whether or not Q3 and Q4 are flat, you might continue to see some step up — it will again be based on the timing of the close of these capital orders and pull-through. But as 70% of our revenue is coming from consumables and service and other, that part we expect to see stable. The 5% to 9% growth that we are expecting for the top line would certainly be across all of those categories. Rick Wise: So just to sum it up, modest step up in the second quarter, and it is not like you are saying that all of the remainder to get to the — just to focus on the midpoint of the guide — it is not all in the fourth quarter. You will see sequential step up in each quarter. Renee M. Gaeta: Correct. I think that is a good way to think about it. Rick Wise: Great. Thank you very much. Renee M. Gaeta: Thanks, Rick. Operator: Your next question comes from the line of Colin Clarke with TD Cowen. Please go ahead. Colin Clarke: Hi, thanks for taking my questions. First, on the delayed orders in the first quarter, I am curious — you talked about having several large orders in the pipeline expected to get landed in the February period. What is driving your confidence there? What about those orders in size and scale and the stage of that process is driving the reiteration of guidance here? Thank you. Leslie L. Trigg: Sure, I am happy to take that. I have had the opportunity to remain extremely close to all of our largest deals and forecast for 2026. First and foremost, we look at the staging of those deals. We have talked in the past about the stages of our sales process, and so we look at how many of those deals are in the later stages of the pipeline. We now have the ability to use historical data to inform the probability of close between, let us say, Q2, Q3, and Q4. The confidence, to answer your question, is informed by the data that we have about where these customers are — both new customers and existing customers that, based on their financial and clinical results with Tableau, are choosing to expand into new facilities. Informed by that probability-of-close data, we feel we have a good understanding and a good handle on which of those deals are likely to land in Q2, Q3, and Q4. In addition to that, I just alluded to next-generation Tableau, which we will be in full launch mode with in the second half of the year, and we do expect next gen to be a demand driver as hospitals and health systems continue to tell us that cybersecurity is at or very near the top of their priority list. As we believe we have the only dialysis system in the market to meet these very stringent FDA requirements, we believe that will be a demand driver based on how well this is resonating thus far in our early sales conversations. We view that as an incremental tailwind for the second half of the year. Colin Clarke: Understood. That is very helpful. I am curious on the next-gen system — does it have the potential, do you think, to accelerate these trade-in timelines as far as replacing older-generation Tableaus? Leslie L. Trigg: That is an excellent question. The short answer is yes, I think it could. Colin Clarke: Perfect. One final one from me. Thank you for hosting the webinar this afternoon with the dialysis supervisor at Reid Health — we found it really helpful. We were interested in what she said about bidirectional integration of Tableau into the EMR. Can you talk about the functionality that enables and what that does for your revenue recognition when Tableau not only uploads data to the EMR, but the operators have the potential to input orders from the EMR to Tableau? Leslie L. Trigg: Sure. Thank you for listening to the webinar — I appreciate that. Yes, Reid Health has had a lot of very positive benefits clinically and financially through insourcing with Tableau. To fill other listeners in, what is being alluded to is a potential future capability for bidirectional data transfer. Today, what we offer is uniquely one-way data transfer. We are directly integrated with Epic and Cerner and many other EMRs, which again is unique to Tableau. Health systems use that today to directly transmit or upload all of the treatment data from Tableau after every treatment up to their EHR. There is an opportunity to add a new feature in the future that would allow prescription data or information to be transmitted directly from the EMR to Tableau. That is something we are excited about as a future direction and that we have heard — and it sounds like you heard from Reid Health — would deliver quite a bit of value to our customers. When we think about our recurring revenue foundation that Renee alluded to — roughly about 70% of our total revenue — our overarching revenue strategy is to drive the highest possible percentage of our total revenue from recurring revenue sources. It is visible and very predictable. EMR is an example of a recurring revenue layer that we have added around service and around consumables, and we have had good early success with selling EMR both in terms of upfront implementation and recurring maintenance fees annually. Were we to add new features like bidirectional, we would view that as an incremental revenue opportunity, further fueling the recurring revenue foundation that we enjoy. Colin Clarke: That is very helpful. Thank you. I will hop back in the queue. Leslie L. Trigg: Thank you. Operator: We have no further questions at this time. I will now turn the call back over to Leslie L. Trigg for more closing remarks. Leslie L. Trigg: Terrific. Thank you to everybody for joining today. I would like to close by thanking our customers and our team for the difference that they make every day in the lives of dialysis patients. Have a great evening, everyone. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. 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 afternoon, and welcome to Artivion, Inc.'s fourth quarter and year-end 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to your host from the Gilmartin Group. Thank you. You may begin. Unknown Speaker: Thank you. Good afternoon, and thank you for joining the call today. Joining me from Artivion, Inc.'s management team are Pat Mackin, CEO, and Lance Berry, COO and CFO. Before we begin, I would like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company’s or management’s intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause results to differ materially from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company’s SEC filings and in the press release that was issued earlier today. You can also find a brief presentation with details highlighted on today’s call on the Investor Relations section of the Artivion, Inc. website. Lastly, please refer to our release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Unless otherwise stated, all comments today will be using our non-GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis. Revenue growth rates will be at adjusted constant currency rates, and expenses as a percentage of sales will be based on adjusted revenues. With that, I will turn the call over to Pat Mackin. Pat Mackin: Thanks, and good afternoon, everyone. Through 2026, we continued to execute our strategy designed to drive long-term profitable growth through an expanding and clinically differentiated product portfolio. In the quarter, we delivered constant currency revenue growth of 12% and adjusted EBITDA growth of 26% year over year. Revenue growth was driven primarily by On-X and stent grafts, including AMDS. We also benefited from growth within preservation services as tissue processing volumes normalized following the 2024 cybersecurity event. Before expanding further on product line performance, I would like to address today’s exciting news regarding the exercise of our option to acquire Endospan. This follows the PMA approval of its NEXUS aortic arch stent graft system for chronic aortic dissections, which was achieved in early April. NEXUS is a branched endovascular stent graft system purpose-built for minimally invasive treatment of aortic arch disease, where patients often have no choice other than open-heart surgery. The clinical data are compelling. Data from the chronic aortic arch dissection cohort of the TRIUMPH trial demonstrated 93% survival from lesion-related death and 90% freedom from disabling stroke at one year post-treatment. Also, 95% were free from intervention due to endoleaks, excluding type II endoleaks, at one year in this very high-risk population. As a reminder, the total annual U.S. addressable market opportunity associated with both cohorts is estimated to be around $150 million, with dissections representing about $100 million of that. We plan to pursue supplementing the label to include aortic aneurysms through formal regulatory processes expeditiously post acquisition. Importantly, our anticipated acquisition of Endospan and its NEXUS system will complete our market-leading three-pronged aortic arch portfolio. This technology, acquired alongside AMDS and our E-vita OPEN NEO with LSA branch (C-Branch LSA), will position us at the forefront of this segment as the only company globally with a complete portfolio of aortic arch solutions. Importantly, NEXUS is a platform technology, not just a single product. It is supported by three additional PMA programs in development that we expect will further extend and solidify our leadership in the aortic arch market over time. We are pleased to have the financing already in place for this acquisition, and, subject to satisfactory and customary closing conditions, we expect to close in 2026. We expect to be ready for a full U.S. commercial launch of NEXUS in January 2027, following efforts to scale inventory production, complete value analysis committee processes, and augment our U.S. sales team. With that, let me turn back to our Q1 2026 results. From a product category perspective, stent graft revenues grew 10% on a constant currency basis in the first quarter compared to the same period last year. Year-over-year constant currency growth fell below our expectations due to lower than expected AMDS starter set sales in the U.S., as well as softer than expected performance internationally, particularly in the Middle East. Year-over-year growth also reflects a tougher comp in Europe, following a strong Q1 2025 performance as we recovered from the 2024 cybersecurity event. While U.S. AMDS sales associated with initial stocking fell short of our expectations in Q1, we have been very encouraged by implant and reorder patterns within the accounts already using AMDS. We view this as much more critical than the immediate impact of sales from starter sets. Strong reordering patterns reflect positive user experience and ultimately our long-term adoption and growth thesis. Looking ahead, we expect U.S. AMDS starter set sales to accelerate as more accounts get through the VAC process and finalize their procurement, and as we benefit from steps being taken to mitigate the initial upfront $100 thousand cost burden associated with stocking. We also anticipate PMA approval of AMDS in the coming months, which will obviate the need for entirely new accounts to go through the IRB process; some have deferred until PMA approval because of this increasingly imminent date. Ultimately, we see our comprehensive stent graft portfolio as a foundational component of our growth strategy. We are encouraged by our enduring fundamental strength and increasingly strong competitive advantage within the segment. Looking ahead, we intend to replicate our proven strategy by bringing additional stent graft products that are already generating revenue in Europe to the U.S. and Japan, which we believe will unlock further meaningful expansion of our stent graft total addressable market. Meanwhile, our Q1 On-X revenue was up 17% year over year on a constant currency basis. This growth was driven by further global market share gains and continued early traction in our new $100 million U.S. market opportunity unlocked by recently published data demonstrating improved outcomes with mechanical valves versus bioprosthetic valves for younger patients. We maintain our conviction that On-X is the best aortic valve in the market for patients under 65, and we will continue to take market share worldwide in that product line. Tissue processing revenues increased 23% year over year on a constant currency basis in the first quarter, as demand for our products remained strong and tissue volumes normalized year over year following the cybersecurity incident in late 2024. Q1 results were slightly ahead of our expectations of roughly $24 million per quarter for that business. Lastly, BioGlue was relatively flat on a constant currency basis compared to the same period last year. While this performance was slightly lower than our mid-single-digit growth expectation contemplated in our previously communicated full-year revenue guidance, it falls within the range of normal quarter-to-quarter growth variability due to the significant amount of stocking distributor business in that product line. Lastly, on our pipeline, we continue to make great progress on the ARTISON clinical trial for our next-generation frozen elephant trunk. We have 26 patients enrolled in the trial, which is a non-randomized clinical trial consisting of 132 patients in the U.S. and Europe at up to 30 centers for treatment of aortic dissection and aneurysm in the arch. We anticipate completing full enrollment in mid-2027. We are optimistic that the trial will be successful, supported by our clinical results from our current-generation frozen elephant trunk, E-vita OPEN NEO, which is available outside the U.S. Following the one-year follow-up period, assuming the trial meets its endpoints, we anticipate FDA approval for our C-Branch LSA in 2029, unlocking an incremental $80 million annual U.S. market opportunity. In conclusion, while Q1 results fell short of our constant currency expectations and reflected some moving pieces that Lance will walk you through in detail, it was a quarter of meaningful progress against our long-term strategy. The fundamentals that underpin our growth strategy remain intact: a comprehensive, clinically differentiated portfolio, a focused commercial organization, and a pipeline that stands to expand our total addressable market continuously over time. The reordering behavior we are seeing within AMDS accounts reinforces our conviction in the long-term adoption story, and we have a clear line of sight to near-term drivers that will accelerate new account conversion. On-X continues to take share from both mechanical and bioprosthetic valves and is the leading aortic valve on the market for patients under 65. With the addition of NEXUS, we now have what we believe is the most comprehensive aortic arch portfolio in the world, a position we have built deliberately and intend to extend. With that, I will now turn the call over to Lance. Lance Berry: Thanks, Pat, and good afternoon, everyone. Before I begin, please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Total revenues were $116.3 million for Q1 2026, up 12% compared to Q1 2025. Adjusted EBITDA increased approximately 26%, from $17.5 million to $22.1 million in Q1 2026. Adjusted EBITDA margin was 19% in Q1 2026, an approximate 130 basis point improvement over the prior year, driven by leverage in SG&A and gross margin improvement. From a product line perspective, stent graft revenues increased 10%, On-X grew 17%, tissue processing revenues grew 23%, and BioGlue revenues were relatively flat in Q1 2026. On a regional basis, revenues in Asia Pacific increased 6%, North America 23%, EMEA increased 5%, and Latin America decreased 23%, all compared to Q1 2025. International growth was below what we typically see from that part of the business. EMEA underperformance was driven by the stent graft-related factors that Pat discussed earlier, while underperformance across APAC and LatAm was driven primarily by quarterly fluctuations in distributor ordering patterns, which we expect to normalize over the course of the year. Q1 gross margins were 64.9%, an increase from 64.2% in Q1 2025, primarily due to favorable product and geographic mix. General, administrative, and marketing expenses in the first quarter were $60.8 million compared to $54.7 million in Q1 2025. Non-GAAP general, administrative, and marketing expenses were $59.3 million, or 51% of sales in the first quarter, compared to $53.0 million, or 53.6% of sales, in Q1 2025, reflecting a 260 basis point improvement. Approximately 170 basis points were driven through leveraging existing infrastructure and annualizing our year-one AMDS launch costs, and approximately 90 basis points were from stock-based compensation. Our as-reported expenses included a gain of approximately $1.5 million in Q1 associated with insurance reimbursement for cybersecurity costs incurred in previous periods, and approximately $1 million of diligence and integration planning costs associated with the planned acquisition of Endospan, both of which are excluded from adjusted EBITDA. R&D expenses for the first quarter were $8.8 million, or 7.6% of sales, compared to $6.7 million, or 6.8% of sales, in Q1 2025. Interest expense, net of interest income, was $5.2 million as compared to $7.5 million in the prior year. Other income and expense this quarter included foreign currency translation losses of approximately $800 thousand. Free cash flow was negative $6.8 million in Q1 2026 as compared to negative $20.6 million in Q1 2025. As a reminder, the first quarter is typically our seasonally lowest free cash flow quarter, and although negative, this quarter’s free cash flow results were slightly better than anticipated. As of 03/31/2026, we had approximately $55.8 million in cash and $215.4 million in debt, net of $4.6 million of unamortized loan origination costs. At the end of the first quarter, our net leverage ratio was 1.8x, down from 4.0x in the prior year. Now for our outlook for 2026. As Pat stated, our Q1 stent graft results did not meet our expectations, due to factors that could continue to impact our revenue in the near term, primarily softness in our international markets, particularly in the Middle East, and timing of AMDS starter set sales in the U.S. It is early in the year, and we are working to mitigate or offset these issues. However, given the uncertainty around the timing and impact of those actions, we believe it is prudent to adjust our guidance. We now expect adjusted constant currency growth between 7% and 11% for full year 2026, representing a reported revenue range of $480 million to $496 million. This guidance contemplates FX to have an approximate one percentage point tailwind on as-reported revenue for the full year. From a product line perspective, the reduction relates primarily to stent grafts due to the factors we have discussed. This guidance assumes inconsequential revenue from U.S. NEXUS sales in 2026 as we seek value analysis committee approvals and build supply for an anticipated 01/01/2027 U.S. launch. As a reminder, growth in Q1 2026 was anticipated to be higher than the remaining quarters, driven by the easier comps for the preservation services business from the prior-year cybersecurity event. These flip to difficult comps for the preservation services business in Q2 and Q3 before normalizing in Q4 2026, followed by a more consistent sequential improvement as our U.S. AMDS and U.S. On-X sales accelerate during the year and we return to normal costs for the preservation services business in Q4. Excluding the impact of the planned Endospan acquisition, we now expect full year 2026 adjusted EBITDA to be in the range of $100 million to $107 million, representing a range of 12% to 20% growth over 2025 and approximately 100 basis points of adjusted EBITDA margin expansion at the midpoint of our ranges. Please note that this full-year adjusted EBITDA guidance excludes potential impact from the anticipated completion of the Endospan acquisition. Assuming the acquisition closes later in the quarter as anticipated, we would expect to incur approximately $8 million of incremental expense through 2026. This would include investments in launch costs and commercial infrastructure while also accounting for the absorption of Endospan operating costs, including ongoing R&D and clinical expenses. Given our expectation for immaterial revenue contribution from U.S. NEXUS sales in 2026, this incremental $8 million would be expected to reduce our full-year 2026 adjusted EBITDA to $92 million to $99 million. Looking forward, we would expect the first meaningful revenue contribution to begin in January 2027, and we anticipate our combined results to be EBITDA neutral for full year 2027 as U.S. NEXUS revenue ramps over the course of the year and as we get combined R&D and clinical spending into our targeted range of 7% to 8% of sales. Relative to the pending acquisition, we also announced today that we drew $150 million under our existing term loan facility. The proceeds will be used to fund the $135 million upfront purchase price for the anticipated Endospan acquisition. Assuming the acquisition closes as anticipated, quarterly interest expense would increase to approximately $8 million starting in Q3 2026, with Q2 2026 interest expense expected to be slightly lower than that. As a reminder, we also continue to anticipate paying a $25 million earnout in 2026 following the anticipated mid-2026 AMDS PMA approval. With that, I will turn the call back to Pat for his closing comments. Pat Mackin: Thanks, Lance. Overall, we have near-term work to do, and we exited Q1 with greater conviction in our foundational growth strategy. We are excited to move forward with our pending acquisition of Endospan, as the NEXUS platform stands to complete our market-leading aortic arch portfolio. We see PMA approval of AMDS on track for midyear. Implant adoption for AMDS continues to build, and our broader market expansion pipeline is accelerating as planned, particularly with ARTISON enrolling as expected. Our long-range growth thesis remains intact. More specifically, we expect future growth to be driven by four key growth drivers: number one, the AMDS PMA; we are commercializing AMDS in the U.S. under HDE, increasing penetration of the annual U.S. market opportunity, with new clinical data, reimbursement dynamics, and PMA approval likely to be further tailwinds. Number two, the On-X heart valve data; we are continuing to educate providers on clinical data showing mortality and reoperation benefits in patients under 65 compared to bioprosthetic valves, which we expect to translate into greater market share globally. Number three, NEXUS; we are moving forward with our strategy to acquire our partner Endospan following the FDA approval of NEXUS. This acquisition, if closed, will provide an additional near-term growth driver, position us at the forefront of this segment, and significantly expand our pipeline with three additional PMA programs in development, extending our runway well beyond the initial approval. Number four, the ARTISON IDE trial; we continue to make progress in our third-generation frozen elephant trunk program, our C-Branch LSA. This clinical trial represents an incremental $80 million U.S. annual opportunity. I want to thank our employees around the globe for their continued dedication to our mission of being a leading partner to surgeons focused on aortic disease. We will now open the call for questions. Operator: At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. One moment, please, while we poll for questions. Our first question comes from Stifel. Your line is now live. Analyst: Hi, Pat and Lance. Thanks for taking the question. I just want to understand better on this guidance reset what is exactly contemplated in it now, because I think there are a few key assumptions, and the key one is exactly when AMDS receives PMA and then more broadly what kind of opportunity the PMA unlocks. Is this truly conservative, adequate, or how would you frame it in terms of expectations for when you get this AMDS approval, and then how should we think about the opportunity that approval unlocks in the context of the revenue ramp throughout the year? Pat Mackin: Thanks. I would say a couple of things. There were two things that did not go as planned in the first quarter. Number one was international stents were off, mostly due to unplanned things: one was the Middle East, and two was some supply chain challenges. Those are temporary, and we are working to fix those. Second, as we pointed out, was the AMDS starter set sales. Those are the starter sets where the hospital has to buy four. We do think that the PMA will help. We have been saying all along that we did not think the PMA was going to make that much of a difference, but the closer we get to PMA approval, there is some bureaucracy and work that hospitals have to do to get IRBs in place, and with the PMA so close, many are just going to wait. So we do think that will be helpful. We are also working to knock down some of the barriers that we are seeing on getting these starter sets. The encouraging thing is that we were ahead of plan on the actual implants. That is what we are working on now—making sure we can get access to these starter sets and working through that process. Lance Berry: We have been saying we expect PMA approval midyear. We still expect that. As far as what the guidance contemplates, it basically contemplates the trends we are seeing right now. We are working to improve those, but that is probably going to take a little bit of time. We think this is prudent guidance given the trends we have right now. Analyst: Got it. That is helpful. And then I also wanted to hit on NEXUS. You talked about working towards closing the acquisition. What are you doing as you work up to 01/01/2027 in terms of building out the commercial infrastructure from here, whether it be hiring or whatever else is required? Key next steps as you build to NEXUS would be great. Pat Mackin: We are very excited about this NEXUS platform. It is the third piece of the puzzle—AMDS, our LSA branch solution, and NEXUS—and that really gives us a comprehensive portfolio for the arch. We will need to do a few things to get ready. Number one, we must go through the value analysis committees. As you have experienced with AMDS, it can take four to six months. We will use that time to do two things: build inventory and hire dedicated clinical specialists. The good news is this is a very different market than AMDS in that there are only about 100 accounts on our initial list. These are very high-end, high-volume accounts. We know who they are, and we can cover that call point with not a lot of reps. We have already started hiring and will continue to add as we go through the value analysis process. Those are the two main focuses once we close this transaction to be ready for a January 1 launch. Analyst: Thanks. That is helpful, and thanks for taking the questions. Pat Mackin: Yep. Operator: Our next question comes from Lake Street Capital. Your line is now live. Frank Takkinen: Great. Thank you for taking the questions. I was hoping to get a little more color on reordering versus a potential plateauing of new accounts. Are new accounts starting to slow down or is the reordering not yet occurring? It feels like we had a steep trajectory with some of the initial ordering patterns, and then we are just waiting for the reordering, or are new orders starting to plateau? Pat Mackin: Let me clarify. We have started using the term “starter sets,” which is basically an account that does not have AMDS. To get AMDS, they need to purchase four devices for $100 thousand. That is not a normal practice for a lot of businesses that will consign units or sell out of trunk stock. We are having hospitals acquire four units. The other piece is the actual implants of the existing accounts. Those went quite well and were ahead of our plan. We are very encouraged and pleased by adoption in the accounts that purchased. What we are working on now is a lot of accounts that have AMDS in the queue, and we are working to get the units on the shelf. Barriers include the IRB or the $100 thousand upfront purchase. We are working on programs to minimize that burden. Lance Berry: In summary, there is the upfront $100 thousand, and every time the device gets used, they need to reorder a device. We call that initial $100 thousand a set sale, and everything after that is implant sales. Implant sales went great. They were ahead of our expectation, and all the feedback we are getting on those is fantastic. We are running into barriers getting the upfront $100 thousand investment approved for a number of different reasons—IRB, financial considerations—so we are putting things in place to help overcome those barriers. We think we will see a reacceleration of starter set sales. Pat Mackin: Because the $100 thousand upfront lands on someone’s desk, it can get stuck there for a while. A key point is DRG 209 for complex arch work—there is very strong reimbursement for AMDS. It takes time for that information to be disseminated to the account, so we are working to ensure they have good visibility to the publicly available information on DRG 209 and what that means to their procedural billing. Frank Takkinen: Got it. Very helpful. Thank you. And then as a second one on NEXUS, how should we think about the growth trajectory? There is potentially more training upfront, but it is very novel, so I would expect a strong growth trajectory coming out of that. And is there a point in time that the $8 million incremental cost is offset by revenue as you think about the ramp? Pat Mackin: Surgeons, particularly vascular surgeons, have a lot of patients who are not being treated right now because there is no option. These are patients too sick for cardiac surgery, and we now have a solution in the arch to treat those patients. They adopt technology rapidly because of the unmet need. The building blocks are: get through value analysis committees, train the surgeons, hire the team, and build inventory. Our goal is to be ready by January 1. We believe this technology has real opportunity to drive growth for the company and help a lot of patients. We will give you more information as we go into 2027. Lance Berry: On the $8 million, it is broken into three pieces. One is initial launch preparation costs that will not carry forward into next year. There are R&D and clinical related expenses that are incremental this year, but as we roll into 2027, we will fit those into our normal 7% to 8% of sales; it is not really incremental from a 2027 standpoint. Then there are run-rate expenses for the sales force and some G&A that will carry forward, and we think those will be covered by actual NEXUS revenue in the U.S. in 2027, making it EBITDA neutral overall. On supply chain and logistics, NEXUS is very different than AMDS. We are not making people buy it upfront. AMDS cases are acute type A emergencies, so you have to have stock on the shelf. Chronic dissections are elective, so we have time beforehand to know exactly what devices are needed, and we will ship them into the cases and get paid at the case. There will be no shelf stocking limiter for NEXUS. Frank Takkinen: Got it. Very helpful. Thank you, guys. Lance Berry: Thanks, Ryan. Operator: Our next question is from Canaccord Genuity. Your line is now live. William Plovanic: Hey, thanks. Good evening. I just wanted to unpack AMDS a little more. One of the challenges brought up multiple times is starter sets. You mentioned strategies to get around this. Are you going to shift the product to consignment, or do you believe the PMA is really going to open that? Is there a backlog? Are we through the early adopter phase and now getting into a broader customer base, implying a slower ramp for new accounts? Lastly, what was the growth of the core stent business if you back out AMDS? Pat Mackin: We have plenty of hospitals. When we set our internal plan and expectations for the year, we had more than enough target accounts to hit the numbers we communicated. We were pleased with implants—ongoing implants were ahead of what we expected. The challenge is getting into hospitals with this upfront $100 thousand purchase. We are not going to consignment. That could always be a last resort, but that is not our strategy. We have programs to address barriers to the $100 thousand upfront. Once PMA is out, there is no longer an IRB, and we think that will be very helpful. Getting accounts through those processes is what we are working on. That timing is harder to control than implant timing. Lance Berry: We do not break out the details on U.S. AMDS revenue compared to international stent grafts. You can tell by geographic growth rates: international growth was much lower than we typically expect this quarter for the reasons discussed. If you normalize North America for easier comps in Q4 and Q1, the North America growth rate is pretty similar in Q4 to Q1, which points to the slowdown being driven significantly by international. But U.S. AMDS starter set sales were below our expectations for the quarter. William Plovanic: When you started out the launch in the first quarter last year, you talked about 140 targeted accounts, with 600 full potential. Can you give any sense of the total targeted number of accounts today and how far you have penetrated? Lance Berry: We have not broken that out. I would say at this point we still have plenty of opportunity to sell starter sets. As we move along, we will consider giving more detail because at some point the starter set is a one-time revenue event, and the implants matter most long term. We will consider providing more information later, but we are not breaking that out at the moment. William Plovanic: On NEXUS, you are pushing to a 2027 launch. Is manufacturing scaled and ready to go? Lance Berry: They are manufacturing today. We have been selling the product in Europe for over five years. We do need to expand and build inventory for the U.S. launch. Endospan had an agreement with us to be acquired upon PMA approval and had no intention of commercializing the U.S. product themselves, so they did not build inventory for a U.S. launch. There is some scale up, but mainly we just need to build product. William Plovanic: Thanks for taking my questions. Pat Mackin: Thanks, Bill. Operator: Our next question is from Oppenheimer. Your line is now live. Analyst: Hi, Pat. Hi, Lance. Thank you for taking our questions. On AMDS, can you quantify how many accounts are deferring AMDS for PMA approval? Is this the first time you are calling it out, or has this been an ongoing trend that is now coming to a head? And with that, should we expect a bolus once you get PMA approval? Pat Mackin: We have been saying for several quarters that we did not really see PMA as a big catalyst. What has happened is practical: for example, we have to go to an IRB at a hospital and the surgeon has to take four hours of training. If PMA is expected in the second quarter, the surgeon may say, “I will just wait. I am not going to do four hours of training for this IRB.” We do have a number of accounts impacted by this. We are not giving specifics on counts. As PMA gets closer, people are less inclined to do the IRB work, and we see PMA as an opportunity. That is contemplated in our guidance. Analyst: On cross-selling with On-X via AMDS, any differences you are seeing in physician utilization? Are they ramping up on a similar curve, or is it more additive but minimal? Pat Mackin: It speaks to our strategy. We are a valve company that treats patients under 65 with the Ross and with On-X, and we are an aortic arch company. Our interactions with top aortic surgeons span our trials—PERSEVERE, ARTISON, TRIUMPH. We are training AMDS centers, and we will have NEXUS trainings that bring heart and vascular surgeons together. We have ARTISON investigator meetings. All of those events help us build relationships with aortic surgeons and deliver our messages across On-X, AMDS, and NEXUS. It is all about the aorta and is highly complementary. We are already seeing cross-selling, and it will get better as we scale trainings. Operator: Our next question comes from Ladenburg Thalmann. Your line is now live. Jeffrey Cohen: Hi, Pat and Lance. Thanks for taking the questions. Two from us. Any updates as far as the commercial organization, both U.S., EU, and perhaps Japan—W-2s and 1099s—for the balance of this year that we should anticipate? Lance Berry: We will have to hire some specialists for NEXUS, but other than that, sales force additions would be fairly limited across the globe and still highly leverageable with our focused sales force. Pat Mackin: On NEXUS, our initial target is about 100 U.S. accounts. We can cover that with a small, dedicated team because these are elective cases. In Japan, we have a relationship with a distributor that has a dedicated team on the ground. We have the commercial infrastructure in Japan; we just need to work through the approval process. Jeffrey Cohen: As a follow-up, can we touch upon the tissue business? It was a strong quarter. Any puts and takes or trends for the balance of the year? Lance Berry: We have told people to think about that as a $24 million per quarter business. We did a little better this quarter, which is great, but that is within normal quarterly fluctuations. If it is a little less in a future quarter, do not read into it. As long as it averages to about $24 million for the year, that is in line with expectations. Jeffrey Cohen: Got it. Thanks for taking the questions. Operator: Our next question comes from Needham & Company. Your line is live. Michael Matson: Thanks for taking my question. Starting with AMDS, I understand the commentary around consignment and the $100 thousand sets, but why not put it on consignment? Is it tying up too much of your capital and inventory on hospital shelves, or is there another reason you are requiring hospitals to have this big expense to get started? Lance Berry: You can always flip to consignment; you can never flip back. It is an emergency case; they need it on the shelf. It is a differentiated product with incredible reimbursement, and we think it is something they should stock. Many accounts have made the purchase. We have hit a point where, further down the list, we are seeing resistance that we had not seen earlier. Our job is to overcome that barrier. We have multiple levers to pull and will come up with solutions as we move along. We are not going to throw in the towel at the first sign of resistance. Pat Mackin: The data are extremely compelling. AMDS can convert malperfusion to non-malperfusion with associated mortality and blood flow restoration benefits. It eliminates the need for vein grafts, with about a 30% difference in reoperation at 10 years and a 20% difference in mortality at five years. It is an emergency, there has not been innovation in 50 years, and it has the best DRG in the market. It should be stocked. Once you start consignment, you typically do not reverse it. Michael Matson: On international stent graft issues, you called out the Middle East and supply chain. Which was bigger? Pat Mackin: About half and half. We have significant business in the Middle East, and we did not contemplate the current situation impacting results, but it did. We also had supply chain items we were not anticipating. Michael Matson: On the revenue guidance of 7% to 11% constant currency, what are your assumptions for AMDS sets and international stent graft sales? Any improvement assumed? Lance Berry: There is definitely some improvement expected for AMDS starter set sales, but at a rate lower than originally anticipated. Roughly half of the guidance reduction is AMDS starter sets and half is international stent grafts. The international stent graft impact is split roughly evenly between the Middle East situation and supply chain issues we are working through. Michael Matson: Got it. Thank you. Operator: Our next question comes from Citizens. Your line is now live. Daniel Walker Stauder: Thanks for taking the questions. First on AMDS reordering behavior, usage was more than you expected. Are multiple surgeons utilizing at some of your larger accounts? Any additional color? Pat Mackin: Typically, a surgeon from an account goes to the training program, returns, and starts implanting, then trains partners or they attend training. In bigger centers, there are often two, three, or four surgeons handling acute type A dissections. We might train one at a hospital, but there are multiple on call. We are training more surgeons per account over time. As usage spreads within accounts, reorders increase. We were pleased that reorders were ahead of expectations. Daniel Walker Stauder: Any different margin contribution from reorders compared to initial orders? Gross margins were strong despite starter set softness. Lance Berry: There is no meaningful difference to gross margin. Both are strong. Daniel Walker Stauder: Thank you. Operator: Our next question comes from Freedom Capital Markets. Your line is now live. Analyst: Thank you. On On-X, can you talk about current usage split between younger and older patients before the new data and where it is today? Pat Mackin: We do not get real-time patient-level age data, but we have historical profiles. Based on recent conferences, there is a lot of discussion about papers showing a mortality benefit for mechanical valves in patients under 60 and about a 20% reoperation benefit at 10 years in mechanical versus tissue valves for patients under 65. We are getting that data out and are growing share in the bioprosthetic space where we previously had not. Much of our growth is from patients aged roughly 50 to 65, which is our focus segment. Analyst: On NEXUS go-forward plans, are there plans to bring Duo and Tre to the U.S., and what regulatory steps are required? Any logistical issues having a custom-made product coming from Israel into the U.S.? Pat Mackin: It is still early; we do not own the company yet, but we have strong collaboration. We are planning to bring Duo and Tre to the U.S. It will require a clinical trial. We will have an off-the-shelf version rather than a custom-made version, which is part of the innovation. We are working on timing and will update our pipeline after closing and integration. On logistics, for U.S. commercialization we will align supply to elective case scheduling, so we do not anticipate custom-made logistical constraints for the U.S. launch plan. Operator: We have an additional question from Canaccord Genuity. Your line is now live. William Plovanic: There has been some discussion on supply chain challenges, and it sounds like that will continue to impact going forward. Can you unpack what it is, the solution, and timing? How much of the portfolio does it impact? Lance Berry: We are not going into a lot of detail, but we have ring-fenced the issue. It relates to our supplier network. We have our arms around it and feel confident about solving it, but it will take a little time. The time to solve it is contemplated in our guidance. It is not broadly across the stent graft portfolio—specific to a small number of products. William Plovanic: Okay. Great. Thanks. Operator: We have reached the end of the question-and-answer session. I would now like to turn the call back over to management for closing comments. Pat Mackin: Thank you for joining the call. We are excited about the Endospan transaction and will be working to close that. This is an exciting day for the company as it is the final piece to the puzzle of our aortic arch solutions. We have AMDS approved under HDE in the U.S. now and are hoping to get PMA midyear. NEXUS just received approval, and you heard our launch plans. ARTISON is enrolling as expected. We have three PMAs in the arch—one approved, one about to be approved, and one on its way. It is very exciting for the company, and we appreciate your support as we continue to build this aortic company. Thank you. Operator: This concludes today’s call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful evening.
