加载中...
共找到 16,485 条相关资讯
Operator: Good day and thank you for standing by. Welcome to the GPGI, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Marshall, Chief Legal Counsel. Please go ahead. David Marshall: Thanks, Ann. Good morning and welcome to GPGI's conference call where we'll review GPGI's first quarter 2026 financial results. With me on the call today are the business leaders from GPGI, Resolute Holdings, CompoSecure and Husky. We'll begin with prepared remarks and then open the call for Q&A. During the call, we'll make statements regarding our business that may be considered forward-looking, including statements regarding our growth strategy, customer demand, macroeconomic factors, implementation of the Resolute Operating System and our guidance for 2026 as well as other statements regarding our plans and prospects. For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our reports filed with the SEC, which are available on the Investor Relations section of our website and on the SEC's website at sec.gov. As a reminder regarding the company's accounting. On February 28, 2025, GPGI completed the spin-off of Resolute Holdings Management, Inc. and our wholly owned subsidiary GPGI Holdings entered into a management agreement with Resolute Holdings. As a result, the results of operations of GPGI Holdings and the operating companies which are subsidiaries, including CompoSecure and Husky, are not consolidated in the financial statements of GPGI and are instead accounted for under the equity method of accounting. For more information about our financial presentation, please see our SEC filings, including our quarterly report on Form 10-Q to be filed later today. In the earnings release we issued earlier today and in the discussion on today's call, we also present non-GAAP financial measures to help investors better understand our operating performance. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operations. These non-GAAP financial measures should not be considered as an alternative to performance measures derived in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our website. With that, I'll turn the call over to Executive Chairman, Dave Cote. David Cote: Well, we have a tale of 2 cities. CompoSecure is performing better than our expectations reflecting just excellent implementation of the Resolute operating system for both growth and operations. Husky unfortunately has encountered unanticipated market headwinds because of oil market volatility and tariffs. This has caused customers to delay accepting orders that normally would have been expected to ship in the quarter while also reducing new orders. Well, you'll likely ask what changed. Since I spoke to you on our March 12 fourth quarter earnings call, we saw a significant and surprising increase in customers taking a wait-and-see approach in response to those changing macro conditions. At the time of the call, February year-to-date orders were up approximately 27% versus prior year and the pipeline was up approximately 6% year-over-year. The amount of book and ship required to make the quarter was not unusual given history. And in the subsequent 2.5 weeks, several customers would not finalize their orders for shipment, we could not ship to a couple of countries and customers delayed placing an official order. This trend continues today. We can't predict when it will end so we have provided a wider revised guidance range. In anticipation of lower sales, we've taken various actions on expenses to mitigate some of the impact of those lower sales. At the same time we're seeing order delays, we saw the pipeline grow approximately 4% over last year in the first quarter and up 7% year-over-year through April. So there are reasons for optimism that this will not be a long-lived problem. Consistent with this, we're seeing the 12-month pipeline up while the 3-month pipeline is down. Husky leadership is aggressively tackling ROS implementation for both growth and operations. The investment thesis is very much intact with their great position in a good industry. Now I'm very unhappy to be sharing a different result today than I expected when I talked to you on March 12. While certainly disappointing in the short term, I can still say with confidence that the prospects for GPGI performance are quite rewarding. CompoSecure is on a roll and the new leadership has significantly energized that team and is improving the culture. The commercial prospects for growth are better than ever and ROS implementation and operations is showing significant gains. The prospects for this business are terrific and they're apparent today. Compo also benefits from being more than a year ahead of Husky in ROS implementation. Husky prospects are also excellent. It doesn't show right now because of the market headwinds, but it is real. We continue to fund R&D expansion because it will greatly benefit the business' future. Consistent with our underwriting thesis, we can already see that ROS will also have a profound impact on our Husky business. With Rob's leadership, they are aggressively implementing ROS and driving the cultural change necessary for success. We will navigate the market headwinds, implement ROS, continue increasing R&D and commercial excellence and become a significantly stronger business as we exit the year. I'm also pleased to say that Kevin Moriarty, a current GPGI Board member and deeply experienced finance leader, has stepped in to be Husky's acting CFO. This is yet another benefit of having a Board of superb operators. I've worked closely with Kevin in the past and he has a tremendous reputation as an operating CFO. We are actively evaluating a long list of candidates for the full-time role. But in Kevin, we have a proven leader who brings a steady hand to Husky and I know we'll benefit from his financial and operating capabilities. I wish we could have seen the Husky market issues sooner than we did of course. I have not looked forward to today. That being said, nothing has changed concerning GPGI and the prospects for both businesses. I'm personally energized by the progress I'm seeing in both businesses. The cultural change is well on its way at Compo and the cultural change needed at Husky is being accelerated in dealing with these unfortunate market headwinds. We can't predict today how long the headwinds will continue so we'll be cautious in our 2026 outlook. That though shouldn't take away from what both businesses can accomplish given they both have a great position in a good industry. I can promise you GPGI has my full attention. You all know my family and I have a lot of our own money involved here so I want to see GPGI perform extraordinarily well as much as all of you do. We will get through this just like we have in the past. This is an unfortunate blip, nothing more. We're excited about the path GPGI is on and what it will become. So with that, I'll now turn it over to Tom Knott, our Chief Investment Officer, to review our financial performance. Thomas Knott: Thank you, Dave. Going to Slide 4. GPGI delivered pro forma adjusted net sales of $421.2 million, up approximately 3% from the prior year; pro forma adjusted EBITDA of $82.1 million, down approximately 16% from the prior year; and pro forma adjusted EBITDA margins of 19.5%, down approximately 430 basis points from the prior year. As Dave mentioned, these results reflect record sales performance at CompoSecure offset by market-related underperformance at Husky. Given Husky's size relative to CompoSecure, this macro-driven delay in demand at Husky is more than offsetting excellent performance at CompoSecure. Starting with CompoSecure. We delivered a record quarter as strategic investments in the sales force and enhanced focus on commercial excellence are driving strong organic growth supported by ROS in the factory. ROS initiatives have led to a step change in manufacturing yields and operational efficiencies throughout the production process, which were the primary drivers of adjusted EBITDA margins expanding approximately 300 basis points in the quarter. Graham and Mary will go into more detail. But I would just highlight that CompoSecure is now 18 months of implementing the Resolute Operating System and we are pleased with the cultural and operational intensity taking hold at the company today. We expect CompoSecure to continue its strong trajectory of organic sales growth and improved profitability through the remainder of 2026. Turning to Husky. Rob and Kevin will discuss our performance in the quarter and our outlook, but I will reiterate Dave's comments in noting that customer demand for Husky's products deteriorated rapidly at the end of March in a way that surprised us. This change more than offset the strong pipeline and order book we saw developing through the first 2 months of the year as customers aggressively shifted to a wait-and-see posture as resin prices spiked. While we expect the business to rebound when uncertainty subsides, this change in near-term demand has led us to revise our outlook for GPGI. Turning to Slide 5. You have heard us in the past discuss the complicated accounting we are required to use. Given the transaction this quarter on top of that existing accounting complexity, Slide 5 shows a simplified walk to pro forma adjusted EBITDA. The full reconciliation appears in the appendix. As previously announced, we refinanced our debt concurrent with the transaction closing, extending maturities and materially reducing our interest burden. This is the first major component. Transaction expenses were in line with expectations and were paid through closing. These transaction expenses taken together represent over $200 million of onetime GAAP expenses, which will not recur going forward. Net interest expense for the quarter reflects stub period interest, deferred financing cost and the interest on the new debt. Other key items include purchase price intangibles amortization, ordinary course income tax provision, noncash TRA liability remeasurement, stock-based compensation and foreign exchange impacts. Moving to Slide 6. We're providing more details this quarter than normal to give a full picture of what we were seeing at Husky when we last spoke to you on March 12 and how things changed through the end of the quarter. Pipeline orders and backlog at Husky were trending favorably through February with positive commercial activity giving us confidence in our full year guidance for both Husky and GPGI. This momentum turned quickly late in the quarter. Orders fell 16% year-over-year to the end of March as resin prices spiked and customers delayed accepting shipments and placing orders. Backlog followed a similar pattern in 1Q. We saw an accelerated recovery through February following a softer January, but the negative trend accelerated in the middle of March with simultaneously decline in order activity. Despite all of this, our pipelines remain strong growing 4% year-over-year for the first quarter and ending April up 7% year-over-year. Even with this healthy pipeline growth, we continue to see slower conversion rates as customers defer some purchase orders in the current environment. Turning to Slide 7. The underlying demand drivers for our products namely nonalcoholic beverage demand remains resilient. This supports the healthy and expanding pipeline we've discussed even though near-term orders are volatile. While macro conditions have introduced significant ambiguity that is influencing near-term customer purchasing behavior, the core fundamentals of the market that Husky serves remain intact. Even though oil market volatility and its impact on resin prices is impacting customer behavior today, the volatility is also reinforcing areas where Husky products are well differentiated. As resin prices rise, the value of our systems become increasingly compelling for customers because our equipment delivers industry-leading throughput, superior cycle times, higher preform consistency, greater uptime and lower energy consumption. All of this enables us to offer customers a 15% to 20% lower total cost of ownership versus competitive offerings. Additionally, as the price differential between virgin and recycled resin gets smaller, customers are increasingly evaluating RPET as a feedstock alternative to virgin resin. Husky is the preeminent manufacturer of recycled PET systems, which will result in additional opportunities for new equipment sales and retrofit upgrades if customers shift to more sustainable feedstocks as an alternative to now expensive virgin resin. So while the current uncertainty is causing some customers to delay near-term purchasing decisions, we remain confident that the underlying demand driver, particularly consumption of bottled water, remains strong and that this period will drive customers to focus more on productivity, sustainability and system efficiency; all areas where Husky excels. I want to also take a moment to explain how we're responding to this challenging market environment at Husky. On the cost side, we are in the process of implementing targeted furloughs across jurisdictions to reduce direct labor cost without impacting our industrial base or impairing our ability to respond to the rebound in demand. We are aggressively managing indirect spend and making necessary changes to be more efficient while also working towards a full return to office to maximize collaboration and increase cross-functional accountability across sales, finance and operations. On the commercial side, we are reinvigorating our sales force under new leadership thus commercial excellence is also a key strategic priority. Husky is a little more than a year behind CompoSecure on the implementation of ROS. And while the market backdrop for our customers has changed meaningfully in a short period of time, we remain focused on doing the right things to position the business to achieve its potential. This includes making the necessary investments to accelerate innovation and long-term organic growth through aggressive expansion of the R&D organization and an unrelenting focus on ROS implementation. These critical initiatives are not stopping despite the market volatility we are facing because they will position the business to benefit from the rebound in demand and for the future more broadly. With that, I will turn the call over to Rob Domodossola, the CEO of Husky. Robert Domodossola: Thanks, Tom. Going to Slide 8, I want to begin at the most fundamental level of what we do. Husky produces systems that make a precursor to nondiscretionary items, primarily water bottles. Demand for these products is durable with long established history of through-the-cycle growth in periods of macroeconomic volatility. The current period of volatility is no different. The demand for nonalcoholic beverages continues to expand around the world. Our customers are continuing to operate these high essential systems every day to meet this demand and that will continue. While the current demand shock driven by steep increases in oil and resin prices has made customers delay normal purchasing behavior, the fundamental drivers of demand for our products remain solidly intact. Specifically, we currently have an installed base of 13,500 systems that are primarily used to produce nondiscretionary products. This installed base is embedded in our customers' operations and drives a large and growing aftermarket revenue stream across parts, tooling and services. The installed base is globally diverse across developed and emerging markets and new systems have a higher content than legacy ones. Roughly 35% of our revenue is tied to new system sales, which is currently being impacted most significantly by the demand shock as customers pause large capital investments while 65% of our revenue is tied to recurring revenue. Although current market dynamics are causing near-term demand deferrals, the mission-critical nature of our products and consistent underlying demand drivers in the markets we serve gives us the confidence in a return to normalized order patterns. Adding to our confidence, Husky is well positioned because our system delivers the lowest total cost of ownership for customers through faster cycle times, higher quality, lower energy use and maximum uptime. As higher oil and resin costs persist; our lightweight solutions, resin efficiency and system productivity enhanced by our connected Advantage+Elite remote monitoring further differentiates the value proposition of Husky's equipment relative to competitors. Taken together, we remain very focused on delivering on what matters most to our customers; uptime, output and durability at the lowest total cost. Turning to our results. We delivered pro forma adjusted net sales of $29.8 million and pro forma adjusted EBITDA of $38.2 million, down 5% and 40% year-over-year, respectively. As Dave and Tom mentioned, the Middle East conflict altered customers' purchasing behavior nearly overnight in mid-March as supply disruptions drove sharp increases in virgin PET prices, up approximately 46% in March and April. These higher input costs combined with tighter supply and increased financing costs have weighed on near-term demand as Dave and Tom described. We view these dynamics as cyclical rather than structural. In fact elevated material and operating costs tend to reinforce demand for efficiency, lightweighting and system level performance; all areas where Husky is highly differentiated and we've seen this pattern before. When geopolitical tensions ease and input costs stabilize, deferred investments tend to rebound and they rebound sharply. Importantly, the end markets we serve are tied to essential customer needs, which has historically proven resilient across cycles. Operationally, as Dave and Tom mentioned, we are in the early stages of implementing the Resolute Operating System and our focus is now entirely on disciplined execution. ROS is fundamentally changing the way we operate and these changes matter even more in times like these. A key initiative we are implementing includes the integrated sales, inventory and operations or SIOP planning to improve job sequencing, manufacturing output and to reduce waste. We are also managing indirect spend and enhanced enterprise cost discipline across our procurement team. And of course AI will be an accelerator to ROS as we identify bottlenecks and improve lead times. ROS is critical to our long-term success and we are using it every day to drive measurable inputs; improvements to growth, operations and financial performance. While the first quarter was disappointing, we know that fundamental SIOP planning efforts underway to establish a high performance culture and invest for the future are the right steps and are improving the business. Husky operates in essential categories. As macro pressures ease, we expect to see a rebound in deferred investment consistent with past cycles. Now turning to Slide 9. Given the breadth of our business, I want to cover what we're seeing in individual product lines and key geographies starting with our product lines. Specifically in systems, orders are being deferred to the resin price volatility, tariff-related uncertainty and elevated financing costs. We expect the weakness we saw in the first quarter to continue through the year if the market headwinds persist. For aftermarket tooling, orders at the end of last year were lower due to customer uncertainty related to tariffs, which weighed on Q1 2026 sales. However, we expect this segment to return to growth in the second half as customers invest in tooling for the existing installed base while deferring the purchases of new equipment. With respect to hot runners and controllers, we saw strong revenue growth across most regions in the first quarter, but continued market ambiguity is weighing on the order outlook in the near term. Lastly, for aftermarket parts and services, market ambiguity and tariff noise impacted demand at the end of Q1, which is expected to persist in Q2, but we expect to return to growth in the second half as customers increasingly prioritize productivity. In our key geographies, starting in North America, we see a pause in demand for PET systems, partly offset by growth in tooling, spare parts and services. We believe North American market is close to trough levels and represents a market within our oldest installed base. Shifting to Europe, we're seeing growth in aftermarket tooling driven by lightweighting and sustainability mandates that support further shifts to rPET adoption. For the Middle East and Africa, we see strong consumption-driven growth in PET systems and growth in hot runners for medical applications, offset by near-term geopolitical disruptions. Turning to LatAm. Inflationary pressures and the steep tax on sugar-sweetened bottled beverages in Mexico are driving near-term softness in PT systems. While aftermarket tooling continues to grow, given shift towards lightweighting and package optimization. Lastly, in Asia Pacific, we continue to see consumption-driven growth in PET systems and demand for hot runners tied to food and packaging and medical applications. I will now turn it over to our acting CFO, Kevin Moriarty, to review our financial performance in more detail. Kevin Moriarty: Thanks, Rob. Let's turn to our financial performance on Slide 10. Given the number of moving parts, let me level set where we landed for the quarter and our path forward. As a reminder, the first quarter is seasonally the smallest for Husky with the second half of the year typically much stronger than the first. Against this backdrop, Husky faced significant macroeconomic headwinds that weighed on both growth and profitability. We reported pro forma adjusted net sales of $290.8 million, down 5% compared to the prior year as declines in new system sales and tooling offset strong growth in spare parts, hot runners and controllers. Pro forma adjusted EBITDA decreased 40% to $38.2 million, driven primarily by lower revenue and resulting under-absorbed labor and continued investments in R&D and front-end sales capabilities to support future growth. In aggregate, these factors translated to an approximately 770 basis point erosion in pro forma adjusted EBITDA margin to 13.2%. As Dave, Tom and Rob all mentioned, we had over $20 million in revenue that got pushed out at the very end of the quarter. This included approximately $6 million tied to customer delays in taking deliveries, approximately $5 million tied to shipment and logistical delays tied to the Middle East conflict and approximately $4 million tied to delays in customer payments. Combined with the growth investments being made, this quantum of deferred revenue exacerbated margin degradation in the seasonally smallest quarter of the year as we carried excess labor costs relative to demand. Consistent with historical first half and second half seasonality, we expect margins to expand in the second quarter and continue improving sequentially throughout the year, driven by improved fixed cost absorption in the seasonally stronger second half, the impact of ongoing cost actions and acceleration operational efficiencies from ROS-led initiatives. These initiatives are central to our thesis of driving sustained margin expansion and bolstering long-term profitability at Husky. On the tariff front, after the Supreme Court invalidated IEEPA tariffs in February, the U.S. implemented modified Section 232 tariffs on April 6, 2026. While continued tariff policy pivot add uncertainty to when customers place their orders, we do not expect them to have a material impact on our results. The U.S. market represents less than 27% of our total sales, which helps moderate our overall exposure. Of this, roughly 40% of the revenue relates to systems and tooling shipped into the U.S. that is subject to a 15% tariff, 1/3 from imported aftermarket parts that have tariffs declining from 50% to 25%, and the balance is primarily hot runners, parts and services that are locally produced or delivered and therefore, not impacted. In addition, consistent with our standard terms and conditions, we have been successfully passing through tariff-related costs to customers since the third quarter of last year and will continue to do so. Finally, our Husky equipment qualifies under USMCA and remains exempt from the 3.1% U.S. import duty, further limiting our exposure. And we are not alone when it comes to tariffs. Industry demand in the U.S. has been negatively impacted for the last 2 years. The U.S. is an importer of PET systems and Husky's primary peers do not have domestic production capability. We believe our North American presence positions us favorably relative to international peers importing into the U.S., while this tariff regime remains in place, while also allowing us to capture the inevitable cyclical upturn. With that, I will turn the call over to Graham Robinson, the CEO of CompoSecure. Graham Robinson: Thank you, Kevin, and good morning, everyone. Going to Slide 11. We delivered an outstanding quarter at CompoSecure, continuing to build upon our commercial and operational momentum. We achieved record pro forma net sales of $130.4 million, up 26% year-over-year, underscoring both the effectiveness of our commercial execution and the robust demand for premium metal cards. We are seeing this strength translate into new program wins and accelerating issuer activity across leading fintechs and traditional financial institutions. We're also seeing growth in metal cards that have Arculus capabilities. At the same time, the Resolute Operating System continues to have a deep and profound impact across the business. We are realizing meaningful improvements across all functional areas from sales performance to improved operations, which helped us deliver strong pro forma adjusted EBITDA of $47.6 million, up 37% compared to a year ago. While we are encouraged by our progress, we remain highly focused on investing in our future, in line with our strategic and execution framework that includes 3 pillars of growth: one, accelerating organic growth; two, driving international expansion; and thirdly, increasing Arculus momentum. In the first quarter, we saw several exciting customer programs go live, including the American Express Graphite business card, X Money from Elon Musk, the Robinhood Platinum card and Revolut Audi F1 card as well as Fold, [ Cast ], Kraken and MetaMask US, which provide crypto rewards and the optionality to pay with crypto. These signature program wins reflect the breadth of demand for premium card solutions and our differentiated value proposition, combined with advanced design, engineering and manufacturing capabilities to reinforce our position as the partner of choice for issuers launching high-impact card programs. Most recently, we strengthened our leadership team by appointing general managers to lead our Arculus and international businesses. With that, I will turn it over to our CFO, Mary Holt, to review our financials in more detail. Mary Holt: Thank you, Graham. Let's turn to our financial performance on Slide 12. In the first quarter, CompoSecure delivered strong results across all key financial metrics, driven by continued demand strength and increasing impact of the Resolute operating system across the organization. As Graham mentioned, adjusted net sales were $130.4 million, up 25.6% year-over-year, driven by robust demand from traditional banks and leading fintech customers. Adjusted EBITDA increased 36.8% to $47.6 million, reflecting both volume growth and meaningful operational efficiencies, which led to a 300 basis point improvement in adjusted EBITDA margin to 36.5%. Some of these productivity gains will continue to flow through to profitability, while some will be strategically reinvested to support sustained growth. Overall, this performance highlights the operating leverage and tangible benefits we are realizing from the systematic deployment of the Resolute Operating System, including enhanced throughput and process innovation, which has led to higher and more consistent yields at the factory level. I will now hand it back to Tom to review GPGI's revised guidance. Thomas Knott: Thanks, Mary. Turning to Slide 13. We are introducing new guidance for 2Q '26 and revising our full year 2026 outlook to reflect the macro-driven headwinds facing Husky. For 2Q ' 26, we expect net sales between $425 million and $475 million, pro forma adjusted EBITDA between $105 million and $120 million and pro forma adjusted EBITDA margins between 24.7% and 25.3%. For FY '26, we now expect pro forma net sales between $1.95 billion and $2.1 billion, pro forma adjusted EBITDA between $550 million and $610 million and pro forma adjusted EBITDA margins between 28.2% and 29%. Consistent with the historical trends in the seasonally lowest quarter for free cash flow and despite the market-related challenges we faced at Husky, we generated approximately $29 million of adjusted free cash flow similar to last year's level, which gives us further confidence in our revised full year estimate of between $275 million and $325 million in pro forma adjusted free cash flow. Finally, we anticipate ending the year with approximately 3x total leverage. Our revised guidance reflects the impact of the market shock facing Husky, but we continue to view 2026 as a critical and foundational year of cultural change, ROS implementation and strategic seed planting at both businesses that will position us to deliver best-in-class top line growth, margin expansion and free cash flow generation across the GPGI platform. This remains our focus, and we are confident in the work underway at both businesses. With that, I'll hand it back to Dave for some closing remarks. David Cote: Thanks, Tom. We've got 2 businesses in CompoSecure and Husky that hold great positions in good industries, both of which are becoming even stronger through the cultural transformations their teams are driving and the consistent deployment of the Resolute Operating System. You can see the results clearly now at CompoSecure. The market dislocation we're experiencing in Husky is making those improvements harder to see, but they are there. The culture and the business processes are getting better. We're committed to continuing the course, investing smartly for the future and the results of our efforts will become evident. So with that, I'd like to open up the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jacob Stephan with Lake Street Capital Markets. Jacob