Operator: Good day, and thank you for standing by. Welcome to the Evaxion Business Update and First Quarter 2026 Financial Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO, Helen Tayton-Martin. Please go ahead. Helen Tayton-Martin: Thank you, and welcome, everyone, to Evaxion's Q1 2026 Business Update Call. I'm very pleased to be joined today by our CSO, Birgitte Rono and COO, recently promoted, we will talk more about that; and Thomas Schmidt, our CFO; and our Head of Investor Relations and Communications, Mads Kronborg. So if we move to the first slide, just to provide some orientation as to what we will cover today. We will spend a little bit of time on our achievements in the first quarter of this year and some notable changes that we have made in order to address and focus on our strategy. I will then hand over to Birgitte, who will talk through some of the recent highlights from our R&D portfolio and AI-Immunology platform. Birgitte will then hand over to Thomas, who will walk you through our Q1 financial results. And then we will have some concluding remarks before opening up the call for Q&A. So if I move to the next slide, just to reiterate, we may make some forward-looking statements on the call today, and investors and all listening are guided towards our SEC filed documents. So if I go past our introduction to Slide 5. I just wanted to, as before, emphasize our 4 key focus areas within the organization and give you a sense of the momentum as we perform an update in each of those areas. First of all, our core focus around business development and partnering is very much underway and strengthened. By the way, we have reorganized the organization somewhat, and I'll come on to that to focus on the external outreach and positioning of the company to a broader audience and also to raise the awareness of exactly what it is that Evaxion can deliver in terms of products and the platform. And I'm pleased to say that we have many discussions ongoing there, and we hope to report more on that later as the year progresses. Secondly, in our R&D focus areas, we are delighted to talk about our recent data from our EVX-01 lead program Phase II study in which we were able to update some of the translational data recently at AACR, and Birgitte will talk in more detail about the performance of the cells that we produce in relation to the vaccines given to the patients and the 86% immunogenicity conversion rate we have there. We also were able to present at AACR, a new set of data preclinically in collaboration with our collaborators at Duke University on the scope to use the AI-Immunology platform in glioblastoma. We have always felt that the approach could be applied to other high mutational burden tumors, but also to others where high mutational burden was not a feature, and that is very much part of how we were able to demonstrate the broader applicability of the platform in glioblastoma. And again, Birgitte will speak more to that. Finally, we were able to confirm the completion of the last patient, last visit in the extension phase of our EVX-01 program and our Phase II trial, and more to come on that later in the year. More broadly on the AI-Immunology platform, we continued to optimize and strengthen that around its ability to deliver products across our infectious diseases as well as oncology portfolio and again, also in autoimmune disease, again, where we'll update later in the year. But in this first quarter, I'm delighted to say that we were able to show some initial data on a new polio vaccine concept presented in collaboration with The Gates Foundation. And finally, as Thomas will come on to, we have maintained our disciplined allocation of resources aligned to our stated aims with the portfolio and the platform, and our cash runway remains unchanged into the second half of 2027. Moving to Slide 6. As mentioned, we have reorganized slightly inside the organization. I'm delighted to announce the promotion of Birgitte to the combined role of CSO and COO, which really reflects on how we organize the company and how well it's been run in recent times, but also to enable me, in particular, to have a greater focus externally on behalf of the company in terms of our business development and our investor interactions. Separately, and in parallel, we were able to welcome Jens Bitsch-Norhave to our Board of Directors. And Jens comes to us with a huge amount of experience in BD and corporate strategy and outreach in general, both from a biotech perspective but more recently from J&J and Hengrui, where he is currently Corporate VP and Global Head of Corporate Development. So we're delighted with the way that we've been able to strengthen the organization to focus on our stated strategy, to build and maintain what we have and build greater partnerships. So on Slide 7, just to summarize, we remain a lean and capable and focused team in terms of the management organization. Two of the members are here on the call with me today, and Andreas continues to support and drive the organization's innovation strategy around AI-Immunology. And our Board remains the same but with the addition of Jens, as I mentioned. Finally, moving to Slide 8 to set up our objectives and key milestones for this year. Just a reminder that Evaxion over many years now has the privilege of having a pipeline in Phase II in oncology with our EVX-01 asset in advanced melanoma, our personalized neoantigen-directed peptide-based vaccine, where we've got great data, which Birgitte will touch on in terms of now and what's to come. We have our EVX-03 program, which is a combination of personalized and IRF-based antigens on our DNA platform. And then we also have coming along in preclinical development, aiming for clinical readiness by the end of this year, our off-the-shelf vaccine program, EVX-04 targeted to AML, which will be a single vaccine approach for multiple AML patients. More to come on that. Infectious diseases, we remain focused on driving forward our preclinical assets, EVX-B1 against pathogen staph aureus, our B2 program against Neisseria gonorrhea and also in collaboration in -- with Afrigen on an RNA platform. EVX-B3, our options partner program continues to move forward with MSD. And before our more recent newer program on Group A Streptococcus is making great strides in initial early discovery component design. And our first viral program is continuing to make progress in terms of confirming the candidate components. So a lot going on in the organization. In Slide 9, I just wanted to remind the audience of our 2026 milestones and the fact that we have achieved the first one of those in our EVX-01 additional biomarker and immunogenicity data, and we remain on track in terms of updating on the approach of AI-Immunology in autoimmune disease, our 3-year data for the EVX-01 melanoma program, our planned strategy with the EVX-04 AML program and the early work maturing in our preclinical EVX-B4 program against Group A Streptococcus. And fundamentally, we are driving the partnership strategy to focus on the platform and the assets so that we can continue to build value in the company and focus on delivering those into early development where we believe we can add value. So at this point, I'd like to hand over to Birgitte, who will talk you through our R&D and AI-Immunology update. Birgitte Rono: Thank you, Helen. So today, I'll be focusing on our lead candidate, EVX-01. And as mentioned, this is our personalized neoantigen cancer vaccine currently in Phase II in advanced melanoma. And then I will present the exciting new data demonstrating the scalability of our AI-Immunology platform into the hard-to-treat deadly brain cancer glioblastoma. And lastly, I will showcase how we have applied AI-Immunology to design optimized vaccine antigens for an improved polio vaccine. So if you take the next slide. So as Helen mentioned, we presented EVX-01 Phase II biomarker and T-cell immune data at the AACR Annual Meeting here in April. And we reported that 86% of the EVX-01 vaccine target triggered a specific immune response, and this is substantially higher than what has been reported for other similar vaccine candidates. Furthermore, we also reported that 86% of the immunogenic vaccine target induced a de novo T-cell response, meaning that the EVX-01 vaccine specifically triggers novel T-cell responses and not just amplifying existing responses. And this is of great importance as induction of these novel responses have been linked to clinical benefit. Furthermore, we demonstrated a positive correlation between the predicted quality of the EVX-01 vaccine targets and the magnitude of the T-cell response induced by the vaccine targets. And this high vaccine target success rate, together with this positive correlation demonstrates the strong predictive power of our AI-Immunology platform. If you take the next slide. So EVX-01 continues to deliver strong data, adding to the already existing and promising clinical and immunological data package. So at ESMO last year, we reported a 75% overall response rate, including 25 complete responders and 92 sustained responses, indicating a durable benefit. So importantly, more than half of the patients converted into an improved clinical response upon EVX-01 treatment. And with the newly presented Phase II immune data, this further strengthens the picture with the 86% immunogenicity and the 86% de novo immune responses, demonstrating broad and consistent immune activation. So looking ahead, we have a clear development trajectory. We will announce 3-year data, including clinical outcome in the second half of this year. Further, we are evaluating and discussing additional relevant cancer indications and with further trials expected to be conducted in partnerships. And importantly, EVX-01 has already received FDA Fast Track designation, validating both the unmet need and then also the development potential. So overall, this positions EVX-01 very strongly as we move forward into the next phases of value creation. If you take the next slide. So let's turn our focus to the other promising data set presented at AACR. So in collaboration with Duke University, we demonstrated that our AI-Immunology platform scales beyond melanoma. And here, it's exemplified with glioblastoma or GBM. So GBM is the most common and the most aggressive primary malignant brain tumor. And despite surgery followed by chemoradiation, outcome remains very poor for these patients with a median overall survival of approximately 15 months and a 5-year survival below 10%. So using our AI-Immunology platform, we have evaluated tumor omics data from 24 GBM patients and demonstrated that a fully personalized vaccine design was feasible for all these cases. And importantly, these designs were based on 2 classes of antigens or classical neoantigens and also antigens derived from the dark genome so-called endogenous retroviruses or ERs. So in 21 out of the 24 designs, they included both types of antigens, 2 vaccine designs included only neoantigens and 1 design relied solely on the ER antigens. This analysis showcases the flexibility and the scalability of the platform to integrate antigen from different sources, fitting the patient tumor biology. So overall, the data demonstrate that AI-Immunology can address hard-to-treat low mutational burden tumors like GBM and it also supports broader applicability of the platform across different cancers. If you move on to the next slide. So another example of how AI-Immunology can be used to design improved vaccine was showcased at the World Vaccine Congress. And together with The Gates Foundation, we presented a new polio vaccine concept using AI-Immunology, we designed a novel hybrid capsid antigen and a novel de novo B-cell antigen with the aim of eliciting a strong and broad tumor response against all serotypes. And overall, this highlights the potential of AI-Immunology to reinvent classical vaccines with improved simplicity and also improved breadth. Take the next slide. So having highlighted progress across the key R&D program, let's step back for a moment and focus on AI-Immunology and the data validating its ability to generate high-quality product candidates. So AI-Immunology is clinically validated with positive outcomes in 3 out of 3 oncology trials. And preclinically, we have demonstrated proof of concept across multiple disease areas, including cancer with our IRF targeting off-the-shelf vaccine concept as well as in infectious diseases with several vaccine candidates targeting multiple bacterial and viral pathogens. And importantly, the EVX-01 concept is highly scalable with potential in other solid tumors beyond melanoma. Additionally, the platform's applicability in challenging cancer indications was further validated in GBM. So finally, AI-Immunology supports multiple modalities, including peptides, proteins and DNA and RNA, enabling both pipeline and also partnership potential. So in conclusion, we have demonstrated strong progress across our platform and our R&D pipeline, and we are looking forward to keeping you updated as we advance our programs further. So with that, I will now hand over to Thomas, who will present our quarterly financial results. Thomas Schmidt: Yes. Thank you, Birgitte. And as mentioned, I will now then present and take you through our Q1 '26 results. The highlights of the first quarter of the year really is a continued discipline that we have applied in our resource allocation, of course, aligned with our strategy and certainly investing into our value drivers. So really according to plan. And that also means that we are on track to deliver what we expect of an operational cash burn of roughly USD 14 million for 2026. That also underlines and reconfirms that our cash runway is into the second half of 2027 and remains as such. Also, as earlier communicated, not assuming any partnerships or deals that we will hopefully be making and communicating within that time frame. Looking at the P&L, we have operating expenses overall more or less in line with last year, but slightly reduced. It comes from our R&D with a minor increase as we continue, as mentioned before, to progress and advance our pipeline and programs according to plan. On the other side, our G&A expenses are slightly lower versus last year, also mainly driven by the fact that we have lower capital market costs in Q1 '26 versus the same period in '25. The first quarter resulted in a net loss of USD 3.6 million, again, according to our plan. On the balance sheet side of things on the next slide, reconfirming once again, our cash position and equivalent end of the quarter stands at $18.4 million, which confirms runway until the second half of '27. And the total equity has been reduced since year-end, really as a result of the net result of the first quarter, meaning that we have USD 13.2 million as equity at the end of the quarter. So all in all, financials according to plan, allocation into our main priorities and cash runway confirmed until the second half of 2027. With that, I hand it back to Helen for some concluding remarks. Helen Tayton-Martin: Thanks, Thomas, and thanks, Birgitte. And so I would just like to emphasize that we believe we've made a great start to 2026, achieving the first of our milestones with a really encouraging translational data from EVX-01. We've got various presentations that have been made that validate the capabilities and scalability of the platform, as Birgitte has explained. Business development remains a key priority in terms of engaging with organizations on the value of the assets that we have and the capability to develop those assets as we've talked a bit about. And the cash runway is maintained through to the second half of 2027. So we are rigorously following execution of our strategy and engagement externally and making great progress. So with that, I would like to hand back over to take some questions by the operator. Operator: Our first question comes from the line of Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Two for me. With respect to the 3-year EVX-01 data, ASCO is obviously too soon. But should we anticipate something like an ESMO readout? Or will you do it independent of a broader scientific meeting? Helen Tayton-Martin: So we will be updating in the context of a scientific meeting. We will not be sort of outside of that, that's not our intention. And we'll confirm which of the 4 conferences it will be once we're able to -- once abstracts are released. Thomas Flaten: I think the GBM data that you put out, albeit early, was very exciting, and obviously, a disease state and great need. Is it your strategic intent to take that into humans? Or would you seek a partnership based on the data you have now and perhaps some additional preclinical data? Helen Tayton-Martin: So we are very excited about the data. We agree it's really interesting and it's really exciting in a very difficult-to-treat disease. We would anticipate that that will be something that we will be partnering. It sort of strengthens the overall personalized approach that we have developed with EVX-01, but probably more to come on that as more data and discussions mature, but it would be a partnering approach for that one, too. Operator: Our next question comes from the line of Michael Okunewitch from Maxim Group. Michael Okunewitch: Congrats on all the great progress. I guess to kick things off, I'd like to ask just a little bit about expansion and I guess, your design philosophy and strategy around that. So first off, when thinking about targets for expanded indications in cancer, in particular, is the plan to go after other diseases where PD-1s have historically been ineffective due to that synergistic activity of directing the antitumor immune response? Helen Tayton-Martin: So I think we've taken a lot of parameters into account. But Birgitte, do you want to comment on how we have been marshaling the approach internally to focus on the rare diseases? Birgitte Rono: Yes. So as mentioned, we are looking at multiple different antigen sources currently, and there's further development in this area in the company. So we would like to be able to provide a cancer vaccine for all patients independently of their antigen profiles or landscapes. So we have so far looked at more than 30 different indications, mapping out their seasonal burden, their ERV burden, et cetera, and can see that for many of these indications, we're able to -- with the capabilities we have currently to design a high-quality vaccine. And of course, one would need to further dive into medical need and current treatment landscapes to find the optimal subpopulations where our therapies would fit, but not necessarily in PD-1 low patient, it could also be in high. So it's mostly -- we are mostly focusing on understanding the antigenic landscape and fitting our therapies towards these profiles. Michael Okunewitch: When thinking about designing new vaccines, do you find that it makes more sense to use one personal vaccine and then see if you could expand that to multiple tumor types with the same vaccine for more universal coverage? Or does it make more sense to go tumor by tumor and create a new back of targets that are directed specifically at the common target for that given tumor type like melanoma or like glioblastoma and have an individual vaccine candidate for each of those different cancers? Birgitte Rono: So the way that we are approaching this is to look into a lot of data from certain indication and understanding, as mentioned, the landscape. If we do see that there are these conserved antigens, so antigens that are shared across patients, we would definitely develop an off-the-shelf vaccine just due to the fact that the statistics are more simple and also the cost for the manufacturing would be way lower than for a personalized approach. Further on, you can -- if there's an off-the-shelf therapy, you can immediately treat the patients and not have to wait for that personalized batch to be ready. So that's -- everything comes back to the patient omics data and the profiles that we are seeing in our analysis. For some indications, we know that developing an off-the-shelf cancer vaccine would be very challenging. So it clearly depends on these different biological profiles. Helen Tayton-Martin: I think the EVX-04 illustrates just where in that setting, I think, the high level of conserved has enabled us to produce a single vaccine for those patients. Michael Okunewitch: I appreciate the additional color and looking forward to the 3-year data coming up later this year. Operator: We will now take our next question. And this question comes from the line of Danya Ben-Hail from Jones. Danya Ben-Hail: Congratulations on the update. You mentioned that there are several parallel partnerships and discussions. Can you provide more detail on whether these discussions lean toward broad platform licensing or specific asset-based collaboration in future? Helen Tayton-Martin: So we obviously can't say much at this point. I think we have stated the priority around partnership on EVX-01. But as you've heard, that has broader applicability than melanoma in our minds. And that has obviously also gathered interest externally with partnering conversations also. Across our infectious diseases portfolio there are a number of assets there, which are of interest to a number of companies. So we can't really provide any more details than that. Suffice to say that we are trying to be strategic around the way we have the partnering discussions in terms of maximizing the value, whether it's from an asset group in infectious diseases or the approach with something like the personalized EVX-01, EVX-03 cancer vaccines. So obviously, we will -- as soon as we can tell you more, we'll be delighted to do so, but we're pushing forward on a more strategic basis, if you will, around how to get the most value out of the assets that we can produce from AI-Immunology. Danya Ben-Hail: Just one more question on the autoimmune platform part. So we should expect more details in the second half? Helen Tayton-Martin: Yes, that's our current plan and aligns to -- as is always generally with Evaxion, generally aligns to scientific relevant conferences to report on data. Operator: There are no further questions for today. I will now hand the call back to Helen Tayton-Martin for closing remarks. Helen Tayton-Martin: Thank you. Thank you very much. And thank you to all those who listened into the call, and thank you very much for the questions that we received. I think in summarizing, we are very enthusiastic and excited about the performance so far in Q1 2026. We are really just getting started and we are achieving our milestones as we have stated them to be. So very excited about the initial data, very excited about the additional updates to come later this year. With that, I'd like to thank you very much, and I think we'll be closing the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello everyone. Thank you for joining us, and welcome to the SandRidge Energy, Inc. first quarter 2026 conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Scott Prestridge, Senior Vice President of Finance and Strategy. Scott, please go ahead. Scott Prestridge: Thank you, and welcome everyone. With me today are Grayson R. Pranin, our CEO; Jonathan Frates, our CFO; Brandon L. Brown, our CAO; as well as Dean Parrish, our COO. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risk and uncertainty, and actual results may differ materially from those projected in these forward-looking statements. These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties, as discussed in greater detail in our earnings release and our SEC filings. You may also hear references to adjusted EBITDA, adjusted G&A, and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I will turn the call over to Grayson. Grayson R. Pranin: Thank you, and good afternoon. I am pleased to report on a strong quarter for the company. Production averaged 18.6 MBOE per day during the first quarter, an increase of 4% on a BOE basis versus the same period in 2025. Oil production increased 31%, and total revenues increased 17% during the quarter versus the same period in 2025, driven primarily by new production from our operated development program. Before getting into this and other highlights, I will turn things over to Jonathan for details on financial results. Jonathan Frates: Compared to 2025, the company saw increases in the market price of both oil and natural gas. We grew production by 4% year-over-year and generated revenues of approximately $50 million, which represents an increase of 26% compared to last quarter and 17% compared to the same period last year. Adjusted EBITDA was $33.7 million in the quarter compared to $25.5 million in 2025. We continue to manage the business with a focus on maximizing long-term cash flow while growing production and utilizing our NOLs to shield us from federal income taxes. At the end of the quarter, cash, including restricted cash, was approximately $104 million, which represents over $2.80 per common share outstanding. Cash was down compared to the prior quarter due to an increase in noncash working capital, primarily related to the timing of payables versus receivables from our one-rig drilling program. Working capital, as represented by current assets less current liabilities, was up by $3.7 million compared to the prior quarter. The company paid $4.4 million in dividends during the quarter, which includes $600 thousand of dividends to be paid in shares under our dividend reinvestment plan. On May 5, 2026, the Board of Directors increased the regular-way dividend by 8%, declaring a $0.13 dividend as well as a one-time special dividend of $0.20 per share, both of which are payable on June 1 to shareholders of record on May 20, 2026. Shareholders may elect to receive cash or additional shares of common stock through the company's dividend reinvestment plan. Following these dividends, SandRidge Energy, Inc. will have paid $5.05 per share in regular and special dividends since the beginning of 2023. Commodity price realizations for the quarter before considering the impact of hedges were $71.11 per barrel of oil, $3.13 per Mcf of gas, and $18.64 per barrel of NGLs. This compares to fourth quarter 2025 realizations of $57.56 per barrel of oil, $2.20 per Mcf of gas, and $14.92 per barrel of NGLs. Our commitment to cost discipline continues to yield results, with adjusted G&A for the quarter of approximately $2.4 million or $1.42 per BOE compared to $2.9 million or $1.83 per BOE in 2025. Net income was $18.7 million for the quarter, or $0.50 per diluted share. Adjusted net income was $21.6 million, or $0.58 per diluted share. This compares to $13 million, or $0.35 per diluted share, and $14.5 million, or $0.39 per diluted share, respectively, during the same period last year. The company generated cash flow from operations of $19.8 million during the quarter compared to $20.3 million during the same period last year. Adjusted operating cash flow was $34.4 million during the quarter compared to $26.3 million in the same period of 2025. Lastly, production is hedged with a combination of swaps and collars representing just under 30% of the midpoint of our 2026 guidance. This includes approximately 37% of natural gas production and 43% of oil. These hedges will help secure a portion of our cash flows and support our drilling program through the year. We continue to monitor prices and take advantage of favorable opportunities, but plan to maintain meaningful upside throughout the remainder of the year. Before shifting to our outlook, you should note that our earnings release and 10-Q will provide further details on our financial and operational performance during the quarter. Now I will turn it over to Dean for an update on operations. Dean Parrish: Thank you, Jonathan. Let us start with a review of the first quarter and discuss recent drilling and completion results. Total capital spend for the quarter, excluding A&D, was $19.9 million, which is better than expectations for the quarter, mostly due to drill schedule adjustments. A rigorous bidding process focused on driving drilling and completion costs down in the Cherokee play and longer artificial lift run times from previous years of improvements kept us on budget. Additionally, we have been securing critical well components needed for the remainder of the year to minimize any supply or inflationary pressures that may affect our capital program. Lease operating expenses for the quarter were $10.8 million, or $6.45 per BOE, which falls right in line with expectations. We are also securing the needed equipment and services that will be critical for production operations in 2026, similar to the capital program. We expect to continue to see pressure on diesel fuel through fuel surcharges passed on through service providers that have strict internal protocol to reduce surcharges when diesel prices begin to decrease. During the quarter, the company successfully completed three wells and brought two wells online from our operated one-rig Parakeet drilling program. We recently brought online the ninth well in our program and are drilling the eleventh, while the tenth well awaits final completion. Our operations team continues to execute, with the tenth well that was just drilled being the fastest, lowest cost to date, driven by the team's focus and ingenuity to reduce costs. It is early, but we are seeing some incremental efficiencies on our eleventh well drilling now, and we will have more to share next quarter. Moving to our 2026 capital program, we plan to drill 10 operated Cherokee wells with one rig this year and complete eight wells. The remaining two completions are anticipated to carry over to next year. A majority of the remaining wells in our development program this year directly offset proven or in-progress wells in the area, and we continue to monitor offsetting results. Gross well costs vary by depth but are estimated to be between approximately $9 million and $11 million. We intend to spend between $76 million and $97 million in our 2026 capital program, which is made up of $62 million to $80 million in drilling and completions activity, and between $14 million and $17 million in capital workovers, production optimization, and selective leasing in the Cherokee play. Our high-graded leasing is focused on further bolstering our interest, consolidating our position, and extending development into future years. With that, I will turn things back over to Grayson. Grayson R. Pranin: Thank you, Dean. Let us start with commodity prices. We started the year with strong natural gas prices, which benefited January and February revenues. During this period, our largest natural gas purchaser elected to move to ethane rejection. This means that more ethane is sold as natural gas and less is separated as NGLs. This typically results in fewer barrels of equivalent in volume, which impacted both our NGL and overall BOE volumes for the quarter, but it benefited natural gas volumes and revenue as the gas was sold at relatively higher prices with an increased BTU factor. This had a positive effect on revenue due to the dynamics of high natural gas and lower relative ethane prices during the period. However, natural gas prices have since declined and, with it, the spread between natural gas prices and ethane. Our largest natural gas purchaser returned to ethane recovery in March and plans to maintain recovery until there is further benefit otherwise. Also, while natural gas prices increased during January, we did experience increased production deferment during Winter Storm Fern, which negatively impacted volumes. Despite this challenge, our team did an amazing job operating through the extreme cold weather and minimizing downtime as much as possible—and, most importantly, doing so safely. Now shifting to oil, the year began with oil prices in the mid- to upper-$50 range, which changed dramatically over the quarter. Despite seeing spot rates reach up to triple-digit levels recently, WTI averaged $72.74 per barrel in Q1 because the shift occurred in late February and early March. For the same reason, the increase in WTI prices only partially benefited our revenues during the quarter, as the entire oil price increase occurred in the back half of the quarter. Thus far, oil prices have remained high in the second quarter and could benefit revenues further. Our commodity prices are driven by market dynamics outside of our control. We have used our favorable position and came into the year with minimal hedges to take advantage of the increases year-to-date, the details of which can be found in our earnings release and 10-Q to be filed later today. Combined with our prior hedges, we have hedged a meaningful portion of our PDP volumes for the remainder of the year, which allows us to secure a portion of our cash flows at prices that are materially above where we started the year and where we budget. The remainder of our PDP oil volumes and all of the volumes from our current drilling program will participate at the market with exposure to current high prices. We have endeavored to balance securing cash flows while maintaining an appropriate level of exposure to commodity upside. That said, there has been a lot of volatility in WTI pricing over the last few weeks and much speculation over futures, with the forward curve remaining in steep backwardation. We are content with the current level of hedging this year. We will continue to monitor geopolitical events and future pricing for further adjustment, with specific focus on longer-term periods. Now let us pivot over to our development program. As Dean discussed, we had first production on two wells this past quarter. One well targeted the Cherokee shale in our core area, consistent with wells last year. These wells had an average peak 30-day of approximately 2 thousand BOE per day, made up of 45% oil, including the newest seventh well. The other well turned in line this quarter and tested the Red Fork formation, a sandstone in the Lower Cherokee group. This was an initial well in a new area for us that offset and delineated a very productive well drilled by a reputable operator. This well allows us to better establish performance expectations in a new target in a new area. The leasing costs have been very attractive. Currently, we do not have any Red Fork wells planned for the rest of the year. However, we plan to monitor the performance of this well, industry and offsetting activity—which has increased over the past year—as well as commodity prices and other factors while evaluating the go-forward plan in the new area. Given the tailwind of WTI prices and the enhancement to returns, we plan to continue our Cherokee development with one rig and further grow oily production. While the program is attractive in a range of commodity environments, our team will continue to be diligent by prioritizing full-cycle returns, monitoring reasonable reinvestment rates, and, when needed, exercising drill schedule flexibility to make prudent adjustments to our development plans in different economic environments. Also, we do not have any significant near-term leasehold expirations and have the flexibility to defer these projects if needed for a period of time. I am very pleased with our team for their continued focus on safety, execution, and cost focus in development and production optimization programs. They have truly championed safety, resulting in the continuation of a record of more than four years without a recordable safety incident. In addition, they continue to operate at a high level with a lean, but very engaged and experienced staff with peer-leading operating and administrative cost efficiencies. I would like to pause here to highlight the optionality we have across our asset base. Coupled with the strength of our balance sheet, it sets us up to leverage commodity price cycles. The combination of our oil-weighted Cherokee and gas-weighted legacy assets, as well as a robust net cash position, gives us multifaceted options to maneuver and take advantage of different commodity cycles. Put simply, we have a strong balance sheet and a versatile kit bag, which makes the company more resilient and better poised to maneuver and adjust, no matter the commodity environment. I will now revisit the company's advantages. Our asset base is focused in the Mid-Continent region with a PDP well set that provides meaningful cash flow, which does not require any routine flaring of produced gas. These well-understood assets are almost fully held by production, have a long history, a shallowing and diversified production profile, and double-digit reserve life. Our incumbent assets include more than a thousand miles each of owned and operated SWD and electric infrastructure over our footprint. This substantial owned and integrated infrastructure helps de-risk individual well profitability for the majority of our legacy producing wells under roughly $40 WTI and $2 Henry Hub. Our assets continue to yield free cash flow. This cash generation potential provides several paths to increase shareholder value realization and is benefited by a low G&A burden. SandRidge Energy, Inc.'s value proposition is materially de-risked from a financial perspective by our strengthened balance sheet, including negative net leverage, financial flexibility, and advantaged tax position. Further, the company is not subject to MVCs or other off-balance-sheet financial commitments. We have bolstered our inventory to provide further organic growth opportunities and incremental oil diversification, with low breakevens in high-graded areas. Finally, it is worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around them. Not only do we continue to operate our existing assets extremely efficiently and execute on our Cherokee development in an effective manner, but we do so safely. Shifting to strategy, we remain committed to growing the value of our business in a safe, responsible, efficient manner while prudently allocating capital to high-return growth projects. We will also evaluate merger and acquisition opportunities while maintaining financial discipline, consideration of our balance sheet, and commitment to our capital return program. This strategy has five points. One, maximize the value of our incumbent Mid-Con PDP assets by extending and flattening our production profile with high rate-of-return production optimization projects, as well as continuously pressing on operating and administrative costs. Two, exercise capital stewardship and invest in projects and opportunities that have high risk-adjusted, fully burdened rates of return while prudently targeting reasonable reinvestment rates that sustain our cash flows and prioritize a regular-way dividend. Three, maintain optionality to execute on value-accretive merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complement its portfolio of assets, whether it utilizes approximately $1.5 billion of federal net operating losses or otherwise yields attractive returns to its shareholders. Four, as we generate cash, we will continue to work with our board to assess paths to maximize shareholder value to include investment and strategic opportunities, advancement of our return-of-capital program, and other uses. To this end, the board continues to focus on the company's return of capital to stockholders as a priority in capital allocation, and as a result, expanded its ongoing dividend program by 8% and declared a one-time dividend. The final staple is to uphold our ESG responsibility. Now, shifting to administrative expenses, I will turn things over to Brandon. Brandon L. Brown: Thank you, Grayson. As we close out our prepared remarks, I will point out our first quarter adjusted G&A of $2.4 million, or $1.42 per BOE, continues to lead among our peers. The consistent efficiency of our organization reflects our core values to remain cost disciplined and to be fit for purpose. We will maintain our efficient and low-cost operation mindset and continue to balance the weighting of field versus corporate personnel to reflect where we create the most value. The outsourcing of necessary but more perfunctory functions such as operations accounting, land administration, IT, tax, and HR has allowed us to operate with total personnel of just over 100 people for the past several years while retaining key technical skill sets that have both the experience and institutional knowledge for our business. In summary, at the end of the first quarter, the company had approximately $104 million in cash and cash equivalents, which represents over $2.80 per share of our common stock outstanding; an inventory of high rate-of-return, low breakeven projects; low overhead; top-tier adjusted G&A; no debt; negative leverage; a flattening production profile; double-digit reserve life; and approximately $1.5 billion of federal NOLs. This concludes our prepared remarks. Thank you for joining us today. We will now open the call for questions. Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the Turning Point Brands First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Andrew Flynn, Chief Financial Officer. Please go ahead, sir. Andrew Flynn: Good morning, everyone. Earlier today, we issued a press release covering our first quarter results available in the Investor Relations section of our website at www.turningpointbrands.com. During this call, we'll discuss consolidated and segment operating results, the operating environment and our progress against our strategic plan. Before we begin, please refer to forward-looking statements and risk factors in our press release and SEC filings. We'll also reference certain non-GAAP financial measures. Reconciliations and explanations are included in today's earnings release. With that, I'll turn the call over to our CEO, Graham Purdy. Graham Purdy: Thanks, Andrew. Good morning, everybody, and thank you for joining our call. We started the year with strong momentum, led by accelerating growth in Modern Oral with gross and net sales up 167% and 133% year-over-year and 30% and 26% sequentially. These results are driven by ongoing growth in both brands' D2C platforms, FRE early expansion into larger, higher-volume chain accounts and [indiscernible] very early move into bricks and mortar. In the quarter, Modern Oral accounted for 42% of our total revenue, up from 21% in Q1 2025. Before we dive into details of the quarter, I want to step back and frame the opportunity in front of Turning point brands. We believe we are in the midst of a greater than $50 billion generational shift in nicotine consumption, and we are positioning the business to capture meaningful share of nicotine users in this evolving high-barrier category. We are strengthening that position through foundational investments in our sales force, marketing and commercial capabilities. These investments are critical to building a durable growth platform that can scale into a leading player in the post-cigarette nicotine market over time. While this infrastructure will ultimately allow us to compete across the modern nicotine ecosystem, our priority today is clear: winning in nicotine pouches. We believe the nicotine pouch category is still in its nascent stages of development and can become the dominant revenue and profit driver of the company over time. As we've said before, we expect the market to consolidate around a limited number of scaled brands, and we are increasingly confident that FRE and ALP will be among them. Our confidence is grounded in execution. We continue to see encouraging consumer response across both FRE and ALP, supported by product quality, brand positioning and repeat purchasing behavior. Our outsized share of direct-to-consumer sales, coupled with our continued market share gains in bricks and mortar are evidence that our plan is working in the early innings. Based on our Q1 performance, we believe our results captured mid-single-digit category share of both gross and net sales, giving confidence that we are on track to achieve our long-term goal of double-digit market share by the end of the decade. We are using that momentum to build scale across channels. FRE Continues to expand in the larger regional and national convenience chains. while ALP has moved from a strong direct-to-consumer base into retail faster than we originally expected. We've had several notable chain wins, driving confidence in our growth. We expect our chain store count to increase 70% by the end of 2026 versus the prior year. As you know, we are building an operational foundation to further support scale in Modern Oral. Commissioning our Louisville manufacturing facility is an important step in localizing production, improving supply control and reducing freight and tariff exposure over time. As we build production, we expect that work to strengthen unit economics and support margin improvement as domestic inventory moves through the P&L. At scale, we believe our margins should approach 70% in this category by the end of the decade. We also continue to invest in the commercial infrastructure needed to support growth, including sales force expansion, chain account support, enhanced consumer visibility and manufacturing capabilities. In 2026, we plan to continue investing in our sales force and marketing to secure chain placement, build brand awareness and support our growing distribution footprint. Based on achieving our sales and financial objectives, we expect total sales and marketing investment for the year to range from $80 million to $105 million. Given the strong gross sales growth we have experienced, we are confident that these investments will provide attractive returns for investors over the long term. In short, we are making front-loaded investments in a category where acquiring brand-oriented adult consumers can drive repeat purchasing and strong margins over extended periods. Over time, we believe our investments in physical execution, particularly sales force expansion, distribution support and retail presence will become a more important source of competitive advantage. Overall, we are encouraged by the momentum we are seeing, the progress we are making and the platform we are building to scale profitably. With that, I'll hand the call over to Summer to walk through the progress of our key go-to-market initiatives. Summer Frein: Thank you, Graham, and good morning, everyone. I'll focus my comments on our go-to-market execution in the nicotine pouch segment. This remains our top commercial priority. And as we scale the business, we continue to benefit from the strength of our legacy distribution relationships and broader commercial capabilities. Our strategy is to build demand across both online and retail channels with retail expansion as the key lever to scale the business. To support that effort, we are investing in sales coverage, merchandising support and brand-building programs to help us win distribution and improve in-store execution. That includes securing the right assortment, shelf placement and visibility to support trial, repeat purchase and long-term performance. These investments support both near-term execution and the broader foundation we need to scale the business. In the first quarter, we made progress against that plan. We secured new wins across critical top chain convenience stores that will expand distribution across our portfolio. Our brands are designed to resonate with distinct consumers, and we will continue to promote the expansion of both FRE and ALP into retail stores. We believe our brand credibility, market performance and ongoing marketing support were important drivers of those wins. While nicotine pouch gross sales grew nearly 500% in 2025, we still have meaningful room to build brand awareness relative to category leaders. Our early strategy was to establish distribution first using our existing retailer relationships to build a strong retail foundation. With the progress we made in 2025 and the additional distribution we have secured, we believe we are now at a point where increased brand investment can drive stronger returns. Over time, that should improve consumer awareness, support retail productivity and increase the value of the nicotine pouch opportunity. Accordingly, we are investing aggressively in brand building to support future scale. Last month, we announced a partnership between 3 and 6 TKO properties, including UFC, Zuffa Boxing and PBR. This expansion is a result of the demand and brand alignment success we validated through our initial partnership with PBR, which started in May of last year. We believe this broader platform will help accelerate brand awareness and consumer engagement with adult consumers. We are off to a solid start, already having executed a few events since the announcement, and we'll share more as the partnership unfolds. Building on ALP's success in direct-to-consumer, this was the first quarter that TPB sales organization started to sell ALP on retail shelf. We began with a manageable launch and expect to incrementally add stores this year through our new chain account wins. While it's early innings, we are encouraged by the initial results. With regards to Zig-Zag, we continued executing against our core brand pillars, strengthening the core business while scaling new product innovation and expanding brand presence in target markets. We accelerated growth in new products, including Natural Leaf Flat Wraps by expanding retail distribution through targeted merchandising programs. At the same time, we are growing brand awareness with a focus on under-indexed markets through integrated marketing campaigns and in-store activations that embodies Zig-Zag's new Life's Fast, Burn Slow tagline. Overall, we are seeing encouraging early proof points across both brand building and retail expansion, and we believe that progress positions the nicotine pouch segment to become a major contributor to growth over time. Let me now turn the call over to Andrew to go through our financial results. Andrew Flynn: Thank you, Summer. Starting with consolidated results. Sales were up 17% year-over-year to $124.3 million for the quarter. Growth was driven primarily by Modern Oral. Gross profit of $68.3 million increased 14.6%, driven by Modern Oral. Gross margin was 55%, which was down 100 basis points versus last year. Reported SG&A was $55.8 million for the quarter, which was up $8 million sequentially. The increase was driven primarily by our nicotine white pouch investments, including approximately $1 million of incremental spend tied to expansion of our sales force. We also spent approximately $7 million on increased marketing investment and broader brand-building initiatives. Adjusted EBITDA was $25.9 million for the quarter at a 20.8% margin, which exceeded the midpoint of the guidance. This was primarily attributed to accelerated growth in Modern Oral, offset by our strategy to increase sales and marketing investment and softness in Zig-Zag. Stoker's segment net sales increased 48% year-over-year to $88 million for the quarter. The Stoker's segment now accounts for 70% of consolidated net sales. Regarding Modern Oral, I want to briefly address our disclosure of gross sales. Because most contra revenue investments relate to slotting-related distribution fees, we believe both gross and net sales provide the clearest view of underlying business performance. Support of our growth investments, Modern Oral nicotine pouch net sales [ free and out ] were up 133% year-over-year, achieving net revenue of $52 million. Gross revenue was $69 million, up 167% year-over-year. For the quarter, Modern Oral accounted for 42% of consolidated net sales, up from 21% a year ago. Legacy Stoker's brands net revenue decreased 3.5% year-over-year to $36 million for the quarter, driven by continued share growth in MST that was partially offset by anticipated declines in loose leaf. Stoker's gross profit increased 39% to $47 million. Gross margin decreased 350 basis points to 54% due largely to the impact of tariffs. Zig-Zag segment net sales were down 22% year-over-year to $36.7 million for the quarter. For the quarter, Zig-Zag gross profit decreased 18% to $20.9 million and gross margin was 57.1%, which was up 300 basis points versus last year. First quarter free cash flow was negative $27.4 million, reflective of our investments in trade and brand marketing programs as well as working capital and U.S. manufacturing CapEx. We ended the quarter with $192.4 million of cash. Our expectation is to be approximately cash flow breakeven for the remainder of the year. Our capital allocation approach remains disciplined and aligned with the opportunity we see in nicotine pouch. As we invest behind growth initiatives, the timing of those investments and the timing of their benefits may not always align evenly within a given quarter. That reflects our effort to position the business to capture incremental share in a category with substantial long-term annuity value. Today, we are increasing full year 2026 Modern Oral guidance. We now expect gross sales of $280 million to $300 million, up from a previous range of $220 million to $240 million and net sales of $210 million to $225 million, up from our previous range of $180 million to $190 million. Implied gross revenue growth at the midpoint is 83.7%. We are also introducing full year EBITDA guidance of $70 million to $90 million, inclusive of increased nicotine pouch investments in sales force expansion, merchandising support and consumer marketing. For modeling purposes, we expect the effective income tax rate to be 23% to 26% on a go-forward basis. Budgeted 2026 CapEx is $4 million to $5 million, excluding projects related to Modern Oral, and we expect to spend an additional $3 million to $5 million this year to support our PMTAs. Additionally, as we focus on strengthening our market presence, we expect to spend between $80 million to $105 million to expand our sales force and bolster our marketing strategy in 2026. As we continue to scale, we expect the overall cost structure of the business to become more efficient. Many investments we are making today, [ slotting ] related, brand building and go-to-market spend are tied to building distribution and driving initial trial and growth of our products. As our consumer base grows, these costs should become a smaller percentage of sales. Now let me turn it to Graham. Graham Purdy: Thanks, Andrew. We are encouraged by the momentum we see in the business and by the progress we are making against our strategy. As I said at the outset, we believe we are in the midst of a generational shift in nicotine consumption, and we believe Turning point is uniquely positioned to capture meaningful share in that transition. Our focus remains on winning in Modern Oral by investing in the brands, commercial capabilities and infrastructure needed to scale. We are seeing continued proof points in both consumer traction and distribution growth, and we believe that positions us well to build a meaningful and profitable business over time. And with that, I'll turn it over to questions. Operator: [Operator Instructions] Our first question today will come from Eric Des Lauriers from Craig-Hallum Capital Group. Eric Des Lauriers: Congrats on the strong results. Very encouraging to see nicotine pouch sales reaccelerating into Q1 here. So you raised guidance for Modern Oral net sales by about $30 million and then gross sales by about $60 million. So suggesting a big increase in contra revenues with these national chain wins. How did these wins announced today compared to your expectations coming into the year? Have you won more chains than initially expected? And any national chains that we should expect both FRE and ALP? Or is it mostly FRE right now? Summer Frein: Great question. Thanks, Eric. We were really, really excited about the springtime negotiations that we worked through over the past few months. As Graham noted in his comments, we expect our store count to increase by nearly 70% by the end of the year. I think as you know, every chain account is different. So we're currently in the process of determining the rollout schedule and the doors will come online over the balance of the year. Where we have opportunities to bring both brands in, we will. So you'll hear more about that as the year rolls out, and we're encouraged and excited about the success that we had over the past few months. Eric Des Lauriers: Yes. No, it certainly sounds very exciting. And I guess, Summer, you touched on this in your answer there. And maybe it's just sort of, we'll see over the next couple of quarters. But how should we think about the timing from these wins? When should we expect to see them on shelves? And then how should we think about the sort of impact on gross versus net sales? Should we look for net sales to sort of pick up from these in the back half? Or is that more of a 2027 thing? Summer Frein: Yes. I'll answer the first part, and then I'll turn it to Andrew to answer the second part. But you'll start seeing some of these chain wins roll out over the next few weeks. But as the progress of rolling out these chains requires resets of fixtures and different dynamics that they're sorting out with getting everything situated in store, it just takes time. So