Stephan: I guess, first, I just kind of wanted to understand on the guidance a little bit better and make sure I have clarification on Slide 13, you have kind of 2 arrows pointing to the high end and the low end. So the low end represents Iran conflict being delayed with the Strait disrupted and the high end would be if the conflict is resolved. I guess if you could give a little bit better sense on like timing. Does the low end of the range, I guess, assume the conflict last for the remainder of the year? Or does the high end assume that this is over to borrow? Any kind of comments you can give there? David Cote: Yes. The way I would look at it is what we're trying to reflect is the impact of delays. So if the delays continue because the Iran conflict just keeps going, then those delays are going to cause us to come into the lower end of the range. To the extent that our customers let go of those delays and maybe even if the conflict is continuing, but they stop delaying because they need the aftermarket or they need the machines, then we'll end up towards the higher end of the range. So it's more a reflection of what do we think could happen on customer delays today driven by the Iran conflict and tariffs. Jacob Stephan: Okay. Got it. And then I guess just kind of continuing on the guidance factor. When you look at kind of the second half for adjusted EBITDA, I think it implies relatively higher adjusted EBITDA in the second half. I know Q4 is a strong quarter for Husky, but we're looking at kind of $450 million to $550 million of EBITDA in the back half versus the first half. So I guess any color there, especially when you kind of talk about the margins compressing on Husky a little bit? Kevin Moriarty: Sure. This is Kevin. If you look at our first half, second half; seasonally, second half represents roughly 60% of our revenue base. And again, with the cost -- better cost absorption, vertical contribution margins improving as well as the cost actions, we feel that the second half will be stronger. Jacob Stephan: Okay. And then just lastly on CompoSecure the core business there. Wondering if you could touch on the, I guess, new card launch pipeline. Is that strong looking at the kind of the last 3 quarters of the year? Graham Robinson: Yes. The pipeline continues to be quite strong. And we speak in a number of different dimensions. The programs that we have with our existing customers, those customers are also continuing to create and generate new programs also. And then lastly, we continue to penetrate a new customer base, both internationally and domestically and also with fintechs and with our traditional banks. So we are -- we continue to be quite optimistic about the strength of the pipeline that we have and what we're seeing going forward. Operator: Our next question comes from the line of Tomo Sano with JPMorgan. Tomohiko Sano: I'd like to ask about the Husky s margin declined by 770 basis Y-o-Y in the past quarters. So looking ahead to second quarter and remainder of the year, what specific factors or initiatives do you expect will drive the margin improvement towards your full year guidance? Could you qualify the key assumptions for margin recovery in the back half, please? Kevin Moriarty: Sure. So as I alluded to, the first quarter is historically are some lower revenue number. So as we sequentially go through the year, revenue will grow, which has been our historical pattern, heavier weighted to the third and fourth quarters. So the variable part contribution margin we're expecting on that is going to sequentially improve the margin rate. We're driving the ROS initiatives internally, which we expect to provide some lift as well as we've commented on cost actions that we're taking. We institute some furloughs as well as some indirect cost actions that we're also expecting to provide some lift. Tomohiko Sano: And a follow-up regarding leveraging the ROS to drive the margin improvement for Husky. Could you share some examples of the cultural changes and operational opportunities being executed to enhance resilience and profitability, please? Robert Domodossola: Sure. Maybe I'll start. It's Robert. One of the biggest things is what I mentioned, the SIOP process is really intended to level out the factories. It's hard to keep your costs under control if you have peaks and valleys. But with level loading of the factories, it's much easier to get the labor and material costs aligned with the volume that's coming out of the factories. So that's one of the biggest initiatives that we have right now. With reduced lead times, that also helps to level load the factories, not just making us more competitive, but more profitable as well. We have a significant focus on supply chain procurement excellence that's helping with material cost reduction. And finally, on the commercial excellence side, our whole go-to-market approach, we are taking steps to have some very effective value propositions globally rolled out, especially with regards to our new product launches. Operator: Thank you. And I'm currently showing no further questions at this time. This does conclude today's call. Thank you all for your participation. You may now disconnect.
Operator: Welcome to Oportun Financial Corporation's first quarter 2026 earnings conference call. All lines have been placed on mute to prevent background noise. After the speakers' remarks, there will be a question and answer session. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Dorian Hare, Senior Vice President of Investor Relations. Dorian, you may begin. Dorian Hare: Thanks, and hello, everyone. With me to discuss Oportun Financial Corporation's first quarter 2026 results are Doug Bland, our Chief Executive Officer, and Paul Appleton, our Interim Chief Financial Officer, Treasurer, and Head of Capital Markets. Kate Layton, Oportun Financial Corporation's Chief Legal Officer, and Gaurav Rana, our Senior Vice President and General Manager of Lending, will also join for the question and answer session. I will remind everyone on the call or webcast that some of the remarks made today will include forward-looking statements related to our business, future results of operations, and financial position, including projected adjusted ROE attainment and expected originations growth, planned products and services, business strategy, expense savings measures, and plans and objectives of management for future operations. Actual results may differ materially from those contemplated or implied by these forward-looking statements, and we caution you not to place undue reliance on these forward-looking statements. A more detailed discussion of the risk factors that could cause these results to differ materially is set forth in our earnings press release and in our filings with the Securities and Exchange Commission under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ended 03/31/2026. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events other than as required by law. Also on today's call, we will present both GAAP and non-GAAP financial measures, which we believe can be useful measures for period-to-period comparisons of our core business and which will provide useful information to investors regarding our financial condition and results of operations. A full list of definitions can be found in our earnings materials available at the Investor Relations section of our website. Non-GAAP financial measures are presented in addition to, and not as a substitute for, financial measures calculated in accordance with GAAP. A reconciliation of non-GAAP to GAAP financial measures is included in our earnings press release, our first quarter 2026 supplement, and the appendix section of the first quarter 2026 earnings presentation, all of which will be available at the Investor Relations section of our website at oportun.com. In addition, this call is being webcast, and an archived version will be available after the call along with a copy of our prepared remarks. With that, I will now turn the call over to Doug. Doug Bland: Thanks, Dorian, and good afternoon, everyone. Thank you for joining us. I am honored to be speaking with you for the first time as CEO of Oportun Financial Corporation. I was drawn to Oportun Financial Corporation because it stands out: a technology-driven platform with a critical mission and proven ability to responsibly improve the financial lives of people who are too often overlooked by traditional lenders. I also saw a business known for high-quality customer service, uniquely positioned to seamlessly engage with both English- and Spanish-speaking members across its retail, contact center, and mobile app. My initial meetings with team members across the company and with key stakeholders have only reinforced this view. I look forward to working with our team and board to strengthen the business, build deeper relationships with our members, and deliver long-term value for shareholders. I am optimistic about what we can achieve together. I joined Oportun Financial Corporation on April 20, so I have been in the role for less than three weeks. I am not going to use my first earnings call to declare a new strategy before I have completed a deeper review. What I can say from my early assessment is that the team has made real progress strengthening the foundation of the business, particularly profitability, liquidity, and funding costs. While important work remains to improve through-cycle credit performance and rebuild a durable growth engine, the 2026 plan was already in motion before I arrived. Based on my review so far, I support reiterating the full-year guidance. I will now hand it over to Paul for a review of how we are executing against our current strategy and our first quarter financial results. He will also provide our Q2 guidance while updating you on our full-year outlook. Paul Appleton: Thank you, Doug, and good afternoon, everyone. I would like to start by updating you on our strategic priorities, which include improving credit outcomes, strengthening business economics, and identifying high-quality originations. Starting with improving credit outcomes, we have remained in a tight credit posture, maintaining an emphasis on returning members amid an uncertain macroeconomic outlook for low- and moderate-income households. Our annualized net charge-off rate was 12.65% in Q1, at the midpoint of our guidance range. In Q1, the proportion of originations to returning members was 79%, 16 percentage points higher than the 63% recorded in the prior-year quarter. Importantly, our Q1 30+ delinquency rate of 4.5% met the expectations we set on our February earnings call, down 38 basis points sequentially and 18 basis points year over year. We expect the second quarter's 30+ delinquency rate to improve further to a range between 4.1% and 4.2%, which is 22 to 32 basis points lower than Q2 2025 and 30 to 40 basis points lower sequentially than the first quarter. These proof points support our continued confidence that Q1's 12.65% annualized net charge-off rate should be the highest of 2026. As also mentioned on our February earnings call, a key focus this year is continuing to invest in our credit decisioning capabilities to accelerate model training, deployment, and effectiveness. In Q2, we are introducing the latest iteration of our primary underwriting model, B13, which features an enhanced model architecture designed to better capture both long-term and more recent emerging trends. The model also incorporates new alternative data sources to improve predictive power and reduce adverse selection risk. Turning to business economics, we remain committed to improving on full-year 2025 17.5% adjusted ROE and 6.8% GAAP ROE, making progress toward our objective of 20% to 28% GAAP ROEs on an annual basis. A key component of this is continuing our expense discipline. During Q1, total operating expenses declined 1% year over year to $91 million, in line with the substantially flat expectation we set for the full year. Another important part of our efforts to attain our ROE goal is exploring the launch of risk-based pricing. As discussed on our last earnings call, this effort would reintroduce pricing above 36% for shorter-term loans and higher-risk segments, including some customers we are not able to approve today. We have made good progress with this initiative, including signing a letter of intent with a new bank partner. As a result, we continue to expect to roll this initiative out in the second half of the year. Last month, we launched another initiative, a payment protection offering, that we expect will provide more certainty for our members and a positive financial contribution to Oportun Financial Corporation in future years. Payment protection is an opt-in offering that members can elect during the loan application process, which provides protection against unforeseen events like involuntary unemployment, death, or disability by completely or partially paying off the loan. The offering is currently available to loan applicants in several states, and in coordination with our bank partner, we expect to introduce the offering across most of our footprint in the coming months. Due to the phased rollout, we are currently assuming only a modest financial benefit from the payment protection initiative in our 2026 guidance. However, at scale, we see potential for profit enhancement in future years due to lower credit losses on enrolled loans and fees earned. Lastly, regarding identifying high-quality originations, in Q1, originations declined by 11%. This was in line with our expectations, reflecting typical seasonality and the higher mix of returning borrowers I referenced a moment ago. We continue to expect to grow originations in the mid-single-digit percentage range this year. Expanding our secured personal loan portfolio secured by members' autos remains a key pillar of our responsible growth strategy. Partially offsetting the unsecured personal loan originations decline, in Q1 secured personal loan originations grew 12% year over year, and the secured portfolio grew 30% year over year to $233 million. As a result, secured personal loans now represent 9% of our owned portfolio, up from 7% last year. Importantly, average losses on secured personal loans continued to run substantially lower than unsecured personal loans in the first quarter. Turning now to Q1 highlights on Slide 6, we recorded our sixth consecutive quarter of GAAP profitability with net income of $2.3 million and diluted EPS of $0.05 per share. We also generated adjusted net income of $10 million and adjusted EPS of $0.21 per share. Total revenue of $229 million declined by $7.1 million, or 3% year over year, which again was in line with our expectations and driven by the 11% year-over-year decline in originations I mentioned a moment ago. Net decrease in fair value was $86 million this quarter due to $85 million in net charge-offs. The net decrease in fair value was $13 million higher than the prior period, which benefited from a favorable $12 million mark-to-market adjustment on loans. First-quarter interest expense was $48 million, down $9 million year over year. This improvement reflects recent balance sheet optimization initiatives that I will share shortly. Net revenue was $90 million, down $11 million year over year, as the impact of lower total revenue and fair value offset the benefit from lower interest expense. Operating expenses were $91 million, down $1.3 million, or 1% year over year, reflecting continued cost discipline. Adjusted EBITDA, which excludes the impact of fair value mark-to-market adjustments on our loan portfolio and notes, was $29 million in the first quarter. This reflects a year-over-year decrease of $4.2 million as lower total revenue and higher net charge-offs more than offset lower interest expense and adjusted operating expense. Adjusted net income was $10 million, down $8.4 million year over year due to lower net revenue, partially offset by lower adjusted operating expense. Adjusted EPS declined year over year from $0.40 per share to $0.21 per share. Finally, GAAP net income of $2.3 million was similarly down $7.4 million year over year. Turning now to capital and liquidity as shown on Slide 9, we continue to strengthen our debt capital structure through continued balance sheet optimization by further reducing higher-cost corporate debt, lowering our overall cost of capital, and enhancing liquidity. I am pleased with the progress we made deleveraging, ending the quarter with a 6.8x debt-to-equity ratio. That is down from 7.6x a year ago and materially lower than the peak leverage of 8.7x we reported in Q3 2024. The improvements achieved since then and through the end of the first quarter include consistent GAAP profitability, a $69 million, or 21%, increase in shareholders' equity, and a $70 million, or 30%, reduction in our high-cost corporate debt. Q1 interest expense was $48 million, which was $9 million, or 16%, lower than the prior-year quarter, supporting our sustained profitability. This was driven by corporate debt repayments as well as actions taken related to our ABS notes and warehouse facilities. Also supporting our strong liquidity position, our cash flow has enabled us to continue to grow our unrestricted cash balance to $130 million as of the end of Q1 2026, up $25 million from year-end 2025 and up $52 million year over year. With this strong cash position, we paid down another $30 million of high-cost corporate debt following the end of the first quarter, lowering our remaining corporate debt principal balance to $135 million. Corporate debt repayments since the facility's October 2024 inception now total $100 million, reducing outstandings from the initial $235 million balance to $135 million, resulting in $15 million in annual run-rate expense savings. On the capital markets side, we completed a $485 million ABS transaction at a 5.32% yield in February. Over the last 12 months, we have issued $1.9 billion in ABS bonds at sub-6% yields, demonstrating our sustained access to capital on favorable terms. Next, I would like to turn to our updated guidance as shown on Slide 10. While our member base remains resilient, inflation above Federal Reserve targets, uneven job creation, policy uncertainty, and higher gas prices continue to create a cautious environment for low- to moderate-income consumers. We are particularly monitoring the impact of high fuel prices on our members, and while we have not seen any deterioration in our metrics as a result, we understand the pressure this can place on our customers if higher prices persist. Consequently, our outlook prudently assumes we maintain a tight credit posture through the balance of the year. We remain well positioned to adjust quickly as conditions evolve. Our outlook for the second quarter is total revenue of $227 million to $232 million, annualized net charge-off rate of 12.2% plus or minus 15 basis points, and adjusted EBITDA of $34 million to $39 million. At the midpoint, our Q2 revenue guidance implies a modest sequential increase from Q1 and a lesser year-over-year decline driven by higher originations from first-quarter levels. Our Q2 annualized net charge-off rate midpoint guidance of 12.2% implies 45 basis points of sequential improvement from the first quarter, supported by the favorable 30+ delinquency trends I discussed earlier. At the midpoint of $37 million, our Q2 adjusted EBITDA guidance implies strong sequential growth and a return to year-over-year growth of $5 million, or 17%, driven primarily by lower interest expense along with ongoing operating expense discipline. We are fully reiterating our full-year 2026 guidance, including total revenue of $935 million to $955 million, annualized net charge-off rate of 11.9% plus or minus 50 basis points, adjusted EBITDA of $150 million to $165 million, adjusted net income of $74 million to $82 million, and adjusted EPS of $1.50 to $1.65. Our full-year 2026 guidance continues to be underpinned by our expectations for a 1% to 2% decline in average daily principal balance, a reduction in interest expense of at least 10%, and substantially flat operating expenses. Also, our full-year annualized net charge-off rate midpoint guidance of 11.9% continues to indicate slight year-over-year improvement. Midpoint growth of 16% in adjusted EPS and 6% in adjusted EBITDA, even amid macro uncertainty for low- to moderate-income consumers, reflects the resilience of both our members and our business model. Before I turn it back to Doug, let me conclude with a brief summary of our unit economics progress. Although our long-term targets are GAAP targets, I will reference adjusted metrics because they remove non-recurring items and better reflect our future run rate. As shown on Slide 11, we generated 10.5% adjusted ROE during the first quarter. With ramping originations and lower credit losses embedded in our full-year guidance, we expect to improve on our first-quarter adjusted ROE performance in the balance of the year and outpace last year's 17.5% adjusted ROE. I am encouraged by the positive fundamentals we exhibited in Q1, particularly year-over-year improvement in cost of funds and operating expense efficiency. Our balance sheet optimization initiatives drove improvement in our cost of funds from 8.2% to 7%, a level well below our 8% target. And expense discipline enabled improvement in our adjusted OpEx ratio from 13.3% to 12.7%, nearing our 12.5% target. Our North Star remains delivering GAAP ROEs of 20% to 28% annually. We plan to achieve this by driving positive credit outcomes, growing the owned loan portfolio, and effectively managing operating expenses. We also intend to continue to drive our debt-to-equity leverage ratio this year toward our 6x target by reducing our debt outstanding and continuing to grow GAAP profitability. With that, Doug, back over to you. Doug Bland: Thanks, Paul. To close, I would like to emphasize that while Oportun Financial Corporation's foundation is stronger than it was, we need to establish predictable outcomes that result in durable growth. My focus now is on disciplined execution, deeper assessment, and coming back to you on our second quarter earnings call with a clearer view of the path forward. I want to underscore that Oportun Financial Corporation's mission to empower members to build a better future will continue. I see a tremendous opportunity to accelerate this mission. It is my focus to partner with our teams to determine ways to accomplish this. I am energized by what is ahead. With that, we will now open the call for questions. Operator: We will now open the call for questions. You may press 2 if you would like to remove your questions from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from the line of Brendan McCarthy with Sidoti. Please go ahead. Brendan McCarthy: Great, thanks, everybody, for taking my questions, and welcome, Doug. I just wanted to start off on the outlook here. Originations were down 11% year over year. That makes sense considering your tighter underwriting position. How does the new risk-based pricing initiative fit into the 2026 guidance that calls for a mid-single-digit increase for the year? Paul Appleton: Thanks, Brendan. I appreciate the question. When it comes to the risk-based pricing initiative, as I mentioned in my comments, we are making good progress rolling out that program. As you know, for most of Oportun Financial Corporation's history, we did price above 36%. As we reintroduce this pricing regime, we certainly want to be thoughtful about the glide path and what it looks like. For guidance, we have embedded a little bit of benefit in there for 2026, but just a small amount given we want to test into it and the program is not live yet. Brendan McCarthy: Understood. I appreciate the color there. Looking at interest expense, it looked like a pretty steep year-over-year decline, and if you annualize Q1 it looks like you are trending well under that target for a 10% reduction in interest expense for full-year 2026. Do you see room there to boost margins over the course of the year? Paul Appleton: Possibly, yes. I see what you are looking at when you look at the run rate there. We are obviously pleased with the progress in paying down the corporate debt. As I mentioned in my comments, we are down $100 million from the initial balance of the corporate loan, and that is driving a $15 million annualized interest expense run-rate benefit. As I mentioned as well, we paid down another $30 million after the end of the quarter, which is included in that $100 million. So yes, there may be a bit of opportunity there, especially given some of the ABS execution we have had recently. Brendan McCarthy: That makes sense. And as a follow-up on leverage, I think you mentioned you are at about 6.8x leverage at this point. You are trending pretty quickly toward your 6x target. How can we think about your capital allocation once you reach that target? How might capital allocation change going forward? Paul Appleton: Great question, Brendan, thank you. The capital allocation priorities we have right now are continuing to invest in profitable growth and paying down the corporate debt. When we pay that down, that comes with a certain return—we know exactly the expense we are going to save, and the corporate debt has a high price to it. We are at that 6.8x leverage you mentioned. As we said on our last earnings call, we do expect to trend toward that 6x by the end of the year. For now, those are going to remain our two priorities, and then we can look beyond that once we reach the target. Brendan McCarthy: That is great. Thanks, Paul. Thanks, Doug. That is all for me. I will hop back in the queue. Operator: Thank you. Next question comes from the line of Analyst with Jefferies. Please go ahead. Analyst: Good afternoon, and thank you for taking my question. Welcome, Doug. I was just wondering if you have seen any changes to demand trends given the high fuel prices. Has this driven more borrowing given cash constraints? Thank you. Paul Appleton: In the first quarter, we continued to see demand outpace our originations, so there is certainly continued robust demand in the market. Analyst: Great, thank you. And then just a second question—thinking about the current mix of digital versus branch originations. Do you plan to evaluate any changes moving forward, and how should we expect this to trend in the future? Gaurav Rana: Thank you. The trends that we have today you can expect to continue through the course of the year. As Paul alluded to, we are still guiding toward mid-single-digit growth in originations, and we have lined up our marketing spend accordingly to drive that growth. Operator: Thank you. Next question comes from the line of Brendan McCarthy with Dougherty. Please go ahead. Brendan McCarthy: Great, thank you. Just a quick follow-up here. On the net charge-off guidance, I think hitting the 11.9% midpoint for the full year assumes a pretty nice step-down in the net charge-off rate to an average of around 11.6% for the rest of the year. How confident are you that you can really hit the midpoint there? What specific credit indicators are you looking for? Paul Appleton: Thank you for the follow-up question, Brendan. As you know, the 12.65% net charge-off rate we reported in the first quarter was elevated but expected—it was the midpoint of our guidance, and we achieved that. As we mentioned on prior earnings calls, the reason for that spike in net charge-offs was due to the mix shift that we experienced in 2025 when new loan originations accounted for a greater share of the mix than they do now. We have since shifted the mix back to returning borrowers, which is a positive tailwind for credit. Then you look at the guidance we set for the second quarter—we are doing that very informed by what we are seeing in roll rates. Late-stage roll rates that will contribute to second-quarter charge-offs are improving. The third positive trend is 30+ day delinquency that I mentioned in the comments, where those are trending lower than the first quarter. All those signs point to continued improvement. As you no doubt have factored in, when you put in the 12.65%, the 12.2%, and the 11.9% target for the full year, that does imply we are at the 11-handle for the second half of the year, in line with our 9% to 11% target. Operator: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to turn the floor over to Doug Bland, Chief Executive Officer, for closing comments. Doug Bland: Thank you, everyone, for joining today's call. Before we close, I want to say a special thanks to the team, in particular Kate, Paul, and Gaurav, for working through the transition. Transition is, even under the best circumstances, never easy, and I think the team has done an excellent job continuing to drive this business focused on discipline, as you heard from the results they achieved during this quarter. I want to thank this team and look forward to working with them as we move forward. We appreciate your continued interest in Oportun Financial Corporation and look forward to speaking with you again soon. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, ladies and gentlemen, and thank you all for joining us for this Energy Fuels Inc. Q1 2026 Conference Call. As a reminder, all participants will have an opportunity to ask questions. As a reminder, today's session is being recorded. It is now my pleasure to turn the floor over to President and CEO, Ross R. Bhappu. Welcome, sir. Ross R. Bhappu: Thank you, Jim. I appreciate the intro. And thank you, everybody, for participating today. I want to start by thanking Mark S. Chalmers. Mark recently retired from Energy Fuels Inc. after almost ten years with the firm. Mark has done a fabulous job putting together a great group of assets and a great team, and as I look forward to my new tenure here as the CEO of the company, I am thrilled to be taking the helm and moving the company into the next generation. We have a lot of work ahead of us, and as I start my tenure in the company, I am focused on a few things. One is executing on our business strategy. It is ensuring that we have the right team in place and it is ensuring that we all operate safely within this organization. That is a key area of responsibility. The other heavy focus of mine is being a good neighbor in the communities where we operate. We want to operate at very high environmental standards and be a truly good partner wherever we go. My focus as I look forward is to position the company for long-term growth and build stability and shareholder value. With that, I would like to turn our attention to the next slide, which is our forward-looking notice and forward-looking statements. We will be making—I will be making—forward-looking statements today. These statements reflect our current expectations and assumptions and certainly involve some uncertainties. I would refer you to our 10-Q filing, our latest 10-K, and other SEC and SEDAR+ filings for the risk factors. Looking at our next page, the first-quarter highlights: we had a fantastic first quarter by every measure, and I am excited to tell you about some of these accomplishments. First, from an operational perspective, we mined 425 thousand pounds of uranium and we produced nearly 800 thousand pounds in our mill. We ended the quarter with 2.25 million pounds in our inventory, and we released a very positive Varamata feasibility study with a $1.8 billion NPV, and that includes over $500 million per year of expected EBITDA. When you think about that and put that into perspective, that takes Energy Fuels Inc. to a whole new level. We also completed our White Mesa Mill Phase 2 bankable feasibility study, and that came in with a fantastic, lower-than-expected capital cost at $410 million. We expect $311 million of annual EBITDA when that facility is up and running on a standalone basis. We also announced the ASM (Australian Strategic Materials) acquisition, which I am going to talk about later. It really moves us into a new league and gives us the ability to produce metals and alloys, and we will talk about that later. Also during the quarter, we produced our first terbium. Terbium is one of those exotic heavy rare earth minerals that everybody is seeking in their magnets, and it really puts us into a different league. We have gained, as a result of those announcements, substantial interest from off-takers. From a financial perspective, we have a robust balance sheet of over $950 million of liquidity. We generated $8 million of EBITDA, and we had sales and revenue from both a combination of contract and spot sales in the uranium business. In addition, we are continuing to work on expanding our Phase 1 facilities. Recall Phase 1 is our uranium processing line that we recently converted to process rare earth minerals. We are expanding our current capabilities in Phase 1—what we are calling Phase 1B—which will allow us to produce commercial quantities of terbium and dysprosium. And then we are adding Phase 1C, which will allow us to process MREC material. MREC is mixed rare earth carbonates, and that puts us into a different league. The fantastic aspect of that is we will be able to process rare earth minerals and uranium simultaneously with Phase 1C. Finally, in the quarter, right at the very end of the— Operator: Ladies and gentlemen, this is the operator. Please remain connected. Ladies and gentlemen, we appreciate your patience. Please remain online. We are attempting to reestablish connection with our speakers. Ladies and gentlemen, this is the operator once again. We thank you for your patience. Please remain online as we try to reestablish connection with our presenters. Ladies and gentlemen, this is Jim, your operator, once again thanking you for your patience as we reconnect with our speakers. Thank you all. Ladies and gentlemen, this is your operator. I thank you for your— Ross R. Bhappu: Patience. Operator: I believe we have Mr. Bhappu reconnected. Thank you all. Ross R. Bhappu: Thank you, Jim. And ladies and gentlemen, I apologize for that mishap. I am not exactly sure what happened, but I hope you can hear me now. I would like to go back and start—I do not know where we cut off—so I am going to start back on our first-quarter highlights. By any measure, Q1 2026 was a very good quarter for Energy Fuels Inc., and I am excited to tell you about it. From an operational perspective, we mined 425 thousand pounds of uranium and produced nearly 800 thousand pounds through the mill. At the end of the quarter, we ended with 2.25 million pounds in inventory, and we released a very positive Varamata feasibility study. That study showed an NPV of $1.8 billion, and we are anticipating over $500 million per year of expected annual EBITDA. This takes Energy Fuels Inc. to a new level by any measure and is a game changer for us. We also released the White Mesa Mill Phase 2 feasibility study. We were pleasantly surprised that our CapEx came in lower than anticipated at $410 million. Economics of that project are robust and provide for a $1.9 billion NPV. The IRR on that project is about a 33% rate of return. We expect EBITDA from Phase 2 to be about $311 million, and that is on a standalone basis, not including taking into account our Varamata feed as well as other feed. We produced our first terbium this quarter, which again is a game changer. It is being done at a pilot-plant scale. We are producing about a kilogram per week, and we have gained incredible interest from all those announcements across the board. The other announcement, of course, was the announcement of the ASM acquisition, Australian Strategic Materials. ASM is a rare earth metal and alloy producer, and that is a game changer. It helps open a choke point that exists in our sector for rare earths. From a financial perspective, we have a robust balance sheet. We have $950 million of liquidity. We generated $8 million of operating cash flows last quarter—in Q1. We have sales revenue from a combination of both contract and spot sales, and we would like to keep a balance of both contract and spot sales, and that has worked well for us in the past. In addition, we are working on a number of exciting opportunities—at least we started working on them in Q1. The first one is Phase 1B. Recall that Phase 1 of our mill is our uranium facility that we converted to process rare earths. Today, we can only process either uranium or rare earths. We cannot do them simultaneously. But we are trying to fix that, and we are adding Phase 1B, which will allow us to produce heavies, both dysprosium and terbium. We will also be able to produce other heavies like samarium, europium, gadolinium, and possibly yttrium depending on market conditions. Phase 1C will allow us to process MREC material. MREC is a product coming from ionic clays, and that will allow us to process both uranium ores as well as rare earth ores simultaneously, which we cannot do today. Also, I would like to highlight that at the end of the quarter, we published our sustainability report. It is a strong demonstration of what we are doing in sustainability, and I encourage you to take the time to have a look at that report. It is on our website. For those of you who are new to Energy Fuels Inc., I would like to give a bit of background on our capabilities. Energy Fuels Inc. started its life as a uranium company. We have been in the uranium business for over 45 years in various forms, and we built that uranium capability through mining and processing at our White Mesa Mill. Given that expertise, we carried that over to rare earth minerals. Recall that all rare earth minerals contain some level of either uranium or thorium—they are all radioactive to some extent. Our knowledge and expertise in the uranium business has allowed us to be a leader in the processing of those rare earth minerals. The mineral of choice for us is monazite. Monazite is a byproduct from heavy mineral sands, and that has allowed us to get into the heavy mineral sands business and we now own three heavy mineral sands operations plus another mining operation called Dubbo with the ASM acquisition. I will talk about monazite and why it is our mineral of choice here in a few minutes. While the three areas—those three sectors—look quite disparate, they actually flow quite well together. The thing they have in common is that they all contain radioactive components, and that really defines Energy Fuels Inc. today. Looking at a global footprint of where we are, on the far left side the dark blue dots and highlights represent our uranium business. In the middle on the left side, the yellow box is our White Mesa Mill that really brings everything together and allows us to do everything else that we are doing. Across the bottom of the page, the red boxes represent our heavy mineral sands opportunities and projects. Those will not only produce titanium and zirconium products, but they will also provide us the monazite that we will feed into the facility at White Mesa, our mill in Utah. With the addition of ASM, we now have an operating metallization facility located in Korea. We are planning to replicate that facility with an American metals plant here in the United States. So it is very much a global footprint, very much a growth story, and very much an exciting story for critical minerals here in the U.S. Carrying this over now to our uranium highlights: recall that Energy Fuels Inc. is the largest producer of uranium in the U.S. We mined 425 thousand pounds from both La Sal and Pinyon Plain last quarter. Last year, we produced 1.7 million pounds from those two mines. The White Mesa Mill produced about 800 thousand pounds in Q1, and to date we are about 1.2 million pounds of uranium from the White Mesa Mill. We continue to build a strategic base of uranium, and we sell opportunistically into the spot market, but we also have a set of long-term contracts. The U.S. is heavily reliant on imports of uranium, and we are trying to help solve that problem. It still amazes me that we are taking uranium material from Russia. I know that is going to end soon, but we would like to be a part of solving that. When we look at the market trend for uranium, you cannot help but be excited about what is happening in the nuclear energy space and the need for more uranium. We will continue to offer uranium on both the balance of contract and spot sales. The older contracts are set to expire over the next few years. Recall those are lower-priced contracts, but those allowed us to restart our uranium operations a few years ago. The new contracts will continue to have price floors and ceilings. We are excited about the opportunities there. Moving to the White Mesa Mill in Blanding, Utah: the White Mesa Mill really makes everything possible for us at Energy Fuels Inc. It is truly a national treasure by any measure. It is 45 years old and is using state-of-the-art technology and equipment for processing not only uranium but rare earth minerals. We are often asked what it would take to replicate that facility. It is hard to put a price tag on it because it is not easily replicable, mainly due to permitting challenges, and the time to replicate that facility would be very extensive. The dual-commodity processing of both rare earths and uranium is unmatched in the Western world. Our history of uranium processing provides us with an incredible track record for processing not only uranium but also rare earth feedstock. We are the only facility in the United States that can commercially process monazite at that mill. On our rare earth highlights: we are building a fully integrated mine-to-alloy chain for critical minerals. Through the acquisition of ASM, we plan to capture value across the supply chain, and we are not beholden to any other part of the chain by having this self-reliance of vertical integration. We have a fabulous team at the White Mesa Mill. We are actively producing heavy rare earths at the pilot plant that we have been sending out for validation. As mentioned previously, we are preparing to expand Phase 1, and that includes Phase 1B, which will allow us to process terbium and dysprosium. Phase 1C will allow us to produce and process MREC. MREC, as I mentioned, comes from ionic clays, and it is a valuable source of rare earth minerals that will enable us to produce both uranium and rare earths simultaneously. Then we have Phase 2. For Phase 2, we are in the permitting process, and we hope to have those permits by the end of next year. When fully commissioned, we will be able to produce over 6 thousand tons per year of NdPr. We will truly be a substantial supplier of rare earths. The question we often get is: why monazite? Monazite offers a number of benefits. First, it is a very high-grade source of rare earth minerals. It typically contains 50% to 60% total rare earths, and it is high in neodymium and praseodymium, and equally high in dysprosium and terbium—very attractive. In addition, it also contains uranium, which we recover and sell as a byproduct of the rare earth processing. Monazite has a lot of benefits. Another benefit is, as a byproduct of heavy mineral sands, the production cost can be shared across a number of different commodities. Again, the White Mesa Mill is the only facility in the U.S. that can process monazite commercially. We announced the acquisition on January 20 of Australian Strategic Materials (ASM). ASM really provides a unique opportunity for Energy Fuels Inc. Outside of China, there are very few rare earth metallization factories, and ASM has a commercial operating facility in Korea. The vertical integration from mine to alloys provides a tremendous competitive advantage, including expanded margins and greater market share, and it has resulted in very positive feedback from our off-takers. The acquisition is progressing very well. We recently obtained our FIRB approval—FIRB is the Foreign Investment Review Board, equivalent to CFIUS in the U.S.—and that approval was an important part of the process. We are targeting closing that transaction in early July, and it is progressing quite well. On the heavy mineral sands side of the business, heavy mineral sands are very important. They allow us to obtain the monazite as a byproduct, and they also contain titanium and zirconium minerals used across a wide range of industrial applications, including pigments, metals, ceramics, chemicals, refractories, foundries, and nuclear applications. Energy Fuels Inc. has three heavy mineral sands projects, and with the ASM acquisition, we will hold an important polymetallic operation as well. The Varamata project is our project in Madagascar. We are advancing that. We are working towards obtaining a government stability agreement, also called an investment agreement. That work has been underway for some time, but with the change in government recently, we have had a bit of a delay getting that investment agreement signed. We continue to have very good engagement with the government of Madagascar, and we are looking forward to progressing that through the balance of this year. The Donald project, in Australia, is where we are earning a 49% joint-venture ownership. Donald is shovel-ready. It has obtained all of its permits. We are looking to make a final investment decision in the next few months. The one thing holding us back is finalizing our financing and offtake agreements. We are making very good progress and hope to be able to announce that FID fairly soon. The Bahia project is a 100%-owned project in the state of Bahia in Brazil. We are conducting drilling there, and we hope to have a scoping study or a PFS done later this year. Finally, we have the Dubbo project, which comes from the ASM acquisition. Dubbo is not a heavy mineral sands project—it is a polymetallic project—but it has very high critical minerals grades, and we hope for that to provide further feedstock to the White Mesa Mill in the future. The next slide is interesting because it shows just how global we are, especially in delivering rare earth minerals to the White Mesa Mill. Our three heavy mineral sands projects supply monazite—one in Australia, one in Brazil, and one in Madagascar. Those supply the monazite feedstock to the White Mesa Mill. White Mesa Mill will process those rare earth minerals and produce oxides. The oxides will then go either to Korea or, once we build our facility in the U.S. for metallization, to the U.S. for processing. From there, it gets sold to magnet manufacturers and end producers. We truly are a global company and excited about our opportunities. With that, I would like to hand this off to Nathan Bennett, our CFO. He is going to talk about the financials for the quarter. Nathan Bennett: Yes. Thank you, Ross, and good morning, everyone. As we look at the financial updates for Q1 2026, we continue to maintain a strong financial position as we prepare to develop our long-term projects. We finished with $957 million in working capital and $1.4 billion in total assets. This working capital continues to reflect the $621 million in net proceeds received from our convertible note offering that we completed last year in the fourth quarter that we have yet to draw down on. The working capital also includes 2.2 million pounds of uranium, about half in finished inventories and the other half in process or in ore pile. This liquidity gives us the financial flexibility to advance our strategic projects, be opportunistic as the market evolves, and deliver on our guidance. Looking at the P&L, we continue to see improvement in our net loss, with a net loss of $11 million in Q1 2026. This compares to a net loss of $26 million in Q1 2025 and a net loss of $21 million in Q4 2025. This improvement is due to the increase in our uranium revenue and sales, and also an increase in income from our marketable securities from invested cash. This is partially offset by higher operating costs and transaction costs, as you see in the P&L, as we progress our global strategy. Now, noting our guidance, we do anticipate uranium sales to continue throughout the year to help offset our burn rate as we progress our projects and our strategy. Looking at our segment footnote—footnote 19 of the 10-Q—we noted that our uranium segment has shown promising results as we begin to be profitable, and we expect this trend towards profitability to continue in our uranium segment. As we look at our revenue and our sales, we took advantage of spot price increases during the quarter. We sold 100 thousand pounds at an average price of $95.88. Looking at our long-term utility contracts, as forecasted, we sold 110 thousand pounds at just under $64 per pound. We expected these sales at this price as it relates to some of our initial long-term agreements entered into back in 2022 and 2023. We entered into these agreements when uranium prices were beginning to increase, and these contracts really supported the decision to go forward with mining at Pinyon Plain and our La Sal Complex. Now looking at our uranium production and moving forward throughout the year, for Pinyon Plain, we mined 375 thousand pounds with an average grade of 1.12%, which was from a lower-ore-grade area as our mining moves between high-grade zones. These ore grade fluctuations are expected as we mine different segments of the ore deposit, and we expect these ore grades to increase throughout 2026. These fluctuations were contemplated in our mining production guidance. At the mill, in accordance with our guidance, we continued processing Pinyon Plain and La Sal ore through Q1. We processed over 800 thousand pounds through March, as Ross noted, and we reached the 1 million-pound milestone for the year during April. These are exciting results, as the last two quarters have shown the mill’s capabilities above expectations, having not run at these levels in many years. Our all-in cost for mining, transportation, and processing continues to be within our expected range of $23 to $30 per pound, and we expect this to continue throughout the rest of the year. We also expect processing at the mill to continue throughout 2026, but we note that we will pause processing for planned maintenance downtime scheduled at the end of Q2 and the beginning of Q3. As the mill processes ore at a faster rate than we can mine, the downtime will allow mine production to catch up and replenish our ore piles at the mill. We expect our mill processing to continue to be within our guidance of 1.5 million to 2.5 million pounds for the year. Looking at our inventory and cost, we continue to see a decline in our inventory costs as we produce low-cost Pinyon Plain pounds, decreasing to $36 per pound at the end of the quarter. This decrease is expected, and we expect it to continue as we mine throughout the rest of the year at Pinyon Plain. We note our cost of goods sold is expected to decrease closer to $30 per pound throughout 2026 as we sell through inventory and add low-cost Pinyon Plain production. This will help improve our gross margins and our profitability in our uranium segment. We finished with 1.1 million pounds at $36 per pound, with another 1.1 million pounds in process and ready to be processed. This gives us sufficient inventory to meet our processing and sales guidance and to meet our long-term utility contract commitments for the remainder of 2026 and 2027. Updating guidance: we continue to anticipate being within our guidance ranges. Starting with mining, we mined 425 thousand pounds between our Pinyon Plain and La Sal Complex. We will continue to mine during the downtime at the mill to replenish the ore piles. We expect ore grades and pounds at Pinyon Plain to increase as we move into higher-grade zones. At the mill, as noted, we hit our processing milestone of over 1 million pounds during April, and we are starting to near the bottom end of the range by the end of Q2. We expect to be within the range anticipated even with the planned maintenance downtime. For sales, we sold 510 thousand pounds during Q1. We expect sales to continue and to be in line with our guidance, with both sales under our long-term contracts and spot sales depending on market conditions. With that, I will turn it back over to Ross for some final thoughts on our 2026 activity. Ross R. Bhappu: Thank you, Nathan. I would like to finish our presentation by talking about some of our objectives for the balance of 2026. For me, it is all about execution. We have an incredible asset base, incredible mines to develop, and an incredible facility at White Mesa. Now it is all about execution. We are going to focus on Phase 2 permitting. We are going to focus on Phase 1B and 1C—get that construction going and finalized. We hope to be operational on Phase 1B and 1C late in 2027. We hope to make our Donald FID very soon; we are very focused on that. We are going to continue to advance our Varamata project both on the engineering side and on the investment agreement and government relations side. We have a big social outreach program and a big focus on the communities there that will continue. We are going to continue advancing our drilling and engineering work at the Bahia project. Finally, a big focus of mine is for our company to operate safely and in a sustainable way. I encourage you to have a look at our sustainability report that we just released. I think you will find it very impressive. I am really proud of what this team has accomplished in the first quarter. I am excited to be taking the helm of the company and moving it forward through the rest of 2026 and beyond, and I am very excited for what we have going forward. With that, I would like to end our formal presentation and turn it back over to Jim for questions and answers. Operator: We will now open the call for questions. Thank you. To our audience joining today over the phones, at this time, if you would like to ask a question, simply press star and one on your telephone keypad. Pressing star and one will place your line into a queue, and I will open your lines one at a time. We will hear first from Anthony Taglieri at Canaccord Genuity. Anthony Taglieri: Thanks, and good morning. Maybe just starting with the uranium side of things. How much finished inventory are you maintaining? We saw you sell 100 thousand pounds in Q1 on the spot market, close to $100 per pound. Should we expect you to sell up to the high end of the sales guidance range if prices came back to around those levels? Ross R. Bhappu: First, we have to maintain sufficient inventory to meet our contractual obligations. That is a driver. We also want to maintain optionality where we can switch the mill over from uranium to processing rare earths depending on market conditions. It is a bit of a balance. When you look at our guidance, we have relatively wide ranges of uranium sales largely because of that—maintaining enough inventory to meet contractual obligations, having some available for the spot market, and preserving flexibility to transfer the mill operations from uranium to rare earths at any point in time. We will continue to process uranium as heavily as we can. When we see prices going over $100, as they did earlier this year, we will certainly take advantage of that. Longer term, we see uranium prices escalating, and we want to maintain optionality around that. It is a bit of a balance, and I would say it is a bit of an art, but that is why we are going the direction we are. Anthony Taglieri: Great, thanks. As a follow-up: in the first quarter, you sold about half of your long-term sales commitments for the year, it seems. Should we expect the remaining portion of that to come in the second quarter, or will it be staged differently throughout the year? Ross R. Bhappu: I think it will be staged throughout the year. We have big contractual obligations in the first quarter, and we will be meeting those through the balance of the year. There were some pretty big sales that came as a result of one of our big contracts, but I anticipate we will smooth that out through the balance of the year. Operator: Thanks. Our next question will come from B. Riley Securities. Analyst: Thank you, team, and congratulations on the quarter. My first question: rare earth companies that are standalone are trading meaningfully at higher multiples than diversified miners. As the rare earth business scales—when Donald, ASM, Varamata all come together—do you think about spinning the business out and operating as two distinct businesses, rare earths and uranium? Ross R. Bhappu: It is an interesting issue. Rare earth companies trade at higher multiples; uranium companies a bit lower; heavy mineral sands companies even lower. Our view is that we want to be integrated across those three sectors. It is vitally important technically and commercially that we control our own feedstocks. If we are going to be a monazite processing company and an MREC processing company, we want to control our own molecules. Spinning out the heavy mineral sands side is something we might consider in the future, but right now it is so important as a source of feedstock for us, and we want to be in control of it. I will leave it to you and other analysts to figure out how to value us, but I believe the bulk of our revenue, as I look forward, will come from rare earths. We will have continuing revenue from uranium and will be ramping up revenue from heavy mineral sands. We will live with how you weight those, but I would be hesitant to give up control over the feedstock going into our mill. Analyst: That is very clear, Ross. On another line, how are you reading the uranium market right now? Prices have been strong and holding above the $80 per pound threshold. Are you seeing any utility customers signaling urgency to lock in domestic supply, or is the contracting still moving slowly? Ross R. Bhappu: You see headlines from companies in the SMR business with amazing future projections. The only way they are going to feed those SMRs is with uranium. We have not seen the utilities ramping up their buying schedules yet. I fully expect we will see that. I am confident there will be more focus on ensuring supplies of uranium going forward. To the best of my knowledge, we have not seen a huge increase in demand or discussions from the utilities to date, but I expect that will change. Every research group that studies uranium and the nuclear industry shows the supply and demand balance is going to come out of alignment in the next few years. You are just going to need more uranium. I remain very bullish on uranium personally, and we talk about it internally quite a lot. Operator: Our next question will come from Brian Lee at Goldman Sachs. Brian Lee: Hey, thanks for taking the questions. On Varamata, a little bit of a delay there. Can you elaborate on how much of a delay, what needs to happen to get that back on track, and any milestones through the year that might improve visibility? Ross R. Bhappu: The change in government that happened in September/October really slowed the process down. We were very close to signing an investment agreement around that time, but the change in government slowed things. We have been spending considerable time in-country in Madagascar. I am joined here by Nathan Longenecker, our General Counsel, who has been spending a lot of time in Madagascar. Let me let him add to that. Nathan Longenecker: We continue to push it forward. The government is relatively new, but we have been meeting fairly regularly with the highest levels, and our discussions have been met with a fair bit of support. The government has been supportive of the project. There are a number of things we need to get in place. The document itself has many aspects and takes time to finalize. That is generally where we are—working with the government. Brian Lee: Fair enough. Related to that, any updated thoughts around sourcing monazite in the open market as you are waiting for upstream assets to reach FID and move to production? Monazite pricing has come down a decent amount recently. Any thoughts around using that more as a bridge? Ross R. Bhappu: We will need to source monazite. We have three sources internally of monazite. We also have an agreement with Chemours to source monazite from them. To keep Phase 2 at White Mesa full, we will need additional sources—a small amount, but additional nonetheless. We have a very active business development and partnerships group in discussions with a host of suppliers. Groups in production today are selling their monazite almost exclusively into China, and Western companies doing that are looking for alternative outlets. We have many discussions ongoing, and we will have additional sources of monazite to feed our mill. Operator: Next, we will hear from Justin Chan at SCP Resource Finance. Justin Chan: Hi, Ross and team. Thanks for hosting the call. On uranium processing, you could run a longer processing campaign, etc. What is your current thinking in terms of how long you intend to process uranium for? Ross R. Bhappu: The mill operates at a higher rate than our mines produce ore, so the mill will outrun the mines, at least for now. We will be able to process ore for probably another four to six weeks, then we are going to shut down for maintenance and do some modifications to the mill. That will allow us to build our uranium stockpiles. Then we will have to choose whether we restart with uranium or with rare earths, and a lot depends on market conditions. We are over 1 million pounds processed so far this year. We will get through the next month to month and a half, shut down for probably a couple of months for maintenance, and then decide whether to start back up with rare earths or uranium depending on market conditions. Justin Chan: If nothing changes from now, how would that influence your thinking? Ross R. Bhappu: If nothing changes, we would probably start back up with uranium processing and continue uranium processing through the balance of the year. Justin Chan: Thanks, that is clear. You mentioned Phase 1C will give you optionality to process rare earth minerals alongside uranium. Will you be receiving MREC from third parties, or could you make your own MREC stockpiles? Ross R. Bhappu: It would be primarily sourced from ionic clays via third parties. Early on, when we ran the mill, we produced an MREC material at our own facility from monazite, but we do not anticipate doing that going forward. There are a number of third parties looking for a home for their MREC, and we think we can help fill that void. Justin Chan: When you have your own dedicated rare earth processing lines and are processing monazite, would you still retain capacity to receive additional MREC or does that create a blending issue? Ross R. Bhappu: No blending issue. The separate facility we are building—Phase 1C—will allow us to continue to process MREC in addition to processing monazite through Phase 2. We will maintain the capability to process MREC along with monazite. Justin Chan: With that capacity, does that change your strategic thinking about having your own potential upstream ionic clay feed? Ross R. Bhappu: We are always going to be opportunistic. If there is an opportunity to acquire an ionic clay and an MREC producer, we would certainly consider that if it made sense. Operator: Next, we will hear from Noel Parks at Tuohy Brothers. Noel Augustus Parks: Good morning. On Donald, could you give a sense of what remains on finalizing the offtake agreements, which in turn will help get to the FID? Ross R. Bhappu: Good to talk to you, Noel. Donald will produce a heavy mineral concentrate as well as monazite. There are two separate offtake agreements we need to finalize—one on heavy mineral concentrate and another on various rare earth products. Coordinating offtake agreements across different commodities is time-consuming, and it has taken longer than anticipated. Once you get those locked in, that impacts your financing, so they go hand in hand. We are having discussions with various financing parties as well as offtake parties, and they are different groups you must coordinate between, which creates complexity. That is also compounded by having a joint-venture partner—Astron—so financing and offtake agreements must also be agreeable to our JV partner. What from the outside looks straightforward is actually complex and time-consuming, and it has delayed us making the FID more quickly. We are very focused on getting the FID as quickly as possible and getting that mine up and running. Noel Augustus Parks: Thanks. On rare earths, in the past you mentioned how what the market wants has been evolving and that has informed your decisions about which products you pursue and in what order at the mill. Could you update us on how you see demand shifting for particular elements going forward? Ross R. Bhappu: Demand signals often reflect what producers can actually make. We continue to see very strong demand for dysprosium and terbium. Not everybody can produce those heavies. Magnet manufacturers are trying to design magnets that reduce reliance on dysprosium and terbium, but they have not solved that yet. There remains big demand for Dy and Tb in magnets, and I think that continues for the foreseeable future. At the mill, we want the ability to produce the full suite of heavies—not just dysprosium and terbium, but also samarium, gadolinium, europium, and yttrium—because there is demand for those. Yttrium demand in the aerospace industry, for example, is very strong. The heavies allow motors to operate at very high temperatures, and alternatives without heavy rare earths have not been proven at scale. There is some wishful thinking out there, and perhaps that will happen in the future, but we are seeing a lot of requests from potential off-takers for Dy and Tb. Operator: Next, we will hear from Matthew Key at Texas Capital. Matthew Key: Good morning, and thanks for taking my questions. What market indications would you need to see to move ahead with some of the medium-term uranium projects? As you mentioned, mined ore is the main bottleneck. Would it be economic at current spot pricing to bring a couple of those online? Ross R. Bhappu: Timely question—we just had a meeting on prioritizing our pipeline. At current prices, you start to consider bringing some of those online. One question is where pricing will go. If we see prices well over $100 per pound, which we anticipate at some point, that brings a lot of the pipeline into a real opportunity. At these prices, we are happy with what we have operating—La Sal and Pinyon Plain—and we have Nichols Ranch on standby. We will continue to permit and advance development projects and be ready to put them into production as soon as we feel there is a long-term sustainable price above a project-specific threshold. Thresholds vary by project. We think about this every day, even if I cannot give you a hard number. Matthew Key: Got it. Would you ever consider selling Nichols Ranch as an ISR project, given it is different than the conventional portfolio? Could that generate incremental liquidity, or is the plan to eventually develop it? Ross R. Bhappu: If you are making an offer, we will certainly think about it. We are excited about Nichols Ranch. We like that it is ready and on standby. We could get it up and running in probably four to six months if we pull the trigger. We like that optionality. That does not mean we would not consider a great offer, but we like the optionality today. Matthew Key: Understood. One more on the Dubbo project. If the ASM transaction closes, could Dubbo be used as feedstock for White Mesa, or would it operate more as a standalone project? Ross R. Bhappu: Great question. It is not a heavy mineral sands project—it is polymetallic with high critical mineral credits like niobium, as well as rare earths. The current plan from ASM is to use heap leach and semi-processing to produce a rare earth hydroxide that would then come to the White Mesa Mill for treatment—much like an MREC material. That approach was driven largely by capital cost considerations versus building a mill and producing more of a concentrate on-site. After we close, we want to review the engineering to make sure we agree with ASM’s path or consider alternatives to extract the best value, including for products like niobium. Right now, the plan is to produce a hydroxide that we would then process at White Mesa. Operator: We have no further questions from our audience this morning. Mr. Bhappu, I am happy to turn the floor back over to you for any closing remarks. Ross R. Bhappu: Thank you to everybody for participating. This is my first earnings call as the new CEO, and I am excited to be in this role and to take the company forward. Please keep a watch on our company because we have a lot of exciting things happening. Thank you. Operator: Ladies and gentlemen, this does conclude today’s Energy Fuels Inc. Q1 2026 conference call. We thank you all for your participation. You may now disconnect your lines. Have a great day.
Operator: Welcome to the Mineralys Therapeutics First Quarter 2026 Conference Call. It is now my pleasure to introduce your host, Dan Ferry of Life Science Advisors. Please go ahead, sir. Daniel Ferry: Thank you. I would like to welcome everyone joining us today for our first quarter 2026 conference call. This afternoon, after the close of market trading, we issued a press release providing our first quarter 2026 financial results and business updates. A replay of today's call will be available on the Investors section of our website approximately 1 hour after its completion. After our prepared remarks, we will open up the call for Q&A. Before we begin, I would like to remind everyone that this conference call and webcast will contain forward-looking statements about the company. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in today's press release and our SEC filings, including our annual report on Form 10-K and subsequent filings. Please note that these forward-looking statements reflect our opinions only as of today, May 6, 2026. Except as required by law, we specifically disclaim any obligation to update or revise these forward-looking statements in light of new information or future events. I would now like to turn the call over to Jon Congleton, Chief Executive Officer of Mineralys Therapeutics. Jon Congleton: Thank you, Dan. Good afternoon, everyone, and welcome to our first quarter 2026 financial results and corporate update conference call. I'm joined today by Adam Levy, our Chief Financial Officer; Dr. David Rodman, our Chief Medical Officer; and Eric Warren, our Chief Commercial Officer. I'll begin with an overview of the business, our clinical programs and recent milestones, followed by Adam to review our first quarter financial results before we open up the call for your questions. Our NDA acceptance in the first quarter has been the culmination of a massive effort by our team and our mission to provide more healthy days to patients with cardiovascular disease. From an operational perspective, we're focused on preparing lorundrostat for a successful launch in the United States, while we continue to evaluate partnering opportunities and consider the next steps in the clinical development of lorundrostat. During the first quarter, the FDA accepted the NDA for lorundrostat for the treatment of adult patients with hypertension in combination with other antihypertensive drugs and assigned a PDUFA target date of December 22, 2026. This represents a significant regulatory milestone for lorundrostat that moves us meaningfully closer to our goal of delivering a potentially best-in-class therapy to patients with uncontrolled or resistant hypertension. The NDA is supported by a comprehensive clinical data package, including positive results from the Launch-HTN and Advance-HTN pivotal trials, Transform-HTN, our open-label extension trial and the proof-of-concept trials, Target-HTN and Explore-CKD. Collectively, these 5 trials demonstrated that lorundrostat delivers clinically meaningful reductions in blood pressure, is well tolerated and maintains a durable response across diverse patient populations. We believe this data package supports the potential for lorundrostat to be included in prescribing guidelines, the economic value of lorundrostat to the health care system and lorundrostat as a differentiated novel therapy. Uncontrolled and resistant hypertension continue to represent areas of significant unmet medical need, affecting over 20 million people in the United States and contributing significantly to cardiorenal complications. Aldosterone dysregulation often plays an important role in resistant hypertension, where patients on 3 or more antihypertensive medications fail to achieve their blood pressure goal. The launch of lorundrostat, if approved, will be initially focused on this population with the highest need. Our ongoing market research highlights the following 3 key factors: one, prescribers prioritize magnitude and consistency of blood pressure reduction and have stated a consistent willingness to prescribe lorundrostat in the fourth line. Two, payers recognize the high-risk nature of patients whose hypertension is uncontrolled on 3 or more medications and have expressed a willingness to provide coverage for lorundrostat. Three, patients are seeking meaningful and sustained blood pressure reductions that are tolerable and simple to integrate into their daily lives. They're very receptive to novel agents like lorundrostat that may help them achieve their goal. As we move towards our PDUFA target date, our operational focus will continue to be on preparing lorundrostat for commercial success. Our teams are working on early market access planning and payer engagement to ensure the value proposition of lorundrostat is clearly understood. In parallel, we continue to invest in physician advocacy with our medical communications capabilities, including broader education of the unmet need in uncontrolled or resistant hypertension through peer-reviewed publications, increased participation in scientific meetings and the continued build-out of our field-based medical science liaison team. We are also expanding our sales and marketing capabilities to ready lorundrostat for success. Together, these activities are intended to support awareness of the clinical profile and position lorundrostat for a potential commercial launch. We continue to evaluate partnering opportunities and engage in strategic discussions. The right partner could provide enhanced value and enable us to reach more patients who could benefit from lorundrostat. Our focus on preparing for a strong commercial launch is invaluable to potential business development partners. I will now turn the call over to Adam to review our financial results for the first quarter 2026. Adam Levy: Thank you, Jon. Good afternoon, everyone. Today, I will discuss select portions of our first quarter 2026 financial results. Additional details can be found in our Form 10-Q, which will be filed with the SEC today. We ended the quarter with cash, cash equivalents and investments of $646.1 million as of March 31, 2026, compared to $656.6 million as of December 31, 2025. We believe that our current cash, cash equivalents and investments will be sufficient to fund our planned clinical trials and regulatory activities as well as support corporate operations into 2028. R&D expenses for the quarter ended March 31, 2026, were $24.4 million compared to $37.9 million for the quarter ended March 31, 2025. The decrease in R&D expenses was primarily driven by a $15.5 million reduction in preclinical and clinical costs following the conclusion of our lorundrostat pivotal program in the second quarter of 2025. This decrease was partially offset by $1.1 million of increased clinical supply, manufacturing and regulatory costs and $0.8 million of increased personnel-related expenses resulting from headcount growth and increased compensation. G&A expenses were $21 million for the quarter ended March 31, 2026, compared to $6.6 million for the quarter ended March 31, 2025. The increase in G&A expenses was primarily driven by $7.9 million of higher professional fees, $6.1 million of increased personnel-related expenses resulting from headcount growth and increased compensation and $0.4 million from other general and administrative expenses. Total other income net was $6 million for the quarter ended March 31, 2026, compared to $2.2 million for the quarter ended March 31, 2025. The increase reflects higher interest earned on investments in our money market funds and U.S. treasuries due to higher average cash balances invested during the quarter. Net loss was $39.3 million for the quarter ended March 31, 2026, compared to $42.2 million for the quarter ended March 31, 2025. The decrease was primarily attributable to the factors impacting our expenses that I just described. With that, I will ask the operator to open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from Michael DiFiore with Evercore. Michael DiFiore: Two for me. Number one, in a scenario where Mineralys launches lorundrostat itself without a partner, will you conduct any more significant R&D activity or business development? Or will you preserve funds just to support the launch and focus on the launch? And separately, as you near the day 120 safety update, it may have already passed, I'm not sure, can you comment on whether safety remains consistent with the past and whether there's updated plans to publish data from the OLE? Jon Congleton: Yes, Mike, thanks for the questions. To the first one, in the event that we launch, we, from the beginning, have been focused on how do we build value with lorundrostat, how do we do that by extension for Mineralys. We have built this organization from the beginning. I think about our clinical development program with an eye towards how do we generate the greatest value from a commercial standpoint launching, whether it's on our own with a partner or through someone else. And so I think it's fair to say we're going to continue to look at ways that we increase value for lorundrostat and Mineralys. If you think about the development program to date, we've done that. Launch-HTN, obviously, spoke to the real-world population. Advance-HTN stands out on its own because it's a very distinct complicated population that no one else has studied with an ASI. Explore-CKD provides information for prescribers looking at the complexity of resistant hypertension in nephropathy or CKD. So we've always had an eye towards meeting the physicians where they are, what they need with lorundrostat and building the appropriate data around that. So we'll continue to look at opportunities to build value from a clinical development perspective. And we'll continue to look at opportunities to expand the value of lorundrostat through business development. To your second question around the 120-day safety mark, we continue to be very confident in the safety profile of lorundrostat. The Transform-HTN trial or open-label extension continues to collect that data. We think lorundrostat is well characterized from a durable effect and safety and tolerability profile perspective. And as we've noted in the past, we'll be looking to get that long-term data published in due course. Operator: Our next question comes from Richard Law with Goldman Sachs. Jin Law: A couple of questions from me. Do you get a sense that you need to compete with AZ on preferred or exclusive access with payers based on some of the discussions that you're having? And also, what is your confidence level on getting access to that 3L setting compared to fourth and the fifth L setting? Is your 3L strategy based on a broader use? Or is it more on the smaller niche population? And then I have a follow-up question. Jon Congleton: Yes, Rich, thanks for the questions. As we've talked about in the past, our clinical development program looked at that third line or later opportunity, both Advance and Launch looked at that population failing to get to go on 2 or more because I think that's where significant need exists. I think that's where an ASI can add significant value. From a market standpoint, in at launch, we think the focus will be fourth line. I'll have Eric opine on some of the feedback we've gotten from payers to date. But clearly, the -- it's our feeling that, that fourth-line setting resistant hypertension, payers appreciate the risk that these patients are under and the lack of satisfactory alternatives that are currently available relative to what lorundrostat has shown in our clinical program. Eric Warren: But Eric, do you want to add some? Yes, Richard. So it's all about sequencing, Richard, so that fourth line as the entry point. But obviously, there is a need for those comorbid patients that are third-line patients. So the opportunity will be to gain that experience, gain that confidence and then make that transition to the third line using that comorbid condition as a bridge. And this has been well vetted with payers in research and advisory boards and as our team is now out there engaging payers with our account executives. You also asked about whether we're going to try to position ourselves in a different way than baxdrostat. Obviously, there's an opportunity for both ASIs and having parity access is something that's a focus for us. Jin Law: I see. Got it. And then a follow-up. So we heard that AZ been saying that bax can potentially achieve like $10 billion peak if we can succeed in other indications beyond hypertension and CKD that they're developing. And I also remember, Jon, I think you mentioned that when you think of a partner, an ideal partner would be the one who would recognize lorundrostat's potential. So when I hear that, I think you meant that the potential beyond hypertension. So in your discussion with potential partners, how many of them like recognize the value of lorundrostat outside hypertension? And what are these like indications that you believe that partners are bullish on and or the ones that they're not bullish on and based on the unmet need of the drug mechanism? Jon Congleton: Yes. Thanks, Rich. As we noted before and made in the comments, our prepared remarks, there are 20 million patients that are struggling to get to goal on 2 or more meds right now. We know the clear linkage of uncontrolled or resistant hypertension to poor outcomes, whether they're cardiovascular or renal. I think at this stage that we can clearly say that what lorundrostat has demonstrated in reducing blood pressure that, that blood pressure reduction is a clear surrogate for what we could expect as far as a reduction in cardiovascular risk. So I'm not surprised by AstraZeneca's bullish position on baxdrostat. I would say we've shared that given the fact that just in the United States alone, there are 20 million patients at risk. We talked in the past about having a partner that is more global in nature and has a holistic view of this asset. I don't think that view has changed. I can't really opine on how some of those discussions have looked at different indications. But clearly, we know that aldosterone is going to be a key target for the next several years into the 2030s as it relates to not only hypertension but the related comorbidities. Operator: Our next question comes from Seamus Fernandez with Guggenheim Partners. Seamus Fernandez: So I guess I'll address the -- I'm going to ask you to address the elephant in the room, which is you guys have been talking about potential partnering for quite some time. You've had the data and now you've had the NDA sort of firmly established in terms of the PDUFA date for some time. What is it that you're looking for at this point in a potential partner that perhaps you're seeking but hasn't quite matched up? Or should we anticipate that you are in active discussions along those lines? I think we're all just trying to kind of metric what is the timing for either selection of a partner or that go-it-alone -- a potential go-it-alone strategy in the U.S. Jon Congleton: Yes, Seamus, I appreciate the question. And as we've said in the past, we're interested in finding the right partner. In response to Rich's question, I talked about the global nature of that. We're routinely evaluating those partnering opportunities. As you can imagine, and I think appreciate we're not in a position to really provide color or specifics around the level of dialogue, the timing, the structure, but it's something that we're mindful of. We have, as noted, continue to focus on how do we build value going forward. And that's why operationally, we're focused on commercial readiness for this asset. I think it's an important part of those partnering dialogues. But clearly, looking for a partner to build on that value continues to be something we're focused on. Seamus Fernandez: Great. And maybe if I can just ask one follow-up question. As you kind of look at the sort of opportunities to partner your asset with other mechanisms specifically, what would you say are kind of the core mechanisms that you're particularly excited? We've got a whole host of new cardiovascular mechanisms that are advancing and potentially looking to emerge outside of hypertension. So just -- which would you say would be particularly exciting from your perspective to partner with lorundrostat? Jon Congleton: Yes, Seamus, it's a great question. I think what's key as an opportunity for Mineralys is we have the core foundational molecule, and that's being lorundrostat as an ASI, given the nature of aldosterone to be a driver of not only hypertension, which is the beginning point of all of these other cardiorenal metabolic disorders, but also just the role that aldosterone plays in CKD and heart failure and other disorders. So I think it begins with the fact that we've got really the core foundational molecule there. There are other mechanisms. Certainly, the SGLT2s are what our competitors are looking at. I think the fact that dapagliflozin is going generic or is generic at this point, given the data that we've generated to date within our pivotal studies, but specifically Explore-CKD, I think gives us an entree to put lorundrostat forward in a hypertensive nephropathy or CKD population. But there are other mechanisms that we're looking at from a cardiorenal standpoint. We're not in a position right now to opine on those. But I would come back to the fact that we've got the core product that really addresses the key driver of pathology, and that's lorundrostat. Operator: Our next question comes from Jason Gerberry with Bank of America. Jason Gerberry: As you guys are doing a lot of your prelaunch activities, how are you thinking about like the physician segments that you think are going to be the most likely to drive early adoption, especially in that fourth-line setting, where it sounds like maybe you won't be focusing on doctors that maybe focus on comorbidities like CKD, but maybe more cardiology-driven hypertension? So just wondering if you can kind of discuss maybe some of the learnings from the prelaunch activities and how you're thinking about sort of the early adopter. Jon Congleton: Yes, Jason, thanks for the call. I would say that we've been thinking about this going back 3, 4 years when we framed the pivotal program for lorundrostat. Clearly, there's a primary care portion of the audience that is key prescribers in fourth line. They would be part of a launch target, but cardiologists as well, and that's why Advance-HTN is such a critical differentiating piece of our data story. Now these are the patients that a cardiologist is truly seeing. They're maximized with treatment. They've tried various alternatives and still cannot get to goal. That was the test that Advance-HTN put lorundrostat through and lorundrostat came through with flying colors. And that is a key and distinct data set that AstraZeneca, frankly, does not have. And so the cardiologist will certainly be a part of that target-based nephrology as well. We know that nephrologists deal with uncontrolled and resistant hypertension with comorbid CKD. And as we speak to those nephrologists, the #1 goal for them to try to arrest the progression of their kidney disease is to get their blood pressure to goal. And so I think we've been thinking about the target population, thinking about the prescribers and the use cases they have -- and I think that's why we've built out a very distinct and diverse data set that's going to provide information about how to use lorundrostat, where to use lorundrostat and the expected benefits they can see in the blood pressure control and beyond such as proteinuria. Jason Gerberry: And as a follow-up, is there any 1 or 2 things you'll be looking at in the first 3 to 6 months of your competitors' launch that may alter your go-to-market strategy? Jon Congleton: I don't know if I would say it will alter it. Certainly, it will be informative, but we've got a view of the data package we have. Eric and his team have done a really nice job of identifying where the unmet need is, who the key prescribers are, where that beachhead indication is for fourth line and what's important to them in prescribing. And so we'll obviously be looking at AstraZeneca's launch, and we anticipate it's going to be a successful launch given the significant unmet need here and the lack of innovation in the last 20-plus years. But given the data that we've generated and specifically speaking to the different prescribers that you -- the first part of your question alluded to, I think we're very confident in our ability to tap into that, assuming approval and launch very quickly after that. Operator: Our next question comes from Annabel Samimy with Stifel. Annabel Samimy: So I'd love for you to just talk about who you might think might be driving a process of guideline changes that would position the new ASI class as the next drug to try after third-line agents have failed. You have just a tremendous amount of data across the spectrum of uncontrolled and resistant patients as well as safety in CKD and OSA. Like how important is it to have that wealth of data to drive those conversations? Or do you think that it's the first to market that drives the conversations? Just want to understand the mechanics behind that. Jon Congleton: Yes, Annabel, thanks for the question. I think it's safe to say that we've been interacting with those physicians that are part of the guideline committees, appropriately sharing the information that we have. To your point, and again, it's -- it's something we contemplated 3 years ago, and that's why we work with the Cleveland Clinic and Steve Nissen and Luke Laffin with Advance-HTN because we knew there had been a lack of innovation in this space. This is a heavily genericized space and the guidelines would be a critical component. Advance-HTN becomes that study that addresses all of the questions the guideline committees are going to have about, is it apparent or is it truly confirmed hypertension. That data set, I think it's going to be an instrumental component of our argumentation for inclusion in the guidelines. Launch-HTN is an important part as well. I don't want to dismiss Launch-HTN because it speaks to the primary care physicians. Explore-CKD, Explore-OSA, as you alluded to, each of those provides additional data that's informative that speaks to the unique complexities, particularly of the resistant hypertension population. So from that standpoint, we're in front of the right physicians