you'll see those stores sort of fill out across the balance of the year, but I'll turn it to Andrew to explain how we thought about the dollar impact. Andrew Flynn: Yes. As we think about the net sales trajectory over the course of the year, we would expect to see some pickup in the back half as it relates to the modern oral category. Eric Des Lauriers: All very encouraging. Congrats again on the strong results. Summer Frein: Thanks, Eric. Operator: Your next question comes from Ian Zaffino from Oppenheimer. Ian Zaffino: Great guidance on that [ DMO ] side. So question would be on the PMTA process. How is that going? I know there's articles about that. And any kind of change in discussions there or thoughts about getting kind of final approval? And then how are you thinking about the Louisville plant, which I guess they're kind of [indiscernible]. Graham Purdy: Yes. Great question, Ian. Look, the PMTA process is -- it's a rigorous scientific process. We're not surprised by the timing, to be frank. And our approach is, we respect the process and any additional commentary around sort of where we're at on that [indiscernible] probably wouldn't be appropriate at this time. In terms of Louisville manufacturing, we're threading a bit of a needle here with respect to the PMTA process, and scaling our infrastructure here in Louisville. We've made really great progress relative to laying down the infrastructure to support manufacturing here in Louisville. We've certainly got equipment in Louisville, and we feel really good about where we're at from a throughput on those machines in the early innings. Ian Zaffino: Okay. And then I guess maybe a question for Summer is when you're going to market portfolio, I guess you now have a newly expanded portfolio. And so how are you going to market? Are you going to market as far as 3 being your higher nicotine pouches and ALP being your lower nicotine pouches? Is that the strategy? And also, can you maybe talk about this portfolio -- expanded portfolio, which has significantly more SKUs, how that's resonating with retailers bringing them incremental SKUs? And any other kind of color you could give us maybe about the maybe synergistic effects of having those 2 brands together? Summer Frein: Yes, sure. So I would say the retailers, our consumers and our sales organization are all very excited about us having both brands in the portfolio and in the sales bag to bring to market. And what's been great about both of these brands is that they've built a strong base with consumers, especially ALP, they've created a really strong D2C presence, and there was some pent-up demand at retail that we were really able to start leveraging. And as these brands are being put into market, we're really thinking about the end consumer. So while the product itself is important and they certainly have their differences, what's resonating with retail, what's resonating with consumers is that these brands are really focused on 2 very distinct consumer bases. There is room in this category for both brands to win, and we've seen some really encouraging early results as we've been bringing them to market. Operator: Next up is Nick Anderson from ROTH Capital Partners. Nicholas Anderson: Congrats on the quarter. First for me, just on the rising fuel price environment, have you seen any impact on [ C-store ] visits or consumer behavior? Tobacco is typically more resilient when it comes to higher fuel prices. Are you seeing the same trend emerge within nicotine pouches? Just any discernible changes [indiscernible] would be helpful. Graham Purdy: I think given the backdrop of our results, we feel really good about sort of where we're at today with the consumer. As Summer had mentioned in the last question with Ian, we're really focused in on building brand equities, building brand identity and really winning on the premium front over the long haul. We view the fuel prices as transient. We think where we generally see that more so is in the heritage businesses. And I think what's an interesting aspect of that, historically, consumers tend to not move out of the categories. They tend to look for more value. And I think we feel very well positioned with our Stoker's heritage products with respect to spiking gas prices. Nicholas Anderson: Great. That's helpful. Second for me, just on the retail landscape. With the momentum from TKO and brand awareness obviously ticking higher here, have you seen a different appetite for [indiscernible] to change the carry FRE and ALP? As brand recognition grows, I would assume your negotiations should become smoother, but any color there would be helpful. Summer Frein: Great question. We are really excited about the TKO deal. As you know, we invested in PBR last year. We learned a lot, and that gave us some momentum to build upon because I think having this TKO deal really has us show up as a credible partner that's investing for the long term to win with our brands. And so certainly, while it's early, it has been part of the conversation with retail. We've seen some early consumer excitement. We have some events under our belts and more to come as that partnership unfolds, but encouraged about the credibility it brings to us and sort of the proof point that comes to the table of us being a brand and a company that's investing in the long term here. Operator: The next question is from Gerald Pascarelli, Needham & Company. Unknown Analyst: This is Jack on for Gerald. You've [indiscernible] EBITDA guidance obviously implies a decline relative to last year, which at this point, I think is well understood, but the range is pretty wide. So could you just kind of go through some assumptions that get you to the high end versus the low end? Andrew Flynn: Sure thing. So look, what's driving the EBITDA guide is, as we discussed, we've got big investments in terms of sales force, retail distribution as well as marketing spend. And so those are the big drivers of the year-over-year change. Also, as you know, our freight -- our outbound freight costs are captured in SG&A. That's also up on a year-over-year basis. And so what's kind of driving the range here is, one, the biggest driver is our ability to get that spending and what we will spend on in the future. And so that spending is dependent on what we see in terms of sales because we'll be able to pivot if needed. And we're being judicious about that investment. And so as we monitor it, we may make some changes. So that's really the reason for the guide. And also, there could be a real upside opportunity in terms of the TKO agreement that we just launched, this is very new. And also some of these chain wins are also very new, and that can provide a very large upside for us as well. Unknown Analyst: Okay. That's helpful. And then for the UFC sponsorship, it looks like it can be pretty transformative. It's incremental to your OpEx outlook relative to last time you presented. So as we kind of look forward, is there the potential for Turning Point to enter into some more of these sponsorships? And then if so, can that imply another leg down on EBITDA? Or do you think the low end is the floor at this point? Summer Frein: I'll take the first part of that question, and Andrew may want to chime in on the dollar aspect. But as you know, investing in TKO is a bet for us, we're really excited about. We are also doing other marketing activities, other consumer engagement building activities like with [ motor sports ] and other avenues. And so I think to Andrew's point, we will invest prudently as we go and make changes as we may need to, but excited about the awareness opportunity this gives for the brands, and I'll turn it to Andrew on the dollar aspect. Andrew Flynn: Yes. In terms of what that may mean for the low end of guidance, as I said before, we're going to be judicious about our spending. And so if something makes sense for us to gain incremental market share, we will do that. And so that's really how we think about these opportunities. Operator: And everyone, at this time, there are no further questions. I'd like to hand the conference back to Mr. Graham Purdy for any additional or closing remarks. Graham Purdy: Thanks, operator. I really want to thank everybody for joining the call today. Look, in closing, I think, ultimately, I want to emphasize a couple of points to our investors. For one, I've been in this industry for -- I'm closing in on my 30th year, and I can't tell you how excited I am about the opportunity in front of us with the generational transformation that we spoke of earlier in the script. And what -- how TPB fits into that long term, I think, is incredibly exciting. The Modern Oral opportunity, it's real. It's gaining momentum. I think you're seeing early progress from our company that across our D2C platforms and progress we're making in bricks and mortar gives us a lot of enthusiasm around where we're at in terms of harvesting that long-term opportunity. As Andrew mentioned, our investments in this category are going to be incredibly disciplined and ultimately tied to our sales objectives in this category. And I think lastly, the heritage business for us is still very important. It provides strong cash flows for the company, and it gives us cash flow to invest in the future and ultimately harvest the opportunity that we see in front of us. So it's really exciting times at Turning Point Brands. And with that, I'll sort of close by saying, I look forward to talking to you all in a few months here and updating against our progress against the plan. So thank you so much for joining. Operator: Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Tandem Diabetes Care, Inc. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Susan Morrison, Executive Vice President and Chief Administrative Officer. Ma’am, please go ahead. Susan M. Morrison: Hello, and welcome to Tandem Diabetes Care, Inc.’s First Quarter 2026 Earnings Call. Today’s discussion will include forward-looking statements. These statements reflect management’s expectations about future events, our product pipeline, development timelines, financial performance, and operating plans, and speak only as of today’s date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements, which are described in our press release issued earlier today and under the Risk Factors portion of our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Today’s discussion will also include references to both GAAP and non-GAAP financial measures. Unless otherwise noted, the financial metrics discussed today will be on a non-GAAP basis. Please refer to our earnings release issued earlier today and available on the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measures and other information regarding our use of non-GAAP financial measures. John F. Sheridan, Tandem Diabetes Care, Inc.’s President and CEO, will be leading today’s call, and he will be joined by Leigh A. Vosseller, Executive Vice President and Chief Financial Officer. Following their prepared remarks, the operator will open up the call for questions. Thanks in advance for limiting yourself to one question before getting back into the queue. With that, I will hand the call over to John. John F. Sheridan: Thanks, Susan, and welcome, everyone. In the first quarter of 2026, we delivered strong financial and operational performance, setting the stage for another successful year. This momentum reflects the dedication of our team and our commitment to our strategic objectives. Building on these results, we actively advanced several key initiatives that position Tandem Diabetes Care, Inc. for both immediate impact and long-term growth. By modernizing our commercial operations, reshaping our business model, and introducing new technologies, we are not only achieving notable short-term gains, but also laying the foundation for sustained growth, profitability, and innovation. I will now walk you through updates on each of these initiatives, beginning with the modernization of our commercial organization. Globally, we have assembled a talented and impressive team. The group is deeply committed to bringing the benefits of our technology to people living with diabetes, and we are working to further support them by strengthening our systems, infrastructure, and processes. For example, in the United States, we continue upgrading our sales and customer management infrastructure as part of our multiyear system investment to optimize sales efficiency, enhance effectiveness, and drive deeper customer insights. Internationally, a key first-quarter highlight was our launch of direct commercial operations in the UK, Switzerland, and Austria. By doing so, we are better positioned to serve our customers, strengthen HCP relationships, and drive continued growth. The transition has been progressing smoothly, and we plan to continue expanding our direct operations later in 2026 and again in 2027. This approach deepens our engagement with the diabetes community while providing Tandem Diabetes Care, Inc. greater ASP and improved margins. The second key initiative I will be discussing today is reshaping our U.S. business model through our transition to a multichannel strategy. On our last call, we discussed how adopting pay-as-you-go, or PayGo, in the pharmacy channel provides us the opportunity to bring significant advantages to customers, health care providers, and payers, while delivering favorable economics to Tandem Diabetes Care, Inc. Throughout March, we began executing contracts adapted for PayGo, covering both t:slim and Mobi pump supplies, and continued to expand access with an increase to approximately 40% formulary coverage today. It is an important leading indicator for how quickly we can transition our business. Operationalizing PayGo in the pharmacy channel is an end-to-end change in the way health care providers prescribe our technology, the way we service customers, and the way we process and fill orders. We knew this transition would take time. It is still early in the process, and we are working to improve our efficiency and customer satisfaction by enhancing the pharmacy experience. Our early introduction of PayGo through the pharmacy reinforces our conviction in the meaningful opportunity this transition presents for our business and for our customers. Finally, I will provide an update on our new technology across our portfolio. In March, we were excited to announce that Tandem Mobi, the world’s smallest durable automated insulin delivery system, is fully available for use with Android smartphones in the U.S. By expanding to Android, we are bringing the benefits of Tandem Mobi to even more people living with diabetes, underscoring our commitment to delivering choice in diabetes technology. In the second quarter, we are on track to deliver on a number of exciting new offerings. In April, we received FDA clearance for use of Control-IQ+ in pregnant women with type 1. This is significant, as it makes the t:slim X2 and Mobi the first and only commercially available AID systems cleared for use during pregnancy in the U.S. We are also awaiting CE Mark for this indication in Europe. Pregnancy requires a much tighter glycemic range, and we have demonstrated that Control-IQ+ is designed to effectively support the unique therapy needs of pregnant women, in addition to women considering pregnancy. We will be hosting a product theater highlighting pregnancy management with Control-IQ+ at the upcoming American Diabetes Association meeting in June. We are also preparing for the international launch of Abbott’s FreeStyle Libre 3+ integration with the t:slim, starting in select European countries in Q2 and scaling to additional countries throughout the year. This integration with Abbott’s latest-generation sensor will allow even more CGM users to access the life-changing benefits of our Control-IQ technology. Additionally, in Q2, we will begin the commercial rollout of Tandem Mobi outside the United States. This brings together the best-in-class outcomes users have come to expect with Control-IQ+ and the benefits of Mobi’s form factor. Rounding out our Q2 launches, we will be upgrading both t:slim and Mobi for compatibility with Dexcom’s G7 15-day sensor, ensuring we continue to provide our customers with the latest-generation technologies. It is also exciting because this software update will enable Tandem pumps to provide CGM data directly to our Sugarmate app, with future plans to add insulin data. This provides visibility to sensor information across our device platforms for users and their loved ones. These launches are designed to be global and deployable to all markets where the relevant system combinations are available, which represents an important accomplishment by our team. While progressing these new offerings to commercial availability, we also made great strides with our pipeline products. We are particularly excited about Mobi Tubeless, our novel infusion-site option for the existing Mobi pumps that transforms it into a tubeless AID system, allowing for interchangeability between tubed and tubeless wear with one platform. This will be Tandem’s first tubeless pump offering and the world’s first with extended wear technology. We plan to file our 510(k) submission for the Mobi Tubeless in the second quarter. Finally, we continue to make good progress preparing our pivotal study for Tandem’s first fully closed-loop system and remain on track to start it this year. As you can see, we continue to make meaningful progress across the business while demonstrating strong financial results, which Leigh will now discuss. Leigh A. Vosseller: Thanks, John. As a reminder, unless otherwise noted, the financial metrics discussed today will be on a non-GAAP basis. In this quarter’s performance, we continued the momentum from last year by achieving new first-quarter records for pump shipments and sales, as well as robust margin improvement and solid cash generation. We are reaffirming our annual 2026 guidance as we continue to execute on our bold business model transformation in both the U.S. and international markets. We set new first-quarter records with more than 29,000 pump shipments worldwide and $247 million in sales. Our U.S. performance drove this achievement, where we shipped more than 19,000 pumps, representing approximately 10% year-over-year growth. Renewals continue to account for more than 50% of our shipments, and new starts were predominantly MDI patients, representing roughly two-thirds of new customers. As John discussed, a key milestone in the quarter was our March launch of PayGo in the pharmacy channel. Throughout the month, we successfully increased our formulary access outside of the traditional cycles for PBMs and payers. Adoption was within our range of assumptions in these first few weeks. Fewer than 5% of customers ordered a pump through their pharmacy benefit. Similarly, less than 5% of our installed base purchased their supplies through this channel. Our transition and pricing assumptions for the full year of 2026 remain unchanged. U.S. sales were $161 million, growing 7% year over year, also representing our highest first-quarter U.S. sales. This reflects the headwind of approximately $1 million from the adoption of PayGo, as well as slight pressure in infusion set sales due to a key supplier’s shortages. Overall, pharmacy sales represented 6% of sales in the U.S., which was significant based on our volume. Looking ahead to the second quarter, we are confident in our ability to deliver pump shipment growth with a seasonal curve similar to 2025, and expect U.S. sales of approximately $175 million. This factors in an increasing PayGo headwind, the magnitude of which will depend on our pace of execution. Turning to our international performance, we shipped more than 10,000 pumps and are executing well on our go-direct strategy. International sales totaled $86 million, representing 3% growth year over year. Direct channel sales increased to approximately 11% of total international sales from less than 5% historically. This is the highest international sales quarter in our history, due in part to favorable currency dynamics. Also, as a reminder, the first quarter of 2025 included a $5 million benefit from timing of distributor orders, creating a tougher point of comparison. Our international business had a few puts and takes during the quarter compared to our original assumptions, including a delay in timing of expected headwinds from going direct, a one-time benefit in Switzerland related to the buyout of existing customer rental contracts from our former distributor, and the same infusion set shortage I referenced in the U.S. In the second quarter, we expect that international sales will be approximately $80 million. This steps down from the first quarter due in part to the delayed impact of $3 million to $4 million headwinds associated with our go-direct transition. This also incorporates expected order phasing tied to Mobi availability as we scale launch, with some distributor demand shifting into the third quarter. Turning to margins, gross margin for the quarter exceeded expectations at 55%, an improvement of nearly five percentage points year over year and the highest first-quarter gross margin in the company’s history. Notably, we started the year higher than our full year 2025 average, reflecting continued execution on our key drivers, including pricing discipline and product cost improvements. Both operating and adjusted EBITDA margin reflect a meaningful improvement year over year due largely to $75 million IPR&D costs in the prior year. Beyond that charge, we demonstrated leverage as operating expenses of $154 million remained essentially flat year over year. This included a slight reduction in R&D spending that offset increased commercial investments in support of global growth initiatives. As a result, adjusted EBITDA was approximately 1% of sales, an improvement of 32 percentage points based on the IPR&D charge alone and an additional three points of operating leverage. Operating margin improved even more substantially by 40 points to negative 7% of sales. This was due largely to a reduction of stock-based compensation expense from 11% of sales in 2025 to 6% this quarter. With our focus on cost discipline and achieving our profitability goals, we generated $5 million in free cash flow this quarter. We also completed a convertible debt financing in February, yielding net proceeds of $276 million with 0% interest, to further strengthen our balance sheet and provide flexibility as we execute against our strategic priorities. As a result, we ended the quarter with $570 million in total cash and investments. Overall, we remain confident in our ability to deliver on our goals for 2026 and are reaffirming our 2026 financial guidance. Worldwide sales are expected to be in the range of $1.065 billion to $1.085 billion. This includes U.S. sales in the range of $730 million to $745 million and international sales in the range of $335 million to $340 million. For the second quarter, worldwide sales are expected to be approximately $255 million. We expect gross margins of 56% to 57% and adjusted EBITDA of 5% to 6% for the year. Second-quarter margins are expected to remain consistent with the first quarter. Further details on our guidance and assumptions for the year can be found in the earnings call slide deck posted in the Investor Center portion of our website. With that, I will turn the call back to you, John. John F. Sheridan: Thanks, Leigh. Before I wrap up our prepared remarks, I would like to extend my thanks to the full Tandem team. Your unwavering dedication, commitment to innovation, and teamwork have been the driving force behind our achievements. I also appreciate your resolve as we continue to navigate challenges from our infusion set supplier. While they may only impact a small percentage of our customers, the impact on them and the health care providers is significant. I appreciate the extra care and service that you are providing during this time. Thank you, everyone, for all you do. In conclusion, we are encouraged by the start to the year and are confident in the strategic direction that we have set. Our operational and commercial goals are firmly in focus, and we are committed to providing best-in-class technology to our customers in a more efficient and cost-effective way while advancing our global business model and driving meaningful long-term value for our shareholders. Thank you again for joining us today. We are excited about our opportunities ahead and look forward to sharing our progress in the upcoming quarters. Operator: Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In fairness to all, we ask that you please limit yourself to one question. If you have additional questions, please reenter the queue, and we will answer as many questions as time allows. One moment for our first question. Our first question is going to come from the line of Matthew Stephan Miksic with Barclays. Your line is open. Please go ahead. Matthew Stephan Miksic: Great. Thanks so much, and congrats on a really solid quarter here. Appreciate all the color and exciting to see you turn the corner here into PayGo. So I had one question on just the, as you, I am sure you noticed, one of the other companies in the space talked a little bit about the market, some tone or seasonal, I do not know what it was exactly, but maybe sounded like some temporary slowness. So great to get your perspective on that, what you have seen, and then also any way that you would characterize the major drivers of the growth in the quarter, whether it is uptake in type 2, whether it is uptake through pharmacy, whether it is new sensor and the integration. I hate the “all of the above” answer, but anything you can do to give us a sense of the major drivers for the quarter? John F. Sheridan: Matt, I will just start off and talk a little bit about the market and whether it is growing or not. I think you know it is still large and very underpenetrated. It is great to have type 2 as part of the market for us now. We are excited about the fact that we are bringing a great deal of new technology and business model changes that we believe will really help us grow new starts from MDI. If you look back in 2025, there are a number of pump companies in the market and I think they all did pretty well. I would say it definitely appears to us that the market is growing. We are very excited about this year in particular because we have so much technology and business model modifications that are really going to position us for growth this year and beyond. I will let Leigh answer some of the questions about seasonality. Leigh A. Vosseller: Sure. I will just say that we did not see anything unusual or different from what we typically see in the DME space starting off the year. Our pump shipments came in line with where we expected, which was about a 30% sequential decline in the U.S. from the fourth quarter. Nothing really to note there. Unfortunately or fortunately, the answer to your question about the major drivers is it really is a little bit of all of the above. We have a lot of things, as John suggested, working in our favor this year with our new product launches and our business model transformations. As we start to gain traction, everything is coming together to drive us towards a very successful and strong growth year altogether. Matthew Stephan Miksic: Thanks, guys. Operator: Thank you. One moment for our next question. Our next question will come from the line of Christopher Thomas Pasquale with Nephron Research. Your line is open. Please go ahead. Christopher Thomas Pasquale: Thanks. I was hoping you could dig in a little bit on the international business. International pump revenue was up despite pump shipments in that segment being down. You talked about a couple of one-time items. So were those two things related? And could you maybe unpack some of the one-timers that you had this quarter, just so we can think about the go-forward run rate? Leigh A. Vosseller: Sure. You are right. There were a lot of moving parts internationally, and the answer varies depending on if you are comparing to last year or to expectations. I will touch on a few of those. Year over year, a significant part of the growth was coming from currency fluctuation, so there was favorability in the environment that helped that growth. Looking at last year’s first quarter versus second quarter, it is a tougher comparison for us because last year there was a shift in timing of sales that was more favorable by about $5 million in the first quarter versus second quarter. As we go into Q2, it will be an easier comparison for us. Within the quarter, compared to when we set our guidance expectations, there were also a few moving parts. One was that we had estimated a headwind of approximately $5 million for going direct in certain international markets, and we are seeing a bit of a timing difference there. We realized about $1 million of that, and we expect $3 million to $4 million to push into the second quarter. Also, we did have some favorability in our Swiss market—a one-time accounting benefit—which was largely offset by some of the infusion set noise as we managed through shortages in the quarter. Overall, we are very excited about the international operations. We still see strong demand in the market for our products, and in the markets where we have gone direct, we are already hearing a very positive reception as we are closer now to the physicians and the patients. Christopher Thomas Pasquale: Okay. Thank you. Operator: Thank you. One moment for our next question. Our next question will come from the line of Matthew O’Brien with Piper Sandler. Your line is open. Please go ahead. Matthew O’Brien: Good afternoon. Thanks for taking my question. On Mobi Tubeless, I know filing here in Q2, still nothing expected for revenue in 2026. If you do get the approval late this year, is it fair to think you do not want to disrupt the typically stronger DME part of the year, so more of a bigger launch next year and in 2027, so no real disruption from launching Mobi Tubeless or as people are expecting it? I just do not want an air pocket in any of the quarters as people are waiting for that system. Thank you. John F. Sheridan: Thanks, Matt. When it comes to our submission, we are on track to submit this quarter. We also plan on getting clearance in the second half. There is some uncertainty with the FDA, but they have been doing a really nice job lately in getting things done quickly. As you know, when it comes to guidance, we typically do not include new products until they are actually in the market. If we get clearance in the second half, we have a phased commercialization process where we observe the product in small groups first, then increase the size of the group, and ultimately get to full commercial launch once we are confident there is nothing we need to address. This is a practice we have used from the beginning. While we do an excellent job of testing, you cannot find everything until you use it over time with larger groups. We will go through that process. If we can get it to the market before the fourth quarter starts, I think we would want to do that, but we will have to wait and see when clearance occurs. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Michael Holden Kratky with Leerink Partners. Your line is open. Please go ahead. Michael Holden Kratky: Hi, everyone. Thanks for taking our questions, and congrats on a great quarter. It looked like U.S. sales through the pharmacy maybe ticked down slightly from 7% in the fourth quarter to 6% in the first quarter. Can you talk about how that lined up with your expectations, what factors contributed to that, and what you have seen so far this quarter to support your confidence in the 15% for the year? Leigh A. Vosseller: Great question. Most importantly, you really cannot compare our pharmacy experience this year in 2026 to what we saw in 2025. It is a whole different world with the change in the business model. Last year, our pharmacy contracts included reimbursement for the pump that was a premium to even what we received in DME, so it is a very different environment. In the first quarter, we had two major workstreams. One is building up coverage, and we are pleased to report that we are already at approximately 40% formulary coverage. We expect to increase that across the year. The other piece is operational—implementing an end-to-end change in our workflows. It changed how physicians prescribe, how we engage with patients, and how we process and fulfill orders. That execution really started late in the first quarter, in the last few weeks, so we are at the very early stages. So far, we are excited about the opportunity. Nothing has changed our conviction in our ability to grow and scale that across the year. We look forward to future quarters when we can report the headwinds that are coming from the volumes we are bringing through. Michael Holden Kratky: Understood. Thanks, Leigh. Operator: Thank you. One moment for our next question. Our next question will come from the line of David Harrison Roman with Goldman Sachs. Your line is open. Please go ahead. David Harrison Roman: Great. This is Phil on for David. Thanks for taking our questions. I think maybe touch on pricing. I saw on the slides that it was reiterated, and I think I heard in your comments as well, Leigh. We heard from a competitor yesterday that so far it sounds like everybody is acting rationally or fairly. Can you talk about how negotiations around pricing have gone so far and what is baked into that $3.50 number for the year? What level of conservatism is in there? Thanks. Leigh A. Vosseller: Sure. I would agree that we are all behaving rationally when it comes to pricing. We are excited to be in this market and take advantage of the pricing opportunity that was already set in the pharmacy channel for insulin pump products. When we set expectations for the year, I would call them modeling assumptions because it is new for us and it is an early experience. We said to expect about $3.50 per month per patient as they order supplies. What is factored into that is an array of contracts with varying rebate structures. At this point, we do not have enough experience to say what that mix will look like on a sustainable basis. That is the baseline we have set for now. It is still the right way to think about it, and as we start delivering more volumes and gain more traction and experience, we will update those assumptions. David Harrison Roman: That is great. Thanks. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Richard Samuel Newitter with Truist Securities. Your line is open. Please go ahead. Richard Samuel Newitter: Hi. It is Ravi on for Rich. Thank you for taking the questions. Two for me, and I will ask them both upfront. First, on the infusion set shortage, would you mind quantifying that and suggesting what the impact might be in Q2? It looks like you are guiding a little bit below consensus for Q2 but reiterating the full-year guide, so curious if there is any impact there. Second, on the salesforce expansion, this seems to be a theme running across your peers and now Tandem Diabetes Care, Inc. as well. Can you talk about what the opportunity is that the salesforce is going after and what patient population they can unlock? John F. Sheridan: I will talk about the infusion sets and Leigh can address guidance. It is unfortunate. Our supplier has had some capacity challenges that began in the fourth quarter and continued to pressure us in the first quarter, both in the U.S. and internationally. We have been working very closely with them—practically daily calls with the operational and executive teams—and it is a top priority for us. It is a small number of SKUs that are really subject to the capacity shortages, but for those people who are impacted and the HCPs who support them, it is significant. We are doing everything we can to be creative—options in terms of lengths, colors, and other details—to provide intermediate solutions until this is resolved. We are also managing inventory to provide as broad coverage as possible. Unfortunately, this is something that probably will not be resolved for a quarter or two. We expect to see some progress in the second half of the year, but that is what we are dealing with right now, and we are taking it very seriously. Leigh A. Vosseller: From the perspective of the impact, all we are sharing is that it was a modest impact in the quarter, both U.S. and internationally, and we factored that same level of impact into our expectations for the second quarter. As John said, we are managing it closely. We see a line of sight to the end of this in the longer term. Operator: Thank you. One moment for our next question. Our next question will come from the line of Jeffrey D. Johnson with Baird. Your line is open. Please go ahead. Jeffrey D. Johnson: Hey, guys. Good afternoon. Leigh, I will follow up on the comment you made on the infusion set impact. I know you are not quantifying it, but let me go after it this way. Supplies missed our model by about $11 million this quarter. It could be we are just bad modelers. If our model missed by $11 million, does a lot of that get attributed to the shortfall, and is it also that you are assuming a similar shortfall in Q2 even though you are trying to move patients over to other infusion sets? I am trying to understand: does the year-over-year impact stay the same in Q2 as it was in Q1, and am I anywhere near the ballpark based on my model points? Thank you. Leigh A. Vosseller: Thanks for the question, Jeff. I would say that is on the high side for the impact. We would put it as more modest than that. There are a couple of ways to think about the size. There are backorder situations, but as John noted, some of the ways we are helping solve the problem for patients involve offering alternatives. Just because we had some backorders does not mean that we have not recovered sales in other ways to satisfy patient needs. It is not near that big. We expect it to be a bit disruptive again in the second quarter, but it is something we can work through. We can continue to talk more about modeling assumptions in supply sales—price or other pieces that might not be working there. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Matthew Charles Taylor with Jefferies. Your line is open. Please go ahead. Matthew Charles Taylor: Hi, good afternoon. Thanks for taking our question. This is Matt on for Matt Taylor. I wanted to ask on product expansion. First, on your clearance for type 1 pregnant women—can you help us frame the size of that opportunity and how incremental that could be? And second, on adding Android capability, is there any analog we can look at for thinking how that adds incremental growth in your coming quarters? John F. Sheridan: We are very excited to have received pregnancy clearance just a few days ago. It was based on data from the CRISTAL trial that was published in JAMA recently. We are the first and only AID system approved for pregnancy in the U.S. for both Mobi and t:slim using Control-IQ. We also expect CE Mark this quarter. In the clinical data, the Control-IQ group experienced a 12.5% improvement in time in a tighter range of 63 to 140 mg/dL, which is about three more hours per day, sustained for the length of the pregnancy—really substantial improvement. When it comes to the size, it is pregnant women and also women considering pregnancy. It is not a really large group, and I cannot put a number on it at this point, but it is a meaningful and important group, and we are very happy to have this. We are kicking off training and events for HCPs, including a symposium at ADA. Relative to Android, roughly 60% of our mobile app users for t:slim are on iOS, so Android represents a big opportunity. Many users have been waiting for Android availability. It is another meaningful opportunity to drive MDI growth in 2026 and beyond. Operator: Thank you. As a reminder, please limit yourself to one question before reentering the queue. Our next question will come from the line of Joanne Karen Wuensch with Citi. Your line is open. Please go ahead. Joanne Karen Wuensch: Thank you so much. Sticking with the one-question rule, with Mobi Tubeless being submitted to the FDA in the second quarter and on track for second-half approval, and assuming there is nothing in your guidance for it, how do we think about kicking off 2027 launching that product, and how are you preparing for it? Thank you. John F. Sheridan: For launching the product, as I mentioned, we have a phased commercial process. We are hoping to get it on the market this year, but timing will dictate. When you think about the market today, there really is a tubed market and a tubeless market. The tubed market is growing low single digits, whereas the tubeless market is growing in the ~20% range. That is a significant opportunity. Looking at competition, we are in the pharmacy now, we will have a tubeless device, and we believe we have a better algorithm. There is a big opportunity for us to drive MDI conversions to our device and also competitive conversions. It is a big opportunity, we recognize that, and we are really excited about it. Operator: Thank you. One moment for our next question. Our next question will come from the line of Suraj Kalia with Oppenheimer. Your line is open. Please go ahead. Suraj Kalia: Sorry about that. John, can you hear me alright? John F. Sheridan: We can. Yes. Suraj Kalia: Perfect. John, I am going to cheat and sneak in a two-parter if I could. To Joanne’s question, how would you define the low-hanging fruit for seven-day Mobi Tubeless? Would there be a price differential? Leigh, if I could quickly, U.S. sales were up 5%, pump units up roughly 12%, and then there is a 6% PBM contribution. Can you help us thread the needle here? Thank you. John F. Sheridan: I think the financial benefit, Suraj, is that the infusion patch lasts seven days, whereas an infusion set lasts three today. There is a margin benefit from extended wear. It is also a substantial customer-experience improvement, as they do not have to change as frequently. All of this adds up. We are doing everything we can to get gross margin up, and this certainly helps. The real benefit is customer experience, and that is our focus. Leigh A. Vosseller: To your question on the first quarter in the U.S., on a rounded basis the actual growth rate in pump shipments was 10%. The spread between the shipment growth and sales growth is not as substantial as it might seem. It really is pricing that is the differential. Operator: Thank you. One moment for our next question. Our next question will come from the line of Lawrence H. Biegelsen with Wells Fargo. Your line is open. Please go ahead. Lawrence H. Biegelsen: Thanks for taking the question. Leigh, I will ask the new-start question. By my math, it looks like new starts were down slightly year over year in Q1 and down modestly sequentially. Is that right, and do you still expect new starts in the U.S. to grow in 2026? Leigh A. Vosseller: Thanks, Larry. Yes, your math is accurate year over year, and they were down sequentially, mostly due to the regular seasonal impact we see. This is how we structured the year in our modeling assumptions: a slight decline in the first quarter with a return to growth as we look ahead. We are very convicted in the ability to return to growth because we have been seeing improvement over the last few quarters from our low in the middle of last year. It is the traction we are seeing on our new product launches. We look forward to pharmacy making a real difference now that we have removed the upfront cost barrier so more people can move to pump therapy without worrying about upfront cost. As we build on pharmacy and drive these launches, we expect a return to growth this year. Operator: Thank you. One moment for our next question. Our next question will come from the line of Michael Polark with Wolfe Research. Your line is open. Please go ahead. Michael Polark: Hey, good afternoon. I am interested in learning about the process to convert someone in the base to pick up supplies at pharmacy. I get the incentive for a new user with no upfront, but for that compliant, happy user through DME, how do you get them to the pharmacy? What does the outreach from you to them look like? What is the outreach from you to a physician? And on the financial incentive, how different is patient out-of-pocket for supplies only in DME versus pharmacy? Thank you. Leigh A. Vosseller: Glad you asked. There is work involved. First, when a customer comes in to place their order, which is usually quarterly, we check their benefits to see if we have on-formulary coverage. We then share out-of-pocket benefits. That is the true motivator—out of pocket is typically lower, or with copay assistance can be lower. Once they are ready to move forward, it requires a new prescription, which requires reaching out to the physician. Getting their attention and time can be a factor since many want to focus on customers who have not yet moved to pump therapy. It is a process and one of the key drivers as we look ahead to maximize the pharmacy opportunity. It is not only bringing more patients to Tandem Diabetes Care, Inc., but also converting the existing base. If you think about moving potentially 300,000 people and getting that price benefit, that makes a significant difference on our revenue growth and margins. It is a major focus area for us. Operator: Thank you. One moment for our next question. Our next question will come from the line of Analyst with UBS. Your line is open. Please go ahead. Analyst: Hey, thanks so much for the question. Really nice to see the cash flow generation in the quarter. Q1 has typically been a heavy cash burn quarter for you. Would love to hear about what changed this quarter and how sustainable this level of cash generation is going forward. Thanks so much. Leigh A. Vosseller: Thanks. A lot of this comes from our cost discipline. While we are focused on growing revenue, we are equally focused on driving improved margins. This year, we demonstrated a 1% positive EBITDA in the first quarter, and I believe that is the first time we have done that since 2022. Q1 is a tougher quarter because of seasonal dynamics in our business, so it is meaningful that we showed positive EBITDA and cash flow generation. We appreciate you noticed that. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Elaine Cui with Raymond James & Associates, on behalf of Jayson Tyler Bedford. Your line is open. Please go ahead. Elaine Cui: Hi, this is Elaine on for Jason. Thanks for taking my question. I had a question on the gross margin and how you are thinking about the cadence for the year. You gave us guidance for Q2 and Q4, and we can get to an implied Q3. Why would it stay relatively flat for the first three quarters, according to my math? And when we think about the year-over-year expansion, how much of it is driven by Mobi scaling versus the pharmacy transition? Thank you. Leigh A. Vosseller: Great question. First, Q1 to Q2 being relatively flat is really product mix. From Q1 to Q2, both U.S. and internationally, more of the step-up is coming from supplies. Globally, supplies still have a lower gross margin than pumps today, even though supplies will eventually have a better gross margin in the U.S. with our new pharmacy reimbursement model. That mix drives relative flatness into Q2. It should then start to step up from there, scaling toward about 60% in the fourth quarter. The step-up will come from pricing benefits both with our direct operations outside the U.S. continuing to build and with the pharmacy benefit as we convert more customers’ supplies to pharmacy in the U.S. Price will be a very prominent driver of gross margin this year. We are also continuing to see benefit from Mobi as it scales. For pumps, we started seeing that in 2025. For supplies, we will really start to see that difference this year, contributing to gross margin improvement across the year. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Jonathan Block with Stifel. Your line is open. Please go ahead. Jonathan Block: Great, guys. Thanks. Maybe I will follow up on an earlier international question. When I look at international pump ASP, the ASP seemed to step up nicely from recent quarters. Leigh, any color on how much is FX, how much is the direct transition? Does this trend higher from the current 1Q result as the percent of business that is direct continues to increase? Maybe most importantly, any way to think about an exit-’26 pump ASP as we head into the following year? Leigh A. Vosseller: The assumption we have made in guidance for the year is that pump ASPs outside the U.S., with changes from going direct, should land somewhere in the $2,800 to $2,900 range. We did see extra benefit in the first quarter because of a one-time accounting benefit in Switzerland. We were able to recognize a higher level of revenue there because of the acquisition of certain existing customer rental contracts from our distributor. This one-time benefit is what really drove the incremental pump ASP in the first quarter. Otherwise, it should settle into that $2,800 to $2,900 range for the rest of the year. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Anthony Charles Petrone with Mizuho Financial Group. Your line is open. Please go ahead. Anthony Charles Petrone: Thanks. Good afternoon, everyone. Maybe on the U.S. side, a competitor had a recall announcement and the FDA came out in April reporting more adverse events on one of the primary competitors. What is the chatter out there? Is that creating any opportunities for share capture, certainly as you look to Mobi or otherwise? A little bit on the competitive dynamics in the quarter. And then a follow-up on spend as you get ready for the Mobi Tubeless launch—thinking about DTC— is there a big DTC campaign planned around Mobi Tubeless? Thanks. John F. Sheridan: Regarding recalls, it is unfortunate, but that is one of the things that happens in this marketplace. The intent of a recall is to ensure the diabetes community is aware of safety issues that might impact product use. It happens to everybody. When it happens to us, we do our best to assure patients are safe and understand the risks. I do not think that gives us any benefit. You do not like to see it happen, but you recognize it as part of dealing in a market with life-saving technology. On competition generally, it is a large and expanding underpenetrated market with new entrants. Q1 was consistent with our expectations. It is highly competitive, but nothing specific to point to that changed. We are very confident in our ability to deliver new technology. The team has done an amazing job in the last several quarters. Moving to the pharmacy benefit, where out of pocket is substantially lower, will also be a big benefit. We feel very good about where we are heading competitively. Specifically to the marketplace today, it is very competitive, and nothing has really changed. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Mathew Blackman with TD Cowen. Your line is open. Please go ahead. Mathew Blackman: Good afternoon, everybody. Can you hear me okay? John F. Sheridan: We can. Mathew Blackman: Great. Thanks for taking my question. Leigh, I think I heard you say 40% formulary coverage to date. I am trying to figure out the proper context. That feels like a lot of progress for being a quarter or quarter and a half into the year, but I do not know how to frame it relative to where you need to be at the end of the year to hit your goals. Could you frame that relative to expectations? Is the next step—say from 40% to 60%—a heavier lift? Any framework to think about where you are to date and where you need to be by year-end to hit pharmacy mix goals? Thank you. Leigh A. Vosseller: Happy to add context. Typically, new formulary additions happen on a January 1 or July 1 cycle. We are very excited that we have been able to add coverage across the quarter—off-cycle—which shows the receptivity to us moving to PayGo and the acceptance of our products in the channel. The team is not stopping. I regularly see announcements of new formulary additions, some bigger and some smaller. We are working to drive that up across the year. In order to achieve our pharmacy goals this year, we are right on pace with where we need to be. I am not going to share a specific coverage target, but we are very well positioned to drive pharmacy access to hit the targets we have set. Operator: Thank you. One moment for our next question. Our next question will come from the line of William John Plovanic with Canaccord Genuity. Your line is open. Please go ahead. William John Plovanic: Hi. It is Zachary on for Bill. Thank you for taking the question. As for the type 2 ramp, can you give more context as to how that is going? You have talked about in the past difficulties you have with the C-peptide testing requirements. Can you give us an update on what is happening there? John F. Sheridan: First of all, we are really excited about type 2. It is a big opportunity, even less penetrated than the type 1 market in the U.S. and internationally. Our focus is on market development at this point. I am not going to talk specifically about numbers today. We want to see sustained trends before reporting numbers. It is early for us. There are many positive sources of growth happening now and in the near future. We expect tailwinds from FreeStyle Libre 3, from Mobi Android, Mobi Tubeless, pharmacy—those are all great. We anticipate positive news from Medicare access, and we think they are going to get rid of the C-peptide requirement, but we will have to wait and see. As a company, we are focused on creating awareness clinically and on product benefits. Big market, underpenetrated, with a lot of positive dynamics. We anticipate seeing growth in type 2 MDI starts this year. Operator: Thank you. One moment for our next question. Our next question is going to come from the line of Travis Lee Steed with Bank of America. Your line is open. Please go ahead. Travis Lee Steed: Hey, thanks for the question. Maybe focus on March 2026 where you are moving PayGo into the pharmacy. Help us understand how that went. Are you seeing an increasing ability to ramp into April and May? And the 40% coverage that you have, how much of that is tier 1 at this stage? John F. Sheridan: I will answer the first part. Our early experience reinforces our conviction that this is a great opportunity for the business and for our customers. We are moving forward aggressively—it is our top priority. Operationalizing pharmacy involves a lot of change: physician processes, how we service our customers, and how we process and fulfill orders. We are working to improve the experience. There is behavioral change, a learning curve, and efficiency opportunities. We are very focused on these, and we have a strong team making good progress. It starts off slow and will gradually increase as we get through the year. This will be a meaningful part of our business by the end of this year and as we move into 2027. Leigh A. Vosseller: On tiering, we have a variety of contracts across different tiers. The difference to us is the amount of rebate we pay in various tiers and the influence on out of pocket and the amount of copay assistance we might have to use. We are not sharing any breakdown of individual contracts. We are on tier 1 in some, tier 2 in some, and tier 3 in some. It varies across the board. Travis Lee Steed: Okay. Thanks a lot. Operator: Thank you. One moment for our next question. Our next question comes from the line of Shagun Singh Chadha with RBC Capital Markets. Your line is open. Please go ahead. Shagun Singh Chadha: Great. Thank you so much. I just had a quick one on Mobi Tubeless, and I apologize if it has been asked. Can you talk about how you think about the mix between the products you will be selling with Mobi Tubeless coming on board, how we should think about pricing, how you expect to compete with the current patch form factor—more from MDI conversions or competitive share gains—and anything you can share on the go-to-market strategy that you have not already discussed? Thank you. John F. Sheridan: The first important point is that we already have about 325,000 customers in the U.S. A significant portion of those use the pump today already, and this is an infusion set option for them to choose. We think there will be pretty good conversion among those people. Many will try both ways and see what they like. For new starts, now that we will have a tubeless product in the market, we expect to benefit because tubeless is very important to people as a form factor. We expect to see a lot of progress there. Leigh A. Vosseller: To your question on pricing, because it is the Mobi pump, it is the same pump hardware regardless of which infusion set they choose. Pricing for the pump is the same. On supplies, you can think about pricing as being similar to other lease supplies. It is a supply pricing discussion, not a pump pricing change. Operator: Thank you. This will conclude today’s question-and-answer session. Ladies and gentlemen, this will also conclude today’s conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.