who are part of those guideline committees, and we have the right data and data set with lorundrostat to make a compelling argument. Annabel Samimy: And if I could just follow on, on the physician segmentation that you're thinking about. Given the launch trial and the fact that primary care is a big prescriber of hypertensive agents, do you expect the focus to be cardiologists, nephrologists and hope for trickle down into primary care? Or do you expect to, I guess, include high prescribing primary care physicians within that first set of physician targeting? Jon Congleton: Yes. I'll have Eric add some additional color here. I don't know that our view has changed. We're continuing to narrow in on those prescribers that control approximately 50% of that third and fourth line, predominantly fourth line. And within that, there are primary care as well as specialists. But Eric, you can add some more to that. Eric Warren: Yes. No. Well said, Jon. So cardiologists, nephrologists, but there are primary care physicians that function very well within this fourth-line state. So they're actively prescribing. We've looked at the segmentation. We looked at the [ deciling ], and there will be primary care that's included in that initial go-to-market strategy. Operator: Our next question comes from Mohit Bansal with Wells Fargo. Mohit Bansal: So one question I have is regarding differentiation. So do you expect to see any kind of differentiation when it comes to labeling between lorundrostat and the competitor here based on market -- your market research, like what feedback are you getting from physicians that they see any differentiation between these molecules? Jon Congleton: Yes. Mohit, thanks for the question. To the first part on the label, I think there'll be a level of uniformity, certainly within the indication. But I'll step back to a point that I've been making here. There's a distinct difference between the data sets that we generated with lorundrostat and baxdrostat. Certainly, Launch-HTN is speaking to the real-world audience. But again, Advance-HTN, I don't want to be redundant here, but it's a very distinct and differentiated data set that really provides information to cardiologists specifically who are dealing with these very difficult confirmed hypertension case patients. And then Explore-CKD. We know that proteinuria and having a benefit on proteinuria is a key attribute in physicians' minds when they think about an antihypertensive and how they view its utilization. Certainly, for nephrologists, having a benefit on proteinuria, it's a key signal or surrogate, if you will, for slowing renal progression. Launch HTN, Advance-HTN and Explore-CKD as well as our long-term open-label extension Transform-HTN were all part of our submission in the NDA. Now what language, what portions of those studies get into the actual label, that will be part of negotiations with the FDA. But certainly, having that data, whether within label for promotion or through medical information, I think it's going to be very instructive and informative for those distinct physician population prescribers. Mohit Bansal: Got it. And the physician feedback I mean the second part? Jon Congleton: The physician feedback has been very robust. Eric, do you want to. Eric Warren: Yes. So the 2 things I'll highlight, Mohit, is, number one, the absolute systolic blood pressure reduction. That is really what shines from a physician perspective, that 19-millimeter that we demonstrated in launch, but also the diversity and the well representation of our trial populations, and I'll call out the black African-American populations between 28% and over 50% of our patients depending upon the trial. Physicians really appreciate the inclusivity of our populations. Operator: Our next question comes from Matthew Caufield with H.C. Wainwright. Matthew Caufield: So we covered a couple of my questions. But I think overall, the sense is that baxdrostat's possible approval midyear helps the overall ASI receptivity and awareness just at a high level. Do you anticipate there being any headwinds with that approval? Or do you see it only as a positive as we get closer to the December PDUFA? Jon Congleton: I think there's certainly a significant opportunity within this space. As I noted previously, Matt, the lack of innovation, I think, speaks to the high interest from physicians to have a novel agent or a novel class of agents. So I do think there is an opportunity to see this market opportunity grow as AstraZeneca launches 6 to 7 months in advance of a potential approval for lorundrostat. I think it's important to highlight that we will have voice in the market during that 6- to 7-month period. We've had national account executives in front of payers going back to quarter 1. We have our MSL team in place going out building advocacy within those top tier and regional tier KOLs. And so I think it's really both companies out there progressively talking about the role of aldosterone and the importance of addressing it within ASI that grows this market opportunity. And I think it's important to realize this is -- whether you look at it from a revenue projection that AZ guided to, whether you look at it from the 20 million patients that we target, this is a massive market opportunity that is sitting on significant interest in the novelty of this class of drugs. And so I think it's a net positive. Operator: Our next question comes from Rami Katkhuda with LifeSci Capital. Rami Katkhuda: I guess given that ASTRO will likely set the initial pricing benchmark for the ASI class with baxdrostat, I guess, are there any other market access levers that you can pull to differentiate lorundrostat? And then maybe secondly, I know there's not many recent cardiovascular launches, but what do you view as the most relevant commercial analog for lorundrostat at this point? Jon Congleton: Yes, Rami, thanks for the questions. Relative to AZ, certainly, presuming approval, they'll be setting the initial price point. I've been asked, is that an anchor point. I think it's a guiding point. I have no idea where they're going to price it at this stage. Clearly, they're bullish on the revenue opportunity, but it will be informative for us. I think going back to the differentiation and the payer discussions, we're seeing that right now as we have dialogues with payers, the distinction of the data set, whether it's Advance-HTN, which I've commented on previously in a very distinct population that AstraZeneca can't speak to, whether it's the Black African-American population that Eric just alluded to, we know that's a critical high-risk population. We believe we have the data set that's going to be very informative for those payers from an access standpoint. And I think the feedback that we've gotten from payers to date is they're open and willing to create access in this fourth-line setting and potentially in due course, third line. And they're also interested in having 2 assets to evaluate. So it's not as if from our perspective, baxdrostat is going to launch and secure all access from a payer standpoint. Rami, can you comment -- the second question was commercial analogs. Is that right? Rami Katkhuda: Exactly, yes. Jon Congleton: Yes. I think it's a fair question. It's hard to answer because there just hasn't been a lot of innovation within the cardiovascular space for quite some time. I think an interesting analog for me, it's a gen med category. It's not cardiovascular, probably migraine with the gepants, the orals. And so I think when you come out with something that's truly novel from a clinical profile standpoint, match that to a market with significant unmet need, you can see significant commercial opportunity. And so I think that's an informative analog that we think about as we prepare the commercialization of lorundrostat. Operator: Our next question is from Tara Bancroft with TD Cowen. Tara Bancroft: So I just have a follow-up from Mohit's question before that was helpful to hear about label differentiation. But maybe can you tell us more about how you'll react to WACC pricing, especially when it comes to your pricing strategy? And I know how important access is to physicians, as you've been saying, but we're curious about the strategy that you're thinking there? Like could you launch with a lower WACC price? Or should we assume rebates will be the primary mechanism to drive access or something else? Just more thoughts there would be really helpful. Jon Congleton: Yes. Tara, I appreciate the question. And I hope you appreciate that it's really early to opine too much on that. We'll see where AstraZeneca comes in with pricing. We've guided in the past that thinking about Farxiga, Jardiance WACC or list price is probably a good barometer to work from. We'll see where they go from a pricing standpoint. We'll evaluate what makes sense for lorundrostat. The key for us at the end of the day is to ensure that patients that physicians believe could benefit from lorundrostat get access to that. And there are a lot of different levers we could pull from contracting to what we do with our patient assistance program. But I would say it's too early to give you maybe the level of color that your question would require. Tara Bancroft: Okay. Great. That makes sense. I guess maybe then I can ask a different question. So as we are looking at this launch as a proxy to lorundrostat, can you maybe talk about how you would think about cadence of that launch? It's hard without recent hypertension proxies to look at, but do you expect that there would be initial bolus of patients within the hypertension population or anything like that, that could help us understand what a good first couple of quarters could potentially look like? Jon Congleton: Yes. I appreciate the question again. I think the best proxy, and we have this in our non-con deck that's on our website. The best proxy is if you look at the turnover within this space right now. So what we have in our slide deck is 2024 IQVIA data that shows third line or later, there are about 8.8 million patients that are turning over trying new medications. And that's in the absence of any innovation, right? That's with existing treatments that have been available for 20-plus years. And so as an old marketer to me, what that tells me is that there's a market that has a great deal of dissatisfaction. Physicians that haven't given up, they continue to trial their existing medications, helping patients get to goal. So there's, I think, significant pent-up demand. There's significant focus and appreciation of the risk these patients are under if they don't get to goal. And so fundamentally, that to me is a bit of a proxy. Now how that translates to baxdrostat's launch quarter-over-quarter, I don't know that I can opine on that. I just know looking at fairly recent data from 2024, there's a lot of movement within this marketplace, and I think that creates opportunities for novel agents like lorundrostat. Operator: We have reached the end of the question-and-answer session. I'd now like to turn the call back to Jon Congleton for closing comments. Jon Congleton: Thank you, Rob. In closing, we remain encouraged by the FDA acceptance of our NDA based on a strong clinical data package that I've just spoken about through the question and answers. From an operational perspective, we're focused on executing on our pre-commercial readiness strategy, while in parallel evaluating partnering opportunities and considering the next steps in the clinical development of lorundrostat. We believe Mineralys is entering an important next phase in its evolution. This reflects the dedication of our entire team, the physicians and researchers who have supported the lorundrostat program and, most critically, the patients whose needs continue to guide our daily work. Thank you to everyone for joining us today. We appreciate the continued interest and support, and we look forward to providing further updates in the quarters ahead. With that, we will close the call. Have a nice day, everyone. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings, and welcome to the ProFrac Holding Corp. first quarter 2026 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, Michael Messina, Senior Vice President of Finance. Thank you, sir. You may begin. Michael Messina: Good morning, everyone. We appreciate you joining us for ProFrac Holding Corp's conference call and webcast to review our results for the first quarter ended 03/31/2026. With me today are Matt Wilkes, Executive Chairman; Ladd Wilkes, Chief Executive Officer; and Austin Harbour, Chief Financial Officer. Following my remarks, management will provide high-level commentary on the operational and financial highlights of the first quarter 2026 before opening up the call to your questions. A replay of today's call will be available by webcast on the company's website at pfholdingscorp.com. More information on how to access the replay is included in the company's earnings release. Please note that the information reported on this call speaks only as of today, 05/07/2026. You are advised that any time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this call may contain forward-looking statements within the meaning of the United States federal securities laws, including management's expectations of future financial and business performance. These forward-looking statements reflect the current views of ProFrac management and are not guarantees of future performance. Various risks, uncertainties, and contingencies could cause actual results, performance, or achievements to differ materially from those expressed in management's forward-looking statements. The listener or reader is encouraged to read ProFrac's Form 10-Ks and other filings with the Securities and Exchange Commission, which can be found at sec.gov or on the company's investor relations website section under the SEC Filings tab, to better understand those risks, uncertainties, and contingencies. The comments today also include certain non-GAAP financial measures, as well as other adjusted figures to exclude the contribution of Flotek. Additional details and reconciliations to the most directly comparable consolidated and GAAP financial measures are included in the earnings press release, which can be found on the company's website. Now over to Mr. Matt Wilkes, Executive Chairman. Matt Wilkes: Thanks, Michael, and good morning, everyone. I'll begin with some brief remarks on our overall performance, the broader market environment, and the progress of our strategic priorities. Ladd will then take you through our business results in more detail, followed by Austin, who will walk through the financials. We're pleased to report that our first quarter results exceeded our expectations that we discussed in March. Our exceptional operational performance as we progressed through the final month of the period drove outperformance for Q1 relative to some weather-driven challenges we faced to start the year. Specifically, as we discussed on our Q4 call, harsh winter conditions across much of our operating areas created some operational disruptions that resulted in approximately 9 million of adjusted EBITDA impact. More importantly, market dynamics shifted meaningfully beginning in late February and early March with the onset of the '1, characterized by calendar tightening and a reduction in white space. More recently, we've begun to see work added to the calendar that was not scheduled prior to the Iranian conflict. Further, we're proud to note that our stimulation services team delivered record efficiency levels in March with operational momentum carrying into the second quarter. As a near-term solution to oil supplies remaining elusive, exacerbating a material increase in oil prices, operator sentiment has continued to improve. Against the positive market trajectory, we're witnessing an open window for more favorable pricing dynamics. We are aware that pricing discussions are happening across the energy value chain, and our customers are highly engaged. We have taken a measured, deliberate approach focused on partnering with operators that will collaborate with us to generate appropriate returns through the cycle. We have successfully implemented price increases for the majority of our active fleets. These increases layer in throughout the latter half of the second quarter and into the back half of the year. Based on these factors, we expect Q2 to trend higher sequentially. Ladd will provide more color in a few minutes. Stepping back to the broader market environment, what we're experiencing at the company level reflects a larger set of dynamics we believe are still in the early innings of North American energy services. We believe the geopolitical developments that emerged in late February fundamentally altered the global energy security-of-supply calculus. Beyond the immediate disruption to tanker traffic via the closure of the Strait of Hormuz, what's becoming increasingly apparent is the scale of damage to critical Persian Gulf infrastructure. The processing facilities, export terminals, and distribution networks that were impacted represent decades of engineering and capital investment. Reconstruction timelines are becoming clearer, and they could be measured in years, not quarters. This isn't a transient supply shock. We believe it is a shift in available global capacity that will take considerable time to resolve. Further, this supply constraint is coinciding with a policy environment that increasingly appears to be pivoting decisively toward domestic energy security and infrastructure development. While it's early to predict specific legislative outcomes, the direction is clear, and it reinforces the case for a sustained call on North American production activity. Energy security has also become a more prevalent factor globally. As importers revise their strategies regarding consistent, reliable access to hydrocarbons at scale, we believe these dynamics provide increased structural tailwinds to the North American energy industry as the lowest-risk producer of crude oil and LNG. Overlaying these macro developments is a North American demand picture that was already tightening. The production gap we flagged for several quarters has only widened, with operators running behind the activity curve required to offset natural decline. Meanwhile, on the gas side, the convergence of expanding LNG export capacity with accelerating power demand from data centers and industrial electrification is creating increased medium- and long-term demand. On the service side, the available capacity supply response has been notably restrained. Years of capital discipline have limited new equipment from entering the market, while the natural attrition of aging fleets continues to reduce available capacity. The result is a tightening supply-demand balance for high-specification, high-efficiency service capacity coinciding with an inflection in operator activity. Our record efficiency performance in March reflects this evolution as we delivered a company record measured by pump hours per fleet. Our vertical integration model, dual fuel and electric fleet capabilities, and asset management platform position us to continue to enhance service quality and efficiency. We're focused on delivering value where operator demand is strongest, maintaining our disciplined approach to fleet deployment, and leveraging the technology differentiation that Ladd will discuss in more detail. I'd like to spend some time discussing our approach to asset deployment. Of note, irrespective of market cycles, we execute a routine program upgrading diesel to dual fuel or natural gas-capable configurations. In the current market environment, as the call on equipment continues to increase, we have fielded a number of inbounds from operators seeking incremental assets and crews. In order to employ additional assets, we would need to accelerate our upgrade program and to do so, we have certain requirements that must be met. We will remain disciplined in our approach to capital allocation and fleet deployment. Importantly, our vertically integrated model and asset management capabilities uniquely enable us to respond rapidly to evolving market conditions. As we discuss future activity with customers, the dialogue remains constructive. Suffice to say, there are numerous factors in play that bode well not only for an improved Q2, but an improved second half of the year and potentially beyond. While we're encouraged by the macro backdrop and the tightening we're seeing in the market, what ultimately positions us to capitalize on these dynamics is the work we've been doing internally to strengthen our cost structure and improve our operational efficiency. On our last call in March, we outlined our business optimization program, and I am pleased to report significant progress toward our goal. On a year-over-year basis, and including our capital expenditure reduction in 2025, we have achieved the majority of our 100 million annualized savings target. Our labor-related cost reductions have been fully implemented and are running at an annualized savings rate at or above the midpoint of our 35 million to 45 million target range. On non-labor operating expenses, SG&A reductions have been implemented. Additionally, we continue to make progress on repair and maintenance and asset-level operating expense reductions. While some of our projects remain in earlier stages of implementation, they should accelerate as we move through the year. We continue to expect to achieve the full 30 million to 40 million range as these initiatives mature through the year. On capital expenditure efficiency, we have already achieved, at a minimum and including the reduction in 2025, the high end of our targeted range of 20 million to 30 million. One element worth highlighting is our transition to internally designed, developed, commercialized e-blenders. Ladd will elaborate on this in his remarks. Taken together, these actions meaningfully improve our cost structure and position ProFrac to generate stronger returns through the cycle. Our internal execution on costs and capital efficiency is what keeps us competitive through the cycle, but competing effectively over the long term also requires technology that creates value that our customers cannot find elsewhere. And that brings me to Makena. On our last call, we introduced Makena in considerable detail as a unified completion optimization platform combining ProPilot 2.0 surface automation with Seismos subsurface intelligence. In summary, Makena is ProFrac's integrated well optimization suite that brings pre-stage design, field execution, post-stage diagnostics, and historical analysis into a cutting-edge real-time unified feedback control framework that actively intervenes to increase perforation performance by up to 33%. What I want to share is where things stand and the dimension with opportunity that has come into sharper focus as we have been in front of customers. The headline is that we are in active price discovery on the commercial model. Customer feedback from testing-stage deployments has been encouraging, and that feedback is informing us of how we think about structuring the value share. We will have more to say as this process matures. What has become increasingly clear through those customer conversations is that Makena's most compelling application may be in unlocking acreage that operators have effectively set aside. A portion of stranded inventory may be uneconomic due to complications in frac design impacted by existing adjacent infrastructure. Offset wells, wastewater infrastructure, and legacy downhole completions can collectively create constraints that may force operators to conclude that fewer locations are economic to produce. Makena may address this issue directly. Ladd will explain what that looks like on location, but the strategic point is this: we believe this platform has the potential to bring previously stranded inventory back into play for our customers. To conclude my opening comments, we delivered a strong Q1, exceeding our expectations. Despite a weather-impacted start, the business performed well with increased completions momentum through the end of the quarter. Our cost optimization program continues to advance. We have achieved the majority of our 100 million run-rate target. The macro backdrop is working in our favor. Energy security has moved to the front of the conversation, and that has direct and tangible implications for domestic completions activity and the operators we serve. Makena, our complete well optimization suite, is gaining traction in the market with more customers inquiring about closed-loop well optimization capabilities. As a continuous improvement engine, Makena may potentially offer operators the ability to economically complete stranded locations. And finally, Q2 is shaping up to be a meaningful step forward. Some operators are pulling work forward, helping to eliminate white space in frac calendars. The market has tightened, and we see it tightening more as the year unfolds. With natural gas-burning equipment nearly sold out, we are in active discussions with customers and have achieved price increases on the majority of our fleets. Discussions with operators remain active, and we will remain disciplined on fleet deployments. Let me now turn it over to Ladd, who will get into the operational details. Ladd Wilkes: Thank you, and good morning, everyone. Picking up from Matt, I'll begin with a deeper look at our Stimulation Services results. We maintained our fleet count in the low 20s during the first quarter, consistent with the disciplined approach we've held throughout this market cycle. Pricing was generally stable sequentially. In March, we delivered record efficiency performance with average pumping hours per active fleet exceeding 600 hours. I'd like to commend one fleet in particular that recorded an exceptional 682 pumping hours in the Eagle Ford in March, working for a supermajor on a dedicated contract. We have sustained efficiency levels through April and into May. On the activity front, we're seeing operators add to their previously scheduled work while also securing availability on the calendar later in the year. These dynamics reflect the tighter equipment market as Matt alluded to earlier. We expect the tightening completions landscape to drive a more balanced pricing structure that will flow through to the bottom line. However, it is worth noting that we are also monitoring some emerging cost pressures—pricing creep in chemicals, diesel, and diesel surcharges on product delivery, and certain specialty materials where feedstock is exposed to the current macro environment is starting to materialize. Steel costs are something we're watching as well. Importantly, our customers and vendors see the same dynamics and understand them. That shared awareness is part of what is making our pricing conversations constructive. Cost pressures are not a surprise to anyone at the table. We are applying the same discipline to fleet deployment that we've spoken about for some time now and are not chasing spot work. Our strategy of maintaining an active fleet count in the mid to lower 20s positions us well to capitalize on improving market conditions. Although we are in active dialogue to potentially increase fleet deployments, as Matt previously noted, we will remain disciplined in our approach. Before I continue on to proppant, I want to expand on Matt's point about the benefits we're seeing from our electric, or e-blenders. First and foremost, our internally designed and manufactured electric blenders are completely modular, enabling faster repairs and reducing the need for redundancy. While some parts and lead-time delays may push full deployment of the remaining e-blenders into early 2027, capital efficiency benefits are already materializing on the units we deployed in late 2025. And we expect meaningful second-order savings from reduced repair and maintenance expenses as the full fleet is deployed and legacy units are retired. Moving to proppant production, the first quarter presented some challenges for this segment, as we noted on the March call. Beyond the winter storm experienced in the quarter, we experienced some operational issues that affected production levels. While completion activity increased, particularly in March, these headwinds resulted in lower sequential Q1 volumes versus the strong performance we delivered in the fourth quarter. Operational challenges and unplanned downtime have negatively impacted utilization and sales into the second quarter. As a result, we expect volumes to be down from the first quarter. We're focused on returning to the execution levels that drove our strong fourth quarter results—namely, we are optimizing mine investments in both South and East Texas to increase utilization and throughput. The operational leverage in this business remains the key driver. When we can maximize production efficiency and maintain high uptime, profitability follows. Beyond the segment results, I want to pick up on Makena where Matt left off and touch on the acreage opportunity he described. When an operator looks at completing a well in a complex subsurface environment, that is, one with nearby offset wells, wastewater disposal infrastructure, legacy completions in close proximity, they face a practical dilemma. The frac design that could optimize production from that wellbore may carry increased execution risk. In some cases, the well sits as a DUC, or is deferred. Our platform potentially enables the ability to pursue a more optimized design in these environments, with real-time subsurface intelligence guiding the execution and closed-loop control reducing the exposure to unintended downhole consequences. Ultimately, Makena may shift the economic calculus on certain uneconomic locations and open up a broader swath of developable inventory. From a competitive standpoint, I will simply note that the ability to deliver this capability without requiring upfront infrastructure investment in adjacent or offset wellbores is a meaningful practical differentiator. Approaches that depend on fiber installation in offset wells could cost up to $1 to $2 million. We are working through price discovery with customers on how to appropriately capture the value Makena creates. That process is ongoing, and we look forward to providing more color as it develops. With that, let me hand it over to