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 day, and thank you for standing by. Welcome to StoneX Group Inc. Q2. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will 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, William Dunaway, Chief Financial Officer. Please go ahead. William Dunaway: Good morning, and welcome to our earnings conference call for our quarter ended 03/31/2026. Philip Smith: Good morning, everyone, and thank you for joining our second quarter earnings call for fiscal year 2026. I am very pleased to report a consecutive record quarter, including record net operating revenues, net income, and EPS. This was driven by strong performance across all four operating segments, highlighting our depth and breadth of product offering and capabilities within the unique StoneX Group Inc. ecosystem. It also reflects the continued progress of integrating RJ O’Brien, which remains on track to be substantially completed later this fiscal year with no change to expected synergies and efficiencies, making StoneX Group Inc. the largest non-bank FCM in the United States. Despite the geopolitical uncertainty, nearly all of our products reported double-digit growth driven by higher volatility and increased demand for our services. This has included delivering another record quarter for listed derivatives, with volumes approaching 100 million contracts, and average client equity approaching $14 billion, reflecting the expanded scale of the platform following the RJ O’Brien acquisition. Record OTC derivatives volume, transacting over 1.5 million contracts, a 68% increase year-over-year. As a reminder, we offer customizable OTC contracts to customers, giving them the benefit of a look-alike option or swap or structured product to more closely address their risk management needs, whilst we benefit from typically higher rate capture when compared to traditional listed derivatives. We reported record securities average daily volume of over $12 billion driven by strong performance across both our equities and fixed income franchises. We will touch on our equities business later today, but we believe we have one of the most diverse equity market ecosystems covering execution, market making, custody and clearing, prime brokerage, as well as equity capital markets and research offerings, which we acquired through the Benchmark acquisition last year. Alongside our securities and derivatives records, we also reported record operating revenues derived from physical contracts, which underscores our continuing global relevance in the physical space within the commodities market over consecutive quarters. Turning to payments, we recorded our second highest ADV of $92 million following the record set last quarter, with year-on-year growth of 19%. This performance reflects continued engagement from institutional counterparties using our cross-border payment solution. Lastly, we saw FX/CFD volumes grow by 3% year-over-year, and the revenue capture of $103 per million, up by 6%, reflecting the higher market volatility seen in this quarter. We continue to set records across our key metrics but are mindful that the geopolitical landscape remains complex, and disciplined risk management will remain at the heart of our business as we continue to service our clients' business needs and activities. As our company scales, processing ever higher volumes, growing our client base, and improving our offering to clients, I wanted to spend a couple of moments touching on one of our strategic initiatives regarding the use of AI. We are seeing the deployment of AI evolving from isolated experimental use to now serving as an enterprise force multiplier that enhances operational efficiency across our organization. What started out as a useful development tool for our programmers has now grown into utilizing AI agents across client support, internal operations, and platform development. Within payments, we mentioned our Xpay system in previous calls, which was a proprietary-built platform, and within this, we have developed AI-assisted automation to help with settlement instruction repair, validation, and reconciliation designed to reduce manual intervention and improve our straight-through processing rates. Alongside this, we are developing an AI chatbot to aid client services with client queries, document translation, and compliance-related tasks. We are also applying AI to further improve the productivity of our software developers through the design of support agents for AgenTeq development. This should culminate in: one, accelerated development, shortening the time from a proof of concept to a functioning prototype; two, enhanced agility and innovation, automating testing and delivery of iterative improvements, which should lead to innovation; and three, business solutions, ultimately leading to the delivery of working solutions for our commercial teams that are responsive to our clients' needs. Such an example of this was the development of a feature which we estimated would have taken the team without AI approximately two to four times longer to design, test, and launch. This is the sizable step change we hope to replicate across the organization, whilst ensuring we operate within a standardized framework and remain cognizant of local regulations, controls, and governance. It is a promising start, and we see opportunities to leverage technology further to develop products and services faster, meet our clients' needs, and optimize our resources to continue to deliver strong financial performance. With that, I will now turn it over to William, who will go through this quarter's financial results. William Dunaway: Thank you, Philip. I will begin with a financial overview for the quarter, and we will be starting with slide number five in the slide deck. Just as a reminder, our Board of Directors approved a three-for-two split of our common stock, and our shares began to trade on a split-adjusted basis at the market open on 03/23/2026. All per-share metrics on this call will be on a split-adjusted basis. Second quarter net income came in at a record $1.743 billion with diluted earnings per share of $2.07. This represented 143% growth in net income; however, earnings per share grew at a 120% rate due to additional shares outstanding as compared to the prior year, primarily related to the issuance of approximately 3.1 million shares related to the acquisition of RJ O’Brien during the [inaudible]. Net income and diluted earnings per share were up 25–24%, respectively, versus our immediately preceding [inaudible]. This represented a 26.5% return on equity despite a 75% increase in book value over the last two years. On a tangible book basis, this equates to a 37% return on tangible equity for the quarter. We had operating revenues of approximately $1.6 billion, up 64% versus the prior year and up 9% versus the immediately preceding quarter. As a reminder, our operating revenues include not only interest and fees earned on our client balances, but also carried interest that is related to our fixed income trading activities. Net operating revenues, which net off interest expense, including that which is associated with our fixed income trading activities, as well as introducing broker commissions and clearing fees, were up 70% versus a year ago and 14% versus the immediately preceding quarter. Total fixed compensation and other expenses were up 44% versus the prior year quarter, with $56.9 million of this attributable to acquisitions made over the last twelve months, most notably RJ O’Brien and Benchmark. Also contributing to this increase as compared to the prior year, bad debt expense increased $12.3 million, primarily within our commercial segment, which, despite this, had a second consecutive record quarter. Total fixed compensation and other expenses, excluding bad debt expense, were up 5% or $16.4 million versus the immediately preceding quarter. Fixed compensation and benefits were up 32% versus a year ago and up 13%, or $18.7 million, versus the immediately preceding quarter. The increase versus the immediately preceding quarter included a $10 million increase in employee benefits, most notably payroll taxes, paid time off benefit costs, and retirement costs, which is typical as we start a new calendar year, as well as $8.5 million in higher severance and retention costs, including costs associated with a formal collective redundancy consolidation process for UK-based employees following the integration of certain RJ O’Brien entities, as well as severance and retention costs for certain US-based positions relating to ongoing integration activities. These increases were partially offset by higher purchase participation on our employee-elected deferred compensation plan, which is part of our restricted stock plan. Professional fees increased $1.9 million versus the prior year, primarily as a result of higher legal fees related to our defense in various legal matters, net of recoveries. They were down $14.4 million versus the immediately preceding quarter, which included significant legal costs incurred related to the BTIG arbitration matter. During the second quarter, we received the final arbitration award from the FINRA arbitration panel adjudicating the claims between us and BTIG. The panel awarded us $1 million in compensatory damages and awarded BTIG $2.9 million in damages. These amounts were offset, and we made a net payment of $1.9 million during March 2026. On 05/04/2026, we made an immaterial payment to fully and finally resolve all differences with BTIG, and no additional claims between the parties remain. The conclusion of the BTIG litigation, along with the resolution of the option sellers arbitrations and settlement of the patent case inherited through the acquisition of GAIN Capital, marked the end of the large-scale litigation matters that have resulted in heightened legal expenditures over the last five years, most notably the last twenty-four months. Moving on, I had mentioned the acquisitions over the last twelve months and wanted to touch on the contribution of the most notable one, RJ O’Brien. Excluding amortization of acquired intangibles and a $7.7 million negative mark-to-market adjustment on their investment portfolio, RJ O’Brien contributed $35 million in pre-tax net income for the quarter, a nice improvement over the immediately preceding first quarter. Looking at our results from a longer standpoint, our trailing twelve months results show operating revenues up 40%. Net income was a record $462.4 million, up 57%, with diluted earnings per share of $5.60 and a return on equity of 19.8% for the trailing twelve-month period, above our target of 15%. For the second quarter, our average client equity and FDIC sweep balances were $15.2 billion, up 91% versus the prior year and up 4% versus the immediately preceding quarter. Finally, we ended the [inaudible] with a book value per share of $34.16. Turning to slide number six in the earnings deck, which compares quarterly operating revenues by product as well as key operating metrics versus a year ago, we experienced operating revenue growth across all products versus the prior year. Transactional volumes were up across all of our product offerings, and spread and rate capture increased in all products with the exception of securities, down 3%, and payments, down 7%. Just touching on a few highlights for the fourth quarter, we saw operating revenues derived from listed derivatives increase $189.4 million, or 148%, versus the prior year, primarily due to the acquisition of RJ O’Brien, which contributed $151.7 million, as well as strong growth in base metals activities in LME markets, which increased $20.2 million versus the prior year. Listed derivative operating revenues increased 18% versus the immediately preceding quarter. Operating revenues derived from OTC derivatives increased 98% versus the prior year, driven by increased client activity and a widening of spreads, most prevalent in agricultural and energy markets, including renewable fuels, driven by heightened volatility as a result of the onset and continuation of the US–Iran conflict. This also represented an 89% increase versus the immediately preceding quarter. We had strong performance in our physical business, with operating revenues derived from physical contracts increasing 162% versus the prior year, primarily driven by a $116.1 million increase in precious metals operating revenues. Operating revenues derived from physical contracts were up 21% versus a record immediately preceding quarter. Securities operating revenues were up 38% as volumes were up 35%, partially offset by a 3% decline in the rate per million captured versus the prior year, the improvement driven by growth in US equity volumes as well as an increase in overall client activity driven by the onset and continuation of the US–Iran conflict. Payment revenues increased 14% versus the prior year quarter due to a strong 19% increase in average daily volume, partially offset by a lower rate per million. Payment revenues were down 2% versus the immediately preceding quarter. FX/CFD revenues were up 9% versus the prior year quarter, resulting from a 3% increase in average daily volume and a 6% increase in rate per million, each of which were primarily driven by improved performance in our self-directed business. FX and CFD revenues were up 13% versus the immediately preceding quarter. Our interest and fee income earned on our aggregate client float, including both listed derivatives client equity and money market FDIC sweep balances, increased $54.8 million, or 54%, versus the prior year, with the acquisition of RJ O’Brien contributing $53.9 million. Average client equity increased 110% as RJ O’Brien contributed $6.4 billion in average client equity for the current quarter, while the average money market FDIC sweep client balances declined 7%. Turning to slide number seven, this depicts a waterfall by product of net operating revenues from both the prior year quarter to the current one, as well as the same for the trailing twelve-month periods. Just a reminder, net operating revenues represent operating revenues less introducing broker commissions, transaction-based clearing expenses, and interest expense. For the quarter, net operating revenues increased 70%, principally coming from listed derivatives and physical contracts, up $84.6 million and $116 million, respectively. In addition, we had a very strong quarter in OTC derivatives, which nearly doubled, adding $58.8 million versus the prior year. Net operating revenues from securities also added $36.9 million. On a net basis, interest and fee income on client balances increased $33.2 million, with RJ O’Brien contributing $30.3 million. Looking at the bottom graph for the trailing twelve-month period, listed derivatives had the largest increase, up $187.7 million, primarily as a result of the acquisition of RJ O’Brien as well as strong growth in LME base metal markets. Securities was up $180.6 million versus the prior year, driven by a 27% increase in average daily volume and a 17% increase in rate per million. Physical contracts net operating revenues added $162.1 million versus the prior fiscal year, primarily driven by strong performance in precious metals. OTC derivatives added $90.4 million off of strong performance in agricultural and energy markets, including renewable fuels. Interest and fee income increased $87.6 million, primarily as a result of the acquisition of RJ O’Brien. Moving on to slide number eight, I will do a quick review of our segment performance. Our Commercial segment saw record net operating revenues, an increase of 111%, primarily resulting from 529–8% increases in listed and OTC derivatives, respectively. In addition, physical contracts increased 239%, while net interest income and fee income increased 55%. The growth in listed derivatives and interest income were primarily driven by the acquisition of RJ O’Brien, as well as in base metal markets on the LME. Segment income was another record, increasing 101% versus the prior year. On a sequential basis, net operating revenues were up 30%, and segment income was up 36%. Our Institutional segment also saw strong growth in net operating revenues and segment income, up 65–40%, respectively. The growth in net operating revenues was principally driven by a $33.3 million increase in securities revenues. In addition, listed derivatives and interest and fee income increased $60.4 million and $14 million, respectively, primarily driven by the acquisition of RJ O’Brien. On a sequential basis, net operating revenues and segment income declined 3–13%, respectively. In our Self-Directed Retail segment, net operating revenues increased 15%, and segment income was up 40%, which demonstrates the strong operating leverage in this segment. This growth was driven by a 9% increase in rate per million captured in FX/CFD contracts along with a 3% increase in average daily volumes. On a sequential basis, net operating revenues were up 18%, and segment income increased 65%. Our Payments segment net operating revenues were up 10% and segment income increased 30%. Average daily volume was up 19% versus the prior year, while rate per million was down 7%. Versus the immediately preceding quarter, Payments net operating revenues decreased 3%, while segment income decreased 6%. Moving on to slide number nine, looking at segment performance for the trailing twelve months, we saw strong growth in the Institutional segment with net operating revenues up 62% and segment income increasing 58%. Our Commercial and Payments segments added 48% and 11% in segment income, respectively. Our Self-Directed Retail segment income decreased 23%. Finally, moving on to slide number ten, which depicts our interest and fees earned on client balances by quarter as well as a table which shows the annualized interest rate sensitivity for a change in short-term interest rates, interest and fee income net of interest paid to clients, and the effect of interest rate swaps increased $29.1 million to $103.6 million in the current period, and as noted, the acquisition of RJ O’Brien contributed $30.3 million in net interest in the current quarter. On a sequential basis, interest and fee income net of interest paid to clients and the effect of interest rate swaps declined $7.8 million, primarily related to an $11.7 million mark-to-market adjustment on our investment portfolio. During 2026, we entered into an additional $600 million in fixed-rate SOFR swaps to hedge our aggregate interest rate exposure, which brings our aggregate swap position to $1.8 billion with an average duration of approximately two years and an average rate of 3.38%. These swaps are reflected in the interest rate sensitivity table on this slide. As shown, we now estimate a 100-basis-point change in short-term interest rates, either up or down, would result in a change to net income by $47.6 million, or $0.58 per share, on an annualized basis. With that, I will hand you back to Philip for our product spotlight on our global equities business. Philip Smith: Thank you. Now turning to slide 12, I wanted to highlight another facet of our ecosystem and speak about our principal market-making business within our global equities business line. Our equities business operates as a global market intermediary built around agency execution, custody and clearing, market making, prime, as well as capital market services. We serve institutional clients, offering access to exchanges, liquidity, and clearing and custody infrastructure. We monetize client activity through commissions, spreads, and financing. Through the Benchmark acquisition, we further enhanced our relevance to customers with deep equity research and the ability to connect users through corporate and capital market services. We have built an ecosystem that is designed to service clients across the full equities life cycle. On our next slide, slide 13, turning to equity market making specifically, it is important to recognize the scale and relevance of this business. We are a principal equities market maker providing liquidity and execution across a wide range of global securities. In 2025, StoneX Group Inc. ranked number one in over-the-counter American depositary receipts and foreign securities, a position we have held consistently since 2015, according to FINRA ORF data. We make markets in approximately 18,000 equities globally, and we ranked number one in over 1,500 individual securities. This is supported by more than twenty years of experience, twenty-four-hour market coverage, and access to 120 global markets. For institutional clients, this matters because it translates into reliable liquidity, pricing, and execution, particularly in less liquid, international, or complex stocks. While this part of the business may be less visible than traditional listed securities, it plays a meaningful role in how institutional investors, asset managers, and retail broker-dealers access global equity markets with StoneX Group Inc. Moving on to the next slide, slide 14, what makes our market-making franchise different and succeed? Our entry into the highly competitive Reg NMS stock was built upon our leading OTC ADR franchise, market experience, and deep institutional relationships developed over decades. This foundation has allowed us to scale into the listed space in a disciplined way. Second, market making at StoneX Group Inc. operates within a vertically integrated equities ecosystem. As already shown, it exists alongside clearing, custody, prime brokerage, research, and capital markets. It is all connected. This integration improves capital efficiency and allows us to serve clients more comprehensively. Third, we benefit from the aggregation of trading flow across a globally diversified client base that is institutional as well as self-directed retail. This aggregated, diverse flow allows us to provide deeper liquidity and more consistent pricing, supporting high-quality execution for our clients while managing risk and hedging more efficiently. Finally, technology is the real enabler. Our proprietary electronic platforms are designed to support best execution and allow us to deliver tools focused on execution quality. The result of these factors are reflected in the growth you see here, with our Reg NMS market-making volumes growing at a compound annual rate of over 130% since 2022. We believe we are a fraction of the total addressable market, which is likely measured in trillions of dollars of notional volume. Lastly, turning to the priorities on slide 15 required to scale the market-making platform. First, we continue to streamline our operations by consolidating platforms, automating middle-office processes, and simplifying reporting and post-trade workflows. This improves operating efficiency and supports our operating margins as volume grows. Second, we are deliberately deepening our market share, expanding our NMS wholesale market-making capabilities, growing outsourced trading relationships, and increasing our presence in ETFs and global options where client demand is rising. Third, we are strengthening our global reach and technology platform. This includes building a footprint in Asia Pacific, expanding sales coverage in the EMEA region, and continuing to invest in the core architecture that underpins our market-making platform. Overall, we expect to process higher volumes, expand our global reach, and continue to invest in a platform that is efficient and scalable, and supportive of high operating leverage. Importantly, all of this is being done in a way that strengthens our broader equities ecosystem, making StoneX Group Inc. increasingly relevant to our clients across execution, liquidity, clearing and custody, prime services, research, and capital markets. Now to close out this presentation, this was a hugely pleasing quarter all around, highlighting record net income of $174.3 million, which is up 143% versus prior year, and diluted EPS of $2.07, up 120% versus prior year, and achieving an ROE for the quarter of 26.5%, 19.8% for the trailing twelve months ending 03/31/2026, and an ROE on tangible book value for the quarter of 37%, 25.9% for the trailing twelve months. Book value per share of $34.16, up $8.43, or 33%, versus prior year. And results over the last two years have grown trailing twelve-month net operating revenues by 56%, or a 25% CAGR, and trailing twelve-month earnings by 91%, or nearly 38% CAGR. A more volatile economic backdrop has emerged, potentially surpassing levels of the past two years, but this environment plays into our strengths, as volatility continues to be a key driver of our business. We have seen significant growth in our client assets, average client funds, securities clearing, prime brokerage, and metals, which provide stable recurring income. We believe our unique ecosystem, which offers extensive depth and breadth of product and a widespread geographical reach, combined with a significant total addressable market, will continue to power growth in the years to come. We naturally remain very excited about our future growth and continued expansion of our ecosystem. We will now open the call for questions. Operator: Thank you. At this time, we will conduct a question and answer session. Please limit to one question and one follow-up. 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. Our first question comes from the line of Daniel Thomas Fannon from Jefferies. Daniel, your line is now open. Daniel Thomas Fannon: Thanks. Good morning. The environment continues to be quite constructive, as you highlighted, and I was hoping to get a bit more context around the health of that. One of your peers highlighted a customer loss in, I think, January on the natural gas side. Hoping you could talk about just the good and bad volatility that you saw in the quarter, and then also give us an update here, given we are now in May, on what has happened as the quarter has ended. We have seen some of the exchange volumes also start to moderate—how that is translating across your business as well? Philip Smith: Sure. So as we said in the Q1 Q&A, there was, surprisingly, very little in terms of credit losses. And we did remind the market that continued heightened levels of volatility, while positive from a revenue perspective, obviously do increase the chance of some credit losses. We work very closely with our clients each and every day to help mitigate that, because communication with our clients through these extremely volatile periods is, whilst unusual, important. We maintain that level of communication and ensure that we help our clients to minimize their own exposure and their own liquidity risks. In light of the levels of volatility in the last two quarters, I think the level of credit losses we have provided for has been somewhat minimal. I would not say it was particularly unusual. It highlights the quality of our clients, and more relevantly, it highlights the interaction and engagement that we have with our clients. But as we have said very openly many times, with this level of increased volatility there should be an expected increased risk in credit losses that come with that heightened revenue generation. Daniel Thomas Fannon: And then, just to follow up, on the current environment we are seeing in April, particularly in certain markets where volumes have moderated—whether that is metals or precious metals or other areas—can you give us an update in terms of how that business looks thus far to start fiscal third quarter? William Dunaway: Certainly. We have had tremendous activity in the first couple of quarters, and last year, in the precious metals space. Listed derivatives, OTC—everything was really doing well with the volatility we saw here in the second quarter of the fiscal year. But we do see some moderation coming into April as we start the third quarter, just off where you saw it in Q2 from the standpoint of activity. That still said, overall it is a very good environment from the standpoint of interest rates and still an elevated volatility market in bonds. Daniel Thomas Fannon: Got it. That makes sense. I am not used to being restricted by my number of questions on this call, but—feel free? Philip Smith: Feel free. Go ahead, Dan. You are fine. Daniel Thomas Fannon: I guess, William, you mentioned some of the costs associated with RJ O’Brien and severance and what we saw in the quarter. Can you update us on the synergies and, broadly at the highest level, how the integration is going? Clearly, the environment is good, but can you give a little bit more detail around what you are doing under the hood and how that is going? Philip Smith: If I maybe start, Dan, by just giving you an update in terms of what we set out from a timeline from an integration program perspective: we are on track. On the last call, we highlighted that targeting our non-US businesses and the integration that goes with those businesses was the priority and also a testing ground to ensure that the larger program of integration in the US is able to run more smoothly, based upon any issues that arose during the non-US integration process. Those have begun. This quarter we are currently in is an important quarter for us, and we have begun the process of the integration of our US FCMs. It is on a much more gradual basis whereby we begin testing with some small groups of clients; we then have a second group, which has already occurred; and then we have a gradual buildup to the entirety of the FCM consolidation at the end of this month. It is an ongoing process. The timeline has not changed from where we set it out almost two quarters ago. In terms of the costs and the efficiencies, those are also on track, but I will let William highlight those in detail. William Dunaway: Thanks, Philip. We touched on this a little bit last quarter, Dan. Within the quarter, coming out of last quarter, we talked about what the run-rate is. For the second quarter, we had just shy of $76.9 million worth of synergies that we saw in the numbers in Q2, and the exit run-rate coming out of Q2 at those same synergies is a little over $8 million per month. So we are at about a $32 million run-rate on an annualized basis. To reaffirm where our target is: our expectation is that we will be $50 million by the end of the process. We think that coming out of Q2 we are probably around $32 million on an annualized basis, and we expect by the end of fiscal year to be closer to $45 million, and then we will have that remaining piece dribble in in 2027. Daniel Thomas Fannon: That is super helpful. Lastly, in the context of the hedge that you quantified, do you expect to do more as the year goes on, or is this the right amount in terms of interest-rate exposure you are looking to manage to? William Dunaway: We talked about this when we first did the RJ O’Brien integration in that first quarter, and Sean had touched on it at the time. At that time, we had about $13 billion of the two combined portfolios, and roughly half of that is balances where we keep virtually most of the yield on those assets. That is the key one that we are trying to protect. This puts us at around $1.8 billion of swap coverage, and we have about $1.5 billion of duration that is going out twenty–twenty-four months of physical purchases of investments. We feel like we have a good start. We will probably continue to look, where applicable, to still put in some floors there just to protect the downside on that where it is not shared on those balances, so we want to make sure that we are comfortable with the levels we are set at. It is still an active management program that we have in place. Hopefully, that gives you some guidelines of what we are looking to protect. Daniel Thomas Fannon: That is helpful. I will get back in the queue. Thank you. Philip Smith: Okay. William Dunaway: And feel free, Jeffrey, if you have multiple questions as well. Operator: Thank you. Your next question comes from the line of Jeffrey Paul Schmitt from William Blair. Jeffrey, your line is now open. Jeffrey Paul Schmitt: Hi. Good morning, everyone. In the Commercial hedging business, could you give us a sense of the mix of that business? Obviously, strength was widespread, but how much is agricultural versus energy or renewables? And RJ O’Brien’s interest-rate business as well? William Dunaway: The majority of the RJ O’Brien interest-rate business is actually in the Institutional segment because it is more institutional customers—looking to the big group and others—looking to manage their exposure. If we are looking on the Commercial side of listed derivatives, it is probably going to be more heavily weighted toward the energy and renewable fuels side. A lot of it was soybean oil and other inputs into renewable fuels. You can call that agriculture; you can call that renewable fuel. It is a little bit of both—it is inputs on the agricultural side, outputs on the energy side—but it is more so that. I think we still saw a bit of a slow start to Q2 in the US row crops—corn, soybeans, wheat—but then we saw nice activity in the back half of the quarter. Really, the OTC market was the real standout with the best volume and best revenues we have seen historically in the OTC space, and with that volatility, I think those customized solutions that we can provide customers to really help capture margin and mitigate their risk showed their benefit in that quarter to clients, and we saw a lot of uptake in activity. Philip Smith: I would only add that in Q1 we were slightly overshadowed by the success of the metals business in relation to everything else. But in Q2 there was a consistent level of increased activity and increased revenue across the board, which we do not always expect and should not expect, but it was pleasing to see that was evident. As William said, energy was very much the story of the quarter, but there was consistent growth in other areas as a result of increased volatility and also just increased activity from our clients across the board. That was good to see—very pleasing. Jeffrey Paul Schmitt: That is helpful. Maybe do the same in the physical trading business. Is that mainly precious metals and gold in particular? What portion of mix is that? And where are you in terms of cross-selling with RJ O’Brien clients? I do not think they have that physical trading capability. Philip Smith: No, they do not, and that was raised last quarter. There was a level of confusion whether a lot of that came from RJ O’Brien integration and cross-selling. The physical aspect is very much driven by our very successful precious metals business, but also our very successful non-metals business, which in areas of cocoa and coffee saw continued expansion and continued growth across the board. Unfortunately, within the physical space, there is still an overshadowing by the physical metals business. We saw Q1 showing record levels of transaction volume and net income attached to that physical metals business. Q2 overshadowed Q1—so continued growth and client activity. As I said before, across multiple sub-products within our Commercial business, there was a broad level of increased activity and increased revenue. With regards to our OTC business, we highlighted a record level of OTC contracts. That is something where we look forward to greater participation from the RJ O’Brien integration post full integration in the US, where we are able to more easily offer OTC contracts, OTC products, and capabilities to the legacy RJ O’Brien client base. Until the integration happens, it is just slightly more cumbersome in terms of papering in different legal entities, and full integration will make that easier. William Dunaway: And, Jeffrey, to your numerical question there: for a total of $190 million worth of physical contract operating revenues in Q2, about $150 million of that was precious. The rest was what we called physical agriculture and energy before—we are now calling it StoneX supply and trading—but that is more the agriculture and energy side of the business. Jeffrey Paul Schmitt: Okay. Very helpful. Could you provide an update on the M&A environment and what inning you think we are in for industry consolidation? Are opportunities up versus a year ago? How are valuation expectations trending? Philip Smith: Generally, we will always continue to see a certain level of small- to mid-size interest and M&A activity. We are known in the market as a consolidator. We are known as an expander of our ecosystem. That drives interest in people wanting to bring their business—either those who want an exit strategy or those who want to take their business to the next level and be part of a broader, more capable, expansive ecosystem that they can operate within at StoneX Group Inc. We have mentioned previously that, on the whole, most of the acquisitions we have done end up, within a relatively short period of time, growing in multiples of where they were prior to becoming part of StoneX Group Inc. A lot of that is the heavy cost of business, heavy cost of regulation, and heavy cost of having a monoline business in certain areas where you do not have that diversity of revenue and the ability to utilize and access clients across multiple products. That is our benefit. As a result, we get a near-constant level of interest in that small- to mid-size $10–$30 million range of businesses that we are very easily able to acquire, incorporate, and tack onto the ecosystem, and then start leveraging either the client capability, the geography expansion, or the product that those acquisitions provide us. It is important that we talk about our ecosystem all the time, and that is a huge driver of much of the M&A activity. It is something we probably do not talk enough about, because the way we operate our verticals and our products, we do not want any silos within our businesses. Over the last ten to fifteen years, we have done a very good job of integrating multiple new products, new entities, and new capabilities that were previously on a standalone basis. Everything is becoming much more integrated, and that allows us to truly leverage those capabilities and have multiple-product initiatives, like we have seen with our FIG initiative, where we are bringing together all aspects of the company and heading in the same direction. That drives interest in us from an M&A perspective, and it drives interest that we have in other areas where we would like to continue that level of ecosystem expansion. I do not think the market has changed drastically. We continue to have a lot of interest, and we do almost make small acquisitions on a very regular basis, which we probably do not promote as much because we are so used to that level of expansion. But we are always looking at transactions—always looking at potential expansion opportunities. Jeffrey Paul Schmitt: Okay. Great. Thank you, everyone. William Dunaway: Thank you, Jeffrey. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. Please hold while we compile the Q&A roster. This now concludes the question and answer session. I would now like to turn it back to Philip Smith for closing remarks. Philip Smith: Thank you. In closing, I would just like to say a huge thank you to all the employees of StoneX Group Inc. for their vital contribution in achieving this record quarter. Working tirelessly every day with our clients through such heightened volatility market conditions is what we do, and StoneX Group Inc. employees do this incredibly well—a service for which I am hugely proud. This quarter, I feel, is a testament to that dedication and that service to our clients. So a huge thank you to all of our employees, and I look forward to seeing what Q3 brings. Thank you very much. Operator: This does conclude the program, and you may now disconnect.