Austin to walk through the numbers. Austin Harbour: Thank you, Ladd. In the first quarter, revenues were 450 million, up slightly from 437 million in 2025. We generated 54 million of adjusted EBITDA with an adjusted EBITDA margin of 11.9% compared with 61 million in the fourth quarter, or 14% of revenue. The impact of the winter weather storm resulted in an estimated 9.3 million reduction to consolidated adjusted EBITDA. Pro forma adjusted EBITDA margin would have been approximately 13.6%, in line with Q4 2025 and an improvement of approximately 350 basis points versus Q3 2025. Free cash flow was negative 25 million in the first quarter versus 14 million in 2025. Turning to our segments, Stimulation Services revenues were 407 million in the first quarter, improved from 384 million in 2025. Adjusted EBITDA in Q1 was 32 million, in line with the 33 million we reported in Q4, with margins of 7.8% compared to 8.7% in Q4. As noted earlier, harsh weather conditions impacted us in the first several weeks of the year and were an estimated 7.8 million headwind to Stimulation Services adjusted EBITDA. Pro forma for the weather impact, segment margins were slightly improved from the fourth quarter, as well as an increase of approximately 370 basis points versus Q3 2025. Our Proppant Production segment generated 120 million of revenue in the first quarter, a touch above the 115 million of revenue we reported in 2025. Approximately 28% of volumes were sold to third-party customers during the first quarter versus 39% in Q4. Adjusted EBITDA for the Proppant Production segment was 7 million for the first quarter versus 16 million in Q4. On a margin basis, adjusted EBITDA margins were 5.4% in the quarter versus 13.9% in Q4 2025. Winter weather had an approximately 1.5 million impact on adjusted EBITDA. In addition to weather, lower throughput and sales volumes and an increase in tons per share and sold-through third-party mines impacted results. Our Manufacturing segment generated first-quarter revenues of 48 million versus 43 million in the fourth quarter. Approximately 14% of segment revenues were generated from third-party sales compared to approximately 18% in Q4. Adjusted EBITDA for the Manufacturing segment was 7 million, up from 4 million in Q4. Flotek generated first-quarter revenues of 72 million versus 43 million in the fourth quarter. Approximately 25% of segment revenues were generated from third-party sales compared to approximately 26% in Q4. Adjusted EBITDA for Flotek was 11 million, up from 10 million in Q4. Selling, general, and administrative expenses were 44 million in the quarter compared to 43 million in the fourth quarter. We are reaping the early benefits of our savings initiatives. As Matt alluded to, we have achieved the majority of the savings on a year-over-year basis and including the reduction in capital expenditures in 2025. We anticipate realizing the remainder of the savings as we progress through the year. Turning to the cash flow statement, cash capital expenditures of 41 million in the first quarter were up from 37 million in 2025. Consistent with the outlook we issued on our March call, we expect total capital expenditures in 2026, including Flotek spend, to be in the range of 155 million to 185 million. Excluding Flotek, we expect our CapEx to be in the range of 145 million to 175 million. As Matt highlighted, we have strict criteria that must be met first before we will take action or commit ourselves to accelerating our fleet upgrade program. In addition to meaningful price increases, sufficient contract duration is also necessary. We are quite pleased with how constructive our customers have approached our ongoing and dynamic dialogue on these fronts. Turning to cash, total cash and cash equivalents as of 03/31/2026 were approximately 34 million, including approximately 6 million attributable to Flotek. Total liquidity at quarter end was approximately 108 million, including 80 million available under the ABL. Borrowings under the ABL credit facility ended the quarter at 116 million, an increase from 69 million at year end. At quarter end, we had approximately 1.09 billion of debt outstanding, with the majority not due until 2029. Our approach to the balance sheet remains the same—disciplined, opportunistic, and focused on maintaining the flexibility to act as market conditions evolve. As we noted on our last call, we completed two financing transactions in the weeks following year end: a 25 million additional issuance of 2029 senior notes to Beal Bank in January and a six-month extension on our senior secured revolving credit facility extending it to September 2027. We will continue to evaluate opportunities to further strengthen our liquidity and capital structure. That concludes our prepared remarks. Operator, please open up the line for Q&A. Operator: Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Dan Kootz with Morgan Stanley. Please proceed with your question. Analyst: Hey, thanks. Good morning. So, just wanted to square a couple of comments on pricing. In the press release and in the prepared remarks, there were a few times that kind of “balanced pricing” was mentioned or operator dialogue indicating balanced pricing, which I kind of interpret as, you know, you guys had flagged that you'd seen pricing headwinds and interpret down pricing as kind of more flattish. But then there were a few points where you mentioned increasing pricing across part or majority of the fleet. So I was hoping you could help us square those two comments. Maybe it has to do with different timelines or different types of assets in the fleet, but yeah, if you could clarify that, that'd be really helpful. Ladd Wilkes: Yes, that's different timelines. As you look at Q4 to Q1 sequentially, pricing was stable. But as we transition into Q2 and into the rest of the year, we've got active dialogue with customers on pricing improvement. Much of this we've already secured, and you'll see some of the pricing show up in Q2 and then completely show up in the back half of the year. These are material price increases, and it's not just the commodity environment and the Iran war, but mostly because of how tight the market is on available horsepower. Analyst: Great. Yep, that all makes sense. That's helpful. And then maybe just looking at the second quarter, appreciate that there's a lot of puts and takes, but it seems like there's a lot more that's a tailwind sequentially. So you flagged cost headwinds, but you have the consolidated, I think it was 9 million weather impact, you have price improvements, you flagged the frac calendar tightening—and that's even versus, I think you said, March was kind of a record efficiency period. And then I guess lastly, you have the full run-rate cost savings. So, anything you could help us with a bit more specifically about how you're thinking about the second quarter on the top line or on the profitability EBITDA line? Ladd Wilkes: Yeah. I'll let Austin jump in on some of this. But essentially in Q3, we launched our cost savings initiatives, which have been extremely successful—most of which we've fully realized to this point—but we think there's more to gain there, especially on the R&M side and on the maintenance CapEx side, just from optimizing our procedures, our control of assets through asset management, and then by implementing automated resources for the automated controls on our equipment. We're finding incredible benefits across our entire fleet in how our fleet operates. And many things that we thought were ordinary-course failures we're finding are now preventable failures from just doing the software update. So we're pretty excited about what our frac automation is doing for our cost structure and what it's teaching us about our equipment and what we can control. We expect to see further savings from there. And then we had a slow start to the year—some of it was schedule from customers, but a lot was weather delays. That compressed our schedule in the back half of Q1 and into Q2. As well as the Iranian war bringing the spot work forward, bringing DUCs forward, really tightened up and eliminated white space in our calendar, combined with a real move from operators on planning activity going into the second half. That increase in activity has tightened the market to a point where there's limited availability of horsepower and has put us in a good spot to have conversations with our customers about pricing. And not just from a supply and demand standpoint, but also from a fuel standpoint—diesel prices have gone up tremendously, and the demand for fuel-efficient fleets has increased. With that, we've been able to have very constructive, collaborative conversations with our customers where we talk about fuel savings, and we can deliver them a friendlier cost structure for their budget while also getting an increase for ProFrac. So it's been a really constructive dialogue that has allowed us to focus on our partnership and preserve and reinforce the strong relationships that we have with each customer. Austin Harbour: And I think, Dan, when we look at the cost and cash savings initiatives, if you think about the 100 million, we're about 65% to 70% of that already showing up going back to Q4 and then Q1 this year, and that's without a full-year impact of those initiatives being implemented. In addition to that—and both Matt and Ladd touched on this—we're investing more so in the back half of the year in our e-blender fleet and program, and there was a little bit of a delay to that program given some supply chain issues and long-lead items. But once those start to feather in, we anticipate more savings both on the CapEx side and ultimately on the R&M side as well. So when you take those together, we haven't updated guidance beyond the 100 million at the midpoint, but I do think as we move through the year and get those fully implemented, we'll see some upside to that total number. With respect to Q2, echoing Matt's comments: the increases feather in throughout the quarter and then become more pronounced as we move into the back half of the year. In addition to that, where we're seeing a lot of demand and activity on the completion side unfold in real time, we've still got some work to do on Alpine just given some of the operational issues and some of the unplanned downtime that we faced not just in Q1, but in early Q2 as well. So you've got a little bit of offset there, but net-net we will be up in Q2 versus Q1. Ladd Wilkes: One thing I'd say about the e-blenders as well is not only are they better for our cost structure and save us money on CapEx, but when you look at the efficiencies that they gain, we've seen about a 98% reduction in MPT associated with blenders when utilizing these e-blenders. So they're incredibly reliable. When they do have issues, you can address them immediately on location, and you don't have to send them back to a shop to get rebuilt. It's far superior to what's been available historically on the market. Analyst: Got it. Do you think you'd be up more than the 9 million weather impact in Q2 versus Q1 sequentially on the EBITDA line? Austin Harbour: Yeah, I think that's safe to say. Analyst: Great. Alright. Thank you both. Really appreciate it. I'll turn it back. Ladd Wilkes: Thanks, Dan. Thank you. Operator: Our next question comes from the line of Patrick O'Leary with Stifel. Please proceed with your question. Analyst: Hey, it's Pat on for Steven Juguera. Thanks for taking the questions. I know you touched on pricing in the opening remarks and from Dan's question, but I was wondering if you can give any color about where current pricing sits versus maybe the last few years, and any way to quantify what to expect over the next few quarters? Ladd Wilkes: I'd say from the peak in 2022 compared to where we are now, we're probably at 55% to 60% of where pricing was in 2022, and you would need essentially an 80% or 90% increase to get back to that level. I don't know if we'll ever get back to that point, but you also have a much more efficient industry as well. The number of pump hours you get per fleet and the number of hours you can put up on a daily basis is substantially higher than what it was in 2022. So we can do a lot more with a lot less. But with that being said, we've got a long way to go for price improvement. Our number one goal is to generate positive net income and to get there as quickly as possible, without stressing our partnerships that we've worked so hard to establish. I think that's a reasonable goal that can be accomplished within the next couple of quarters. Analyst: And then just a quick one. Could you talk about frac sand pricing and any way to think about pricing through year end? Ladd Wilkes: The sand market has been tightening up. In South Texas, it's extremely tight. East Texas is improving as well. West Texas has started climbing also. All the way across the board, sand has become a really tight commodity, and there's without a doubt pricing improvement. I won't get into specifics because each one of these regions is unique and has its own drivers, but I'd say with no exception, every market is quickly improving, not just on price but in volume. Analyst: Right. Thanks. Appreciate the uniqueness of the regions, and that's all for me. I'll turn it back. Ladd Wilkes: Thank you. Operator: Our next question comes from the line of Bill Austin with Daniel Energy. Please proceed with your question. Analyst: Hey, guys. Thanks for taking my question. Good morning. So, just thinking about this, as you guys evaluate inquiries for incremental frac spreads, can you help us frame the mix between public and private operators? Has that composition shifted meaningfully? Ladd Wilkes: We've seen a lot of new activity coming on from private operators. Without a doubt, there's a lot of spot work out there that's come out of the woodwork. We're even seeing some private operators bring on full dedicated programs, which is what we focus our commercial efforts on. We talk to everybody and work with everybody regardless of the size of their program, but our ability to cover spot work is really associated with the core of our business and whether or not we have white space. We're not going to activate a fleet so that we can string together a lot of spot pads. We focus on our core—committed, dedicated, reliable, and consistent schedules. What we run into from our high efficiencies is that sometimes we outrun people's programs and we end up with a few gaps in the calendar. That's where the spot work is so valuable for us. It allows us to squeeze those jobs in whenever we outrun our steady customers' schedules. You need a healthy mix of the two. What we're seeing right now is a disproportionate amount of spot work that has come to market all at the same time, and it's quickly transitioning into committed programs and rig activation. We like the way the market's framing up. We're still in the early innings, but for us to get out and start activating fleets and committing capital to tailoring this equipment for the customer's unique needs, we need to see a stronger signal and some commitment from the customer to help in those efforts. We don't want to deploy capital on spec. We're not going to. We're remaining disciplined. Our core focus is to make sure that we maintain control of our cost and our disciplined approach to operations. With that, I think we end up with plenty of opportunities to address every one of our customers' needs. When you look at pricing and where it's going and how quickly it's readjusting, I think this is a win-win scenario for our customers as well as our bottom line and our ability to address those needs quickly. Pricing is coming up, but we're not going to chase and we're not speculating on where it's going. We are ready. We've got high-quality assets that are ready to go, and with direct signal, we'll respond accordingly. But that signal isn't coming from our own macro analysis; it's coming direct from our customers who are committed to their programs, and there should be no ambiguity related to how active they want to be. This “drill baby drill,” we think it's pretty close. That doesn't factor into any of the guidance that we've provided. I think in very short order this year, we'll see positive net income. I think everything's there for us to deliver that. It's just working with our customers to make sure that they're getting what they need and that our relationships are strong. I think this is the perfect environment to see the service industry and the economic outlay for the service industry restored—and to do it at a time when our customers are in a good spot as well. Analyst: Great. Thanks. Operator: We have no further questions at this time. I would now like to turn the floor back over to Mr. Matt Wilkes for closing comments. Matt Wilkes: Thanks, everybody, for joining our call. We look forward to the next one and are very excited about the positive results that we're seeing in ProFrac, and especially excited about the coming quarters. Thank you. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Welcome to GSI Technology, Inc.’s Fourth Quarter and Fiscal Year 2026 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, we will provide instructions for those interested in joining the Q&A queue. Before we begin today’s call, the company has requested that I read the following safe harbor statement. The matters discussed in this conference call may include forward-looking statements regarding future events and future performance of GSI Technology, Inc. that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company’s Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference call is being recorded today, 05/07/2026, at the request of GSI Technology, Inc. Lee-Lean Shu, the company’s chairman, president, and chief executive officer will be hosting the call today. With him are Douglas M. Schirle, chief financial officer, and Didier Lasserre, vice president of sales. I would now like to turn the conference over to Lee-Lean Shu. Please go ahead, sir. Lee-Lean Shu: Good afternoon, and thank you for joining us. To review our fourth quarter and fiscal year 2026 financial results. Fiscal 2026 was a year of meaningful progress for GSI Technology, Inc., marked by strong performance in our SRAM business, continued advancement of Gemini II to commercialization, and the initiation of the PLATO design. While I am pleased with the progress we have made on several fronts, significant work remains. Our team is executing our key milestones and advancing business development for the APU, and I have had several encouraging conversations on numerous fronts in these amounts. We end fiscal 2027 with continuous momentum, promoting the APU and building our customer traction. With that, I will now hand the call over to Didier. Didier Lasserre: Thank you, Didier. Let me start by stepping back and framing where we are today. Because I think the context is important. Our SRAM business performed well in fiscal 2026 and remains the revenue foundation of the company, providing cash for APU development. For the full year, the SRAM business grew 22% year-over-year and gross margins rose to 55% from 49%. The SRAM business has benefited from increased demand from our customers that support high-performance AI chip development and manufacturing. We recently announced that we concluded our strategic review and determined that continuing to execute our standalone strategy is the best path forward for delivering long-term shareholder value. The stronger SRAM business and a strengthened balance sheet, along with non-dilutive R&D funding, are providing the resources to support our go-forward plan. With this financial foundation in place, we are now seeing real progress with Gemini II and PLATO. Over the past several months, we have reached a point where we are seeing both technical validation and early program-level engagement of Gemini II, including the Sentinel drone surveillance POC, the U.S. Army SBIR award, and a new Phase One smart city project I will discuss in a minute. On the technical side, in a bake-off for the Sentinel POC, Gemini II’s performance contributed to winning the contract award by achieving a time to first token of roughly three seconds at 30 watts of system power on Gemma 312B multimodal workloads at the edge. In this use case, time to first token is a critical metric for drone surveillance systems because it reflects how quickly the system can respond in real-world applications where response time directly affects critical decision making. We are working closely with the G2 Tech team on the Sentinel program. We have completed the software deliverables and continue to target a June demonstration of the Gemini II powered drone. This demonstration is planned for the Department of Defense and an international defense agency. In mid-April, we were notified that we had been awarded Phase One of a smart city project. The project leverages our work done for the drone-based surveillance POC and marks an important step forward towards commercial deployment. In this application, Gemini II will process inputs from distributed camera systems to provide near real-time detection of events such as fires and other public safety risks. This project demonstrates how our platform can scale across real-world infrastructure. We expect to share additional details on the smart city program around the time of a planned media event in late May hosted by the municipality. Currently, we are working on several projects in tandem. What matters most for GSI Technology, Inc. at this time is not just the number of early-stage trials and demonstrations we have, but also how these early-stage engagements are helping us identify where our APU architecture provides a clear advantage, particularly in delivering low-latency performance within a constrained power envelope. We are also leveraging our deployment work in two ways. First, we are applying what we have developed for the drone security application to a smart city application. While the end markets are different, the underlying development carries over, giving us a meaningful head start in a new use case rather than starting from scratch. Secondly, as we complete the Sentinel POC and Phase One of the smart city program, we can build on those results to pursue additional opportunities with new customers in those markets. We view this as a repeatable model where each engagement helps accelerate the next. What is exciting for us is that we see the end markets for low-latency, low-power AI at the edge expanding as AI workloads continue to move closer to where the data is generated. These applications favor the APU architecture that can deliver higher compute per watt. Gemini II is ideal for these power- and latency-constrained edge deployments, where real-time response and energy efficiency are critical. Where we are winning is where Gemini II is tested against conventional architectures requiring significantly higher system power for similar or slower responsiveness. We believe Gemini II best addresses this gap and positions us well to win as more AI loads shift towards distributed, power-constrained environments. Consistent with this, we are encouraged by our progress within defense agency programs, as evidenced by our recent U.S. Army SBIR progressing from Phase One into Phase Two. This project is about enabling real-time in-field AI deployment on small, low-power systems typically operating in challenging conditions. As part of this program, we will build and test a ruggedized node containing the Gemini II for real-world mission-critical environments. This SBIR positions us within a broader shift in defense spending, with approximately $13 billion proposed in fiscal 2026 budgeted for AI and autonomous systems, and creates a potential pathway to follow-on programs and future opportunities to supply Gemini II-based systems. So how do we move from where we are today to design wins and ultimately revenue? From a commercial standpoint, we are still in the early stages. Our focus is on advancing our current engagements and working closely with partners to integrate Gemini II into their systems, with the goal of moving into design-level discussions. Given the complexity of these deployments, we are focusing our resources on a small number of high-value opportunities where we believe we have a clear advantage. Although the number of engagements remains limited, we are seeing a meaningful increase in the depth of these engagements and our ability to leverage our prior Gemini II deployment work for new related applications. Looking ahead, our priorities are to advance current POCs and awarded programs and to leverage what we have learned from each of these engagements to drive additional design opportunities. At the edge, performance matters most when it can be delivered within real-world power and latency constraints. That is where we believe Gemini II’s advantage lies. With that, I would like to hand the call over to Doug. Go ahead, Doug. In the earnings release issued today after the close of the market, you will find a detailed summary of our financial results for the fourth quarter and full fiscal year 2026. Douglas M. Schirle: Rather than walking through the numbers again, I will focus my comments on the key drivers behind the results and provide more context and explanation to help you better understand the business. Let me start with the results for fiscal year 2026, ended 03/31/2026. As Didier mentioned, fiscal 2026 revenue increased 22.4% to $25.1 million, reflecting continued strength in our SRAM business, particularly with customers supporting chip design and simulation for AI applications. We experienced solid growth in this customer segment throughout fiscal year 2026. We do see variability in customer orders, and sales can fluctuate from quarter to quarter. However, barring any significant change in underlying AI chip demand that would affect SRAM orders from these customers, we expect this business to remain relatively stable in fiscal year 2027. The higher level of revenue and product mix helped to lift fiscal year 2026 gross margin to 54.5%, a notable gain from the prior year gross margin of 49.4%. Operating expenses in fiscal 2026 rose to $31.2 million compared to $21 million in fiscal 2025. Operating expenses increased year-over-year primarily driven by higher R&D spending on the PLATO chip design. It is also important to note that the prior year included a $5.8 million gain from the sale of assets, which makes year-over-year comparisons appear more pronounced. We also continue to offset a portion of our R&D expenses through non-dilutive funding, SBIR contract funds, and POC-related funding. The majority of our R&D is dedicated to APU. The R&D offset in fiscal 2026 and fiscal 2025 was $1 million and $1.2 million, respectively. Higher operating expenses increased the total operating loss for fiscal 2026 to $17.5 million compared to an operating loss of $10.8 million in the prior year. The fiscal 2026 net loss included interest and other income of $4.1 million, primarily from interest payments on the increased cash balance from the capital raise completed in October 2025, and $3.4 million of other income consisting of a $6.2 million non-cash gain from the change in the fair value of prefunded warrants, partially offset by $2.8 million in issuance costs associated with the registered direct offering in October 2025. Switching now to the fourth quarter. Revenue was $6.3 million with a gross margin of 52.4%. As we have seen in prior periods, quarterly gross margin can fluctuate with the product mix and revenue levels. The fourth quarter gross margin reflects slightly lower semiconductor sales sequentially compared with the prior-year quarter. From a customer perspective, we did see some variability across accounts during the quarter, including lower shipments to certain customers and higher shipments to others. At the same time, defense-related sales increased to approximately 46% of total shipments, reflecting continued demand in that segment. Again, you will find a full breakdown of sales in today’s earnings release. Operating expenses increased from the prior year primarily due to continued investment in our Gemini II and PLATO development programs. These investments align with our strategy to advance our APU roadmap while maintaining discipline in cost management. Last quarter, we expanded quarterly earnings disclosures to help investors better understand the company’s cash consumption and cash generation. This information will complement the condensed consolidated statement of cash flows included in our Forms 10-K and 10-Q. Cash flows for the quarter ended 03/31/2026 were as follows: cash and cash equivalents as of December 31 were $70.7 million; net cash used in operating activities in the quarter was $5.5 million; net cash used in investing activities was approximately $100,000; and net cash provided by financing activities was $2.1 million. Cash and cash equivalents as of 03/31/2026 were $6.2672 billion. From a cash flow standpoint, spending in the quarter continued to reflect our investment in Gemini II and PLATO development. We expect cash usage to remain elevated as we progress through this development phase. As a general reference point, we expect the cash usage to be approximately $4 million per quarter, or about $16 million annually, although this may vary depending on development timing and program activity. We ended the quarter with $67.2 million in cash and no debt. This is a notable improvement from the prior-year cash balance of $13.4 million and is associated with $46.9 million, net of fees, registered direct offering proceeds that closed in October 2025. The absence of debt and the improved cash balance provide us with the flexibility to continue investing in APU while maintaining a disciplined approach to capital allocation. We believe our current cash position provides sufficient runway to support the initial commercialization of Gemini II and the completion of the PLATO tape-out, both expected late fiscal 2027. Before I hand the call over to the operator for Q&A, I would like to provide the first quarter fiscal 2027 outlook. For the upcoming quarter, we expect net revenues in the range of $5.9 million to $6.7 million with gross margin of approximately 54% to 56%. Overall, our strong cash position and continued support from non-dilutive funding give us a runway to advance Gemini II into early commercialization and the PLATO chip design. Operator, at this point, we will open the call for questions. Operator: Thank you. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Once again, it is star 1 to ask a question. The first question is from Tony Brainard, retail investor. Analyst: Hello, gentlemen. How are you? Lee-Lean Shu: Good. Thank you. Analyst: Yes. Can you share some color on the size—like, if you do get the design wins—the size of the market we are looking at? Lee-Lean Shu: On which market? Analyst: On the Gemini II. Didier Lasserre: Okay. That is a pretty broad question. So the markets we are going after initially, you know, some of them are government, military-based, specifically these drone programs. And as we talked about, we are limited in detail now. We will give you more detail on the smart city at the end of May. But both of those markets are multibillion-dollar markets. Lee-Lean Shu: Okay. Analyst: Yep. Analyst: That is fair enough. And that is my only question for today. Thank you very much. Douglas M. Schirle: Alright. Thanks, Tony. Analyst: Thank you. Operator: The next question comes from Robert Christian, Private Investor. Robert Christian: Yes. I would like to know why the PLATO project has moved up from 2027 to late fiscal 2027. Didier Lasserre: Actually, it has not been pushed out. It might have been a mixture of calendars and fiscal quarters. When we had first talked about it, we were targeting the beginning of calendar 2027 to have the part taped out, and we are still on schedule for that. Tape-out means that the design will be done in the first quarter, and that would give us silicon because we have to make the mask sets that are used for the wafer fabs at TSMC. So we will see our first wafers in hand in summertime of calendar 2027, and I believe that has always been our schedule. Lee-Lean Shu: Yeah. I think we mentioned fiscal year 2027. That is the beginning of the 2027 calendar year. Didier Lasserre: That is a good point. So the end of fiscal 2027 is March of calendar 2027. Okay. That would be great. And the second question I have is, Gemini II taped out over two and a half years ago. Is it going to take that long to see expected sales, say, of PLATO? Didier Lasserre: So that is a great question. You have two components to sales. You have the hardware component, which is the chip and any kind of board, and you have the software side. The software side actually lagged the hardware on Gemini II. With PLATO, we are trying to align the two more closely. The good news is some of the software work that is being done for Gemini II can be used for PLATO, while with Gemini I it was a completely new effort. In that respect, we can leverage some of the work from Gemini II for PLATO, and then we are also lining up the resources to be able to bring in the software with PLATO. Robert Christian: Well, the chip is genius, and I wish you guys godspeed. Lee-Lean Shu: Thank you. Didier Lasserre: Thank you. Operator: At this time, we show no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Lee-Lean Shu for closing statements. Lee-Lean Shu: Thank you again for joining today’s call. As a reminder, Didier will be at the LD Micro Conference on May 19. Contact LD Micro if you would like to attend this presentation or take a one-on-one meeting. We are encouraged by the progress we are making with Gemini II, and we remain focused on successfully executing against the opportunities in front of us. We look forward to speaking with you again on our fiscal 2027 first quarter earnings call. Thank you. Operator: This concludes today’s conference. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the ElectroCore First Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. Earlier today, ElectroCore published results for the first quarter ended March 31, 2026, and the press release is available on the company's website. Before we begin, I would like to remind everyone that members on the call will make forward-looking statements within the meaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements that are not historical facts should be deemed to be forward-looking, including, without limitation, any guidance, the company's outlook on second quarter and full year performance, and its path to profitability. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated. For a list of risk factors, please see the company's filings with the Securities and Exchange Commission. ElectroCore disclaims any obligation to update these statements, except as required by law. This call contains time-sensitive information accurate only as of today, May 6, 2026. Joining us on today's call from ElectroCore are Dr. Thomas Errico, one of the company's founders, Investor and Independent Chairman of the Board of Directors; Joshua Lev, Interim President and Chief Financial Officer; and Mike Fox, recently appointed Chief Operating Officer. It is now my pleasure to turn the call over to Dr. Thomas Errico, ElectroCore's Founder and Independent Chairman, for opening remarks. Dr. Errico? Joseph Errico: Thank you, Amanda. Good afternoon, everyone, and thank you for joining ElectroCore's First Quarter 2026 Earnings Call. This is the first earnings call since we announced our leadership transition, and I want to take a moment to share how encouraged I am by the progress we have made executing that transition and by the momentum we continue to see across the organization. Since stepping into the role of Interim President, Josh has provided steady, disciplined leadership while maintaining his focus on financial rigor. The alignment between our operational priorities and our financial strategy has been evident, and the organization has responded with focus and urgency. The strategy has not changed. The execution has not slowed. If anything, the focus across the organization has sharpened. At the same time, Michael Fox joined us as Chief Operating Officer on April 13, bringing more than 35 years of commercial leadership experience across complex health care markets, including extensive work within the federal systems and the U.S. Department of Veterans Affairs. In just 3 weeks, his depth of experience has already provided valuable insights to strengthen our execution, particularly as we continue to expand our presence within complex government channels.?He will introduce himself shortly. Importantly, this transition has not slowed us down. It has reinforced our foundations. We remain firmly committed to our strategy, driving growth within our covered entities, advancing our clinical and scientific leadership in noninvasive vagus nerve stimulation, and expanding our reach into the consumer wellness market. And we are doing so with discipline, managing the cost base, expanding the margin, and protecting our path to profitability. In our clinical work, we continue to invest in the evidence base that underpins our portfolio. That evidence remains a key differentiator as we engage with providers, payers, and partners globally as well as domestically, and it positions us to expand into new indications over time. In the VA, where we have built a credible commercial presence over many years, we believe we have a meaningful long-term opportunity. Our commercial leadership is leveraging Mike's experience to identify new ways to be more targeted and more effective, particularly within a system where we still have substantial room to penetrate. On the consumer side, we are building a scalable direct-to-consumer channel with increasing brand visibility, improving unit economics, and a growing network of influencer and affiliate partners that resonate with audiences seeking non-pharmacologic, science-backed wellness solutions. The early traction we are seeing reinforces our belief in the broader applicability of our technology and its relevance to everyday wellness. What gives me the greatest confidence is not just the program itself, but how it is being achieved with discipline, alignment, and a clear sense of purpose across the organization. We are building a strong foundation, and we are doing so in a way that positions the company for durable long-term growth. While our search for a permanent CEO continues, I am confident that the team we have in place today, Josh, Mike, and the broader leadership group, is the right team to execute against our priorities and carry our strategy forward. I look forward to updating you on our continued progress in the quarters ahead. With that, I would like to introduce our new Chief Operating Officer, Mike Fox. Mike? Unknown Executive: Thank you, Tom. Good afternoon, everyone. I joined ElectroCore for one reason. I saw a science-based platform technology with proven published clinical outcomes data that support a credible commercial foundation and significant room for growth, particularly within the federal channels where I spent most of my career. Three weeks in, that conviction has only strengthened due to my greater exposure to the existing and future data sets being gathered. I?also had the opportunity to meet a vast number of talented colleagues within the company who are dedicated to the mission and the patients we serve. So, rather than walk through my background, let me tell you what I've been focused on and where the opportunity exists. A major priority is the VA and Department of Defense markets. We have just scratched the surface of penetrating the addressable VA headache market. So we have patients being treated with our products in VA medical centers across the country, but we're not attaining the utilization level that meets the needs of our veterans and the dedicated providers caring for these military heroes. The majority of new patients identified and prescribed our products in Q1 are not spread across the country as expected or needed. That tells me 2 things. One, we have built real distribution; and two, we are nowhere near saturation. My focus is moving from facility breadth to facility depth, more prescribers per site, more patients per prescriber, and a more consistent customer experience across the system. My second priority is the broader federal channel. The VA is our largest entry point, but it is not the only one. The Department of Defense across all service branches represents an underdeveloped opportunity for both our prescription products and for TAC-STIM. Given the heightened tempo of U.S. military operations abroad, the demand environment for noninvasive, drug-free performance-supporting solutions has only intensified. I spent the last 3.5 decades building relationships in these channels, and I intend to put them to work for this company. My third priority is operating discipline. Josh and the team have built a high-margin business, 87% gross margin in Q1, and you're starting to see operating leverage show up in the numbers. My job is to make sure that as we scale, incremental revenue translates to incremental bottom line, not incremental costs. We intend to grow this business efficiently while we establish ElectroCore as a partner of choice to ensure market stability in the years ahead. I'm 3 weeks in, but trust that my experience in developing company growth and success is from decades of learning and proven execution strategies. I'm truly excited about the opportunity presented to me here at electroCore. There will be much more for me to share over the coming quarters, but I'm convinced that what is in front of us is real, and I'm truly grateful to be a part of it. With that, I will turn the call back over to Josh to walk through the quarter. Josh? Joshua Lev: Thank you, Mike. Before I get into the details, let me tell you what this quarter represents for electroCore. We just delivered our highest revenue quarter ever, $9.6 million, up 43% year-over-year. Gross margin expanded to 87%. GAAP net loss was $5.3 million, and adjusted EBITDA loss improved by 24% to $2.3 million. That combination, accelerating top line, expanding margin, and improving adjusted EBITDA loss in the same quarter, is demonstrating operating leverage, and it is the clearest signal yet that we are executing on our strategy. We are reaffirming our full-year 2026 revenue guidance of approximately 30% growth. As I'll discuss in a moment, the catalysts in front of us for 2026 give us conviction in that outlook. Now to the details. The VA hospital system remains our largest customer, and growth there continues to accelerate. Prescription device revenue increased 48% year-over-year to $7.9 million. Within that, prescription gammaCore grew 26%, and Quell sales surpassed their first $1 million quarter. Since we acquired the Quell assets from NeuroMetrix in May 2025, Quell fibromyalgia has generated $2.5 million in cumulative revenue, and we are still in the early stages of placing that product across the VA system. As of March 31, approximately 15,000 VA patients have received the gammaCore device, which we estimate represents roughly 2.5% penetration of the addressable VA headache market. The underlying patient population continues to expand. A 2024 study published in JAMA Network Open of nearly 500,000 U.S. veterans found that 8.2% of male and 30.1% of female veterans report a history of migraine, roughly 3x the rate observed in the civilian population, and that approximately half of veterans with migraine also meet criteria for PTSD. The U.S. Department of Defense has reported more than 485,000 service members' traumatic brain injury diagnoses since 2000. Combining with the Veterans Health Administration's emphasis on non-opioid first-line treatment for chronic pain, we believe the runway for prescription gammaCore adoption inside the VA is long, and we are still early. Turning to our consumer wellness channel. Revenue reached $1.6 million in the quarter, up 44% year-over-year, with Truvaga contributing $1.5 million, up 38% from Q1 of last year. This quarter, we deliberately tempered top-line growth in favor of efficiency, and the results are showing up in the unit economics. Our return on advertising spend, or ROAS, was approximately 2.37 in the period, a 14% improvement over the prior quarter. In plain English, every dollar we spent on Truvaga-related media generated nearly $2.37 of revenue. That improvement was driven by a concentrated shift toward affiliate and influencer partnerships that reach consumers already interested in wellness and in vagus nerve stimulation specifically. Return rates remain in the 12% to 15% range, consistent with prior periods. We believe the macro environment for our consumer wellness offering is meaningful. The Centers for Disease Control reports that approximately 24.3% of U.S. adults experienced chronic pain in 2023, up from 20.4% in 2019. Independent industry research projects the global noninvasive vagus nerve stimulation segment will expand at a low double-digit CAGR through 2030, supported by aging demographics, the regulatory and clinical pivot towards non-opioid pain management, and rising consumer awareness of the vagus nerve. We believe Truvaga is well-positioned to capture a meaningful share of that growth. On to TAC-STIM, our human performance product. While quarterly TAC-STIM revenue has historically been variable, the underlying demand environment for cognitive performance and fatigue mitigation in the active duty military and federal channels is robust and getting more robust. Given the heightened tempo of U.S. military operations abroad, particularly around remotely piloted aircraft, drone defense, and other extended duration mission profiles, the need for noninvasive, drug-free solutions to support war fighter alertness, focus, and resilience has only grown. TAC-STIM is the subject of ongoing research and evaluation across the U.S. Air Force Special Operations Command, the U.S. Army Special Operations Command, and the Air Force Research Laboratory, and was previously selected by AFRL for inclusion in the real-time assessing and augmenting cognitive performance in extreme environments program, a program designed in part to support multi-day transoceanic operations and long-duration remotely piloted aircraft missions. With Mike now leading our commercial operation, we see a meaningful opportunity in 2026 and beyond to deepen our engagement and to pull TAC-STIM through as a more consistent revenue contributor. Now to the financials. Net sales of $9.6 million represented 43% growth over the prior year, driven by gammaCore and Quell within the VA and continued growth in Truvaga. Gross profit was $8.4 million with gross margin expanding to 87%, a 200 basis point improvement year-over-year. Research and development expense was $740,000, up modestly from the prior year, primarily reflecting work on the ACACIA PTSD study. Selling, general, and administrative expenses were $12.9 million. That number includes approximately $1.9 million of nonrecurring leadership transition costs and $300,000 of legal expense related to the ongoing IP litigation. Excluding those items, the year-over-year increase was driven by approximately $1.6 million of variable expense, supporting our $2.9 million revenue increase, a clean illustration of how the cost base scales with the top line. Other expense of $276,000 includes interest associated with the convertible term debt financing we put in place with Avenue Venture Opportunities Fund. GAAP net loss in the first quarter was $5.3 million compared to $3.9 million in the prior year period. This increase was driven primarily by the $1.9 million in nonrecurring leadership transition costs. Net loss per share was $0.59 compared to $0.47 per share in the same period last year. Excluding the leadership transition expenses, net loss per share was $0.37. And now I want to draw your attention to the 24% improvement in our adjusted EBITDA loss, which I believe is an important indicator of the operating leverage we are building. Adjusted EBITDA loss for Q1 was $2.3 million compared to $3.1 million a year ago. That improvement happened in a quarter where we absorbed $1.9 million of nonrecurring leadership transition expenses. Strip those out, and the operating leverage in this business is even more evident. Revenue grew 43%, and adjusted EBITDA loss narrowed 24%. As we scale further, that gap is what gets us to profitability. A reconciliation of GAAP net loss to non-GAAP adjusted EBITDA net loss is provided in the financial tables in today's press release. Turning to the balance sheet. Cash, cash equivalents, and marketable securities were approximately $8.8 million at March 31, 2026, compared to $11.6 million at December 31, 2025. One important note on cash. Q1 is historically our highest cash burn quarter of the year. This year, certain working capital items, primarily the timing of inventory and capital improvements to our Rockaway facility, may extend a portion of that burn into the second quarter. We are managing the balance sheet with discipline and remain focused on the operating efficiencies that support our path to profitability while also evaluating available capital resources, including our existing shelf registration statement and at-the-market facility. Before we open the call for questions, I want to spend a minute on the catalysts ahead of us in 2026 because the runway from here is significant. First, R&D and nVNS as a platform technology. We continue to work towards a platform of products that can be sold through our established sales channels. This comes in the form of indications, products, and features. The body of evidence supporting the therapeutic potential of nVNS continues to expand. A new publication in Frontiers in Neuroscience entitled ‘Adjunctive non-invasive vagus nerve stimulation for chronic mild traumatic brain injury with comorbid post-traumatic stress disorder, a post-hoc analysis highlighted findings on the potential benefits of adjunctive noninvasive vagus nerve stimulation in patients with mild traumatic brain injury and PTSD. Additionally, approximately 20 participants have enrolled in the clinical study conducted by Acacia Clinics in collaboration with the Vagus Nerve Society, designed to evaluate the safety and effectiveness of electroCore's gammaCore nVNS device as an adjunctive treatment for symptoms associated with PTSD. PTSD is a breakthrough device designation for us. And as the data matures, we expect it to become an increasingly important part of the platform story. Work on our next-generation Truvaga and Quell mobile platform is underway. We are developing a mobile application designed to complement our consumer products, deliver more personalized features and user experiences, and, if done right, open the doors to recurring revenue, deeper engagement, and richer real-world data. Second, we remain focused on opening additional commercial channels for our products. Beyond continued VA penetration, Mike's mandate includes expanding our commercial and federal channel presence. This includes areas such as Kaiser, federal workers' compensation programs, TRICARE, and broader adoption within active duty military and the Department of Defense. With TAC-STIM already engaged across Air Force Special Operations Command, Army Special Operations Command, and the Air Force Research Laboratory, we see meaningful opportunity for additional federal contract activity. Quell continues gaining adoption through our current sales channel and primarily within the VA. Sales of the Quell product line surpassed $1 million in quarterly revenue for the first time in Q1 2026, bringing cumulative Quell revenue to approximately $2.7 million since the acquisition from NeuroMetrix in May 2025, including $2.5 million of Quell fibromyalgia sales in the VA. We have a small cohort of legacy Quell over-the-counter users and expect to relaunch the over-the-counter Quell relief for lower extremity pain later this year. Earlier this year, in January 2026, we launched Truvaga in the United Kingdom. And as that business scales, we expect to evaluate additional markets. Third, perhaps the most important catalyst of all, is our path to profitability. The math is straightforward: mid-80s gross margin, accelerating top line, increasingly disciplined cost base. We are not yet ready to provide a specific quarter for breakeven, but that trajectory is clear, and Q1 is the strongest evidence yet that we are on. Taken together, these catalysts underpin our reaffirmed full-year 2026 revenue guidance of approximately 30% growth, which translates to roughly $9 million to $10 million of incremental revenue versus our $32 million in 2025. We expect the majority of that growth to come from continued VA prescription growth, where Q1 alone delivered prescription device revenue of 48% year-over-year. Truvaga growing in the high 30% range and improving in efficiency is our next meaningful contributor. Quell Relief and our international launch represent newer contributions that we hope to scale through the back half of the year. TAC-STIM, while historically variable, represents potential upside as Mike deepens our federal engagement. And our next-generation mobile platform is a 2027 contributor that opens the doors to recurring revenue over time. In short, 3 catalysts, a clear 30% growth bridge from 2026 and a longer runway into 2027 and beyond. With that, I would like to open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from Jeff Cohen at Ladenburg. Destiny Buch: This is Destiny on for Jeff. I just wanted to touch on the VA channel a little bit, and this is going to be a multipart question. But I'm wondering, as you move away from breadth and more towards depth in this channel, does that change the structure of your sales force in terms of W-2 versus 1099? And then how are you balancing expanding into new sites versus additional patient treatment or additional patients treated, I should say? Joshua Lev: Hi Destiny, thanks so much for the question. Really appreciate it, and I appreciate you being on the call today. I think the best person to answer that question will be Mike. Mike, why don't you jump in and let everyone know what your strategy is? Unknown Executive: Yes. Thanks, Josh. I think the question is a really good one because I don't believe it's an either/or in my experience, we definitely want to expand breadth. We do have VA utilization across the country, but the depth in various specialties and within various patient segment groups is not where it needs to be. I'm a fan of the 1099 model. I'm a fan of the W-2 model. In my history, as long as we have strong performers that are aligned with the strong mission to help our veterans, we can build a really strong opportunity around that. So, I don't see this being a big change as much as just an internal alignment focus and opportunity for us to ensure that we're setting appropriate expectations and really hold people accountable to exceeding those expectations for both our gammaCore line and the Q. Destiny, does that answer your question? Destiny Buch: It does. I think I would also just be curious what your target is for the number of clinics for the end of 2026, perhaps a range from that 200 number? Unknown Executive: That depends on right now when we say clinics. I really like. Clinic centers. Yes, the VA medical centers depend on what number you want to utilize. I've always been in the belief that we're not helping at least 75% of the facilities across the country help the vets. We're not doing our job. I don't know about an exact number, but we need to get really active and have consistent utilization of our products and treat veterans in at least 75% of those accounts on a monthly basis. Destiny Buch: And then, as you go into these other DoD channels, how does that process compare to the VA centers? Is it similar in terms of timing? Unknown Executive: It probably will be a different story altogether because, as you know, they're both under FSS, but the Department of Defense accounts, like the military health centers, also include the TRICARE component. So there are different segments. But from a timeline perspective, the VA usually takes a long time to get things established due to FSS and working with our customers, like global government services for some things. On the Department of Defense side, I would expect by sometime Q3 or Q4, with our plan in place, that we'll start seeing additional revenue. Destiny Buch: And then I guess transitioning over to wellness and Truvaga, you have really strong ROAs this quarter, which I think is fantastic. I'm just wondering if there were any changes to the marketing channels that played into that stronger ROAS. Unknown Executive: Yes. I'd say that's a great question. It's not so much a change in the marketing channels. It's more a function of where we are deploying and investing our resources. We made a more concerted effort to work on affiliate programs and influencers. You may have seen that Miranda Kerr posted about us earlier. That's a co-marketing opportunity that we have. Those are opportunities where what we could do is utilize and leverage the marketing budgets of other people so that they're actually the ones that are putting out there the marketing messaging. And really, what we're doing is using that halo effect to help lift our efficiency. So it's not so much a change per se. I wouldn't say that we cut out any of the other channels or media that we've done before. We're just reallocating the resources and looking at it slightly differently. Destiny Buch: And have you noticed any differences in repeat purchase behavior or anything of that nature compared to last year? Unknown Executive: Not yet, but we also haven't given any formal guidance on that either. But I would say not yet for the time being. Everything seems to be business as usual. Operator: Our next question comes from Fozia Ahmed from Brookline. Fozia Ahmed: First, Mike, thank you for joining the call and coming on board. We look forward to engaging with you. My question is on the FRONTIER study on PTSD patients, which was very compelling. I was wondering if you could just remind us how this study is aligned with the ongoing ACACIA trial. Is it set up the same, whether the outcomes are actually designed to capture the same outcomes that were published in FRONTIER or something different? Unknown Executive: It's something slightly different. Both of them are there to capture patients with PTSD and the effects of utilizing noninvasive vagus nerve stimulation on patients with PTSD. The actual protocols themselves are slightly different. And you can look those up on the IRBs if you'd like. But in essence, the idea here is how to aggregate different data points that have PTSD as being tested in a patient population, but the populations themselves may be slightly different. Fozia Ahmed: And then I have a follow-up question. There's a breakthrough designation attached to PTSD. Are there any ongoing discussions with the FDA at this point? Unknown Executive: So in previous quarters, we've given information and spoken about how we've gone back and forth with the FDA in terms of the best way to approach expanding the breakthrough designation to what would be a formal PTSD label. What we're doing with a lot of the work now, primarily with the ACACIA study and what you just referenced a moment ago, is really aggregating more data points and information that we can bring to the FDA to have a full rollout of what would be a PTSD indication and a full label. And we're doing that sort of in conjunction with them in that they've identified or articulated to us what they're looking for. And based on that information, we're looking to take that and aggregate the data set to provide to them to ultimately apply for the full form PTSD. Operator: Our next question comes from RK Ramakanth at H.C. Wainwright. Swayampakula Ramakanth: Good afternoon, Joshua, and welcome aboard, Michael Fox. Hopefully, you guys are able to hear me. I have two or three questions. So Josh, just starting off, thanks for reiterating the 30% growth for 2026. But during the first quarter, there was a gain of 43%. So what is it that's keeping you from being more careful than needed? Do you see something that makes you -- I'm not going to use the word concern, but makes you think that I need to wait for at least one more quarter to change that guidance? Joshua Lev: That's a great question, RK, and very astute. The answer is no. More than anything, we have internal projections, as you know, and the guidance that we provided to the Street is really based on what we believe organic growth could look like based on, I would say, an outdated model, if you will. And what I mean by outdated is that Mike, with all of his