Operator: Welcome to MACOM's Second Fiscal Quarter 2026 Conference Call. This call is being recorded today, Thursday, May 7, 2026. [Operator Instructions] I will now turn the call to Mr. Steve Ferranti, MACOM's Senior Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead. Stephen Ferranti: Thank you, Olivia. Good morning, and welcome to our call to discuss MACOM's financial results for the second fiscal quarter of 2026. I would like to remind everyone that our discussion today will contain forward-looking statements, which are subject to certain risks and uncertainties as defined in the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC. Management's statements during this call will also include a discussion of certain adjusted non-GAAP financial information. A reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related Form 8-K, which was filed with the SEC today. With that, I'll turn over the call to Steve Daly, President and CEO of MACOM. Stephen Daly: Thank you, and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q2 results for fiscal year 2026. When Jack is finished, I will provide revenue and earnings guidance for the third quarter of FY '26, and then we will be happy to take some questions. Revenue for the second quarter of fiscal 2026 was $289 million, and adjusted EPS was $1.09 per diluted share. Demand for our products is strong across our 3 end markets, and our backlog continues to build. Our sequential financial performance improved across most key metrics in Q2, including gross and operating margins. Our Q2 book-to-bill ratio was 1.5:1 and orders booked and shipped within the quarter was 18% of total revenue. All 3 end markets had exceptional bookings with notable outperformance in the Data Center. Our backlog remains at a record level, and we believe this strength reflects that we are in the right markets with the right products at the right time. Turning to recent market trends. Q2 revenue performance by end market was as expected, with all end markets growing sequentially. Industrial and Defense was $120.7 million, Data Center was $98.2 million,and Telecom was $70.1 million. Data Center was up approximately 14.5% sequentially, Telecom was up 3% sequentially and I&D was up 2.5% sequentially. Both I&D and Data Center revenues are at record levels. As we look to the second half of our fiscal year, we expect Data Center and I&D revenues to continue to lead our growth. With the exceptional first half bookings, we are positioned for a strong second half. Additionally, we expect to see momentum from our Telecom segment as we enter our fiscal 2027 due to the anticipated timing of LEO space production programs and associated revenues. We believe our growth strategy of strengthening our core technologies and expanding our product portfolio around 3 central themes: Highest power, highest frequency and highest data rate, is working. We believe we are establishing ourselves as a differentiated strategic supplier to our customers. Next, I'll quickly summarize progress on our 5 goals for FY '26, which we outlined on our last call. First, taking advantage of the data center opportunity. We continue to enhance our design and manufacturing capabilities to support our customers in this market. And we are pleased to raise our Data Center FY '26 revenue growth base case from 35% to 40% to over 60%. Second, expanding our 5G market share. We have developed 2 new process technologies, which will provide us with both performance and cost benefits. GaN 4 is our next-generation process for high-power linear amplifiers for 5G base stations, and we expect our new IPD processes will enable us to in-source these components while achieving better electrical performance at a lower cost. Our technology teams have done a great job making these processes a reality. Third, extending our leadership in I&D. I am pleased that we recently received a Defense Manufacturing Technology Achievement Award sponsored by the Joint Defense Manufacturing Technology panel. The panel includes members from various armed services and the Office of the Secretary of Defense. This award reflects our progress to increase manufacturability of advanced GaN technology. Our team continues to innovate, and we look forward to introducing a wide range of advanced GaN MMIC products in the next 12 to 18 months. Fourth, continued development of advanced III-V semiconductor technologies. We continue to strengthen our semiconductor processing expertise and capabilities. As an example, our team has done amazing work on OMMIC regrowth for advanced high-efficiency GaN amplifiers. In addition, we are developing advanced indium phosphide epitaxial stacks for our next-generation optical products for the data center. And last, management of our capital and investments. As we discussed last quarter, we have numerous strategic investment activities that we believe will support our fiscal 2027 and 2028 revenue growth objectives. We take a disciplined approach to managing capital investments for near- and long-term success. Next, I'll take a moment to review each of our 3 core markets in more depth. Data Center. Based on customer engagements and general market trends, we expect 1.6T deployments inside the Data Center to continue to be strong throughout calendar 2026. Today, our revenue growth is primarily being driven by increased pluggable optical modules and optical cable production volumes using our 800 and 1.6T PAM4 products. As a reminder, our portfolio is highly diversified, supporting NRZ, PAM4 and coherent modulations across EML, silicon photonics and VCSEL-based architectures. We are also seeing modest growth from our lower data rate 100G single-mode and multimode products. Demand for our 200 gig per lane photodetectors continues to grow, supporting 800G and 1.6T optical connectivity. Part of our near-term and long-term growth strategy is to expand our photonics portfolio with both higher-speed photodetectors and CW lasers. We are seeing growing interest in coherent light solutions as coherent modulation can enable higher bandwidth performance with significantly improved power efficiency, especially in shorter-reach applications. We believe coherent light solutions will expand, and we are well positioned to support this trend. We continue to promote linear equalizer products to help extend the reach of copper interconnects at 800G and 1.6T. We are working closely with customers to address their specific program requirements and various use cases. In many cases, our newest products are designed for co-packaged and highly integrated architectures like CPO and NPO. We can differentiate in this market based on our strong customer relationships, IC and system design expertise as well as our unique photonic materials. In summary, as we look ahead, we see many new large opportunities in the Data Center. We believe our SAM is increasing due to the combination of AI-driven market growth, combined with our product portfolio expansion. Our strategy is to collaborate with the leaders in the industry and support their connectivity needs, whether it's scale up, scale out or scale across. Turning to our I&D business. We are seeing many growth opportunities across the Industrial and Defense markets, primarily in the Defense segment. Comparing our first half results of FY '26 with the first half of FY '25, our I&D business grew by 22%. Overall demand remains healthy and notably, we expect revenues from our top 25 defense customers to significantly increase from FY '25 to FY '26. Our Defense customer base is large and very broad, and we typically support radar systems, missile and missile defense systems, drone and drone defense systems, communication systems and wideband electronic warfare systems. Today, we support a wide range of production programs across a diverse range of applications. We are also involved with redesigns and upgrades of existing platforms to improve performance against new threats and to improve overall system performance with more capable and modern electronics. Finally, the DoD is pushing our customers for rapid design and deployment of new systems and capabilities, spanning from modern radars to better electronic warfare systems, new space-based sensors and even more secure communications. These systems are typically using higher frequencies, higher RF or microwave power levels and higher levels of integration. In some cases, high-performance optical systems are deployed such as RF over fiber for remote antenna systems. The pace of innovation in the Defense market is accelerating by both the traditional defense primes and the newer, more nimble defense companies. These demanding requirements play directly to MACOM's strengths, and we offer our customers turnkey support from custom chip design to subsystem solutions. All of this is driving incremental semiconductor content growth opportunities and opening up new design win opportunities. MACOM has numerous competitive advantages within the I&D market. At the heart of these is MACOM's deep expertise in high-performance IC design capabilities spanning RF, microwave, millimeter wave and optical domains. We have a growing team of system designers with architectural knowledge, which enable us to engage much earlier in our customers' project design cycles, and we present the full scope of MACOM's capabilities to help solve the customers' technical challenges. MACOM also offers European and U.S.-based wafer fab and U.S.-based hybrid manufacturing capabilities at scale with proven technology, reliability and long-term supply assurance, factors that are increasingly important as defense customers prioritize domestic sourcing and supply chain security. Within the Telecom end market, satellite-based broadband access and direct-to-device, or D2D, opportunities remain robust with numerous LEO networks in the planning and production stages. The number of LEO satellites planned to be launched continues to grow as more companies compete to provide commercial broadband data, voice and video communications by satellite. These networks typically use microwave or millimeter wave frequencies and free space optics or FSO communications for satellite-to-satellite or satellite-to-ground communications. Today, we are supporting LEO broadband constellations and D2D programs that are either in development, low rate initial production, or LRIP, or full production. LEO and MEO constellations have many key areas where MACOM can contribute, including large phase array antennas with active beam steering, D2D links operating at UHF or S-bands, data center-like electronics with high-speed optical links transferring data within or across the satellite, free space optics for satellite-to-satellite communications and ground terminal and gateway linearization for high-power transmitters. I'll note the backhaul networks for these constellations continues to move higher in frequencies. The 40-nanometer GaN technology, which MACOM recently licensed from Hughes Research Lab, HRL, is being transferred to MACOM's fab. This technology will enable high-capacity satellite links using E-band, W-Band and D-band. Ground stations and gateways are also a key part of the LEO networks. MACOM specializes in designing products and solutions that overcome nonlinearity of RF, microwave and millimeter wave signal transmission for satellite communication systems. In many cases, ground-to-satellite links prefer linearization of SSPAs or TWTAs to boost the linear power efficiency of the link. Turning towards the 5G segment of Telecom. Our global team continues to secure new business and macro base stations, driven by the need for high-performance amplifiers and multiband radios. Our RF power team is now sampling our new GaN 4 products to customers, which we believe will further improve our competitiveness. We expect the global RAN market will be flat in 2026 with some regional variations. However, for MACOM, we expect our future 5G growth will be driven by content and market share gains as we have; one, recently added new resources; two, roll out new products and technologies like GaN 4, SOI control products and power amplifier modules or PAMS; and three, gain market share in high and low-power macro and MIMO amplifiers. We are making good progress improving the overall performance and competitiveness of our base station portfolio, especially in the 2.7 to 3.5 gigahertz bands. And last, we believe the cable TV infrastructure market segment is also improving. We have been releasing new products and working with customers on design wins to support the upgrades from DOCSIS 3.1 to DOCSIS 4.0. Before turning it over to Jack, I would like to quickly highlight how teamwork across the organization directly impacts our financial results with operations and engineering being a great example. Our North Carolina fab has been increasing wafer production while simultaneously improving yields and lowering cycle times. This performance is driving improved customer satisfaction and contributing to new business and enabling us to win new customers. Our Massachusetts fab has been installing complex processing equipment to support production ramps in some areas while maintaining production continuity in other areas. Seamlessly adding this capacity is enabling us to gain market share from our competitors. Our global planning team continues to partner with key suppliers and partners to ensure that customers are getting the deliveries they need on time. This results in brand loyalty and enables us to fully leverage our entire technology portfolio into the market and capture market share. These examples illustrate how dedication, commitment to excellence, teamwork and coordination of our manufacturing, engineering and planning community is directly leading to market share gains and revenue growth. In summary, our strategy is to continue to build a best-in-class diversified semiconductor portfolio that will enable MACOM to capture a larger share of the 3 markets we focus on. Our agility and strong teamwork across our organization helps us address opportunities and ultimately beat the competition that are often larger and have more resources. Jack will now provide a more detailed review of our financial results. John Kober: Thanks, Steve, and good morning to everyone. The results from our second quarter improved from Q1, and MACOM again achieved multiple new quarterly records associated with our financial performance. We have seen operational improvements across the organization, which is driving increased revenue growth and profitability. Fiscal Q2 revenue was $289 million, up 6.4% sequentially and up over 22% year-on-year, driven by growth across all 3 of our end markets, with Data Center leading followed by I&D and Telecom. The strong bookings across all our end markets resulted in a book-to-bill of 1.5:1. This was the largest quarterly bookings in the company's history. Adjusted gross profit for fiscal Q2 was $169 million or 58.5% of revenue. This represents a gross margin increase of 90 basis points over the prior quarter. We continue to make solid progress to increase our capacity and improve product yields, and we expect to see ongoing incremental progress across our fab operations during the remainder of fiscal 2026. The increase in product demand across the business have resulted in improved utilization of our operations and supported the recent gross margin improvement. As we move forward, we expect ongoing sequential gross margin improvements through the remainder of fiscal 2026. Total adjusted operating expense for our second quarter was $88.6 million, consisting of research and development expense of $59.1 million and selling, general and administrative expenses of $29.5 million. The anticipated sequential increase in adjusted operating expense compared to Q1 was primarily driven by ongoing R&D investments and employee-related costs. As our business expands, we expect associated OpEx growth will be primarily related to increased R&D investments and higher variable costs. Consistent with past practice, we will remain very focused on managing our OpEx to balance long-term revenue growth and profitability with continued investment in the business to support all of our end markets. Depreciation expense for fiscal Q2 2026 remained relatively stable at $9 million, slightly above the prior quarter. Adjusted operating income in fiscal Q2 was another record coming in at $80.5 million, up 8.8% sequentially from $74 million in fiscal Q1 2026 and up 34.5% year-over-year. I would like to note that our Q2 adjusted operating margin was 27.8% and has increased over the last 3 fiscal quarters. We expect our adjusted operating margin to be approximately 30% next quarter, highlighting the leverage in our financial operating model. For fiscal Q2, we had adjusted net interest income of $6.5 million, a decrease of approximately $200,000 sequentially from $6.7 million in Q1. The slight decrease was primarily due to the planned repayment of $161 million of our 2026 convertible notes during the quarter. We are pleased to have been able to retire this debt and further delever our balance sheet. Our adjusted income tax rate in fiscal Q2 was 3% and resulted in an expense of approximately $2.6 million. We expect our adjusted income tax rate to remain at 3% for the remainder of fiscal 2026. As of April 3, 2026, our deferred tax asset balances were $202 million. We anticipate further utilizing our deferred tax asset balances, including R&D tax credits through the remainder of fiscal 2026 and beyond. Depending on the jurisdictional mix of our income, we expect the U.S. government's recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years. Fiscal Q2 adjusted net income increased approximately 7.8% to $84.3 million compared to $78.2 million in fiscal Q1 2026. Adjusted earnings per fully diluted share was $1.09, utilizing a share count of 77.6 million shares compared to $1.02 of adjusted earnings per share in fiscal Q1 2026. We continue to optimize the business' performance, which has contributed to sequential increases in our adjusted operating income and EPS over the past 11 quarters. Now on to operational balance sheet and cash flow items. Our Q2 accounts receivable balance was $160 million, consistent with our Q1 2026 balance. Our days sales outstanding averaged 50 days compared to the previous quarter at 54 days. Inventories were $252.2 million at quarter end, up sequentially from $238.9 million, largely driven by additional work-in-process inventory at our fabs as well as higher balances to support increasing demand across the business. Inventory turns remained steady at 1.9x, the same level as the preceding quarter. Fiscal Q2 cash flow from operations was approximately $78.7 million, up $35.8 million sequentially. The sequential change was primarily due to the typical timing of supplier payments and other changes in working capital balances. We expect that our Q3 cash flow from operations will be in excess of $80 million. As our business continues to grow, there will be variations in cash flow from quarter-to-quarter. MACOM's business model has demonstrated strong cash flow from operations over the past few years. As an example, our cash flow from operations was $163 million in fiscal year 2024, $235 million in fiscal year 2025, and we believe we are on track for our cash flow from operations to exceed $300 million for fiscal year 2026. Capital expenditures totaled $13.2 million for fiscal Q2. We estimate fiscal year 2026 CapEx to be in the range of $55 million to $65 million as we expand capacity to meet demand requirements across our end markets and also upgrade and enhance our production and engineering equipment as well as our facilities. Next, moving on to other balance sheet items. Cash, cash equivalents and short-term investments as of the end of the second fiscal quarter were $664.9 million. We view our cash balance as a strategic asset that can be used to help fund ongoing investments to support our growing business. We are in a net cash position of approximately $325 million as of April 3, 2026, when comparing our cash and short-term investments to the book value of our remaining $340 million of convertible notes, which mature in December 2029. Our strategy has been to focus on growing our profitability and managing our operating asset base, which has supported an improved return on invested capital over the past several years, demonstrating our goal of building long-term financial strength for the company. During the first 2 fiscal quarters of 2026, the entire MACOM team has contributed to helping achieve these record financial results. This hard work has established a strong foundation for us to build upon, and I look forward to the second half of our fiscal 2026. I will now turn the discussion back over to Steve. Stephen Daly: Thank you, Jack. MACOM expects revenue in fiscal Q3 ending July 3, 2026, to be in the range of $331 million to $339 million. Adjusted gross margin is expected to be in the range of 59% to 60% and adjusted earnings per share is expected to be between $1.31 and $1.37 based on 78.5 million fully diluted shares. We expect sequential revenue growth in each of our 3 end markets. We expect that Data Center will achieve approximately 35% sequential growth, and we expect Industrial and Defense to achieve growth approaching 10% and Telecom to achieve low single-digit sequential growth. As Jack highlighted, we are excited to deliver more growth and profitability during the second half of FY '26. As we continue to scale the business, we expect to see increased operating margins and profitability. I would now like to ask the operator to take any questions. Operator: [Operator Instructions] Our first question coming from the line of Blayne Curtis with Jefferies. Blayne Curtis: Great results. Maybe I want to start on gross margin. Obviously, there's a lot of revenue drivers, but 100 basis points in the quarter. Can you just talk about volume and then mix? And obviously, Data Center is outperforming, so that must be a driver. I just want to see how to think about it, particularly as you go through the rest of the calendar year. Stephen Daly: Yes. Thank you for the question, Blayne. So certainly, volume is contributing to the improvements in the gross margins. We are seeing that our Lowell fab as well as our North Carolina fab have been increasing outputs, and so that's certainly having a positive effect on gross margins. The other thing I'll add is you're correct to notice that our Data Center revenue as a total percentage of our revenue is increasing. In some instances, that's contributing to the improvements in gross margins. And in other areas, it isn't. So we -- in all of our market segments, we have a normal distribution of gross margins. But generally speaking, the team has been very focused on yield enhancement, efficiencies, cost reductions as we're scaling across a whole wide range of technologies, some of which I talked about in the prepared remarks. So generally speaking, a lot of great work. As Jack mentioned in his commentary, we expect continued improvements in gross margin. A few quarters ago, we had said publicly, we were setting a target to exit the year around 59%. And I think today, we're updating that number to be most likely closer to 60%. And Jack, maybe you can comment further. John Kober: I think you covered off on it, Steve. There's definitely multiple factors that are helping to drive our gross margin improvements that we've seen here in the March quarter, where we were up 90 basis points. And then if you look to the midpoint of the guide being up 100 basis points. It does become a bit more challenging as the gross margins go up to squeeze more savings out of it, but our teams are continuing to work hard. And as Steve had mentioned, we expect to see further gross margin improvements as we work our way through this year and into next year. Blayne Curtis: And then I wanted to ask, you mentioned coherent light. There's a lot of talk about scale across these days. Kind of just curious your thoughts on how that market is developing? And then maybe a silly question, is it in Data Center or Telecom? Stephen Daly: So we would put coherent light in the Data Center category. And as you know, historically, we have put the metro/long haul, which is more DCI in the Telecom segment. So we are definitely focused on that, and this is an area where MACOM has really nice differentiation. And so historically, there's been more ZR type platforms, and now they're moving to really higher data rate, higher gigabaud data rates. And just in the last 3 years, you've seen platforms go from 64 gigabaud all the way up to 128 gigabaud. Now even people are talking as high as 192 gigabaud. So this is an area of strength for MACOM. And depending on what hyperscalers do in terms of deploying coherent light, we want to participate. So we are in a very good position. It does touch a number of our product lines where we really have differentiated technology. Operator: Our next question coming from the line of Tom O'Malley with Barclays. Thomas O'Malley: My first is on the SATCOM business in LEO. Through the earnings period here, you've heard companies talk about 7,000 to 10,000 launches over the next 3 years. Would you agree with that number? And then maybe if you could spend some time talking on the content per satellite, if that's possible. You mentioned a lot of the different products, the phase array antennas, optical electronics, et cetera. But just some framework for thinking about the upside that could offer you. And then on the timing of that, it looks like Telecom is up low single digits in June, but you mentioned it improves in the back half of the fiscal year. Do you see a substantial step-up in the September quarter there? Stephen Daly: Thanks for those questions, Tom. There's a lot there. Let me try to address as many as I can. I think it's important to put in perspective that MACOM has been servicing the space market for decades. And so we are a known entity, not only on the defense side, but more and more so on the commercial side. I think you're correct to highlight that there's growth in terms of the pure number of LEOs being launched, and these are typically smaller satellites going on affordable launch vehicles and whether it's servicing broadband, direct to sell or even future talk about data centers in space, we want to participate in those. So we don't necessarily want to comment on what the absolute quantities are. I think there's a lot of information in the market about how much this market is growing. So I think there's good information out there that's probably more accurate than ours. But I would just highlight that we are absolutely engaged with the major players across the market. And as I mentioned in my commentary, it really plays to our strengths. So yes, there's certainly huge demand, and we're trying to focus on getting wins as best we can. In terms of the timing of our various programs, I would just say that we have active LEO production programs today. We have more that are in the sort of LRIP phase. One of the larger programs that we've talked about in the past is in the phase of delivering what we call EM modules. So basically, our customers sort of finalizing their system design. And we do expect that to go into full rate production later this year or early next year, which is consistent with what we've said in the past. I don't think you should expect a step-up. You're going to see a ramp-up, and that will happen during the course of calendar 2027. And just as a reminder to everybody, we're involved in really 3 pieces of the puzzle for these networks. The first is on the satellite, what people refer to as the payload. The second is the gateways. And then the third is that we are seeing opportunities in the terminals with some of our components. And so a very exciting time for MACOM to be participating across so many different customers and our module and our chip design team is very busy satisfying the requirements in this market. Operator: Our next question coming from the line of Tore Svanberg with Stifel. Tore Svanberg: Congratulations on the strong results. I had a question on the Data Center growth now basically targeting more than 60%. Just curious, above and beyond just higher CapEx from some of your end customers, what's some of the delta here, some of the new revenue that's layering in? Stephen Daly: Very much the expansion of our product portfolio. And we have talked about really over the last 12 months, the ramp-up of some of our optical components. And so that has certainly helped drive some of the growth. But I would say, generally speaking, our focus is on 1.6T, 800 gig. These are areas where we're seeing a lot of strength. We expect that strength to continue. And in fact, we're seeing more and more demand as we sort of enter our second half. In terms of the new revenue or the new categories of revenue for our fiscal '27, certainly, the higher data rates, so 3.2T, possibly some coherent light ramp-ups. And also depending on the work that we're doing with our laser portfolio, we may be able to add some revenue to our fiscal '27 or even fiscal '28 on CW lasers. So a lot of good activity there. We have been also, as everybody knows, engaged with people that are deploying copper and providing equalizers not only onboard the PC boards, but also cable-based. So very excited about those opportunities as well. Tore Svanberg: Very good. And as my follow-up, Steve, you talked more than usual on this call about team collaboration, making sure capacity is in place. It sounds like your operations execution is allowing you to gain some share. Just curious why you brought that up on this particular call. Are you seeing competitors perhaps not have enough capacity and not good planning to keep up? Or is there something else that's driving that inflection point? Stephen Daly: Well, I think Jack and I are just privileged to be able to represent our employees. And so I think it's important to highlight the work that they're doing in collaborating to make these results happen. And so as you know, last year, the company grew by over 30%. And this year, we're on a path certainly to be in that range or higher. And we have a lot of different technologies ramping at the same time. And that absolutely requires coordination, collaboration, good, clean discussions with customers to set proper expectations. So we just wanted to highlight that. In terms of sort of opportunities, I'll just note that because there is certainly some constraints within the Data Center market, we believe that's opening up interesting opportunities for MACOM, including, by the way, what I would consider the legacy class of lasers as med customers are, and competitors, are pivoting to more, let's say, the higher power or CW lasers to support silicon photonics, that's creating a little bit of a gap in DFB lasers. And we have a very strong broad DFB laser portfolio that can support what I would consider legacy data center 100-gig modules. And so that could be a great business for us over the next 1 to 2 years, and those products are ready today. Operator: And Our next question in queue coming from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Steve, I just wanted to follow up on the laser question. I think in the past, you said you had a couple of customers that were evaluating your CW lasers. You thought it would still sort of be a 6- to 12-month eval process. But could you give us any update on how you're feeling about the CW laser opportunity? Are you more confident that those could ramp and contribute to fiscal '27 growth? Stephen Daly: Yes. I don't think too much has changed in the last 3 months. We have excellent optical performance of our 75-milliwatt class lasers. Customers have tested and validated performance. What our fab is doing today is dialing in a process of record. That work is not complete. So we continue to tweak the process to optimize really reliability. It's all about reliability. Typically in these systems, the weakest link is the laser. And so you need to make sure you have a very robust laser. So there's a lot of qual work running in parallel with developing a process of record. And so that work continues, and that's all MACOM internal work. When we're ready and we feel like we have a reliable product, then we'll start working with module customers so that they can start their module quals. And then after that comes the hyperscaler qualification. So when you add all that up and look at the time line, you're really talking about potentially, and this is assuming everything goes well and oftentimes it doesn't, a fiscal '27 or '28 time frame of contribution. We are absolutely getting pull from the market. We know there's demand. And so we just have a lot of work to do to convince ourselves that we're ready to ramp this kind of a product into high volume. So I would, at this stage, not put your CW laser in your models, certainly not for fiscal '26 or I would say even '27. I think there's going to be a lot of other great things happening that will allow us to perhaps not only do as well as we've done this year in terms of growth, but maybe even exceed it next year because we have a lot of other irons in the fire. Quinn Bolton: And then I guess I wanted to come back on the utilization rates. I think over the past couple of years, you had mentioned the Lowell utilization rate was sort of suffering from some puts and takes in a couple of the larger defense programs and I think lower demand on the industrial side, MRI in particular. Has that utilization rate come back with the I&D business recovering? Or do you still feel like there's further room for improvement in the utilization rates of Lowell and obviously, that could be a margin tailwind as utilization increases. Stephen Daly: I think you're correct in those comments, and we are seeing increased utilization on our traditional Lowell-based defense business. And our Defense business this year is trending to certainly over 20% full year growth. And that -- much of that, not all of it, but much of it is coming out of our Lowell fab. So that is beneficial to the sort of gross and operating margins. Your commentary about our MRI business, which we categorize as industrial, is also improving. And we have a very strong franchise for high-voltage, nonmagnetic really kilovolt level diodes that are used in these MRI coils. We are seeing positive trends on that business, and we expect those trends to continue. So yes, those 2 things are definitely helping the Lowell utilization. There's 2 other important things going on in our Lowell fab as well. The first is developing the advanced GaN that I talked about in my prepared remarks. And the second is the ramping up of our optical product line within the Lowell, which is an indium phosphide-based product. Operator: Our next question coming from the line of Sean O'Loughlin with TD Cowen. Sean O'Loughlin: Congrats on the really solid results and momentum. First question, I just wanted to get maybe an update or offer you the opportunity to update some of your comments on the fiscal '26 segment growth other than datacom. We got the 60% growth, but I think last quarter, we talked about high teens growth in I&D. You kind of just alluded to maybe over 20% and high single digits in Telecom. Any updated thoughts there? Is that still what we should be thinking about? Stephen Daly: Yes. I'll make some comments and then maybe Jack can also talk about sort of P&L-related items. So I do think we have a solid plan for 2026. As I mentioned, our revenue growth is going to be driven by Data Center and Defense. Today, we're definitely trending towards top line in that sort of 30% range. I can tell you that last year, we did about 32%, and it would be nice to beat that. And we also ideally would like to exit the year with at least 60% margin. We're not sure if that's going to happen. We still have a lot of wood to chop between now and the end of September, which is the end of our fiscal year. But we do see a path to having strong revenue and earnings growth. Earnings growth should be quite nice this year, certainly coming from the second half. In terms of your commentary specifically about I&D and Telecom, I think we're thinking above 20% today for I&D, and we're going to try to push Telecom to be low double digit. John Kober: I think the only other item I would add, and obviously, the Defense piece has been quite strong for us over the past year plus. Industrial, we've been working our way through that. We touched upon the medical piece of Industrial with the last question. But more broadly, within Industrial, it is a fairly broad category. We have seen a bit of an uptick there that's helping out with our Lowell utilization. It's also driving some of that revenue or top line improvement that we see in that combined Industrial and Defense end market. And really, as we look at filling out the rest of the P&L with some of that revenue growth, we are very much focused on improving those earnings and improving the leverage and the drop-through from an operating income and also from an EPS perspective as we work our way through the remainder of '26 and then focus more on '27 as well. Sean O'Loughlin: That's helpful color. A quick follow-up. Just on the input side, I know that indium phosphide is one of the materials that you use. And so I don't want to over-index to these comments, but we've had some comments from public substrate suppliers about price increases and just maybe generally across your manufacturing footprint, is that something that you're either having to absorb and there's a timing mismatch? Or is the pricing environment for a lot of these products such that you're able to sort of pass those through? Or is that not really something that you're seeing outside of the indium phosphide? Stephen Daly: I'm not sure we want to get into the cost basis of any materials we buy. We're constantly buying gases, precious metals, gold, indium phosphide substrates, silicon carbide substrates, and we have a very strong supply chain that works very closely with our partners to make sure we're getting what we want when we need it at a fair price. Although I will mention maybe one thing. You may have seen recently where MACOM announced a small investment in a company called IQE. We put out a press release on April 27, and this is sort of somewhat related to your question. And people may not be familiar with IQE. So they are a U.K.-based company that provides epitaxial services, and they went through a -- recently, they went through a fundraising event where MACOM participated. They raised GBP 80 million. We participated with a GBP 45 million investment. And just to break that out very quickly, it was GBP 30 million in equity for about 11% ownership and a GBP 15 million convertible note. And ultimately, what we did as part of this transaction is put in place a long-term supply agreement to make sure that we have adequate supply of the technologies that we're currently acquiring from them and from others. And so the why we did it really revolves around your question, which is what is MACOM doing to ensure we have strong supply chain security and resiliency. And I think this is a great example of a strategic transaction, which is going to shore up not only our business regarding indium phosphide, but also the silicon carbide. And so where we stand right now with that is it's going through regulatory approval. There will be a shareholder vote, and it's expected to close in the next 30 to 60 days. And so this is sort of an example of MACOM proactively looking at risk and retiring risk. And so this will backstop our expected growth, not only as it relates to indium phosphide-based products, but also silicon carbide-based products and some other technologies as well. Operator: And our next question coming from the line of Will Stein with Truist Securities. William Stein: Congrats on the very strong outlook. The main thing I wanted to ask about was, Steve, in your prepared remarks, you talked about addressing the user terminal market within the LEO satellite industry. And this is, I believe, a pretty big change in strategy, at least relative to what I've heard the company talk about. We had the message previously that your focus was going to be essentially in infrastructure, the satellites and the gateways. User terminals, of course, look more like it's customer premise equipment, right, and sort of the consumer market. That's sort of uncharacteristic for you. So can you talk about what changed? What makes you want to address that market? What products you're selling and sort of timing to ramp there? Stephen Daly: Yes. I think that's a great question. And to be clear, when we look at that market, we're looking to be opportunistic. And so we are seeing some AESA technology basically using a wide range of control products, which would fit very nicely into our AlGaAs diode-based portfolio. So you're correct to conclude we're not chasing SoCs or receivers or highly-integrated customized chips for user terminals. That is not the case. But we are seeing inbound requests for some of our control products. And so we will opportunistically look at that. William Stein: Great. And then as a follow-up, I guess, the big-picture question is you had a huge book-to-bill this quarter. Obviously, that's not all for delivery in fiscal Q3. Can you talk about the spread across end markets and the duration of that? What's changing there? Stephen Daly: Well, certainly, as I mentioned, the strongest portion of our new orders was in the Data Center. But I will say that all 3 markets had a very strong booking event. Typically, these orders will be spread out over multiple quarters. And so I don't really want to get into any more detail than that. We typically, just as a practice, only recognize bookings that are within a 12-month period as well. So this 1.5 book-to-bill really reflects orders that would be delivered within 12 months. Operator: And our next question in queue coming from the line of Christopher Rolland with Susquehanna. Christopher Rolland: Congrats. I wanted to drill down on Data Center, particularly in June. So it's just absolutely inflecting. I don't think we've seen this kind of growth before. And so my question is, why now? It sounds like a lot of it is optical. When it comes to discrete components, I'm just trying to figure out kind of why the inflection? Is it just a units play? Is there something here like new DSPs that don't contain TIAs and drivers? Or is it really this move to 1.6? What's really driving that over $30 million inflection in Data Center sequentially? Why now? Stephen Daly: Yes. Thank you for the question. And so if we pull back and look at the general trends of our Data Center business over the last 3 years, in 2024, we grew our Data Center business by 35%. In 2025, we grew it by 48% and now we're, in '26, forecasting over 60%. So the trend is there to see in terms of the long-term growth. And clearly, we're investing in a variety of technologies that would be suitable for this market. We tend to gravitate towards the highest data rate type products. We were one of the early suppliers to the 1.6T rollout, and that is paying big dividends right now as that use case expands across the data center and various hyperscalers. And so we're able to solidify strong positions there. And of course, we're overlaying our optical components. We talked about the PDs, the photodetectors. We're working on the lasers. They're not quite there yet. So I don't know that there's an inflection point rather than a trend. And the trend is that our portfolio is broad in nature, and we're gaining traction at a wide range of customers selling a variety of functions. And as part of our strategy, we want to be diversified. So as you know, we don't sell DSPs just for the record, but we want to support module manufacturers that are, for example, using LPO or if a particular customer wants to electrify copper or maybe they want to experiment with coherent or coherent light. So these are all things that we're very focused on. These are long-term activities that are now starting to pay dividends. So it's not really an inflection point. I would say it's consistent with really the unit growth within the market as well. And so we're just trying to keep up with the growth, and that's some SAM expansion as well as portfolio expansion. John Kober: The only other item I would add, Steve, is, yes, the higher speeds are definitely helping to contribute to the growth that we've seen, but also some of the lower speeds, 100G and below has continued to hang in there over the past number of quarters and would expect that trend to continue as well. Christopher Rolland: Excellent. Perhaps as a follow-up on copper this time. If you could talk about engagements, particularly on kind of large-scale architectures, whether they're trending towards ACC or LE and kind of your outlook for this market? Do you think this is kind of the next big thing? Or this is, at this point, a little bit more of a TBD? Stephen Daly: Yes. I would put it in the category of a TBD, and we are seeing real demand, real hardware, real production ramps on the optical side. And that is certainly the vast majority of our revenue today. So the electrified cable is a great opportunity for us and will be additive in the future. And of course, as I mentioned, we are going after equalizers not only for sort of traditional high-speed 1.6T, but also PCIe and other applications that are closer to compute, let's say. So we are very active with our equalizer portfolio at various accounts, and there is a wide range of use cases that we're chasing. Operator: And our next question coming from the line of Timothy Savageaux with Northland Capital Markets. Timothy Savageaux: And I'll add my congrats on that guide, pretty spectacular. My question or at least first is just trying to understand more about the size of your photonics or optical device business, which we're talking about more and more here. And I don't know what kind of color you're able to provide. Does that business get to 10% of Data Center revenue in any one of these quarters in the second half? That seems possible? Or is it already there? Or as you look at your sequential growth here in Q3 and heading into the second half of the year, is that a meaningful proportion coming from the optical device side? And then I'll follow up. Stephen Daly: Great. Thanks for the question. And just to highlight that we don't typically break out revenue by product line, and that would be a very -- mainly for competitive reasons. And that -- so that would -- what you're asking is a very specific question that we would prefer to not answer so directly. I will say that we have a very strong product. I think our PD has definite advantages over what we're seeing in the market in terms of our ability to mass produce these with industry-leading dark currents, [indiscernible] chips, lens integrated onto the device. We have developed in our Ann Arbor fab, a very strong epi recipe that is providing the industry with very high levels of sensitivity. So all of those things are certainly playing into some of the successes we're having with the PDs. The other thing I'll note is we demonstrated, I think, a year ago at OFC, the idea of stacking the PDs on our TIAs. And so that has certainly been beneficial in terms of supporting not only TIA growth, but also PD growth. But we do have a diversified portfolio. We're not going to break out how much is concentrated on any one product at any one time because it's constantly changing. Timothy Savageaux: Okay. But it sounds like it's getting to be material. Maybe we can get a binary answer on that. But either way, I do have a follow-up about kind of the inflection. And the question is about within Data Center, customer diversification, right? I mean you have a very big customer in China is doing extremely well, and that could be a lot of it. But could you address maybe your reach throughout other major module suppliers in other places? And to what extent is that a big factor versus growth in your current major module customers? Stephen Daly: Right. And I think embedded in that question is really what's your exposure to the hyperscalers because that -- and so it really starts there in understanding what their needs are and understanding who they're using within their supply chain, and then we try to align ourselves with both. And depending on the hyperscaler, the platforms, the technology they're working, we try to align ourselves either directly to their road maps or to their vendors' road maps. I will say that from maybe a year or 2 years ago, our diversity today is far stronger. And so we see revenue today in scale up, scale out and scale across. So we are actively positioned in each one of these different areas. And that exposure varies by the module manufacturers, certainly varies by the hyperscaler. But at the end of the day, a lot of this is 1.6T. That is sort of the main event. Today, it's going to continue, as I mentioned, throughout the course of our fiscal '26, calendar '26 and even into '27. And if we pull back and we look at the work that we're doing there, as I mentioned earlier, I think we have potential to do really well in our fiscal '27, where obviously, we'll have to wait and see how things go. But we are getting large orders that go out in time that support real production programs. Operator: And our next question coming from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: I have two, if I may. Steve, your book-to-bill of 1.5 appears to be a record, certainly multiyear record anyway. Should we expect meaningful capital investments in fabs to support this backlog? Or do you have the necessary capacity and assurance of supply to address this growth? Stephen Daly: So we are investing in our fabs, and that's -- I think that's a very interesting question to ask, and let me just very briefly talk about that. So about a year ago, we talked about increasing the wafer production capacity in our North Carolina fab by 30%. We said that would take 15 months. That work should be done by the end of this calendar year. And so we invested less than $20 million. That was about $15 million to $16 million. We had the opportunity to buy heavily discounted fab equipment from the market. So that's baked into our numbers and the capital numbers. When you look at our Massachusetts fab, we are investing in equipment for advanced GaN. We're investing in equipment to expand indium phosphide capacity and production, and we're doing general modernization. And then in our French fab, we're moving the entire product line from 3-inch to 6-inch. That equipment is already in place. There's been very little money spent to do that. However, we are installing a new MOCVD reactor in France to support some of the volumes that we anticipate in the next couple of years. So there is definitely moderate investments. As we think about our business and being diversified, you will not see us greenfielding -- building a new fab, building a new factory. We think -- we have a target. Now that we hit $1 billion of revenue, we want to hit $2 billion. And we don't need to buy a fab or build a fab to do it. What we need to do is expand incrementally capacity within the walls of our existing facilities. And that's a very -- and that's why, as Jack mentioned in his commentary, you're going to start to see tremendous earnings growth. Capital should be in that 4% to 5% of revenue range, and we have no major big investments planned. Do you want to add to that, Jack? John Kober: That's correct. So we're -- I think the guide that we put out for the remainder of our fiscal year '26 was $55 million to $65 million, depending on the timing of the completion of some of these items and when the capital was purchased. But we've been very disciplined and don't expect the CapEx number to exceed that 5% of revenue. And I think history has demonstrated that we'll be very prudent with what we're doing, but also opportunistic to make sure we can meet the capacity requirements that are out there. Karl Ackerman: Yes. Very clear. For my follow-up, last quarter, you spoke about how one of your competitors had exited the RF power game market. Do you believe that remains a tailwind for you throughout the second half of this year? Or has the benefit now largely been realized? Stephen Daly: So the benefit has not been realized, and it won't -- if there is a benefit, right? If there is -- so it won't -- it hasn't been realized yet. It won't happen in '26. The revenue will start to shine through in '27. And the reason for that is as we see some of the customers pivot and engage MACOM on new platforms, it takes time for those design wins to translate into revenue. So it's really, I would say, best case, a back half of '27 contribution. And as that competitor exited the market, they put in place last time buys, they built inventory for customers. They're doing it very responsibly. So really, what we're intersecting is new programs and new opportunities as opposed to existing programs that are in flight or in production. Operator: And our next question coming from the line of Vivek Arya with Bank of America Securities. Unknown Analyst: This is [indiscernible] on behalf of Vivek. Congrats on the results as well. A follow-up on earlier gross margin question. And clearly, you said you're investing a lot in incremental capacity. At the same time, you're really scaling a lot in volume and you're improving yields. So I just wanted to know the puts and takes into what really goes inside gross margin medium to long term as you're already kind of at that target model level? John Kober: Yes. Not sure if we've put a target model out there, but definitely been working to try and improve our gross margin. As I've stated previously, there's a lot of moving pieces that contribute to the gross margin, right? We've got some of the normal costs that are out there, including labor, facility costs, equipment depreciation, those types of things as well as material costs that's all working its way through our gross margin. So yes, we've been pleased with the progress we've made over the past few quarters. And as we look out to the remainder of '26, look for continuing improvements on gross margin and also as we work our way through 2027. Unknown Analyst: Got it. And then more of a longer-term question. So obviously, fiscal '26 is really looking exceptional. As we look into '27, and I think a lot of the same drivers should relatively remain. So the 1.6T transition, the 200G PDs and et cetera. So do you see any other potential risks that would lead to results otherwise? So for example, I think an earlier question to supply availability, maybe some component cost increase or any quarterly lumpiness or just your customer exposure mix. Any help in understanding how next year should traject should be helpful. Stephen Daly: Thank you. And I think, yes, to all of those elements that you described, that those are things we deal with on a regular basis. And that's also why we're always hesitant to talk about long-term targets and growth because there's a lot of variables that are outside of our control. But that said, we are in a position where we have -- as I mentioned on my script, we're in the right place at the right time with a great product portfolio, and we have a lot of interest across the 3 markets. So we do expect our fiscal '27 to be a strong year. And we don't think that this growth we're seeing in this quarter is sort of a onetime event. We expect to see solid growth in 2027. I think it's the normal list of risks that you brought up. There's always geopolitical, supply chain type issues that you have to deal with, and we think we do that reasonably well. So that's also, of course, offset by new growth opportunities. And the Defense market right now is very active, not only here in the U.S., but also overseas. We have a growing customer base in Europe. When we were looking at our recent growth rates, between North American and European Defense customers, they're both growing at the same rate, and we are very pleased to see that. So the Europeans are spending more money on electronics and defense systems, and we're participating in that. So that's certainly going to help next year. The Data Center, we're not expecting a slowdown. The hyperscalers continue to invest. That's clear. And on the Telecom side, we're well positioned in SATCOM to have a very strong year in our fiscal '27. Operator: Thank you. And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Daly for any closing comments. Stephen Daly: Thank you. In closing, I would like to thank all of our dedicated and talented employees who made these results possible. Have a nice day. Operator: That does conclude our conference for today. Thank you for your participation, and you may now disconnect.
Operator: Greetings. Welcome to the Gladstone Capital Corporation's Second Quarter Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Erich Hellmold, General Counsel. Thank you. You may begin. Erich Hellmold: Good morning, and thank you for that nice introduction. This is the earnings conference call for Gladstone Capital for the quarter ended March 31, 2026. Thank you all for calling in. We're always happy to talk to our shareholders and analysts and welcome the opportunity to provide updates on our company. Now I'll have Catherine Gerkis, our Director of Investor Relations and ESG provide a brief disclosure regarding certain regulatory matters regarding this call. Catherine Gerkis: Thank you, Erich, and good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecapital.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. Now I will turn the call over to Gladstone Capital's CEO and President, Bob Marcotte. Robert Marcotte: Thank you, Catherine. Good morning, all. I'll cover the highlights for the quarter and conclude with some comments on our near-term outlook for the company. Beginning with our last quarter's results. Fundings last quarter totaled $44 million and included 3 new private equity sponsored investments totaling $34 million and $10 million of additional advances to existing portfolio companies. Exits and prepayments declined relative to what we experienced in 2025 and came in at $46 million, so assets were largely unchanged for the quarter. Interest income for the period declined slightly to $23.2 million, with a 30 basis point decline in the average SOFR rates compared to last quarter as our weighted average debt yield was 11.8% for the period. Other income for the period came in at $2.8 million, which was up $2.2 million from the -- on prepayment fees and dividends. Interest and financing costs declined with lower SOFR rates and reduced unused commitment fees. Net management fees rose $875,000, with the lower origination fee credits. However, net interest -- net investment income rose $574,000 to $11.8 million for the period. Net portfolio appreciation came in at $4.2 million, largely driven by the unrealized appreciation of 3 of the larger companies in our portfolio, which continued to scale. With respect to the portfolio, the portfolio growth for the period did not have a material impact on our investment mix or spread profile as first lien debt and total debt investments came in at 70% and 90% of the portfolio cost, respectively. Our healthcare-related industry concentration declined and is expected to fall further in the short term with a pending exits as we do not -- and we do not have any existing software-related exposures. As of the end of the quarter, our 3 nonearning debt investments were unchanged with a cost basis of $28.8 million or $13 million or 1.6% of debt investments at fair value. In addition, our PIK income for the quarter declined to $1.7 million or 7.4% of interest income. Since the end of the quarter, we funded 2 new portfolio companies representing a total of $44 million of senior secured debt. And while earning assets have increased since the end of last quarter, we are expecting a couple of exits in the near term and are actively managing a healthy pipeline of investment opportunities, which should more than cover any repayments and support our continued modest asset growth. The strength of our investment outlook represents a combination of the resilience of the growth opportunities within the lower middle market and add-on financing opportunities within our existing portfolio. In particular, we're seeing strong demand for precision manufacturing businesses where customers are looking to move sourcing back to the U.S. or scale in support of building defense-related backlogs. We ended the quarter with a conservative leverage position and net debt at a modest 92% of NAV and expect to continue to leverage our floating rate bank facility to support our floating rate assets thereby mitigating the impact of short-term rate decline. Our current line of credit facility totals $365 million. And as of the end of the quarter, borrowing availability is more than $150 million which is ample to support our near-term investment activities. And now I'll turn the call over to Nicole Schaltenbrand, Gladstone Capital's CFO, to provide some details on the fund's financial results for the quarter. Nicole? Nicole Schaltenbrand: Thanks, Bob. Good morning all. During the March quarter, total interest income declined $700,000 or 2.9% to $23.2 million as the average earning assets rose $21.7 million or 2.8% while the weighted average yield on our interest-bearing portfolio declined 40 basis points to 11.8% for the period. Total investment income was $26 million as dividends and fee income rose $2.2 million from the prior quarter. Total expenses rose $900,000 or 6.8%, driven primarily by $900,000 of higher net management fees due to higher average assets and lower closing fee credits versus the prior quarter. Net investment income for the quarter rose $11.8 million or $0.52 per share or 116% of cash distributions per common share. The net increase in net assets resulting from operations was $15.5 million, or $0.68 per share for the quarter ended March 31 as impacted by the valuation appreciation mentioned by Bob. Moving over to the balance sheet. As of March 31, total assets rose to $925 million, consisting of $907 million in investments at fair value and $18 million in cash and other assets. Liabilities declined $3 million quarter-over-quarter to $442 million as of March 31, with the decrease in LOC borrowings. The remaining balance of our liabilities consist primarily of $149.5 million of [indiscernible] convertible debt due 2030, $50 million of 3.75% notes due May 2027 and $35 million of 6.25% of perpetual preferred stock. As of March 31, net assets rose $5.3 million to $483 million, and NAV per share rose from $21.13 to $21.36. Our gross leverage as of March 31 rose to 91.8% of net assets. Monthly distributions for May and June will be $0.15 per common share, which is an annual run rate of $1.80 per share. The Board will meet in July to determine the monthly distributions to common stockholders for the following quarter. At the current distribution rate for our common stock and with a common stock price at about $19.21 per share yesterday, the distribution run rate is now producing a yield of about 9.4%. And now I'll turn it back to Bob to conclude. Robert Marcotte: Thank you, Nicole. In sum, it was another solid quarter for Gladstone Capital. The team continued to deliver strong earnings performance bolstered by prepayment fees and portfolio distributions which more than cover the current shareholder dividends. The team is doing a good job managing the portfolio, sourcing attractive private equity-backed lower middle market investment opportunities. The company is also in a very strong balance sheet position with ample borrowing capacity to prudently grow our investment portfolio and deliver the earnings to support our shareholder dividends and now we will -- operator tell our callers how to submit their questions. . Operator: [Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question, just thinking a little bit about the future path of the portfolio yield. If the Fed funds futures curve is right, there shouldn't be -- market is not expecting any changes. So base rate should be more stable. But wondering if you could talk a little bit about the spreads that you saw for your April activity as well as what's in the pipeline and how those compare to the weighted average spread for the existing portfolio? Robert Marcotte: Thank you, Erik. Good question. The activity on the quarter, we really didn't see any compression in spreads what we were closing essentially is on par with our prior quarters. So we really don't see any degradation, and that's really coming from a couple of things. One, it's a disciplined approach and an added value approach in the lower middle market. We've never seen quite the same competition as upmarket transactions. Obviously, in the last quarter, there's also been a bit of a selloff with spreads backing up upmarket from us. And so we've seen less competitive pressure from larger transactions, which are probably backed up 50 to 75 basis points. So we really don't see, at the moment, much in the way of degradation on the outlook. So with closing spreads in the range of roughly 7% on average last quarter, I wouldn't expect much to impact there. We do have some impact as companies get larger, there is some trade-off, but for the most part, it's pretty stable. The other thing is I do expect that we will be funding add-ons to existing portfolio companies in the next quarter, which tend to be consistent with the existing spreads on those transactions. So I think you're correct that in the near term, the pressure on margins are going to be fairly limited. When we originally reset the dividend, we were anticipating a curve where we might have 2 or 3 rate reductions over the course of 2026. Obviously, that's not happening. And the combination of lower upmarket pressure is part of that process, which is one of the reasons why we feel pretty confident in where we stand today with respect to dividend coverage. Erik Zwick: That's great. And good to hear. Looking at just the dividend income in the most recent quarter, it was up quarter-over-quarter. I'm curious if that was driven by kind of one large dividend or if there were multiple companies that contributed to it, whether you view those more as kind of onetime or if they'll be recurring? Robert Marcotte: There are really 2 components of the income. One was the prepayment fee which we broadcast at the end of last call, last quarter. The second one was a fairly large dividend, a single transaction of a company that had been scaling and we owned a slug of the business. I would expect that there may be some additional distributions coming, but they do tend to be onetime events. So I think we do have some companies that are deleveraging that are performing well. And if the private equity sponsor feels so compelled and there aren't good acquisition opportunities, distributions is something that they will look to do. We should expect that we'll see more of those in the future, but I would not -- I would continue to characterize them as onetime events, but we are monitoring that and expect some of that to be realized over the course of 2026. Erik Zwick: And last one for me. I know you addressed this a little bit last quarter, but just your thoughts on kind of repurchasing shares at this point, whether you view that as a good use of capital, certainly, the stock has come back a little bit from the lows a couple of months ago, but trading at a 10% discount to NAV today, curious how you view that opportunity. Robert Marcotte: Erik, we are seeing tremendous opportunities to continue to execute our plan and strategy. And based upon where that returns are being generated, scale is important. So I don't think you'll likely see us buying shares in. I think we are going to be looking to scale the capital base to capitalize on our market position in the lower middle market. The long-term returns on our portfolio have been pretty good. We think it's best interest of the shareholders to continue to scale that opportunity and this is, frankly, a good time. Turmoil, the uncertainty and the issues in the marketplace provide a nice window for us to continue to execute against our long-term strategy. We've been doing this for 25 years. I think the idea is we can continue to grow it and produce good returns for our shareholders. Operator: Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Bob, congratulations on the promotion. And please pass our best wishes to David Gladstone. On the nonaccruals, it stepped up a little bit and your asset quality is good. Can you share with us some observations you're seeing in the market? I mean is higher fuel prices just generally creating increased stress in lower middle market, middle markets? Is it less sponsor support? Because I'm seeing increased nonaccruals across multiple BDCs, incrementally, nothing huge yet, but I'd like to get a little broader perspective, if possible. Robert Marcotte: Sure. The only reason that our nonaccruals went up in fair value is because one of them, in particular, is performing very well. And so we're optimistic that it will be turned to a cash paying and go off nonaccrual. It's been a while for that Xcel situation to turn around, but we're feeling very good about it, given where it's executed. So it's not bad that it went up. It's actually good in a weird way. In terms of your specific question around energy, we don't tend to have a lot of energy-related businesses or energy-impacted businesses. I will say that we do have businesses that might provide services and there are energy costs in delivering their products. And certainly, the delivery companies, the FedExs of the world, were very quick in adjusting their rates. And so passing through surcharges has been something that I think we've encouraged and our portfolio companies have been pretty adamant on and that's really been kind of a neutral event. It's not necessarily negatively affected their business, and it's well understood cost of doing business. In terms of other energy-related matters, I would say we're seeing a little bit of slowing or uncertainty as we've said in the past we do have 1 or 2 investments that are related to the auto market. And energy and auto is a little bit up in the air right now. Certainly, whether it's electric vehicles or whether it's transitioning model years or general auto sales, they're soft. So we are closely monitoring some of those. We feel the business is on the right programs, but the volume in that market is relatively soft. Beyond that, obviously, one of the benefits is we have zero software. So some of I think what you're seeing is just momentum and decision-making in the software side of things. I don't think anybody is making any fast moves to grow the revenue or to expand their software investments at the moment. I think we're all pretty impressed at the relatively low cost and incredibly efficient AI-related tools that we're all toying with. So I think that's affecting a significant number of others, and we really don't have that exposure. So right now, I would generally say we don't see a ton of slowing. We don't see much in the way of direct impact of energy. I would almost argue it's the other way around because we do have some precision manufacturing businesses. They are seeing huge inbound order requests and frankly, we're being asked to fund capital expenditures to grow those businesses. So we kind of feeling like it's a decent opportunity for us if we're close to our businesses to take share and scale some of our opportunities. Christopher Nolan: And just as a follow-up, in general, are you seeing private equity sponsors being a little bit more hesitant in general or any equity providers or is it just sort of pretty stable? Robert Marcotte: I definitely think that private equity sponsors are being very diligent. Deals are not closing at the same pace. I think there's a lot of making sure the numbers are real, and there's no ambiguities. I think there's a fair bit of being cautious. But most of the businesses that we see, it's really about the long-term growth, not the financial structure, not the financial timing. Most of the lower middle market businesses on average are trading plus or minus 7x on EBITDA. That is a business that you can buy and grow and absorb some variability and headwinds and still make good money. If you're trading a large-scale business at 9.5, 10, 12x, you don't have the cushion to be able to absorb that. So I suspect you're seeing much more caution upmarket because the window of growth and equity appreciation is far narrower and the exit multiple that you can get to is going to be harder to achieve. For us. the idea of trading at that lower multiple in the lower middle market, you've already got 2 to 2.5 turns of potential appreciation just from scaling the business. And that drove one of -- a couple of our marks on the quarter. When we go into a business and trades at a lower multiple, and next thing you know it's $25 million or $30 million of EBITDA and the multiple for those businesses is 2 to 3 turns higher that's a natural appreciation that we as well as the private equity sponsors are able to achieve. So I guess it's just a much more forgiving entry point that is part of the process as long as the numbers are solid. Sorry to take so much on it, but that's a fundamental value to the lower middle market. Operator: Our next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Yes, congratulations, Bob. Just kind of sticking with that point, I mean, the color on strong demand from precision manufacturing, I mean, it sounds for me saying that's primarily for add-ons to those already in your portfolio. And then if we step back, I mean, to your point, the upper market valuations are tighter, spreads seem to be showing maybe -- not just precision manufacturing maybe widening, certainly widening in software, but you don't have any of that. . But to your point, is -- are you starting to see any spread expansion in your end of the market, I mean I would think if something like precision manufacturing, where the demand dynamics, like you say, onshore defense et cetera, are so good. But might be increasingly crowded from a competitive perspective for new deals, right? Obviously, the ones you already have. I mean, so do you think those markets that you're in are going to be more resistant spread expansion even if it moves in the upper market? Or any thought on how the pricing for those kind of -- the kind of businesses you do might evolve even if the upper market moves on a pricing front. Robert Marcotte: I would not expect spread to be widening in our market. Just for broad strokes, the upper markets were dipping down sub-5 over LIBOR and that ROE at the leverage point was starting to get tight. The fact that the funding costs have backed up has probably pushed those spreads up to 5.5% or 5.75% or something like that. We've always been, let's say, mid-6s and I don't think that I would expect that to expand much. It's more of a relative play at 150 basis point spread to a upper market deal, the sponsor is going to say you're way too expensive. I'd rather continue to shop it at a 50 to 75 basis point spread, they're not going to say it's not worth my time given the size of the transaction. So I think we will see less competitive spread pressure because the sponsors understand smaller deals are going to be more expensive and on a relative basis. I think the other point that I would make is, once these large platforms are as large as they are, it's very hard to go back down market, right? Once you're as big as you are, and there's not a ton of capital coming into the lower middle market. I mean, look at where the BDC equities are trending, look at who the brand names are that are raising the new funds. The only people that are actually accessing the capital markets or accessing funding sources that might compete with us would be the SBICs. And they are, by definition, somewhat constrained in their overall size. And government SBA financing is not exactly cheap these days either. So we find ourselves particularly well positioned to compete with those folks, and we obviously have a scale advantage over them. So I don't think it goes down, but I think the pressure is less and the opportunities are going to be as -- continue to be relatively positive for us to see modest asset growth within our desired balance sheet leverage constraints. Operator: Our next question comes from the line of Sean-Paul Adams with B. Riley. Sean-Paul Adams: It looks like the quarter was quite solid. Nonaccruals kind of went up in fair value, but it looks like they could be on the decline. So those legacy 3 positions might go down to 2. You guys experienced NAV accretion in a quarter where there's just been a wave of NAV losses. And the zero software exposure usually means materially less impact to this widespread market repricing. You talked a little bit about spreads. And besides potentially that auto exposure, is there just any concern about just future declines in net origination volume potentially from any other partners trying to come downstream and operate in this lower middle market segment. Robert Marcotte: Sean-Paul, it's hard. I think I would make 2 observations. One, we spend a lot of time focusing on the underlying businesses. What's the long-term growth story? What's the market position. We don't look at these as financial transactions, we look at these as businesses, what is the organic growth of this company and what's the ability of the sponsor and our ability to support and be a partner in growth of the business. . It's a very different view in looking at the business than a financial transaction that somebody is looking to invest their capital and it's a spread and a leverage decision that they make when they buy that paper. That's a different mindset, and we've always had that business orientation and focus and that's where we align ourselves with the underlying sponsor. I think that's relatively unique. And the larger transactions, the larger funds, it's about putting money out and scaling and taking advantage of the opportunity, not necessarily as focused on the underlying business. So you add the fact that it's a lot more efficient to raise capital in $1 billion increments, I mean what's the math? Last year, in 2025, more than 90% of the private capital raised were in funds bigger than $1 billion. $1 billion fund is not going to come down market to compete with us. It just -- it doesn't make economic sense. They can't put out the money fast enough to be able to achieve their investment opportunities. We may see -- we have -- there are plenty of guys out there that are in our ZIP code. It's 4 or 5 folks, but we're also talking about a market that's broad and deep. And if we're looking at [indiscernible] deals a year and all we need to do is 20, that's a good flow of opportunities that we can cherry-pick to make our investments. I don't think the big guys think that way. They think about they need to get a certain percentage share, they need to get a certain investment, they need to make a certain investment scale and they're going to continue to stay up market. I think it's going to be very difficult for them to come down market and think and focus on the lower middle market the way we are. Thank you, all. I appreciate the time. Do you want to wrap it? David Gladstone: We're going to take a minute. This is David Gladstone. [indiscernible] maybe poor. Accident in our area, so it kind of clogged up everything. There is no accident at this company. It's very straightforward. We've watched all the private lending companies go over to the high technology area and God bless them. I hope they make it. We're just going to continue to do what we've done for the last 20 years, and that is look at solid small businesses and midsized businesses and finance them where they need it. So since there are no other questions, we'll see you next quarter. That's the end of this call. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Operator: Please stand by. Your program is about to begin. Welcome to the Stabilis Solutions, Inc. first quarter 2026 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If at any point your question has been answered, you may remove yourself from the queue so that others can hear their questions clearly. We ask that you pick up your handset for best sound quality. Lastly, if you require operator assistance, we would now like to turn our call over to Andrew Lewis Puhala, Chief Financial Officer. Mr. Puhala, please go ahead. Andrew Lewis Puhala: Good morning, and welcome to the Stabilis Solutions, Inc. first quarter 2026 results conference call. I am Andrew Lewis Puhala, Senior Vice President and CFO of Stabilis Solutions, Inc., and joining me today is our Executive Chairman, and Interim President and CEO, J. Casey Crenshaw. We issued a press release after the market closed yesterday detailing our first quarter operational and financial results. This release is publicly available in the Investor Relations section of our corporate website at stabilissolutions.com. Before we begin, I would like to remind everyone that today’s call will contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 and other securities laws. These forward-looking statements are based on the company’s expectations and beliefs as of today, 05/07/2026. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. The company undertakes no obligation to provide updates or revisions to the forward-looking statements made in today’s call. Additional information concerning factors that could cause those differences is contained in our filings with the SEC and in the press release announcing our results. Investors are cautioned not to place undue reliance on any forward-looking statements. Further, please note that we may refer to certain non-GAAP financial information on today’s call. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in our earnings press release. Today’s call is being recorded and will be available for replay. With that, I will hand the call over to J. Casey Crenshaw for his remarks. J. Casey Crenshaw: Thank you, Andy, and good morning to everyone joining us today. Our first quarter results reflect the expected transition following the completion of two large multiyear contracts at the end of 2025 that were in our marine and behind-the-meter power generation markets. As anticipated, that created a near-term revenue and earnings headwind in the quarter. At the same time, we continue to see strong demand in the quarter for aerospace and emerging power generation opportunities for additional data center work. While our financial results were soft during the transition period, our commercial activity remains very encouraging. Demand for small-scale LNG and integrated last-mile delivery solutions continued to grow, and our commercial teams are actively engaged with both existing and prospective customers across multiple end markets. Importantly, the contracts already awarded to us combined with our active pipeline of opportunities provide us with increasing visibility into improved performance as we move through the balance of 2026. Based on expected contract startups later this year and advanced commercial discussions underway, we expect results to improve meaningfully in the second half of 2026, even before the expected 2027 startup of the large data center contract we announced earlier this year. As a reminder, the data center award is an estimated $200 million minimum two-year contract to support behind-the-meter power generation for a U.S. data center. While delivery is expected to begin in 2027 and continue through 2029, we view this award as a strong validation of Stabilis Solutions, Inc.’s platform and a meaningful step forward in our participation in the rapidly growing distributed power market. The accelerating demand for behind-the-meter power, bridge power, commissioning support, and durable energy infrastructure is creating a clear need for flexible, reliable LNG solutions. This is where Stabilis Solutions, Inc. is especially well-positioned. Our value proposition is not simply LNG supply; it is the ability to deliver a complete solution, including sourcing, logistics, storage, regasification, and last-mile reliability in environments where customers need dependable energy infrastructure quickly. A key advantage of our model is that we are not limited solely by the capacity of our own liquefaction facilities. Our multi-source LNG supply model allows us to serve customers across regions of the United States by combining our own production assets with third-party supply arrangements, logistics capabilities, and mobile infrastructure. This scalability is critical as we pursue larger opportunities in data center, aerospace, marine markets, and industrial applications. Within the aerospace market, demand remained strong. Activity among commercial space customers continues to grow, and we are seeing increased engagement with current customers as launch activity and LNG requirements expand. We continue to believe aerospace represents a long-term growth opportunity for Stabilis Solutions, Inc., supported by our ability to provide high-purity LNG, reliable delivery, and fit-for-purpose solutions for customers with demanding technical requirements. Turning to our Galveston LNG project, as we announced last month, we elected to terminate an offtake agreement for our proposed Galveston LNG facility. During negotiations with prospective financing partners, we were asked to amend the offtake agreement to facilitate the financing. The customer did not agree to the requested modification and we elected to terminate the agreement. While this development has delayed the project timeline, I want to be clear that we remain committed to pursuing the Galveston LNG project. We are in active discussions with other potential customers to sell the available capacity. We also continue to express support for the project. Galveston LNG remains an important component of our long-term value creation strategy, particularly as we look to serve durable multiyear demand in the Port of Galveston and the broader Gulf Coast marine market. At the same time, it is important to emphasize that the Galveston project is only one part of our growth strategy. We continue to see significant organic growth opportunities across our existing platform, including distributed power for data centers, fuel for aerospace, and LNG for industrial applications. As we look ahead, we believe that 2026 is a temporary low for the business as we move through this transition period and prepare for the ramp-up of new contracts and opportunities beginning in 2026. The demand environment remains strong, our customer engagement is active, and our awarded contracts provide a foundation for recovery in 2026 and substantial growth in 2027. We remain focused on converting current and future demand into sustainable, profitable growth while maintaining financial discipline and creating long-term value for our shareholders. We believe Stabilis Solutions, Inc. is well-positioned across multiple high-growth end markets, and we look forward to updating you on our progress in the quarters ahead. With that, I will turn the call over to Andy for a detailed review of our financial performance. Andrew Lewis Puhala: Thank you, Casey. I will begin with a discussion of our first quarter performance, followed by an update on our balance sheet, cash flow, liquidity, and capital spending. First quarter revenue was $10.4 million, a decrease of approximately 40% compared to 2025. The year-over-year decline was driven primarily by a 41% decrease in LNG gallons sold and lower rental and service revenue, partially offset by a slight increase in the underlying commodity price. At an end-market level, there were no revenues from marine customers during the quarter, and revenues from behind-the-meter power generation were not material due to the completion of the large multiyear contracts late last year. This was partially offset by continued growth in our aerospace and other legacy markets, where revenues increased [inaudible], respectively, compared to 2025. Adjusted EBITDA was negative $700 thousand in the first quarter compared to a positive $2.1 million in the prior-year period. The decrease was primarily attributable to the completion of the two large multiyear contracts. I would also note that our adjusted EBITDA for the first quarter excludes approximately $1.5 million of vessel charter costs incurred during the period. These costs relate to the lease of a non-Jones Act vessel that we entered into in 2025 in anticipation of supporting logistics requirements of our previously completed marine bunkering contract. We are currently working to fully subcharter this vessel. In the interim, we are leasing it back to the lessor at a reduced cost. Until a subcharter agreement is finalized, which we expect during the second quarter, our cost of revenue will continue to reflect these lease expenses, which we expect to exclude from adjusted EBITDA as an extraordinary item. Turning to cash flow and liquidity, cash flow from operations was $12.4 million for the quarter. This included $15 million of advance payments from a customer associated with our behind-the-meter data center contract scheduled to begin in 2027. These payments are restricted to support equipment and other preparations for that project. At quarter end, total liquidity was $17.2 million, consisting of total cash of $13.7 million, of which $10.6 million is restricted, and $3.5 million of availability under our credit agreements. Capital expenditures totaled $5.3 million during the quarter. These expenditures were primarily related to equipment purchases associated with our upcoming large data center project. Looking ahead, we expect to invest an additional $10 million to $12 million in capital for equipment and securing guaranteed supply for this project. We expect these investments to be funded through the advance payments received during the first quarter as well as additional advance payments we expect to receive over the course of the year. That concludes our prepared remarks. We will now open the call for questions. Operator: We will take our first question from an Analyst with Johnson Rice. Analyst: Good morning. The first question I had, I wanted to talk a little bit about the contracts that you are finalizing here that could start up in 2Q, but it sounds like they will definitely impact the second half of this year from behind-the-meter power. Could you talk about the size of those, for the two contracts that were canceled in the fourth quarter last year? And also, with behind-the-meter power, is this going to be a bridge-type arrangement until pipeline is hooked up to these facilities, and then is there the opportunity for backup-related contracts later on? J. Casey Crenshaw: Good morning, and thank you for joining today. Let me try to take on what are really two questions. First, on the type of contract for distributed power, we really talk about that being either commissioning power, bridge power, or more permanent backup related to behind-the-meter applications and distributed power. This is more of a commissioning project, which is normally a six- to twelve-month effort that we anticipate starting up at the end of the second quarter of this year and running through the end of the year. We do anticipate, with the work we have commitments around, being able to replace the contracts that ended at the end of last year during the back half of the year. Without giving too much in the way of forward-looking statements, we anticipate being able to replace that on the P&L, and that is before we get into the contracted demand starting in Q1 of next year, which is meaningful in size as well. Analyst: Great. Thank you. And then just on the Galveston LNG project, it sounds like you are active with discussions with offtakers to replace the canceled contract. Is there the possibility that the previous offtaker would return to sign up for offtake, and also are you satisfied with the provisions of the other offtake agreement contracts you have that they will not need to be modified for project financing purposes? J. Casey Crenshaw: Yes, that is a great question. I will take the last one first. The current offtake agreement we have works well with the project construction timeline and does not create risk on when construction would finish and when startup would happen, so that contract is in good position. Going back to the first question, we highly anticipate this customer that we were required to cancel that contract with coming back and doing business with us in Galveston once we get further down the road or complete the plant. Whether or not they will be part of the offtake that helps create the financing, or they become a spot market client post construction, we do not know yet, but we are actively working with that client. Timelines and the Iran war and different things happening caused delays and issues around dates and how that would affect financing, which created the need to exit that contract. Thank you. Operator: Our next question comes from William Dezellem with Tieton Capital. J. Casey Crenshaw: Good morning, Bill. William Dezellem: Good morning. I would like to talk a little bit more about the new data center contract. If we understood correctly, you said that was a commissioning contract that will begin in Q2 and basically last through Q4. Did we hear that correctly? And if so, was this a contract that you went direct to the data center, or did you have an intermediary that is taking care of all the power and they have hired you? J. Casey Crenshaw: Yes. This particular project you are asking about is more of a construction commissioning project. On all of these projects, we work with both the end user and the provider, and we are normally engaged with both. There are numerous projects like this that I would call construction commissioning, and those are normally, the way we view it, six- to twelve-month contracts depending on whether you are just going to commission Phase One or which systems you are going to work on commissioning. That is what this project is anticipated to be. It is different than the one that is starting up next year, which is more of a bridge power solution, longer in duration. All of these have minimum periods of time with potential extensions related to what is happening on their time schedule, etc. William Dezellem: Is the magnitude of the original commissioning contract’s monthly revenue similar to what you will have for the monthly revenue from the bridge, and it is simply a shorter period of time? Or is there a difference in the size of these two data centers that makes this very different? J. Casey Crenshaw: I would say, when you think about the bridge, it is defined by how many megawatts we are providing, and it is consistently provided in a consistent flow. The commissioning project that is starting this quarter and going into the back half of this year is smaller in total megawatt terms and is lower in gallons related to that, but still meaningful in size. What we wanted to present is the expectation of the recovery: kind of the trough in the first and second quarters and then how the recovery of the business goes into 2026. That is what we are trying to highlight for our shareholders and stakeholders. William Dezellem: That is appreciated, Casey. You mentioned there are many other contracts like this. We all hear of data centers ramping; there is lots of commissioning taking place. Talk to us about the pipeline of opportunities in the data center arena, because over the last few months you have announced two. J. Casey Crenshaw: Yes, Bill. We are certainly excited about it, and we are optimistic. If you look back about eighteen months, the expectation was that all the power was going to come in on time or early, pipelines would be put in on time or early; and then what has happened are natural delays—construction delays and other factors—creeping into this giant infrastructure buildout that you all know about. As that rolls downhill, first you have the power generation and backup power solutions, and now we are getting to how you provide the natural gas needed to do either commissioning, startup, or bridges. We are really excited about this commissioning activity because this is where we go in and support the data center commissioning their project—testing all their cooling and other systems—while they are waiting on either the final gas pipeline or the connection to the grid. In a perfect world it is connection to the grid with cheap power that never stops; secondly, behind-the-meter with pipeline. Stabilis Solutions, Inc. can participate in providing either commissioning, backup, or bridge, and that is what we are working around. We are seeing more commissioning activity in the first quarter of this year. That is where the activity is with our customers, with some people talking about the longer-term bridge. But the longer-term bridge is not the perfect solution for the client, so there is less activity there relative to six- to twelve-month commissioning activity. We have a number of those we are working on. William Dezellem: Essentially, we have come to this point because of delays. One way to think about these commissioning opportunities is that they may be ready to go live after testing, say in the fourth quarter, but if the grid or the pipeline is not ready, then your commissioning contract converts to a bridge contract. Is that likely? J. Casey Crenshaw: That is a good way to think about it. Another way to think about it is that their commissioning may be in modular formats; they may get power connected to one of the modular concepts and then move into the next phase of commissioning the next center nearby, because it is normally in groups or hubs. We do not expect it to be just a short-term situation. Secondly, you are going to have outages and other backup needs to continue with the reliability that they are committing to, and that will provide additional work for LNG long beyond the construction and bridge phases. Think of them as modular—80 megawatts, 50 megawatts, 100 megawatts—building modular, stacked up around each other, and we are providing unit work for units in the system. William Dezellem: One question relative to the subchartering of the vessel. What is the timeline you expect that to happen? J. Casey Crenshaw: Good question. We initially chartered that to support our client in Galveston. We ended up, for a number of reasons, with them going to a different solution. We anticipated a very quick subcharter capability with that vessel, but the Iran war disrupted rechartering activity and put a delay on it. We anticipate it happening in the second quarter for an effective date in the third quarter. We do not expect the subcharter to be at a big profit, so we expect it to be net neutral. Operator: We will go next to an Unknown Speaker, a private investor. Unknown Speaker: Good morning, guys. J. Casey Crenshaw: Good morning. How are you doing? Unknown Speaker: Pretty good. Just a couple of questions, if I may. First, with oil and LNG getting backed up, there is a lot of talk about some of these countries coming into the Gulf of America and picking up their oil and LNG. Are you currently in a position to capitalize on that development? J. Casey Crenshaw: Yes. We appreciate the question. We have never seen a macro for our Galveston LNG bunkering—reliable, consistent supply there for marine bunkering activity—being better than it is today. Though the conflict has caused some disruption in the timing of our subcharter of the vessel and potential short delays for construction, the macro around it is amazingly strong. It validates why we need more LNG, fit-for-purpose bunkering capacity on the water in the Gulf Coast. Our customers know that, and our commercial team is working hard on it. The duration of contract, credit quality, and how that matches with project financing are the things we are working on right now. Validation of the need for the project with a Jones Act vessel in the Houston Ship Channel is not in question. The conflict and the price of LNG also further our fit-for-purpose supply for aerospace and the value of what these aerospace customers are doing with telecommunications and other technologies. This further reinforces the need for U.S. presence to be successful in aerospace. Lastly, it reiterates that the price of U.S. natural gas and LNG for behind-the-meter power for AI data center activity is advantaged versus globally priced data centers. We have an advantage now, and given oil and LNG prices globally on a TTF or JKM basis, it further makes U.S. data centers more competitive when they are either on-grid power, pipeline, or LNG. It reiterates the thesis of all three of our growth legs. We are not reporting a great quarter—we do not want to gloss over that—but we are excited about the back half of the year and next year, and about marine, aerospace, and behind-the-meter power. We are working very hard on our Galveston LNG bunkering project, and we are equally excited about aerospace and behind-the-meter power. Unknown Speaker: That segues into my second question. Andy, I think you are still in charge of IR. With all that is happening now—and the data center stuff was all over Fox Business this morning—it is such a hot item. Is this a time to get on the radar a little bit with your story? Any plans for it? You are really becoming an AI company—without overhyping it—any plans to get the story out? J. Casey Crenshaw: We are starting this morning by talking about what is contracted and what we are doing on commissioning and bridge—different versions of the behind-the-meter power story. We have three growth stories: marine, which is really exciting; aerospace; and behind-the-meter. It is important, as you bring up, that these are three exciting growth platforms where we are delivering advantaged U.S. LNG into the market. We are communicating what we are doing, and we are hopeful that over time, as we see the growth we are anticipating for next year, and we see the Galveston project come online—moving it to FID, then through construction—we believe people will be able to do the math around what that means and understand the value like we see it. We cannot force people to believe in it to the same level that we do; we can only communicate what we are up to. I will now turn it over to Andy for additional comments on investor relations. Andrew Lewis Puhala: Thanks for the question. Philosophically, our number one priority is to demonstrate this in the results of the business—grow the top line, grow profitability—and then the stock price takes care of itself. That is number one. Number two, we do intend to get out there and do more in terms of telling the story as we get more exciting things to talk about. We think it is important both to deliver the results and to make sure we are communicating them. From a corporate governance perspective, we continue to file and keep the company positioned appropriately around that. Operator: We will take our next question from an Analyst with ID Capital. Analyst: I would like to follow up on the data center commissioning. Is this the same data center as the one where you are doing the bridge? J. Casey Crenshaw: No. It is a completely different project, different region, and different customer. Analyst: Will this commissioning use George West capacity or third parties? J. Casey Crenshaw: We can always do both. It is the benefit of having your own supply for backup and reliability to make sure you can deliver. This project is not an offtake as the primary source. Neither of these are. A lot of our own offtake is being drawn into both industrial projects and aerospace. That is how we think about the mix right now. Andrew Lewis Puhala: The great thing about both of these data center projects is that they are not using George West molecules, so it does not absorb all our capacity. It allows us to grow the top line and continue to grow the business without having to wait on expansion of internal production capacity. It is great for that reason as well. Analyst: Will the same third-party power provider be the one that contracted you for the bridge power with the other data center? J. Casey Crenshaw: We work with numerous power providers and numerous data center end users. Due to confidentiality and competitive information, we would prefer not to share that level of detail. Analyst: You mentioned aerospace activity and strength there. What is your current estimate on when George West volumes will be completely used again? J. Casey Crenshaw: We will have some room at George West. We are anticipating getting closer to a consistent offtake—we are not expecting 100% utilization—but moving toward reasonable utilization in the third and fourth quarters of this year. We were significantly off as those two projects ended; they were heavy offtakers of both of our production facilities. We are seeing a steady increase in pull-through and usage and expect that to happen in the third and fourth quarters—not fully utilized, but at levels consistent with what we have seen in the past. Analyst: When we look at the revenue and earnings profile of current operations, and that is prior to the addition of the new contract for next year, will that contract use George West molecules? J. Casey Crenshaw: Right now, it does not need to. It will be additional. Analyst: Thank you both again for taking the extra questions. J. Casey Crenshaw: We are delighted to do it. Thanks for joining the call. Operator: This concludes the Q&A portion of today’s call. I would now like to turn the floor over to Andrew Lewis Puhala for closing remarks. Andrew Lewis Puhala: Thank you, everyone, for joining the call today. We appreciate the interest in the company and the continued support, and we look forward to updating you on our developments as we have them and talking to you again next quarter. Thank you all very much. Operator: Thank you. This concludes today’s Stabilis Solutions, Inc. first quarter 2026 earnings conference call. Please disconnect your line at this time, and have a wonderful day.
Operator: Greetings, and welcome to the Maximus, Inc. Fiscal 2026 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Francis, Vice President of Investor Relations. Thank you. You may begin. James Francis: Good morning, and thanks for joining us. With me today are Bruce L. Caswell, President and CEO, and David W. Mutryn, CFO. I would like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions. Actual events and results may differ materially as a result of risks we face, including those discussed in Item 1A of our most recent Forms 10-K. We encourage you to review the information contained in our recent filings with the SEC and our earnings release. Maximus, Inc. does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances, except as required by law. Today’s presentation also contains non-GAAP financial information. For a reconciliation of the non-GAAP measures presented, please see the company’s most recent Forms 10-Q and 10-K. I will now turn the call over to David W. Mutryn for the financial results. David W. Mutryn: Thanks, James, and good morning. I would characterize our completed second quarter in three ways. First, strong execution with the sequential step-up to profitability we anticipated. Second, clear evidence that our technology investments are contributing to bottom-line returns as reflected in our improved full-year earnings outlook. And third, increased capital deployment toward share repurchases, given our view that our shares have been trading at an attractive valuation. Turning to second quarter results, Maximus, Inc. reported revenue of $1.31 billion, consistent with our expectations and on track with our full-year guidance. As I indicated on previous calls, as we progress across this fiscal year, we are facing tough comparative quarters to last year, which benefited from natural disaster work in the U.S. Federal Services segment and temporary clinical volume surges in both domestic segments. On the bottom line, adjusted EBITDA margin was 14.4%, and adjusted EPS was $2.07 for the quarter, which compares to 13.7% and $2.01, respectively, for the prior-year period. The improvement highlights our ability to drive margin enhancement through efficiency enabled by automation, including AI tools. One example is a dispute resolution program for a government customer where automation has helped create meaningful operating leverage. The second quarter results included two unusual items, with one reducing earnings and the other increasing earnings by approximately the same amount—meaning they effectively net out of adjusted EPS. First, we recorded an asset impairment related to a subset of capitalized assets attributable to the U.S. Services segment. This impairment was tied to an unusual circumstance dating back to fiscal 2024 where a software asset was built and capitalized under a prior contract for a specific customer. A recent decision by this customer led us to writing off the balance of the asset, which was $6.9 million, or a $0.09 per share impact to the U.S. Services segment operating income. The second item is the discrete research and development tax benefit totaling $4.2 million, or approximately $0.08 per share. As we have become a more tech-forward company with higher levels of R&D activity, we undertook an initiative to identify and document all eligible R&D tax credits. These credits became recognizable at the completion of the exercise during the second quarter. As I mentioned, the impact of these roughly nets in adjusted EPS, and both items have no impact on our adjusted EBITDA. Let us go to the segment results. Second quarter revenue for the U.S. Federal Services segment was $753 million and in the range that we expected for this period. The prior-year period revenue was $778 million and benefited primarily from elevated natural disaster support that has not recurred at the same levels. I mentioned on the February call that this dynamic is expected to recur for this segment in fiscal year 2026 when comparing to the prior year. Excluding the natural disaster work, U.S. Federal Services grew 1.5% organically year-over-year. The operating income margin for this segment in the second quarter was 17.6% as compared to 15.3% in the prior-year period. Another item I mentioned on the February call when we increased the full-year segment margin guide is the anticipated durability of this segment’s margins. This quarter’s segment margin is delivering on that commitment thanks to technology initiatives embedded in our programs that decouple labor costs from our ability to process more volumes. In fact, we are raising the margin guide for this segment again this quarter, which I will touch on shortly. Moving to the U.S. Services segment, second quarter revenue was $416 million as compared to the prior-year period revenue of $442 million. I noted on the February call that our first quarter segment results had the greatest anticipated divergence and that by the back half of 2026 we anticipate positive organic growth, which we continue to forecast. These second quarter results are evidence of that progression. Bruce will provide a positive update on current state customer priorities that are anticipated to make contributions in fiscal year 2027. The segment’s operating income margin for the second quarter was 9.3% and was impacted by the $6.9 million non-cash item I mentioned earlier. Excluding the charge, the margin would have been 10.9% for this period, and demonstrates substantial uplift from the lower segment margin in the first quarter that we anticipated. Turning to the Outside the U.S. segment, second quarter revenue was $137 million and the segment realized an operating loss of $3.1 million. As I mentioned on the February call, we are tracking a number of opportunities in the geographies that remain after our reshaping effort. The majority of segment revenue stems from programs in the United Kingdom, with Canada and the Gulf Region comprising the balance of the segment. Our goal remains driving growth and further margin improvement in this segment by building scale in those limited geographies, all of which have a corresponding set of pipeline opportunities. Moving to cash flow items, cash provided by operating activities was $190 million and free cash flow was $179 million for the second quarter. We continue to expect improving cash flow across the year and are reiterating our free cash flow guidance for the full year of between $450 million and $500 million. As we anticipated and communicated last quarter, DSO remained elevated at 78 days driven by ongoing administrative delays at a major federal customer. We are working diligently with this customer to process the outstanding invoices and we expect collections to accelerate and thus DSO to trend downward and finish fiscal year 2026 below 70 days, driving strong second half free cash flow. We currently believe that DSO may remain elevated as of June 30, then improve in our fourth fiscal quarter. Of note, we also expanded our receivables purchase agreement from a ceiling of $250 million to a ceiling of $350 million. We view this as a helpful and low-cost tool to help manage short-term liquidity needs. We ended the second quarter with total debt of $1.55 billion, representing a slight reduction from the first quarter balance. Our consolidated net total leverage ratio per our credit agreement was 1.8x and unchanged from the ratio at December 31. We remain below our stated target leverage ratio range of 2x to 3x. During the second quarter, we repurchased approximately 1.4 million shares totaling $111 million, and subsequent to quarter end through May 1, we repurchased an additional 600 thousand shares totaling $40 million. We were pleased to announce this morning a Board-authorized refresh of our share repurchase program for further share repurchases up to an aggregate of $400 million, effective May 11. Let me expand on our thinking and provide some context for capital deployment in the near term. This fiscal year, we have been carefully managing our cash through the DSO dynamics I mentioned. In the second quarter, we deployed the majority of our free cash flow to share repurchases. We have long said that we are opportunistic in our share repurchasing. To be more direct, we prioritize repurchasing when we believe our share price does not reflect the intrinsic value of the business based on a disciplined and conservative assessment. Going forward, we will continue to execute on our capital deployment priorities while considering near-term liquidity, the potential M&A opportunity set, and all within the constraint of our stated target net debt ratio of 2x to 3x. Even amidst market conditions that are favorable to share repurchases, we continue to seek acquisition targets to accelerate longer-term organic growth. We remain focused on targets that add capabilities, add and expand customer relationships, and create revenue synergy opportunities. We also remain disciplined in our evaluation of targets and require that valuations must be reasonable in the context of current market conditions, and the expected return must exceed our cost of capital. Moving to guidance, we are raising our fiscal year 2026 earnings outlook for the second consecutive quarter, and we are reiterating both revenue and free cash flow guidance. Starting from the top, we expect that fiscal year 2026 revenue will range between $5.2 billion and $5.35 billion. Our full-year adjusted EBITDA margin guidance for fiscal year 2026 is now approximately 14.2%, which is a 20 basis point improvement from prior guidance. Our adjusted EPS guidance increases by $0.20 and is now expected to range between $8.05 and $8.55 per share. It is notable that this represents 14% year-over-year growth at the midpoint of the new adjusted earnings guidance. Finally, free cash flow is expected to range between $450 million and $500 million. While the timing of specific receivable collections always has the potential to cause significant cash flow variation at the end of a given period, the guidance reflects our expectation that DSO will finish the fiscal year below 70 days as we catch up on collections from the major federal customer. I will provide some color on full-year operating margin assumptions for the segments. We expect the U.S. Federal Services full-year segment operating margin to be 17.5%. For U.S. Services, we expect approximately 10%, with the update reflecting the $6.9 million non-cash charge this quarter. And for Outside the U.S., we are expecting the segment to be roughly breakeven on a full-year basis. Other updated assumptions include expected interest expense of roughly $84 million, and we anticipate our full-year tax rate to range between 24% and 25%. I will conclude with updated thinking around our near-term margins. Approximately 18 months ago, we laid out a near-term adjusted EBITDA margin target range of 10% to 13%. At that time, our margin was around 11.6%, and we are now guiding to approximately 14.2% for fiscal 2026. Much of the improvement has come from technology enhancements and cost actions that we believe have staying power. Given that progress, we are raising our near-term adjusted EBITDA margin target range to 12% to 15%. We expect to operate toward the upper end of that range in periods with stable volumes and continued technology leverage, while recognizing that new program ramps and mix can affect margins in any given year. Meanwhile, revenue is holding within the range we set out for fiscal 2026 despite difficult comparable periods that we anticipated and communicated. Looking forward, we believe that our robust near-term pipeline is of high quality and capable of driving awards and revenue contribution in the coming quarters. With that, I will turn the call over to Bruce. Bruce L. Caswell: Thanks, David, and good morning. At roughly this point last year, I shared progress on our multiyear transformation initiative where we streamlined certain areas of the business, driving cost out and funding investments in technology, primarily in the area of AI-enabled automation. Those investments are improving our operations and enabling us to scale a business that already supports roughly one in three Americans who rely on the programs we deliver for government. At the halfway point of fiscal year 2026, our results provide further evidence that the investments we have made in technology, automation, and AI-enabled tools are improving execution across the enterprise. Our second consecutive earnings guidance increase reflects that progress and suggests that we are slightly ahead of the technology leverage goals we set at the beginning of the year. We also believe that we remain well positioned to execute against our capital deployment priorities, including selective investments in capabilities that strengthen our differentiation, potential acquisition targets that could accelerate longer-term organic growth by augmenting capabilities and customer access, and share repurchases supported by the Board-authorized $400 million program refresh. As a reminder, we remain focused on the federal, defense, and national security domains for our inorganic priorities. I will focus my remarks today on three areas. First, the growing emphasis across government on fraud prevention and program integrity. Second, how we are accelerating AI and automation in our solutions and across Maximus, Inc. And third, the progress we are seeing with state customers around Medicaid community engagement (also called work requirements), SNAP, and unemployment insurance administration. Our government customers want programs that work—programs with integrity that are effective, efficient, and trusted—delivered by partners free from conflicts of interest, often under performance-based contracts structured to provide transparency and accountability to outcomes. Increasingly, better technology and data quality is helping customers flip the model to combat fraud upfront rather than relying solely on after-the-fact detection, often referred to as pay-and-chase. The technology-enabled services that Maximus, Inc. provides to government are designed to embed integrity directly into program operations, using analytics, automation, data matching, and increasingly AI-supported workflows to drive execution and support oversight without slowing service delivery. It is important to emphasize our role in this ecosystem. As I have commented in the past, Maximus, Inc. does not make policy, but we do help operationalize it. Our focus is on translating policy intent into practical technology-enabled solutions that strengthen program integrity and reinforce public trust. We are seeing growing bipartisan alignment around this approach. A number of customers are using advanced data matching and analytics to address issues like concurrent enrollment, where Medicaid beneficiaries may be enrolled in multiple states concurrently, connecting data sets across programs to ensure enrollment integrity. Technology allows these checks to happen faster, more accurately, and at scale, increasingly preventing enrollment errors before they occur. As a trusted partner to government, we develop data-driven insights through tens of millions of interactions with citizens each year. That data matters not just because it provides our teams and our customers real insight on the user experience—how people engage, where they struggle, and how they make choices—but moreover, this data is increasingly informing models that are designed to improve program delivery, eliminate friction, prevent fraud, and improve outcomes for our customers. Fiscal 2026 has seen a planned acceleration of AI across Maximus, Inc. through a company-wide initiative, and I am pleased to provide an update on our enterprise activation. AI is already enabling Maximus, Inc. to deliver even greater value for our customers. Our solutions are accelerating service delivery, providing deeper insights on program effectiveness, enabling rapid adaptation to changing policy and mission priorities, and increasing operating leverage and scale. Let me begin with two customer-focused proof points. First, our Total Experience Management, or TXM, solution that I briefly mentioned on the last call is capturing the attention of government customers and winning in the marketplace. In fact, one representative of a federal agency acknowledged TXM as the most sophisticated deployment of AI in a contact center environment that they had seen to date. We continue to invest in TXM as we address this multibillion-dollar government market. Second, our AI accelerator team rapidly implemented an innovative solution developed in-house using a combination of generative and probabilistic AI to streamline high-volume claim processing on a core program where we serve as an independent dispute resolution entity. Nearly half of the effort required in processing claims is now handled through automation, enabling staff to focus on outcome accuracy and more complex cases. Our AI focus has been straightforward: we are deploying it where we believe it helps our customers run programs with greater integrity, speed, and consistency, and where it is designed to measurably reduce friction for the people those programs serve. Doing that responsibly requires more than a model. It requires a methodology that leverages domain knowledge, brings the workforce along, embeds controls into workflows, and integrates securely into legacy environments. We are intentionally acting as customer zero for many of these initiatives. In the government context, where trust and proven execution are critical, we believe that this matters. Through internal use, we gain firsthand insight into what drives adoption, the governance and controls required, how to integrate with real-world workflows, and what it takes to move from a successful pilot to scalable, sustainable operations. We are already seeing the impact of our AI investments applied at scale on certain programs. I only expect this to grow as we move from pilots to scale with high-value contact center use cases—from call deflection to summarization, from training to quality assurance, from intelligent document processing to real-time fraud detection. Our toolkit is broad, and includes proprietary techniques developed through our R&D investments, venture investments and partnerships with early-stage companies, and preferred relationships with industry leaders. That said, I am optimistic about the ultimate potential for AI for our customers as we are in the early innings with regard to deploying some of our most sophisticated AI solutions. These solutions have the greatest potential to transform delivery models with speed and cost-effective delivery of high-quality, complex services. As an example, through our Corporate Venture Capital function, we invested in the health AI domain to create new intellectual property that we plan to deploy in the near term. This IP uses knowledge graphs and a complex clinical ontology to provide decision support traceability for clinical assessments that government programs require. While we are advancing with the rapid pace of AI developments, we also acknowledge the still-evolving federal and state government regulatory environment, as well as the limitations of legacy systems which we often must integrate. An equal, if not more important, consideration of course is the environment of public trust that is foundational to the programs we administer on behalf of government. Finally, as you would expect, no area of the business has been exempted from our AI enablement. From back office operations such as AP invoice processing, to our business support functions like legal and human resources, to enterprise technology development, we are examining every aspect of how we work and create value. For employees, our generative AI tools delivered through familiar channels like Microsoft Teams are designed to streamline common tasks and are poised to evolve as agentic orchestration matures in the enterprise. So to summarize, we are executing as planned, moving with speed and urgency but also respecting the pace of our customers. We are demonstrating the art of the possible, backing it up with proof points, and differentiating Maximus, Inc. in winning new work and our rebids. We view our combination of domain knowledge, ability to gain insights from large operational datasets, and our industry-leading tech talent as a powerful competitive differentiator. Next, I will share how the procurement environment looks for us today. On the federal side, particularly in civilian agencies, the shortage of acquisition professionals continues to make forecasting procurement timelines difficult. In an environment where awards have shifted right, protests have increased, further delaying outcomes. Moreover, certain technology modernization initiatives—again, particularly in civilian agencies—have been slow to manifest in formal procurements, although the underlying demand signal is strong. That said, we believe momentum is starting to build, and we will be in a good position heading into next year. On the state side, we are seeing solid traction in a number of areas related to H.R. 1, or the Working Families Tax Cut Act. Presently, there are two states working with us toward arrangements that could utilize our existing contracts to support Medicaid community engagement, or MCE, compliance. Depending on the contracting mechanism, these opportunities may either show up as higher volumes under existing contracts or be reported as new awards. One of these examples we estimate could drive a more than 30% increase in current program revenue, subject to final scope and implementation timing. More broadly, states remain actively engaged in both planning and delivery to address Medicaid needs, and the momentum we are seeing is consistent. The timing of final MCE regulations has necessitated that states leave placeholders in their operating plans until regulations solidify, which is expected next quarter. Following that, we believe action by customers to put in place solutions where we play a role could accelerate. We are also making good progress on positioning Maximus, Inc. to assist states in lowering SNAP payment error rates through our Accuracy Assistant offering. After multiple rounds of demos being well received with certain customers, our conversations are increasingly focused on integration, technical detail, and indicative pricing, which tells us that we have moved beyond concept and into serious implementation planning. Senior state officials have commented on the comprehensiveness of our SNAP solution, noting that Accuracy Assistant is the only truly end-to-end complete vendor solution they have seen. Finally, we are seeing renewed traction in unemployment insurance administration, representing a small but important pipeline. We view this as both reflecting current economic conditions and also the greater flexibility granted to states to use private partners for this work—a development championed by Maximus, Inc., of which I have spoken previously. Moving now to our award metrics and pipeline, our year-to-date signed contract awards as of the end of the second quarter were $913 million of total contract value. In addition, at March 31, we had a balance of $322 million worth of contracts that had been awarded but not yet signed. These awards translate into a book-to-bill ratio of approximately 0.5x using our standard reporting for the trailing twelve-month period. The second quarter had a quarterly book-to-bill ratio of 0.5x, reflecting sequential improvement from the prior quarter’s figure of 0.2x. Turning to our total pipeline of sales opportunities, we had $56.8 billion at March 31, comprised of approximately $4.6 billion in proposals pending, $1.5 billion in proposals in preparation, and $50.7 billion in opportunities we are tracking. The share of new work in the total pipeline is 59%, and the U.S. Federal Services segment share of the total pipeline is 58%. Finally, even as states await final work requirement regulations expected this summer, I am pleased that the second quarter pipeline includes an H.R. 1-related opportunity set that increased 75% compared to our tracking of this set last quarter. The other positive sign of H.R. 1 progression is that our forecast for U.S. Services includes mid-single-digit organic growth in Q4, providing early momentum as we enter FY 2027, with improvement possible as the H.R. 1 pipeline matures and converts. In all, I am proud of the team for their continued focused execution this quarter, for the momentum we are building to capitalize on market opportunities, and for the enterprise-wide focus on our continued evolution as a leading provider of technology-enabled solutions to government. We will now open the call for questions. Operator? Operator: Thank you. We will now open the call for questions. Our first question is from Will Gilday with CJS Securities. Analyst: Good morning. Thanks for taking our question today. Hope you are well. I guess for David, any more color on the higher DSOs in the quarter? And you refreshed the buyback authorization, but how are you thinking about capacity for share buybacks considering the cash flow lumpiness? David W. Mutryn: Yes, thanks. A little more color on the higher DSO. It stems from a major federal customer, as I said, and it is the same customer that contributed to the temporarily higher DSO in our fiscal year 2025. We did anticipate a buildup of accounts receivable in our November guidance and then again in February when we said we expected DSO to remain elevated in Q2. A little more detail: this is a large program with extremely complex and data-intensive invoicing requirements. The slowdown in collections has occurred since November as we have worked with our customer on incorporating new and evolving requirements, many of which are retroactive, so may require rework of prior period invoices. This is a federal agency. We are operating under a funded contract, so we have full confidence that the outstanding invoices will be collected. We continue to regularly collect, but this customer’s AR increased in Q2, and our current view is that it may remain flat in Q3 before declining in Q4 as we expect to catch up and collect more than our revenue. That matches with my prepared remarks that we believe DSO may remain elevated as of June 30, then improve in Q4. Near-term cash flow plays into our thinking, as I said, among other factors with the share repurchase, including the valuation as well as any near-term M&A opportunities. We factor all that into our repurchase calculations. Analyst: That is super helpful. Thank you. And then thinking about H.R. 1 opportunities in SNAP, you talked about that error prevention solution and the good response from potential customers. Are you currently marketing or planning to bring to market other solutions for SNAP? Bruce L. Caswell: The heart of the solution is the Accuracy Assistant tool, which has been very well received in the marketplace. As I mentioned in my prepared remarks, we have had customers say that it is the most comprehensive end-to-end tool out there. Those very same customers have now come to us and said, “How do we get this implemented? What would the indicative pricing be?” At the heart, it is really that tool and then the services we can wrap around it to help states identify instances where there could be inconsistencies. The tool surfaces inconsistencies in the data, and then the BPO services are used to contact beneficiaries, obtain corrections, and ensure an accurate eligibility determination. On the Medicaid side, we have a community engagement tool designed to allow beneficiaries first to navigate whether they actually need to comply with the work requirements, because they may have conditions that meet the qualifications for exemption. There is an entire upfront process where individuals can apply for an exemption; that has to be determined, and they have appeal rights if they do not agree with the outcome. If they pass through that process and need to demonstrate compliance with the 80-hours-a-month work requirement, the tool—mobile app–style—allows them to upload a timesheet or other evidence that they may have, whether volunteering or working. We use our intelligent document processing solution, which is AI-enabled, to ensure that those documents appropriately reflect the hours worked from a federal compliance standpoint in the core legacy system. There is a lot of tech we are building as part of this. As I mentioned, our view about implementing AI for our customers is that it is not about having a shiny tool. It is about understanding workflows, establishing governance and guardrails, bringing along the staff who will be using these tools because it requires retraining, and most importantly, working with customers to ensure that the public trust they have created with these programs is maintained, and if anything, enhanced through the use. We feel like we are in a great position to help our customers navigate H.R. 1. Analyst: That is great color. Thank you. And then just asking for some more color on the state side. What are the dynamics that have driven revenue declines in the first two quarters of the year, and why are you confident in a return to growth by Q4? David W. Mutryn: Yes, sure. We had expected the year-over-year comparisons to improve over the remaining quarters—we said that last quarter—and Q2 is sequentially up from Q1, so we are seeing that play out. I mentioned in the prepared remarks that there was an element of higher clinical work in the prior-year period in U.S. Services as well as U.S. Federal. On the U.S. Services side, a few of our larger clinical contracts in the segment had some state-specific dynamics that drove a reduction in volume year-over-year, not indicative of any broader trend. Our confidence in Q4 is really driven by the H.R. 1-related activities, which we expect to see coming in Q4. That sequential growth in U.S. Services actually drives our expectation that for the whole company, revenue and earnings should be a little higher sequentially in Q4 versus Q3. So that is a little quarterly color while I am at it. Analyst: Thank you. And then you keep raising the margin outlook on U.S. Federal based on tech initiatives and efficiency gains. Maybe add some more color on exactly what those efficiency gains are and why we have not yet seen a similar dynamic in the U.S. Services segment? Bruce L. Caswell: First, our federal contracts are generally larger, meaning that when you implement technology initiatives, they get applied in that segment to programs that are larger from a scale and volume standpoint, so they are by definition going to be more impactful on the margins of the business. Second, many of our U.S. Services contracts, particularly in Medicaid and the health benefit exchange area, involve us delivering services directly to consumers, and that issue of public trust is front and center for our state customers. As a consequence, they have expressed decidedly more caution in the adoption of AI and other automation tools without first really understanding how guardrails can be put in place to ensure compliance with program regulations, which is super important to them. It is also worth noting that there is a patchwork quilt of regulations at the state level that our clients must individually navigate, whereas that is less the case at the federal level presently. Third, U.S. Services contracts certainly have great incremental technology opportunities in them, but they also operate in a fairly sophisticated environment that incorporates a lot of state systems. Therefore, there are multiple points of integration with state legacy systems required in executing our program delivery model. To give you an example, in one state our employees are trained across five different state systems in order to do their work. Environments like this are much more challenging to apply automation to, particularly when this has to be done across multiple vendor contracts that must be coordinated. Finally, to overlay all of this, our state customers already have a lot on their plates, particularly with the requirements for implementing H.R. 1. In many cases, they have limited bandwidth and do not have the budget resources to do a lot more than that. Performing the “system surgery” needed to really drive significant automation and change an already very stable and positive end user experience has become less of an immediate priority for them. David W. Mutryn: No. That is great. Thanks. Analyst: Switching back to federal, do you have any updates on the VBA contract? Is a recompete still expected in the summer, or do you think there will most likely be an extension? And you have an industry day later this month—what are you looking to accomplish or learn there? Bruce L. Caswell: The current contract, as a reminder, goes through December 31, 2026 for all vendors. The VA has not yet released a formal timeline for the rebid, and we expect to learn at the upcoming industry day what that timeline is intended to be. Generally speaking, agencies across government have the ability, if needed, to extend existing contracts as they complete their recompete process. We do not know yet if the VA will need or intend to do that; we may learn that at the industry day as well. We would expect to be able to share more information on subsequent calls as it becomes available from the customer. In the meantime, we are remaining completely focused on providing first-class service to veterans and to the VBA. We think we have earned the reputation for delivering a high-quality veteran experience. This is very much made possible by the many employees in our Veterans Evaluation Services subsidiary who themselves have served and are veterans. They understand the experience and how to navigate these programs, and they do so with a great deal of empathy and compassion. We feel like we are delivering great value to the VBA under the current contract and therefore we are optimistic about the future outcome of the rebid. We have a strong track record with the VBA, demonstrated delivery capabilities at scale and capacity, and we have made significant technology investments—continuing to invest—in further improving the veteran experience, with a specific focus on reducing the time that veterans spend in our portion of the MDE claims process. That is the update I am able to provide at this time. Analyst: Thank you. And outside of the VBA, are there any notable recompetes over the next 12 to 24 months? Bruce L. Caswell: Nothing that I would call out in particular. As you have noted, the veterans exams recompete is the largest. Everything else is kind of normal recompete cadence within our contract portfolio. As I noted in my prepared remarks, we are seeing bid determinations—including rebid determinations—moving to the right, both on the federal and the state side. That is not necessarily a bad thing, because often our work can be extended while we are awaiting the outcome of rebids, and our rebid win rate remains very high. So it is not a bad environment necessarily. Analyst: That sounds great. And just one more, more of a guidance question for David. On the federal side, are there any other tough comps to lap in these last two quarters? I know the emergency stuff was a tough comp for this quarter. David W. Mutryn: Yes. If you look back at fiscal year 2025, Q3 (June) was also very strong on the surge in clinical volumes, so that will remain a tough comp, as will Q4 to a lesser extent. James Francis: Thanks, Will. Operator, back to you. Operator: Thank you. This concludes our Q&A session and our call. Thank you for your participation. You may disconnect your lines at this time, and have a great 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.
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: 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, 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.
Operator: Good day, and thank you for standing by. Welcome to the First Quarter 2026 Datadog Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Yuka Broderick, Senior Vice President of Investor Relations. Please go ahead. Yuka Broderick: Thank you, Lisa. Good morning, and thank you all for joining us to review Datadog's first quarter 2026 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's Co-Founder and CEO; and David Obstler, Datadog's CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the second quarter and the fiscal year 2026 and related notes and assumptions, our product capabilities and our ability to capitalize on market opportunities. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements and similar indications of future expectations. These statements reflect our views today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-K for the year ended December 31, 2025. Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ending March 31, 2026, and other filings with the SEC. This information is also available on the Investor Relations section of our website, along with a replay of this call. We will discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.data.hq.com. With that, I'd like to turn the call over to Olivier. Olivier Pomel: Thanks, Yuka and thank you all for joining us to go over a very strong start to 2026. Let me begin with this quarter's business drivers. I'm very pleased to say that our teams executed very well and delivered revenue growth of 32% year-over-year, accelerating from 29% last quarter and 25% in the year ago quarter. We showed broad-based acceleration of revenue growth across cohorts, including both our AI and non-AI customers. Our AI native customers cohort continue to grow and diversify rapidly both in the number of customers we serve and the scale of those customers. In this quarter, including new land deals with 2 of the world's biggest AI research teams, helping them improve and optimize their training workflows. I'll talk more about that in a bit. Even more impressive was the growth in our non-AI customers. non-AI customer revenue growth accelerated again this quarter to mid-20% year-over-year up from 23% last quarter and 19% in the year ago quarter. We think this is a sign of strong continued cloud migration, greater adoption of our products, and customers have all kinds accelerating their use of AI. Finally, churn has remained low, with gross revenue retention stable in the mid- to high 90s, highlighting the mission-critical nature of our platform for our customers. Regarding our Q1 financial performance and key metrics. Revenue was $9.1 billion, an increase of 32% year-over-year and above the high end of our guidance range. We ended Q1 with about 33,200 customers from about $3,500 a year ago. We also ended with about 4,550 customers with an ARR of $100,000 or more, up from about $3,770 a year ago. These customers generated about 90% of our ARR. And we generated free cash flow of $289 million with a free cash flow margin of 29%. Turning to product adoption. Our platform strategy continues to resonate in the market. For example, 56% of our customers now use for or more products, up from 51% a year ago. 35% of our customers used 6 or more products, up from 28% a year ago, and 20% of our customers use 8 or more products, up from 13% a year ago. So we are learning more customers and delivering value across more products. And our business continues to grow. Our total ARR now exceeds $4 billion, and our quarterly revenue exceeded $1 billion for the first time. This is a big achievement for all of us at Datadog and is a product of years of investment in building, innovating for our customers. But we are still just getting started. Of our 26 products, 5 are over $100 million in ARR and another 3 are between $50 million and $100 million ARR. We're working hard to build and deliver further growth in those products. And this leaves 18 other products, which are earlier in their life cycles. We believe each has a potential to grow to more than $100 million over time. Moving on to R&D. Our engineers enabled with the latest AI coding tools are building rapidly to help our customers confidently and securely deploy their applications. So let me speak to a few of our product launches this quarter. Let's start with AI. As a reminder, we're talking about our AI efforts in 2 buckets: AI for Datadog and Datadog for AI. So first, AI for Datadog. These are AI products and capabilities that make the Datadog platform better and more useful for our customers. In March, we launched our MCP server for general availability. With MCP Server, developers access live production data to debug their applications directly in their AI coding agent or IDE. We delivered this AI security agent, which autonomously triages Datadog Cloud SIEM signals, conduct in-depth investigations of potential threats, and delivers actionable recommendations. We've seen Bits AI security agent reduce investigations that could take hours to as little as 30 seconds. We also shipped Bit Assistant now in Preview, which helps customers search and act across Datadog using natural language [indiscernible] . Moving on to Datadog for AI. This includes Datadog capabilities that deliver end-to-end Observability and security across the AI stack. We launched GPU monitoring, enabling teams to understand GPU fleet utilization, workload efficiency, thermal and power behavior and interconnect performance. This drives higher GPU ROI and operational reliability. Our customers continue to move forward with their AI activities, and we can see that in their usage of the data platform. We now have over 6,500 customers sending data for 1 or more of AI integrations. Though this is only 20% of total customers, they represent about 80% of our ARR. And our customers usage of AI within that platform continues to grow rapidly. SRE agent investigations have more than doubled from December to March. The number of spans sent to our LLM Obeservability product nearly tripled quarter-over-quarter. The number of Datadog MCP server to calls, quadrupled quarter-over-quarter and the number of beef assistant messages increased by a factor of 1 in that period. While we are aggressively building weed, we also continue to expand the Datadog platform to deliver against our customers' increasingly complex needs to speak to a few of these efforts. Last month, we launched experiments for general availability. Experiments work hand-in-hand with our feature flagging product and combine best-in-class statistical methods with real time obeservability guardrail among alternatives so companies can test for impact, choose among alterbatives quickly and ship with confidence. In addition, our customers now benefit from APM recommendations by analyzing telemetry data from application performance monitoring, reader monitoring, profiler and database monitoring recommendations, APM automatically identified performance and reliability issues and most importantly, explain H2. And we announced our plans to launch our next data center in the U.K. We see a large opportunity to serve our British customers as cloud adoption accelerates in regulated industries. Last but not least, we are pleased to have received federal high certification from the U.S. federal government. With this certification, we can now move forward with federal agency customers that require FedRAMP High to handle sensitive workloads. Meanwhile, we continue to expand our product offerings, go-to-market teams and channel partnerships for public sector customers, both in the U.S. and internationally. So our teams were hard at work again. and we're looking forward to sharing many new products and future announcements at our DASH conference on June 9 and 10 in New York City. Now let's move on to sales and marketing and highlight some of the deals we closed this quarter. First, we landed 2 large deals, a 7 figure and an 8-figure annualized deals with the AI research divisions at 2 of the world's largest technology companies. These organizations are building and training the most advanced AI models in the world. It is critical for them to reduce engineering friction and increase selling velocity. But fragmented internal and protocol that it's harder to identify and solve issues and reduce engineering and research productivity. By using Datadog, both companies are accelerating their past of innovation on their hyperscale AI training workload. And this includes optimizing their workflows using GPU monitoring on large power GPU grades. Next, we signed a 7-figure annualized expansion for an 8-figure annualized deal with a leading online recruiting platform. This customer is centralizing on Datadog to reduce complexity, drive developer velocity and improve efficiency. With this expansion, they will replace a stand-alone tool with Datadog LLM Observability to correlate LLM signals with APM and user experience data. This customer will grow to 16 Datadog products, including Datadog and CP server. Next, we signed a 7-figure annualized expansion for an 8-figure annualized deal with a Fortune 500 bank. With this expansion, this customer will migrate the remaining log data into Datadog, fully replacing their legacy log vendor. Most notably, our Flex logs give them granular control over costs while meeting strict compliance requirements. This customer uses 10 Datadog products, including Bits AI [indiscernible] to accelerate incident response with AI. Next, we signed a 7-figure analyzed expansion with a leading global hedge fund. This customer operates thousands of on-prem host and network devices. At that scale, their open source monitoring stack has become operationally and sustainable impacting portfolio managers and investment analysts. With this expansion, they will replace their entire on-prem Obeservability layer with Datadog infrastructure monitoring and network device monitoring, and will have unified visibility across their cloud and on-prem environment. This customer will expand to 11 Datadog products. Next, we landed a 6-figure annualized deal with a Fortune 500 insurance company. This company's fragmented Obeservability stack led to long outages with incident supported first by their customers instead of their tooling. By using Datadog and consolidating 3 legacy APM tools, they expect to move from reactive responses to proactive incident detection. They will adopt 10 Datadog products to start, including all 3 pillars in LLM adorability. Next, we signed a 7-year annualized expansion with one of the world's largest travel groups in APAC. This customer was using Datadog on one business unit, but in 2 others, they were juggling multiple tools and lacked actionable insights. By consolidating 6 legacy open source and cloud monitoring tools, the customers save money and improve platform resiliency and performance. This multiyear commitment positions Datadog's strategic observative provider. And finally, we landed a 6-figure annualized deal with a leading Latin American fintech company. This customer serves tens of millions users across critical financial flows. Their rapid growth outpaced their fragmented front-end monitoring setup and outages exposed them to financial, operational and reputational risks. By adopting our digital experience monitoring suite including RUM, Synthetics and product analytics, they now have full visibility of our user activity with the cost control, they also previously act. This customer will start with 5 Datadog products. And that's it for our wins. Congratulations again to our entire go-to-market organization for upgrade Q1. Before I turn it over to David for a financial review, I want to say a few words on our longer-term outlook. We are pleased with the way we started 2026 as we support our customers inflection in AI usage and application development and as they lean into our AI innovations, including Bits AI SRE Agent, Bits AI Security analyst Bits Assistant, Datadog IT server, GPU monitoring and many more. There is no change to our overall view that digital transformation and cloud migration are long-term secular growth drivers for our business. But we now have an additional secular growth driver with AI as we help our customers deliver more value with this transformative new technology. Now more than ever, we feel ideally positioned to help customers of every size and every industry as well as all types of users, whether humans or AI agents so they can transform, innovate and drive value through AI and cloud adoption. And with that, I will turn it over to our CFO, David. David Obstler: Thanks, Olivier. This was a very strong quarter for Datadog. Our Q1 revenue was $1.01 billion, up 32% year-over-year. Our 6% quarter-over-quarter revenue growth is the highest for Q1 and since 2022. And our $53 million quarter-over-quarter revenue added is the highest ever for Q1. That included the strongest quarter of sequential usage growth from existing customers since the first quarter of 2022. We also delivered an all-time record for sequential ARR added to the quarter. ARR growth accelerated in each month of Q1, and we see a continuation of these healthy growth trends in April. We also achieved strong new logo bookings. New logo annualized bookings set a new all-time record by a significant margin and more than doubled versus a year ago quarter. These included wins in observability and included some of our newer products like security, data observability and Flex logs. And our new logo average land size also set a record and more than doubled year-over-year as we continue to land larger deals. Revenue growth accelerated with our broad base of customers, excluding the AI natives to mid-20s percent year-over-year, up from 23% last quarter and 19% in the year ago quarter. We saw robust growth across our customer base with broad-based strength across customer size, spending bands and industries. Meanwhile, our AI native customer growth continues to significantly outpace the rest of the business. This group continues to diversify and grow including 22 customers spending more than $1 million annually, and five, spending more than $10 million annually. This group includes the leading companies in foundational models, cogen tools and vertical-specific AI solutions. Next, regarding our retention metrics. Our trailing 12-month net revenue retention percentage was in the low 120%, up from about 120 last quarter and our trailing 12-month gross retention percentage remains in the mid- to high 90s. Now moving on to our financial results. Billings were $1.03 billion, up 37% year-over-year and remaining performance obligations, or RPO, was $3.48 billion, up 51% year-over-year, with current RPO growing in the mid-40s percent year-over-year. RPO duration increased year-over-year as the mix of multiyear deals increased in Q1. As a reminder, we continue to believe revenue is a better indicator of our business trends than billings and RPO given their variability. Now let's review some of the key income statement results. Unless otherwise noted, all metrics are non-GAAP, we have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First, Q1 gross profit was $807 million, with a gross margin of 80.2%. This compares to a gross margin of 81.4% last quarter and 80.3% in the year ago quarter. As we've discussed in the past, our gross margin varies from quarter-to-quarter with investments into innovations for our customers, offset by efficiency efforts. Our Q1 OpEx grew 31% year-over-year versus 29% last quarter and 29% in the year ago quarter. As a reminder, we continue to grow our investments to pursue our long-term growth opportunities, and this OpEx growth is an indication of our execution of our hiring plans. Q1 operating income was $223 million or a 22% operating margin compared to 24% last quarter, and 22% in the year ago quarter. Turning to the balance sheet and cash flow statements. We ended the quarter with $4.8 billion in cash, cash equivalents and marketable securities. Our cash flow from operations was $335 million in the quarter. After taking into consideration capital expenditures and capitalized software, free cash flow was $289 million and free cash flow margin was 29%. And now for our outlook for the second quarter and for the fiscal year 2026. First, our guidance philosophy overall remains unchanged. As a reminder, we base our guidance on trends observed in recent months, and apply conservatism on these growth trends. In addition, as with last quarter, we are applying a higher degree of conservatism to our largest customer. So for the second quarter, we expect revenues to be in the range of $1.07 billion to $1.08 billion, which represents a 29% to 31% year-over-year growth. This guidance implies sequential revenue growth of $64 million to $74 million or 6% to 7%, due to the strong growth of revenue in Q1 and into April. Non-GAAP operating income is expected to be in the range of $225 million to $235 million, which implies an operating margin of 21% to 22%. As a reminder, in Q2, we will be holding our DASH user conference which we estimate to cost about $15 million in which we have reflected in our operating income guidance. Non-GAAP net income per share is expected to be $0.57 to $0.59 per share based on approximately 369 million weighted average diluted shares outstanding. And for fiscal 2026, we expect revenues to be in the range of $4.3 billion to $4.34 billion, which represents 25% to 27% year-over-year growth. Non-GAAP operating income is expected to be in the range of $940 million to $980 million, which implies an operating margin of 22% to 23%. And non-GAAP net income per share is expected to be in the range of $2.36 to $2.44 -- $2.36 to $2.44 per share based on approximately 372 million weighted average diluted shares outstanding. Finally, some additional notes on the guidance. We expect net interest and other income for fiscal 2026 to be approximately $170 million. We expect cash taxes for 2026 to be approximately $30 million to $40 million. We continue to apply a 21% non-GAAP tax rate for 2026 and going forward. And we expect capital expenditures and capitalized software together to be 4% to 5% of revenue in fiscal 2026. To summarize, we are very pleased with our execution in Q1. We are well positioned to help our existing and prospective customers with their cloud migration, digital transformation, and AI adoption journeys. And I want to thank Datadog's worldwide for their efforts. With that, we'll open the call for questions. Operator, let's begin the Q&A. Thanks. Operator: [Operator Instructions] Our first question today is coming from the line of Mark Murphy of JPMorgan. Mark Murphy: Congratulations on an amazing performance. Olivier, is there any way to conceptualize the growth in the sheer raw volume of, code is being produced in the world today due to adoption of code generators such as Quad code and Codex and cursor, because they seem to be developing the capability to take on full projects and some of the charts are showing these capabilities are just exponentially exploding upward in a straight line. I'm wondering how much of that code is going into production and therefore, driving activity for Datadog. Olivier Pomel: Well, we definitely think and see that the there's many more applications being created. There's going to be way more complexity in production. We see some of that happening already today. Some of those new applications are getting into production, they're finding users. We see some signs of that at every layer of our platform. We quoted a few stats on the increasing data volumes. We see AI products that's definitely a reflection of that. So we see an inflection point there in consumption from customers. We see a move to production that is very real, and we see that across both AI native and non-AI companies. Mark Murphy: Okay. And as just a quick related follow-up. If we click down one layer, and I'm wondering how you might view the increasing heterogeneity of the environment at the silicon level, because the -- when you look across the Amazon with Trinium and Graviton and Google with TVs, Microsoft has launched the myosilicon. It looks like that is starting to explode. In our understanding is that trying to monitor the mixed environment is a lot more difficult than if you just have a uniform fleet of Intel and AMD chips, and we keep hearing all the traditional monitoring tools, they really fail on the custom silicon and Datadog handles it well. The -- and then all this new telemetry, including high-bandwidth memory and that type of thing. Can you speak to whether that trend is giving you some tailwinds? Olivier Pomel: Yes. I mean, look, broader market that's interesting here is if it's training, training used to be something only 2 or 3 companies were doing or maybe 4, 5 at a large scale. And it looks like training actually might democratize quite a bit more, and many companies will train models on a regular basis. So it becomes more of a viable category for service providers -- selling provider like us basically. I think the heterogeneity of the silicon is definitely a trend that plays in our favor there. The more heterogeneous, the more you need someone else to make sense of everything for you and title together and also title with the non-GPU aspects and the rest of the infrastructure, and the application, and the users, and the developers like basically everything we do for. There's only -- when you think of who is actually -- who actually has heterogeneous environment today, that is still a very small number of companies, Google barely just started selling their TPUs to the outside. So I think it's still a small number of companies that are there, but we see a growing opportunity there. Interestingly, last year, when we reported earnings, we said we're mostly interested in inference workloads and training is not a real market for us yet. Now we actually see training becoming a market. We started lending customers that are actually hyperscalers that have a whole host of homegrown technologies and that are using us specifically in their super intelligence labs to help monitor their workloads, accelerate the training runs, monitor the GPUs also. So we see that as a point of validation that there's going to be a fit for us Mark Murphy: That's amazing to think there's a whole need to mention, if you can move from inferencing into the training side. And I caught the reference in the prepared remarks of how you landed a couple of those very large labs. So congrats on everything. Operator: And our next question will be coming from the line of Sanjit Singh of Morgan Stanley. Sanjit Singh: I want to spin off with David on this guide to start the year is probably the best we've seen in several years, David, and laid out the underlying assumptions quite well. Just wanted to do a sanity check just on the sort of overall backdrop macro backup, we do have some geopolitical tensions and those types of things when we think about. Your Mid-East Base business and any impact from like in your e-commerce or retail business, where there may be some consumer discretionary impacts. I just want to get like how you're thinking about those parts of the business. And then I had a follow-up for Oli. David Obstler: Yes. We had a very strong quarter across the board. We have a multi-industry multi-geography type of quarter, and SMB was very strong. And that -- the source of our guidance and our raises are at the core, that type of performance. We haven't seen particular effect in the consumer businesses or e-commerce businesses yet. We basically have a continuation of trends in those businesses, travels and things like that. that are very similar to the other industry. So we haven't seen it yet. We obviously watch it and look at analytics, but we haven't seen it. In terms of our overall guidance, the trends that we have in organic, we discount across the board, and I think we mentioned our particular treatment of our largest customer. Sanjit Singh: That's very clear. And then Olivier, for you. I think we -- when we talk to investors about the debate in this category longer term is just what does this what does the category look like when agents are doing the triaging investigating versus human engineers and human SREs. And so -- what is your sort of vision of that -- how that evolves for Datadog, both from a product standpoint and an experience standpoint from a UI perspective, but also like is there going to be immune modalities in terms of pricing when agents are consuming the Datadog platform to a higher degree than engineers do today? Olivier Pomel: Yes. Look, I think one thing I'd say is it's hard to tell where we're going to be in 4 or 5 years. If you had told me 2 years ago that most engineers would go back to coating in the console. I wouldn't have believed you. And yet, that's one of the winning modalities today. Look, as far as we're concerned, we don't care whether most of the usage is humans, most of usages agents. Our business model lends itself to do pretty well like we are usage-based it doesn't really matter where the is coming from that perspective. The way we see trends up right now is, we see both stratospheric increase of agent usage. So we have a ton of usage on our MCP server. We see customers spending to automate a lot with their own agency using our agent combination of those. But we also see an increase of usage of the web interface is by humans. So right now, the 2 work hand-in-hand and we keep developing and pushing on those fronts. Operator: Next question is coming from the line of Raimo Lenschow of Barclays. Raimo Lenschow: One for Olivier, one for David. Olivier, if I listen to you in your prepared remarks, there's a lot of like consolidation that people try to do open source tooling and then realize they kind of needed to come to you and come back. On the other hand, in the industry, we still have a lot of like noise around that level. How do you see it in real life. To me, it seems a little bit like optionability is just very hot. And then there's different categories where you use certain items -- certain vendors and some open source, can you speak what you see in real life there? Olivier Pomel: I mean, in real life, most companies have open source in some capacity somewhere. When it comes to having a platform that unifies everything telecare everything does more of the problem solving for you, that's typically what customers use us. And the motion we see pretty much everywhere, these customers have 4 or 6, 7, 15, and 25 different things, and different pockets in the organization, and different business units, and it's a huge mass. And they come to us, they can unify all that. They get better results because all of the data is in one place, the workflows can be automated from time to end. [indiscernible] can get end-to-end visibility, you don't have blind spots. And also they save money because they don't have all these pockets in efficiency everywhere. So it's a win for everyone. The thing that's also interesting in particular this quarter is that we also landed some large parts of hyperscalers. And hyperscalers typically have a culture of building everything themselves. And the certainly have the balance sheet and the human capital to support some of that build-out. Like if there was ever a set of companies for whom it makes sense to do it themselves, and we do those companies. And yet, we see that they have the same issue. When it comes to going as fast as they can, being as efficient as they can with their resources, like they come to us to replace some of the things that we're using before. David Obstler: Two things, 2 metrics to look at that to make the points Oli, you're making, if you look at our platform adoption, and you see both the growth of the different categories and the extension of the categories out to lots of products that shows you that the consolidation on the Datadog platform has continued, and there's a very strong trend. And part of that is the movement solutions, as Oli mentioned, that are both open source, but also the competitive point solutions onto the platform. That's been a significant driver of the revenue growth for some time now, and that continued certainly in Q1. Raimo Lenschow: Okay. Perfect. And then, David, for you, last year, and we did a lot of investments around go-to-market, especially on sales capacity. If you think about now the non-AI category doing better, how much of that is like people like the cloud migrations again. So that's like an industry trend and how much of that is like you guys actually being broader positioned? David Obstler: Yes. It's a number of things, including one is the expansion of the platform, the consolidation, the successful ramping of sales capacity, which is while not jeopardizing productivity, which has resulted in ARR increasing and a good environment as well. And I think that's what we said last time, there are a number of factors. And certainly, what we're proving out here is the investments we've made in go-to-market and are continuing are paying off and we're the right decision. Oli, anything to add? Olivier Pomel: Yes. And look, we, at the end of the day, there's clearly some market tailwinds with the adoption of AI and -- but also, we are outperforming all of our competitors at scale, and we're taking share, and that relates to the structural platform to where we expand with new products, the way these products are maturing and starting to win in their respective categories in the way we've successfully grown the SES capacity. David Obstler: Certainly, the AI involvement trend has helped we're trying to do a separate that. So -- and AI investment is probably helping the overall as well. But when you really take that out, you still -- you see a very pronounced acceleration here. And that has to do with the factors that I mentioned and Oli talked about. Operator: Our next question is coming from the line of Gabriela Borges of Goldman Sachs. Gabriela Borges: Olivier, I find your comments on train versus inference, so interesting. Maybe just crystallize for us. Why do you think the training opportunity it's happening now or inflecting now? And then I had a[indiscernible] for yourself for David, -- how do we think about the attach rate on trading versus inference of observability? Is there a way to benchmark observability spend as a percentage of inference spend, does that number change given the new data that you're seeing on the training site as well. Olivier Pomel: So on the training side, training was very new a couple of years ago. It was something that was only done by very few companies, and it was in a way, very artisanal, like it was not a production workload. It was something that researchers were building, and that was very one-off and ongoing in ways. And now it's turning into production. It's turning into something that many more companies are doing. It's scaling by orders of magnitude, and it's becoming something that has to be on all the time, reliable and every minute you lose is or whether every fellow you have in your training around is a week you give away to the competition. And so as a result, it becomes way more interesting as the market for a company like us. And we see some signs of that. Again, we didn't have a lot of it. We didn't see a lot of it last year. Now all of a sudden, we're starting to see quite a bit of activity there and demand, then we have success landing with large customers with those products. David Obstler: Yes. I think going back to the metrics that Oli talked about in terms of attach, we said that 6,500 customers are using our integrations and 20% of the customers and 80% of the ARR. So there is attach. I think it's earlier days for the training. That looks like it will be a contributor. But I think we -- that's early, and I would sort of look at the larger attachment at this point as the evidence of inference, but also some training. Operator: Our next question is coming from the line of Karl Keirstead UBS. Karl Keirstead: Okay. Great. I wanted to start to Olivier and David, and you congratulating all of you and the team on reaching that $1 billion milestone well done. David, maybe the question is for you and to hone in specifically on the 2Q guide. Even if you put up a modest beat on that guide, it's going to be by order of magnitude, the largest sequential dollar at I think, in the company's history. And I just wanted to unpack what's giving you that confidence? And in particular, is there anything interesting to call out, David, in terms of the ramp of a couple of the larger research labs, one of which renewed with you guys in the fourth quarter, another one just landed. I presume they're ramping nicely in 2Q, but would love any color. David Obstler: Yes. Let me unpack this in a couple of ways. As you know, we're recurring revenue model. So the biggest indication of in the near term of the next quarter is the ARR growth in the previous quarter. And when we said we had a record. So essentially, at the bedrock of this is sort of the run forward of ARR that we've already signed. The ARR add was very broad-based and was not very concentrated. So whereas we pointed out some very significant adds I would say that the first quarter and that ARR add was really diversified and from lots of different places. So the -- and I think Oli will come in here, but the confidence that we have is you're right, we essentially take what we already have. We discount the growth trends that we've seen. And that produces what you exactly said, which is whatever your assumptions are on beat a very impressive sequential really due to what happened in Q1 and the rate of business accumulation by Datadog. Oli, do you want to add? Olivier Pomel: Yes. I mean if you want to dive on what David just said, ads we are broad-based. I mean look, when you look at why do we have a great Q1, we also let get customers in Q4. We had talked about it a quarter ago. But even if you take out the customer we land in Q4 that added the most revenue in Q1, we still had a record quarter in terms of ARR add. So this is really broad-based. And we landed a few more customers in Q1 that don't contribute any revenue yet, but we expect to be big contributors in the future. So when you put all that together, we feel very confident about Q2, hence the numbers you've seen. Operator: And our next question will be coming from the line of Fatima Boolani of Citi. Fatima Boolani: Oli, I wanted to double back on a question that was asked earlier with respect to telemetry volumes essentially going parabolic, and you are accessing a brand-new demand in the foray into training and monitoring and observing training model environment inside some of the world's largest frontier labs. And so I wanted to ask you about the structural changes to the capital intensity of the business. I mean your CapEx levels are still pretty respectable and pretty muted. So I wanted to get a better understanding of what sort of extrinsic or intrinsic engineering efforts you're undertaking to keep a very efficient CapEx envelope in spite of the fact that it seems like that would increase because of the torrent of telemetry we're seeing on the platform. And then as a related matter, we've seen a rise of sovereign data and data residency requirements kind of ramp as AI models move into the territory of national security and things like that. So just wondering if you can kind of talk to some of the engineering horsepower internally that you're leveraging to be able to keep a really tight command on capital intensity, and frankly, your gross margins? Olivier Pomel: Yes, I mean, look, sort of the investments we're making right now, you we run most of our workloads on cloud, meaning you'll see all of that in OpEx, nothing CapEx. So we have low CapEx. If it changes, we'll tell you, like if for some reason, we decide to make different kinds of investments and some of it more front some it more CapEx, we'll tell you, but that's not the case today. We are definitely ramping up our investments in particular in R&D and in the scale of the models, we train ourselves and things like that. But right now, there's nothing that you can actually see in the numbers that move any needle but if that changes, also we'll tell you. We don't expect any change to [indiscernible] So that's on the CapEx side. We are very different businesses in that way from the AI lab. On the subject of data residency and sovereignty of AI and things like that. We definitely see more push for that more demand for that in the customer base. And for us, that means investment into areas One is in deploying into more geographies and having more certifications to sell to the public sector and to the highest level of the public sector. So we mentioned today data center in the U.K., for example, and our [indiscernible] certification, we're not stopping there in terms of the certification we're going after with a sell government. So that's an area of investment. Another area of investment is our bring you on cloud products and where we can actually run on our customers' infrastructure. And so we announced that, we read some products there, and we have heavy investment in that area. So we can support customers that want to operate in a slightly separate way from the rest of our customer base. Operator: And our next question is coming from the line of Curt of Evercore. Unknown Analyst: Congrats nice start. Oli, I was wondering if you could just give some thoughts on the idea of sort of security for agents. I think one of the big issues in terms of getting agents into production is sort of the security aspect of that? And how do you see Datadog plugging into that opportunity? And then just a quick one for David. Congrats on the FedRAMP reaching a milestone. Are your partner relationships in place to take advantage of this? I realize it will be a long-term opportunity, but just kind of curious how well established you are down there to start seeing some maybe bookings in that area. Olivier Pomel: Yes. So on the security of agents, we interfere with that in 2 ways. So first, there's the agents will build ourselves because we are building a lot of automation inside of our products for our customers and agents that automatically identify but also resolve issues without you having to do anything. And there -- a lot of it has to do with understanding what permissions to apply, what kind of guardrails to apply, what kind of put to interface with the humans and how to make that the trust worthy and visible in the right way. And so that's pretty much the whole product surfaces to during data. The automation itself actually can work already. So you should expect to hear more about that at our conference. This is definitely one big area of investment for us. On the security aspects of our agents. Look, we believe in securities that you need to integrate, you can't just have point solutions that look at one sliver of the whole security posture. You need to look at everything all together. And that's one of the areas that we are also covering with our security efforts. So that's part of the whole platform action. David Obstler: On the FedRAMP, we've been working on both the different certifications, but at the same time, we've been investing in the go-to-market function, both in terms of reps and channel partners for a number of years. Certainly, there's more investment to be done, but we invested ahead of the certifications because in this sector, building pipeline, et cetera, it takes time. And certainly, the channel partner relationships are a very important part of this. and we have been investing, but also have more investment to do. Operator: Our next question is coming from the line of Patrick Colville of Scotiabank. Patrick Edwin Colville: I guess, Olivier and David, you guys are very deliberate in your messaging on the prepared remarks. And I guess, I want to double check the kind of wording of one of the comments. I think, David, you had a higher degree of conservatism to the largest customer. I guess, did I hear that right? And then does the higher degree of conservatism reference versus the other customer cohorts? Or does it reference versus your guidance philosophy in prior quarters vis-a-vis this customer? David Obstler: It's both. It's the same guidance we used, and we're being very explicit. For all the business, except for the largest customers, we've always taken the drivers and discounting them. We -- for this particular customer, we took a higher degree of conservatism than the other part of the customer base. and discounted it more. And we were, I think, in the remarks and you interpret it correct, very explicit, and you're correct. Olivier Pomel: I wouldn't give that much weight to do a very specific word. We deliberate but not all that deliberate. Similarly, both David and I have a rusty voice today, but there's a man. David Obstler: But I will remind everybody we did not change. So if the question also, I think you asked, is did we change? Or is this a different methodology of both the overall and the large customer, then the guidance the last quarter or the previous. The answer is no. It's the same methodology and that we've had. So no change, but that's has been what we've always been doing. Patrick Edwin Colville: Okay. And Olivier, can I ask about your comments about the hyperscalers because I thought that was particularly interesting. And the reason why is, I don't think you called them out previously before, and they are so prevalent in the modern tech stack. To your point, they could do this themselves. So I guess how are they using Datadog? Is it for more kind of traditional obeservability? Or is it for these newer areas like GPU monitoring that Datadog has performed so well of late. Olivier Pomel: Well, it's both actually. When you look in general at large AI customers, they use Datadog at the way other companies are largely with a fairly broad set of our products to cover the full circuit of liability. What's new is we now have a product for GPU monitor. It's a very new product. And we see the hyperscaters that are coming to us for training workloads in particular being very interested in that. So again, it's too early in the product life cycle and the customer life cycle for these specific customers to go definitive victory there, but we see that as a very encouraging sign of where the market might go in the future. Because we think this might be a bellwether of what the next 10, 100, 500 companies that are going to start training workloads are going to want to do. We have some signs that go beyond the customers we signed this quarter that point that way too. Operator: And our next question is coming from the line of Peter Weed of Bernstein Research. Peter Weed: And I'll echo others on the momentum. Great to see One of, I think, the great successes you talked about was landing a couple of the AI labs for the hyperscalers. Although I think on the other hand, you've talked in the past around hyperscalers are typically building observability in-house. What is it really about the AI workloads that are making it more attractive for them to use Datadog? And what might give you confidence that Datadog might be more persistent with them in these types of workloads and that's kind of a signal for maybe how other customers might use Datadog around AI differentiated from things that they might be able to bring in house to other places? Olivier Pomel: The December all of our customers, it's high stakes, high complexity and not core. They have to be most differentiated. They're going afford to be late, and it's a really hard job to do to do that. So what we built our whole business on, and it's also very true for -- at the highest level for the largest companies. Peter Weed: Yes. No, I was just going to say it. But I guess, the point is you've emphasized that those largest customers have been able to go in-house on some other things. Is there something unique about AI that prevents them from doing that here? Olivier Pomel: Well, I think the urgency of the their development efforts focuses the mines. That's what I would put it. I would say, it forces you to figure out what's core and what's not core and what's the -- who you want to get to the -- what you need to do to maximize your chances of success. And again, it's is the same thinking all of our customers have all the time. I think the equation for hyperscalers has often been say different because they have, let's call it, unlimited access to staffing. And they sort of set their own time horizons for the developments they wanted to make. I think the situation is a little bit different with the ARRs maybe. Operator: The line of Gregg Moskowitz of Mizuho. Gregg Moskowitz: And I'll add my congratulations on a terrific quarter. Just one for me. Oli, I know it's not GA yet, but curious if you have any early feedback on your new cloud prem offering. As you noted earlier, providing the ability of potato to run on customer infrastructure. Could this be another yet another, I should say, incremental growth opportunity for Datadog? What are your expectations for this? Olivier Pomel: Well, definitely, we think -- I think there was a question earlier on data residency and leaving customers environment, we definitely see a great opportunity there. It is chance that a good portion of the market means this way in the future. Today, it's not the largest part of the market, but we definitely see a potential for that. So we're investing heavily in that sort of our product. We're trying to see some interesting customer traction there. So we think this can be another growth lever differently. We also think that it can help us getting into some extremely large-scale workload where customers would not have considered SaaS offering before, where we can be in the running. So that's very exciting. All right. And I think that was our last question. So I want to thank you all for attending the call. And I remind you that we have our conference in just a bit more than a month, and I hope to see many of you there. So thank you all. Operator: This concludes today's program. You may all disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Somnigroup First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Lauren Avritt, Director of Investor Relations. Lauren, please go ahead. Lauren Avritt: Thank you, operator. Good morning, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements speak only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statements. This morning's commentary will also include non-GAAP financial information. Reconciliations of the GAAP financial information can be found in the accompanying press release which has been posted on the company's website at www.somnigroup.com, and filed with the SEC. Our comments will supplement the detailed information provided in the release. And with that, it's my pleasure to turn the call over to Scott. Scott Thompson: Good morning. Thank you for joining us on our first quarter 2026 Earnings Call. I'll begin with some highlights in the quarter and then turn the call over to Bhaskar to review our financial performance in more detail, and discuss our reaffirmed 2026 [indiscernible] guidance. After that, we'll open up the call for Q&A. In the first quarter of 2026, net sales increased a healthy 12% to $1.8 billion. Adjusted EBITDA increased 20% [indiscernible] $297 million, and adjusted EPS increased a robust 20%, [indiscernible] per share. We are pleased with these results, particularly against the backdrop of heightened geopolitical tensions and winter weather disruptions in the U.S., all of which weighed on the industry demand. We believe global bedding demand declined mid-single digits in the first quarter, which was below our expectations that demand would be flat to slightly positive during the quarter. We believe our performance reflected the strength of our business model and its ability to perform across varying market conditions. This has allowed us to continue to extend our leadership position in the industry. Turning to our first highlight. We expanded EBITDA margin by over [ 100 basis ] points and grew adjusted EPS by 20%. We accomplished this on 12% sales growth demonstrating the operating leverage embedded in our business model. We also delivered record first quarter operating cash flow, which we deployed towards debt reduction. We ended the first quarter at 3.1x leverage, and [ are on ] track to return to our targeted range of 2 to 3x adjusted EBITDA in the next few months. Our second highlight. Our North American Tempur Sealy business outperformed the broader market. Tempur Sealy North America delivered mid-single-digit wholesale sales growth year-over-year on a like-for-like basis, driven by investments in high-quality advertising, continued momentum in [indiscernible] line and increased balance of share at [indiscernible]. Looking to the back half of the year, we expect the launch of our new [indiscernible] lineup two, optimize price architecture within the broader portfolio, support higher average selling price for our retail partners, strengthen our position at higher pricing. We expanded our offering with additional SKUs at the top of the price range, targeting the customer who has demonstrated continued resilience, through this cycle. It represents a significant growth opportunity. We'll support the launch with new national and [indiscernible] advertising focused on differentiated luxury product and on broader health and wellness benefits of the [ group sleep ]. Our third highlight, our international business continued to capitalize on long-term growth opportunities, delivered double-digit growth on a reported basis and mid-single-digit growth on a constant currency basis. [ International ] performed the broader industry in the quarter, extending a multiyear track record of solid growth across our key markets. This performance reflects continued disciplined investment in distribution and marketing, a resilient supply chain, strong local execution and the strength of our Tempur brand. We're pleased with our results in a challenging environment, and our international business remains well positioned for continued growth over the long term. Our U.K.-based bedding retailer Dreams once again outperformed the market this quarter, reinforcing its position as a category leader. Strong brand awareness and share of voice, combined with effective execution, growth solid customer engagement and healthy order volume. Our ongoing operational discipline and a continued focus on product quality, the customer experience supports further growth in this very competitive U.K. market. Our fourth highlight, Mattress Firm outperformed the broader U.S. market, supported by its scale, depth of category expertise and a well-curated merchandising assortment. Merchandising actions taken over the past year have better position Mattress Firm business to meet customer needs across price points while maintaining a strong focus on quality and innovation. During the quarter, we further deepened relationships with suppliers aligned with our quality standards and marketing commitment. Our proprietary Sleep expert model continues to differentiate the in-store experience, supported by one of the industry's largest and most highly trained sales force, which has been augmented by ongoing technology investments. We remain on track with our previously announced $150 million store refresh program targeting completion in 2027. To date, we have spent approximately $40 million on store refresh program, all funded operating cash flow. Additionally, the rollout [indiscernible] is progressing well with national depletion expected by year-end. With that, I'll turn the call over to Bhaskar. Bhaskar Rao: Thank you, Scott. In the first quarter of 2026, consolidated sales were solid $1.8 billion, and adjusted earnings per share was $0.59, up 20% over the prior year. There are approximately $26 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. As a reminder, year-over-year comparisons are impacted by the acquisition of Mattress Firm in early February 2025, and the related divestiture of Sleep Outfitters, and certain Mattress Firm retail locations in the second quarter of 2025. I will be highlighting like-for-like comparisons fined as reported numbers adjusted for the acquisition and divestiture impacts normalized for these items in our commentary. Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $886 million in the first quarter. Same-store sales were flat, outperforming a market we believe was down mid-single digits in the quarter. Mattress Firm adjusted gross margins decreased 360 basis points to 31.5%, including a 40 basis point headwind from the stub period. The remaining decline was primarily driven by promotional expense and product mix combined with some fixed cost deleverage. The impact of product mix on gross margin was primarily driven by increased balance of share of Tempur Sealy products as Tempur Sealy's supply contract is structured and to provide a portion of Mattress Firm's economics in the form of cooperative advertising credit, which reduces Mattress Firm's operating expenses. When looked at on a conforming basis, there is no material impact on EBITDA margin from the product mix change. Mattress Firm adjusted operating margins declined approximately 230 basis points to 4.9%, including a 150 basis point headwind from the stub period. The remaining decline was primarily driven by the decline in gross margin, partially offset by the favorable cooperative advertising dollars I mentioned a moment ago. Turning to Tempur Sealy North America. North America sales grew 5% on a like-for-like basis. With like-for-like net sales through the wholesale channel increasing approximately 8% in the first quarter, our sales with third-party retailers declined 4% after normalizing for [ 4 ] models. Like-for-like sales through the direct channel declined 12% in the first quarter, driven by reduced customer traffic at retail stores an e-commerce site, as we reduced our e-commerce advertising in the quarter. However, we have seen a marked improvement in recent trends. North America adjusted gross margins increased a robust 1,300 basis points to 58.3%, including a 600 basis point benefit from the stub period. The remaining increase was primarily driven by realized synergies and operational efficiencies with lower product launch costs as well. North America adjusted operating margin improved 710 basis points to 24.3% in the quarter, including a 230 basis point benefit from the stub period. The remaining increase was primarily driven by the improved gross margin, partially offset by investments in cooperative advertising as noted a moment ago. Now turning to Tempur Sealy International results. International net sales grew a robust 16% on a reported basis and 7% on a constant currency basis. Our international gross margins increased 140 basis points to 50.4%, primarily driven by favorable mix and operational efficiencies. Our international operating margin increased 160 basis points to 18.4%, driven by the improvement in gross margin and fixed cost leverage. I'd like to spend a moment discussing commodity inflation and our related pricing actions. Its historical industry practice to adjust pricing as input costs rise. Like others in the industry, we have recently announced modest pricing actions designed to offset inflationary pressures tied to oil-derived inputs, including key chemicals as well as gasoline, diesel. Importantly, the structure of our supplier contracts provide us with early visibility into inflationary cost pressures before they flow through our P&L. This visibility allows us to thoughtfully implement pricing actions to offset inflation while minimizing any material interim exposure. This is a structural competitive advantage. We expect commodity inflation will not impact Tempur Sealy's full year '26 earnings, but will modestly quantify our normal seasonality as the timing of cost increases hit slightly before our pricing actions are fully implemented. This is by design to give our retailers time to adjust their merchandising and advertising plans. As a result, the second quarter will have an approximate $10 million headwind to Tempur Sealy profits. We expect that this will fully offset in the third and fourth quarter with our announced pricing action taking effect following the July 4 promotional period. On a full year basis, we expect the pricing action to be dollar neutral to Tempur Sealy earnings, effectively offsetting the inflationary impact. We anticipate this will result in a $50 million pricing lift to the back half of 2026 global Tempur Sealy sales on a like-for-like basis with an expected annualized lift of approximately $100 million. Now turning to sales and cost synergy targets. In the first quarter, we achieved $15 million net benefit in adjusted EBITDA from sales synergies, and another $50 million benefit from cost synergies. In order to support the summer selling season and leveling out of manufacturing for seasonal fluctuation, batches firm built their inventory of Tempur Sealy products in the quarter. The planned inventory build is reflected in intercompany sales for the first quarter. However, we never realized any sales benefit to [indiscernible] EBITDA and [indiscernible] Tempur Sealy products sold to Mattress Firm is sold through to the end consumer. Now moving on to Somnigroup's balance sheet and cash flow items. At the end of the first quarter, consolidated debt less cash was $4.5 billion, and our leverage ratio under our credit facility was 3.1x, demonstrating our strong cash generation and disciplined capital allocation approach. Turning to cash flow performance. In a muted market, we delivered record first quarter operating cash flow of $247 million and record first quarter free cash flow of $186 million. We have reduced our net debt by nearly $500 million over the trailing 12 months of fully supporting growth initiatives and returning over $250 million to shareholders in dividends and buybacks. We expect to return to our target leverage ratio of 2 to 3x over the next [indiscernible]. Now turning to 2026 guidance. As a reminder, our guidance considers the elimination of intercompany sales between Mattress Firm and Tempur Sealy, which we expect to present approximately 23% of global Tempur Sealy 2026 sales. [ Intercompany ] eliminations in accordance with GAAP, will reduce Tempur Sealy sales but be margin accretive and neutral to dollars of operating profit. Please note that we acquired Mattress Firm in February 2025. As a result, our first quarter and full year '26 reported results will reflect the impact a little over 1 additional month of Mattress Firm financial results. We expect adjusted earnings per share to be between $3 and $3.40 for the full year. This guidance range contemplates a sales midpoint of approximately $7.8 billion after intercompany eliminations. Our annual guidance also reflects our expectation that the global bedding industry will be flat to slightly down year-over-year. The announced pricing actions across our global markets, Tempur Sealy North America, like-for-like sales growing mid-single digits, international business growing mid-single digits and like-for-like mattress firm sales growing low single digits. We also expect reported gross margin slightly above 45%, and nearly 100 basis points of net margin expansion from operational efficiencies, including synergies and operating leverage partially offset by the impact of Tempur Sealy pricing actions, which are intended to neutralize commodity inflation dollars, which will be margin dilutive. Our 2026 outlook also contemplates our assumption for Tempur Sealy brands and private label to be in the low 60% of Mattress Firm total sales. This represents about an incremental $40 million of EBITDA benefit for 2026 compared to '25. And approximately $700 million of advertising investments. All of which we expect to result in adjusted EBITDA of approximately $1.45 million at the midpoint. Regarding capital expenditures. We expect 2026 CapEx of approximately $225 million, which includes $75 million of investments in Mattress Firm store refreshes and brand wall installation. We expect our CapEx to normalize $200 million in the future years. And for at least 50% of our free cash flow in '26 to go toward quarterly dividends and share repurchases. Now I would like to flag a few modeling items. For the whole year 2026, we expect D&A of approximately [indiscernible] million, interest expense of approximately $230 million, a tax rate of 25% with a diluted share count of 213 million shares. Note that our guidance does not include any impact for the closing of the proposed combination with [ Leggett & Platt ] as the timing is dependent upon regulatory review and approval by [ Leggett & Platt ] shareholders. We expect the transaction would be accretive to adjusted earnings per share within the first year of operations before any synergies. Finally, a bit of color on guidance. The midpoint of our guidance assumes that consumer confidence, which has been pressured by geopolitical conflict will normalize as we progress through the year. If these pressures were to continue through the year-end, we would be tracking closer to the low end of our guidance. With that, I'll turn the call back over to Scott. Scott Thompson: Thank you, Bhaskar. Well done. Before opening the call up for Q&A, I want to quickly address our recent announced agreement to combine [ Leggett & Platt ]. As we announced last month, we signed a definitive agreement to combine with Leggett, an all-stock transaction valued at approximately $2.5 billion, including the assumption of that. We expect this transaction to close by year-end subject to satisfactory customary closing conditions. Following the close of the transaction, Leggett is expected to operate as a separate business unit within Somnigroup, similar to Tempur Sealy, Mattress Firm and Dreams. And to maintain its offices, including its primary location in [ Carthage ], Missouri. We're proud to have Leggett & Platt join us and believe the combination is beneficial to all stakeholders of both companies. We expect the combination to leverage the individual strengths of Somnigroup and Leggett & Platt to realize 5 strategic benefits. First, the combination continues our vertical integration strategy and enables us to closer collaborate between component engineering, manufacturing, design and customer trends, supporting accelerated innovation cycle and more cost-effective consumer-centric product construction. Second, this combination provides access to incremental addressable markets beyond [indiscernible], expanding Somnigroup's long-term growth opportunities and cash flow generation. Third, the combination is expected to lower Somnigroup's net financial leverage and increase its flexibility. Fourth, the combination is expected to be accretive to adjusted earnings per share before synergies and in the first year post closing, and significantly increased peak earnings in a normalized bedding market. And fifth, the combination presents cost synergy opportunities. In total, we expect synergies to result in at least [indiscernible] million of EBITDA on a fully implemented annual run rate basis. With that, operator, we're done with our prepared remarks, please open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: I want to focus on demand, Scott, especially with the comments around pricing and consumer confidence. Can you talk about price elasticity across the business and how you're thinking of your ability to continue to drive industry relative outperformance despite all the headwinds that we are seeing on the consumer? Scott Thompson: Sure. And thank you for your question, Susan. I think when you look at elasticity, I guess the best thing to look at is really the closing rate. And if we look at closing rate, either whether it be in our own Tempur stores or you look at Mattress Firm, it continues to improve. So what that tells me is, when customers show up at the store, they're looking for products. They then get full discovery of price and where the closing rate is going up. So it doesn't appear the elasticity is very high. I think that's probably the best evidence in looking at that particular issue. As far as outperforming the industry, as we've talked about numerous times, over the years, we continue to improve our competitiveness in the marketplace. And where I look, whether it be in our recent price increase, which I think will be among the lowest by any of the manufacturers, and that has to do with the way we handle the inflation is certainly a competitive advantage. When I look at our advertising share of voice in the marketplace, this would be [ around ] the world. It continues to be top of class what information I get informally on other manufacturers, they would appear to be not dealing with the current market conditions as well and maybe being a little challenged from a capital standpoint. So certainly, our cash flows and balance sheet are a competitive advantage. So I think we'll continue to outperform the industry, and I think the industry will normalize once you get through some of the geopolitical issues that we all know about. Operator: Your next question comes from the line of Bobby Griffin with Raymond James. Robert Griffin: Thanks for the time Scott, I wanted to first -- I want to ask on the [ Stearns & Foster ] launch in 2H. We've been around the business a lot. We've seen a few different launches from Stearns, some starts and go kind of in the product. But the structure of SGI is much different today with all the advantages you've highlighted. So can you maybe unpack how that launch is set up to play out and how this launch might be a little different in where that opportunity is for that product? Scott Thompson: Sure. Great question, Bobby. First of all, we talked about [indiscernible] you have to realize that we have cannibalized some of [indiscernible] As we move Sealy [ Posturepedic ] up from a price standpoint. So we self did that. And so this is the last piece of getting our pricing architecture right between all 3 brands. Tempur Sealy [indiscernible]. And so that opens up some more addressable market, and we also moved the price bracket up. [indiscernible] Foster. Primarily you might find interesting [indiscernible] pushed by our retailers who wanted a higher price Stearns & Foster. So that is new. We also leaned into hybrids in that area, and hybrids have been good in the bedding market in the U.S., as I know you know. And quite frankly, the last Stearns & Foster hybrid, we didn't hit the mark perfectly. So that's a major upgrade. I think the other thing I would point to is with Mattress Firm as part of the family, we have very strong support from Mattress Firm, from an advertising slot commitment, training and probably a higher degree of support than we would have had without having them in family. I think those factors probably combined with the national advertising gives us more momentum on this launch than we've probably had in any launch in Stearns & Foster's history. Operator: Your next question comes from the line of Rafe Jadrosich with Bank of America. Rafe Jadrosich: I wanted to just follow up on some of the comments on pricing and the input cost inflation. Just first, can you just talk about the input cost inflation you've seen sort of year-to-date from Iran, the exposure on the chemical side, and then what you're expecting in the back half of the year? And then [indiscernible] that pricing that you're talking about, the $100 million annualized. Is that the way to sort of think about the magnitude of the cost inflation you're facing and covering that on a dollar-for-dollar basis? Scott Thompson: Sure. I'll let Bhaskar give you some of the details. But as you probably know, the industry has a history of passing on inflation costs through the system. Others actually [indiscernible] passed their costs through earlier than we did, and we were the last to pass through. And my perspective is that that's passed through very effectively as it has historically. Bhaskar, you want to give, kind of, the details? Bhaskar Rao: So just from a pricing standpoint or an inflation standpoint, what we've discussed in the past is the nature of our relationships and strategic partnerships that we have is that we do have some time to react, and assess and evaluate before we put price in. So from a commodity inflation standpoint, on an annualized basis, Think about it as about $100 million. And on -- as you think about the rest of the year, think about that as about $50 million. So $50 million of inflation. So what we're doing to offset that is in the second quarter, we will have some transitory impact, call it, [indiscernible] that will be made up in the back half of the year. From a pricing standpoint is that we've neutralized that impact, as you pointed out, is that the annualized impact of our price increase is $100 million, which for dollar for dollar, will offset the inflation that we are anticipating. However, all that said is that we do have a bit of transitory items in the second quarter. Where that is coming from, as you can imagine, given what's happening from a geopolitical standpoint, the vast majority is coming from oil-derived items. So whether it be the chemicals, diesel, purchased foam, et cetera, that's the vast majority of [indiscernible] where we're seeing the inflation. Scott Thompson: So I think the other thing I'd point out when you talk about the inflation is when you look at the price increase that we took, it's probably overall about a 4% increase, and a 4% increase in this business is not disruptive to customers. Because quite frankly, customers don't shop for the product but once every 8 years. So it's not nearly as [indiscernible] something on gas prices. Bhaskar Rao: That's right. I guess where I would close with that, as I mentioned, in the second quarter, we have a bit of exposure. So what we're really pleased about is our EPS growth that we saw in the first quarter, call that about 20%. And in a market that was a little bit different than what we had anticipated. We call the industry expectations down a little bit. The quarter has started off well. There are some transitory items related to the commodities that I spoke to. So as you think about the second quarter from an EPS growth standpoint, is in a very challenged market is that we would still expect EPS growth of somewhere between 5% and 10%. Scott Thompson: And you're going to pick up the headwind you've got on commodities in the second quarter, you're going to pick that up in the third and fourth quarter of this year. So the annual number doesn't change due to commodities, right. Bhaskar Rao: That's right. Operator: Your next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: A nice job navigating a very fluid environment. Maybe just on the full year revenue outlook. I was just wondering if you could just kind of give us the puts and takes and how you adjusted the number slightly from a couple of months ago. It seems like you did come down maybe by $100 million lower history backdrop. But I'm guessing you're seeing better share gains and maybe you had factored in and then the price increase if that flows through in the revenue for the back half as well? Bhaskar Rao: Great question, Peter. You've got it. It's relatively straightforward. Industry expectations call it, where we were before is kind of flat up where we're at the midpoint is, call it, flat to slightly down. So that's a drag [indiscernible] headwind versus where we were. You also had correct is that the price increases that we put in place for the back half of the year, that is an uplift. That's inclusive of the share gains. So net-net, we're a bit off the midpoint, call it, 7.9% previously at the midpoint, 7.8%. So just a few moving pieces. Operator: Your next question comes from the line of Daniel Silverstein with UBS. Daniel Silverstein: Could we please double-click on Mattress Firm's performance year-to-date? How is store traffic and ticket evolved over the last few months? And then on margins, what are some of the promotional investments you are making? And how are you balancing the flow-through of margins against driving additional share gains? Scott Thompson: Sure. [indiscernible] Mattress Firm. Same-store sales for the quarter were flat, yes, from that standpoint. Post closing of the quarter, same-store sales have been slightly up in April? Bhaskar Rao: Correct. Scott Thompson: [ He asked ] about promotional, I think, with the relative performance, I think that's outperforming our perception of the industry for sure. Promotional [indiscernible] obviously advertising, although advertising is slightly down and then finance for customers you asked about what's driving sales. Clearly, ASP has been a big winner. And I don't think that's just for Mattress Firm. I think that I would say, from what we see in our mix of product sales, ASP has been very strong for the industry as higher-end customers [indiscernible] clearly shown up. Traffic, traffic is down. Traffic's down, I'm going to say, single digits. And I think that's consistent with our perception of the industry. Anything else at in that question. I think I got it. Bhaskar Rao: I mean what I would say, if I were to pan back a little bit, is we feel thrilled about our performance and all the geos that we operate in, we continue to take market share, gain versus a competitive set through execution, advertising, great product. Just focusing on the U.S. or North America a bit is that -- all in, our [indiscernible] business captured a fair amount of share. The others performed well in a challenging environment as well. So we feel good about our relative performance and let's call it, an interesting environment. Scott Thompson: Yes, I think the other thing we should call out can that clearly is that Canada and Mexico had a tough quarter. And I don't think that was company specific. I think that was market in they were specifically weaker than the U.S. On a consolidated basis, certainly, a strong performance. Operator: Your next question comes from the line of Jonathan Matuszewski with Jefferies. Jonathan Matuszewski: A recent theme that's emerged following the Analyst Day was kind of the evolution of upper funnel versus bottom funnel marketing for the industry. Curious what you're seeing -- what you saw materialize in 1Q, maybe relative to the back of '25? And are you seeing retailers outside of Mattress Firm continuing to prioritize bottom funnel in terms of conversion? Or do you see progress in [indiscernible] in terms of overall replacement and the like? Scott Thompson: Sure. If you look at Mattress Firm, we continue to move up the funnel, some carefully monitoring that activity, but clearly leaning a little bit higher up in the funnel. Some of the other large advertisers, I think, are similarly rebalancing. And then I'd just tell you, look, it was a tough quarter for the retailers. And so in that period, quite a bit of advertising got pulled down in the industry, making our share of voice even stronger in our message even stronger. So I'd say we made some slight progress, but at the same time, a pretty tough market for the advertisers to advertising it. Operator: Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Bradley Thomas: Wanted to ask Scott about the performance at the non-Mattress Firm third-party channels that you sell into in North America. I believe you said that, that was down 4% in the quarter. So it looks like maybe in line to slightly better than how the market performed. But can you just give us a sense of what you're hearing from those partners? And any specific strategies, or goals as you think about partner growth, or growth, flat growth, et cetera? Scott Thompson: Sure. We call those the other, other. And to be clear, that would be U.S. retailers non-Mattress firm doesn't include Canada in Mexico. That number was up 4%, yes? Up -- down 4%. And so I think you said it right, with a market that was probably down 5% plus a little is probably a slight outperformance in the other category. I think those retailers are focused -- what they've always been focused on and success of their business which is giving them a popular product, help drive customers into their showroom deliver on time, and all those things. I think they're excited to see Stearns & Foster come. I think they know there's some upside there [indiscernible] line continues to do very well. Constant frustration with the other retailers just on traffic, and I think that's universal. And they certainly appreciate the strength -- the strength of our advertising. As far as additional slots, we will get some incremental slots in the new Stearns launch, but they aren't going to be material to the total revenues of North America. But those would be -- we'll get some incremental slots there. Haven't seen any deterioration in our positions at any of the other retailers. And I think on the go forward, it's really about velocity. And that goes to having a great sales force with quality and quantity of our advertising. And quite frankly, what our competitors do and how they perform. Operator: Your next question comes from the line of Keith Hughes with Truist. Keith Hughes: Just want to turn back to the margins, particularly gross margins on Mattress Firm. I know there was some adjustments to be made on the comparison differences. But if you could talk a little bit more about what caused the compression in gross margin year-over-year? Bhaskar Rao: Absolutely. So when you look at gross margin is that one has to think about the entire P&L. So let me bifurcate out what that means. So call it a few hundred basis points of a decline year-over-year. The vast majority of that is a result of the Mattress Firm entity increasing its share of the Tempur Sealy family. The way that relationship works is that there are some volume rebates, which impact gross margin. However, there are credits associated with cooperative advertising that you don't see in gross margin, is you see it in the operating expense line as a reduction. When you put both of those items together, what you'll see is a [indiscernible] of a decline year-over-year, and that's principally related to just leverage going through that entity. Scott Thompson: Yes. And I'd kind of give you a watch out on some of that. We run -- we think about the business in total. If Mattress Firm, we're an independent company, okay, they would have come to the Tempur Sealy side of the house. and probably negotiated some volume, some volume incentives and their P&L may look different. We don't spend a lot of time in the group, slotting as to where synergies go or renegotiating incentive bonuses, or anything in Mattress Firm. So there's no question some of quite a bit of a benefit of [indiscernible] showing up in the Tempur Sealy, silo as you look through as opposed to matter. So I wouldn't disaggregate the business and think about it separately because we don't run it that way. We run it as part of the [indiscernible] family. Because I'm sure the [indiscernible] from people as independent would have come over and put it is hard on their supply contract. And we're not changing supply contracts, or benefiting Mattress Firm for some of that performance. Operator: Your next question comes from the line of Jeff Lick with Stephens. Jeffrey Lick: Scott, at the Analyst Day, you and the team were very deliberate about talking about prior to [indiscernible] ownership of [indiscernible], how Mattress Firm sometimes got a little aggressive with discounted pricing and playing vendors off one another. And in your -- in the prepared remarks, you guys -- you talked about pricing architecture. Now that you guys are up to the 62% share, you're going to be running through that in the back half. I'm curious if you could just talk about how that dynamic will kind of work and manifest itself into results now that there seems to be you guys are playing the role of the, kind of, price governor in not being deteriorating price, or just [indiscernible] Scott Thompson: Yes, clearly, and you're mainly talking about UPP and the pricing framework in the marketplace and making sure that all retailers honor the UPP structure. And certainly, Mattress Firm is honoring the UPP structure. And quite frankly, when they do, it's beneficial to them. As they found out, not just since we bought them but over time. And we continue to work with other retailers if they don't follow that process. So look, I think that's healthy for [indiscernible] I think it's healthy for the industry. And I think it's been a net positive and they've done a great job on pricing discipline. Operator: Your next question comes from the line of Peter Keith with Piper Sandler. Peter Keith: I wanted to circle back on the chemical shortage. We've been getting a lot of questions on it. So it's only a $10 million impact for Q2, which I think is a positive. But could you address two things. Number one, how much inventory of chemicals in terms of months of supply, are you keeping on hand now? And then secondarily, with this polyol shortage, could that play out into the back half of the year, perhaps with some shipment delays or product outages. I know in the past, you've leaned more towards high-end product like back in 2021. So if you could just address the kind of the puts and takes around this [indiscernible] shortage. I appreciate it. Scott Thompson: Yes. I'm going to [indiscernible] a crack at it. I think when it first showed it [indiscernible], there was a worst-case scenario that was worked through and mitigated in the word shortage. Was probably an appropriate possibility. I think with what we know today, I don't think the industry is going to have shortages as far as outages from a supply standpoint. There is pricing impact, okay? And that's been rolled through the industry. But I'm not nearly as concerned about shortages, and I'm not hearing comments about [indiscernible]. And that's an industry comment. When you then go to Tempur Sealy specifically, Obviously, we have an advantaged situation because of our volumes, okay. And obviously, we have a large amount of safety stock safety stock is in place for one -- these kind of events, which you've referenced, but also possible hurricane issues and stuff, what do you want to say 3, 4 months? [indiscernible]. It varies a little bit, but for talking terms, I think, 3 or 4 months. Also you can bind in your volumes to products that don't use as much [indiscernible] at times. But I think from where it was, what would that happen about 1.5 months ago, a couple of months ago. That situation continues to get better and better. in my outlook on that right now is that it's a pricing event, and the pricing event has generally run through the industry. Operator: There are no further questions at this time. I will now turn the call back to Scott Thomson, CEO, for closing remarks. Scott Thompson: Thank you, operator. To over 20,000 associates around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends our call today, operator. Thank you. Operator: This concludes today's call. Thank you for attending. 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.