experience of coming to the organization, has utilized strategy and tactics, which have helped grow its former businesses 3x to 4x in terms of top-line revenue. Mike's only been here since April 13th. So it's not really necessarily "fair" hard to expect any more sort of direction or tactics as it relates to how it's going to be able to expand or accelerate that growth, what the timing of that growth is going to look like and the resources required, which is the reason why we keep on going back to -- we are going to provide more detailed guidance when it becomes available and more appropriate. It just hasn't been enough time for Mike to get his feet wet fully to be able to map out and say, Okay, I think that we can grow by x, but it's going to take this amount of time. Swayampakula Ramakanth: And Michael Fox, as I said, welcome aboard. I have a quick question for you. As you were doing your due diligence and trying to get on board, gammaCore has been marketed to the VA facilities for quite a while now. We have about 200 centers, actually not only acquiring but also stocking the product. From your experience and from what you have done in the past, what are the easy pickings in the VA market to move to a larger number of centers? And also outside of the VA, can you name one or two additional federal centers where you think this can be an easy sell? Unknown Executive: RK, that's a really good question. And I would say, from what I've seen in my experience in the VA, the best way to adjust within the VA is to work with them. The VA has a lot of standardizations. They've got a lot of requests for algorithms and treatment protocols, medical necessity. I find a lot of companies do a lot of great things, one account at a time, but they're not working with the leadership at the business level or national level to really place where this product fits and get support from top down. I believe this company has done a phenomenal job of generating support from the bottom up. What I can do is continue to work with that information, that data, the patient-provided outcomes, and the information gathered by our providers in the VA to generate more opportunities for us to standardize treatment and put a really strong position for gammaCore within the federal space. On the second part of your question, outside of the VA, I know there's a large federal workers' comp opportunity with the number of headaches and migraines within that space. Within the Department of Defense, whenever you say Department of Defense, you've got to think of places like Walter Reed, SAMMC, Portsmouth, Naval, and Balboa. There are so many medical facilities that treat patients post-deployment who come back with various things that we can definitely assist them with. So it's early in my evaluation of where we will be able to start, but I promise, for the Department of Defense, it will be with key opinion leaders within the headache space on those active military bases with a focus on the larger centers first, probably closer to the East Coast where we're based. Does that answer your question, RK? Swayampakula Ramakanth: Yes, yes. So, if I can, one more question for you, Mike. In terms of Kaiser Permanente, this is one of those entities where you really need to generate internal KOLs that can drive the growth of the product. I'm not sure. In terms of your experience, do you see that as a real way to do it? Or are there any other levers that need to be pulled? Because I believe once you can get that going, it can be a good draw for the product. Unknown Executive: RK, that's a phenomenal question. And I think a lot of companies ask the same thing about Kaiser because everyone knows the importance of a place like that for business. I can't say all the details of our propositions to date with Kaiser. I have been on numerous calls. I'm very excited about what we have going on in the key opinion leader support within Kaiser. It is a phenomenally well-organized and standardized group. So within the foundation, I know there's a lot of support. So the work is definitely being done in the California market, and we're going to address some other outside-of-market opportunities. But I don't want to get too deep into the Kaiser description of what's going to happen, but we have a very favorable position now that we need to really just understand what's holding us back so we can generate that necessity from the customers. But you are right, we need internal providers requesting it. And I can tell you from my early meetings, we have national headache and migraine experts already doing that. So we're in a good spot. We've got to, I would say, tie a bow a little bit and figure out what's missing, but we're getting a lot of momentum there. Swayampakula Ramakanth: On the Quell Fibromyalgia, you have $2.5 million cumulative in the VA market. How big is the opportunity within the VA for Quell? And is there any opportunity outside of the VA, because it looks like it was not sold much as an over-the-counter sort of product, because you have quite a bit of experience now with Truvaga? And I'm just trying to understand how that can be translated into Quell OTC, if I can call it that? Unknown Executive: Well, that's a great question, okay, because within the VA, obviously, we're treating some of the multidisciplinary types of patients with multifactorial disorders. And fibromyalgia as a percentage is a large population in the VA. I think there are some recent statistics just on even active military. It's very low before they go on deployment. But upon return from deployment, it's about 11% just on active duty. So the veterans as a whole are always exposed to greater and bigger issues. So it is a market by itself, which is very, very scalable as a product like Quell.? Outside of the VA, I think we all have family members and friends who have been dealing with fibromyalgia. It is a big opportunity outside there. But I would say we talked about Kaiser a little bit earlier. I think those are the markets that would be the first ones to address as we continue to explore, maybe some opportunities to talk with Triwest and Optum for some of the active military. That's the plan for at least the immediate future, but we still have to verify what the best spot is. Joshua Lev: And look, RK, it's also definitely worth noting as we look at the number of facilities that are out there prescribing our products, the fibromyalgia product as well is being prescribed in roughly 1/3 of the number of facilities that gammaCore-S is being prescribed. So if you think about that in the context of the overall runway, we acquired the company a year ago. We've been able to grow that to about $2.5 million within the VA system. But of that VA system, it's concentrated in one area of the region. We just need to spend more time being out there and selling. So there's a lot of opportunity, I think. Swayampakula Ramakanth: So I don't mean to hog the call, but one last question on Truvaga. What learnings can you take from the U.S. to the U.K. part of it? Joshua Lev: That's a great question. Right now, we've only launched in the U.K. with our Truvaga 350. We've had a lot of inbound interest that is coming from the U.K., and people who are expressing the need or the desire to get more access to vagus nerve, noninvasive vagal nerve stimulation for the wellness space. So it's early days there. We really just launched it in January. It's a soft launch.? What I mean by that is we're not actively putting any media dollars behind it right now. Really, what we're trying to get a better understanding of is what the uptake for that Truvaga 350 unit is? And does it make sense, and what is the business opportunity more broadly, not just in the U.K., but also in other areas outside of the U.S., but also outside of the U.K., to go ahead and launch a next-generation product like the Truvaga? Operator: Okay. Josh, our next question comes from Jeremy Perlman from Maxim.? His first question is actually for Mike. He says, " Where does Mike see the easiest wins, the lowest hanging fruit? And what are his longer-term plans to drive increased utilization? Unknown Executive: Thanks for the question, Jeremy. In my vast 4 weeks of experience, the low-hanging fruit opportunity is, as we discussed, the federal space. I think the VA and the unmet needs of our veterans are a key focus for us. We know we have a really strong opportunity there and other federal channels, as we discussed, with the Department of Defense. I think long-term plans are a good starting spot, but we all know that it's a good place to help our veterans, but we have to go beyond. That's where I think the longer-term plan will continue to work on the commercial segments and figure that system out as a way for us to expand beyond the FSS and DSA opportunity. So that's still in development, still being identified, but that's the long-term plan, so we can develop the revenue for the long term. Operator: Jeremy's next question is what the Quell release commercialization rollout looks like in target markets and users. Joshua Lev: Yes. So great question. So first and foremost, Jeremy, there is a small cohort of users of the Quell over-the-counter product that we inherited when we acquired the NeuroMetrix business. You may recall that when NeuroMetrix was at its peak, it was doing somewhere in the tune of $12 million to $15 million of Quell over-the-counter related business. And a lot of that went away after the company decided to do a strategic pivot, had the FTC issue, and move to a medical device Quell fibromyalgia product. So from our point of view, what we're really focused on is making sure, number one, that we can still go ahead and service those legacy consumers that have been using the product or that may want to continue using the product, but it's no longer available. That's number one. And then number two is we need to do it in a way that makes sure that we have addressed all of the concerns that NeuroMetrix had addressed regarding the FTC. So, in terms of overall rollout and commercial strategy, the answer is going to be that it's going to be slow. and it's going to be well defined, but it's going to be deliberate in that we're purposely going to make sure that we've addressed the concerns that NeuroMetrix had earlier in their iteration as an over-the-counter product so that we can go ahead and do it in a way that's balanced between offering a Quell fibromyalgia FDA-cleared product or FDA-approved product and then also a consumer product as well. Operator: Okay. And our last question from Jeremy. What are your leading indicators, pipeline, reorder rates, and device utilization that give confidence in continued acceleration in guidance? Joshua Lev: So again, Jeremy, great question. I tried to really focus on it at the end of my remarks, but there's really, we look at this in terms of 3 main categories of catalysts. The first is R&D related, so that could be additional indications. PTSD is putting out additional information about how the studies are going. If you look and you follow our IR page, you'll note that we put out recent press releases, noting the ACACIA study, noting some other publications where data is coming out to help support what could be the makings of a PTSD label. That would be an R&D effort. Products or features that we had mentioned as it relates to Truvaga and Quell, we are investing in our second generation or our next-generation mobile application. Those features will allow us to hopefully get to a point where, if done correctly, we'll be in a situation where we can have a recurring revenue model. So that would be the first catalyst. The second catalyst will be commercial, being able to go ahead and announce items such as launching Truvaga outside the United States, as we recently did in January, the opportunity or the probability of ultimately launching the Quell Relief or the Quell over-the-counter product as its own stand-alone consumer product. Hopefully, Mike is coming to the table and being able to announce either further traction within places like Kaiser, new orders within the federal marketplace like federal workers' comp, perhaps TRICARE. So opening up different commercial avenues. Lastly, which is the third catalyst will ultimately be the operating results. We believe that we can be in a situation where these other catalysts will help drive increased total addressable market and adoption of noninvasive nerve stimulation products or devices. And we believe that acceleration will yield higher revenue growth. and be able to do it in a way that we're managing our costs and expenses. So ultimately speaking, can we accelerate our revenue while also reducing our overall cost to do that, whether that's a percentage of sales and marketing as a percentage of revenue as an indicator, so on and so forth. So those are really the 3 main catalysts that we're here focused on, and we're going to be very mindful about them as we go into the remainder of 2026 and beyond, so that we can give very specific milestone updates as to these different areas that we are strategically focused on. Mike, I don't know if you've got anything else you want add on. Unknown Executive: Jeremy, I'd just like to add in my opening comments, I talked about what I knew about the company before I got here as far as how clinically in-depth this location is and what they're doing to continue to enhance the strength of the clinical platform since joining the company and seeing Dr. Stats and his team and all the investigator-initiated research and the resources the company is putting behind the products to prove more and to do more is one of the reasons I'm extremely excited about the future.? So when you talk about acceleration, it's not just always using the same product as the same, and just trying to get momentum. It's building the platform that Josh has talked about. And that's what I believe is a really exciting factor of this company: what you will see in the future that we really can't discuss today, but the economics and the efforts are being placed here at electroCore to make it happen. Operator: Okay. We have now concluded the live Q&A portion of the call. With that, I will turn the call back over to Josh for closing remarks. Joshua Lev: Thank you, Amanda. I wanted to take the opportunity to thank our shareholders for your patience and your continued support. To our patients, our providers, and our partners, thank you for trusting us with your care and your time. And most importantly, to our team, thank you for showing up every day with the discipline and the ambition this opportunity demands. I really appreciate everyone's participation in today's call. We look forward to speaking with you again next quarter, and I wish you all a happy afternoon. Operator: That concludes today's call. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Cooper-Standard Holdings Inc. first quarter 2026 earnings conference call. During the presentation, all participants will be in a listen-only mode. Following the prepared comments, we will conduct a question-and-answer session. At that time, if you have a question, please press star then 1 on your telephone keypad. To withdraw your question, press star then 2. As a reminder, this conference call is being recorded, and the webcast will be available on the Cooper-Standard Holdings Inc. website for replay later today. I would now like to turn the call over to Roger Hendriksen. Roger Hendriksen: Thank you, Sergio, and good morning, everyone. We appreciate you spending some time with us today. The members of our leadership team who will be speaking with you on the call this morning are Jeffrey S. Edwards, chairman and chief executive officer, and Jonathan P. Banas, executive vice president and chief financial officer. Before we begin, I need to remind you that this presentation contains forward-looking statements. While they are made based on current factual information and certain assumptions and plans that management currently believes to be reasonable, these statements do involve risks and uncertainties. For more information on forward-looking statements, we ask that you refer to slide 3 of this presentation and the company's statements included in periodic filings with the Securities and Exchange Commission. This presentation also contains non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures are included in the appendix to the presentation. With those formalities out of the way, I will turn the call over to Jeffrey S. Edwards. Jeffrey S. Edwards: Thanks, Roger. Good morning, everyone. We appreciate the opportunity to review our first quarter results and provide an update on our business and the outlook going forward. To begin on slide 5, I would like to highlight some of the key first quarter data points that we believe are reflective of our continuing outstanding operational performance and our ongoing commitment to our core company values. In terms of operations and customer service, we started 2026 with the same strong level of performance that we had in 2025, ending the first quarter with 99% green customer scorecards for quality and service. For new program launches, we also continue to deliver strong performance, with 97% of our customer scorecards being green. Our plant managers and our plant employees continue to deliver outstanding performance and value for our customers through their dedication and commitment to excellence. And, as always, our most important operating metric, safety performance, continues to be excellent. In fact, in the first quarter, we had a total incident rate of just 0.18 reportable incidents per 200,000 hours worked, well below the world-class benchmark of 0.35. Importantly, 48 of our plants maintained a perfect safety record, with a total incident rate of zero for the first three months of the year. That is 84% of all of our production facilities achieving a perfect safety score, demonstrating that our ultimate goal of zero safety incidents is achievable. We are certainly proud of our entire global team for their focus and achievement in this important operating measure. In terms of cost optimization, we had another solid quarter, with our manufacturing and purchasing teams delivering $17 million of savings through lean initiatives and other cost-saving programs. These cost reductions and operating efficiencies, combined with revenue growth in the quarter, allowed us to achieve a solid 40 basis point improvement in gross margin versus the first quarter of last year. As a result, despite some of the market headwinds we have been seeing, we continue to drive profitable growth and margin expansion through the execution of our plans and strategies. Finally, we are continuing to leverage world-class service, technical capabilities, and our award-winning innovations to win significant new business. During 2026, we received $128 million in net new business awards, which are expected to drive profitable growth as they launch over the next few years. I will talk more about the significance of our new business awards in a few minutes. Turning to slide 6, as we have made terrific improvements in our operating metrics and profitability over the past few years, we certainly have not lost sight of the importance of being a good corporate citizen. We continue to work on developing and delivering product and material solutions for our customers that help them achieve their environmental goals. And, of course, we have set and are working to achieve aggressive internal goals for reducing energy consumption, emissions, and scrap. Our achievements in corporate responsibility continue to garner recognition from numerous entities, as well as our customers. One of our recent innovations, our FlexiCore thermoplastic body seal technology, was recently recognized as a winner in the 2026 Environment + Energy Leaders Award. This new technology replaces the metal carrier that is used in a traditional dynamic body seal with a patented thermoplastic carrier. The result is a lightweight body seal that maintains the same high-quality performance of traditional materials but is 100% recyclable, increasing vehicle efficiency and reducing materials that end up in landfills. Recently, a FlexiCore front and rear closure seal application was successfully launched into production with a global automaker, further demonstrating the real-world impact of this technology. We are also pleased to have recently been included among USA Today's list of America's Climate Leaders for the third consecutive year, in recognition of our continuing advancements in environmental stewardship. Corporate responsibility is and will continue to be an area of focus for our entire organization, from the production floor to the boardroom, because it is the right thing to do. You can learn more about our goals and our progress in sustainability in our 2025 corporate responsibility report, which will be published within the next few days. We encourage everyone to take a few minutes to look through it when it posts on our website. Now let me turn the call over to Jonathan P. Banas to discuss the financial results for the quarter. Jonathan P. Banas: Thanks, Jeff, and good morning, everyone. In the next few slides, I will provide some details on our financial results for the quarter, and discuss our cash flows, liquidity, and aspects of our balance sheet and capital structure. On slide 8, we show a summary of our results for 2026, with comparisons to the same period last year. First quarter 2026 sales were $686.4 million, an increase of 2.9% compared to 2025. The increase was driven primarily by favorable foreign exchange, partially offset by unfavorable volume and mix, net of customer recoveries. As Jeff mentioned, our first quarter 2026 gross margin improved 40 basis points compared to the prior year, up to 12% of sales. This was a strong result in view of the production volume headwinds we continue to face on certain key platforms in North America during the quarter. Adjusted EBITDA in the quarter was $51 million, compared to the $58.7 million we reported in the first quarter 2025. The year-over-year change was primarily due to the non-recurrence of approximately $10 million of royalty payments that we received in 2025. Otherwise, EBITDA and margin would have improved over last year. On a U.S. GAAP basis, we reported a net loss of $33.3 million in 2026, compared to net income of $1.6 million in 2025. Adjusting for the loss incurred on the successful refinancing of our debt in the first quarter this year, restructuring, and other items from both periods, as well as their related tax impacts, adjusted net loss for 2026 was $5.2 million, or $0.29 per share, compared to adjusted net income of $3.5 million, or $0.19 per share, in 2025. Our capital expenditures in 2026 totaled $24 million, or 3.5% of sales, slightly higher than the prior-year period due to increased launch-related investments. We continue to exercise discipline around capital investments, as we focus on maximizing our returns on invested capital. Moving to slide 9, the charts provide additional insights and quantification of key factors impacting our results for the first quarter. For sales, favorable foreign exchange was a tailwind of approximately $24 million in the quarter versus 2025. Unfavorable volume and mix, net of customer price adjustments, had a negative impact on sales of approximately $5 million compared to the same period a year ago. For adjusted EBITDA, lean initiatives in purchasing and manufacturing positively contributed $17 million year over year, delivered by continued strong performance from our global teams. In addition, we continue to realize benefits from our restructuring initiatives implemented in prior periods, amounting to $2 million in incremental savings, as well as lower SG&A of $1 million in the first quarter compared to last year. Offsetting these improvements were $7 million of unfavorable volume/mix including customer price adjustments and the impact of certain short-term production disruptions, $7 million in increased costs in the form of higher wages and general inflation, $2 million from unfavorable foreign exchange, and $12 million of other unfavorable items, primarily the non-recurrence of certain royalty payments we received in the first quarter of last year. Moving to slide 10, we ended the first quarter with a cash balance of approximately $118 million, owing primarily to typical seasonal changes in working capital, which we expect will unwind over the next couple of quarters, as well as $24 million of out-of-period accrued interest that we paid in conjunction with our refinancing. Cash on hand, coupled with $167 million of availability on our ABL facility, which remains unutilized, resulted in total liquidity of approximately $286 million as of 03/31/2026. We believe that this provides us with more than sufficient liquidity to support the continuing execution of our business plans and profitable growth objectives in today's economic and industry environment. The successful refinancing that we completed on March 4 gives us an overall lower interest rate and reduces expected annual cash interest by approximately $6 million. In addition to the lower interest rate, the refinancing also provides us with increased financial flexibility through more favorable terms, and significantly extends the maturity on the newly issued notes out to 2031. We believe this enhanced capital structure positions us extremely well to continue to execute on our strategic plans, deliver profitable growth, lower our net leverage, and maximize our returns on invested capital. This concludes my prepared comments. I will turn it back over to Jeff. Jeffrey S. Edwards: Thanks, John. In the last portion of our call, I would like to again comment on our high-level strategic imperatives and how these are positioning us for continuing profitable growth over the next several years. I will wrap up with a few comments on our outlook for our business and our industry in general in 2026. Please turn to slide 12. Our strategies and operating plans, as you know, are built around the four key strategic imperatives that you see outlined on slide 12. By aligning the company around these common objectives, we continue to drive significant improvements in virtually every aspect of our business. And by the continuing execution of our plans and strategies, we are positioning the company to deliver continued profitable growth, further improvements in margins, and significantly improved returns on invested capital, as we discussed in last quarter's call. Moving to slide 13, the charts provide a concise summary of the progress we have made in restoring the financial strength of the company. Through our successful strategic execution, we have been able to increase our gross profit margins by 160 basis points over the past two years, despite reduced or flat production volumes in our two largest operating regions. This includes the impact from the significant decline in production on one of our key platforms in North America that resulted from a customer supply chain disruption beginning in the fourth quarter of last year. Because of our success in driving sustainable efficiencies and cost reductions, we believe we will continue this trend of expanding margins in 2026 and beyond, even if production volumes remain flat. And we would expect to leverage any increase in production volume to drive further profitability and returns. In addition, in our cost optimizations we are benefiting from continuing launches of new programs and products with enhanced variable contribution margins. As these new programs ramp up, they are replacing older programs that have lower margins on average. Our booked-business launch cadence and the delivery of run-out business give us a high degree of confidence in our expanding margin outlook. Turning to slide 14, both of our business segments are executing sound strategies to drive profitable growth and improved returns on invested capital. In our Sealing segment, where we are already the global leader in the industry, we are leveraging our leading technologies, expertise, and innovation to capture additional share and profitability. We have also deployed sophisticated digital tools within our manufacturing facilities to drive further efficiencies and improved asset utilization. Finally, as we continue to deliver exciting innovations that provide incremental value to our customers, we are winning more than our fair share of new business. Turning to slide 15, in our Fluid Handling segment, we have an unmatched portfolio of products and innovations that position us well to take advantage of increases in ICE and hybrid powertrains in the U.S., the continuing adoption of EVs in China, and the evolving mix of hybrids and EVs in Europe. This flexibility around powertrains, combined with our ability to design and deliver engineered solutions to optimize vehicle efficiency, is creating opportunities for increased content per vehicle and profitable new growth. As we have said in the past, our longer-term strategic target is to double the fluids business within the next five to seven years. With recent new business wins and a long list of target business opportunities coming up, we believe we are on track to achieve this goal. Turning to slide 16, in terms of winning new business, as I mentioned at the beginning of the call, we have received $128 million in net awards in the first three months of the year. This was ahead of our plans for the quarter, putting us in a strong position to achieve the full-year goal of over $400 million in net new business awards. As you can see in the chart, as our overall operating performance and financial strength continue to improve, the new business awards are accelerating. And the good news is that we have available capacity to launch much of this new business over the coming years with minimal incremental capital investment. We are proud to be the supplier that our customers are increasingly turning to for quality components, consistency of delivery, and collaboration on critical design and development of new technologies. With these awards in hand for Q1 and a bright outlook for the new business wins ahead, we are increasingly confident that we will be able to execute our plans to achieve our longer-term strategic financial targets for growth, margins, and return on capital. Turning to slide 17, to conclude our prepared remarks this morning, let me shift focus to the near term and our outlook for the rest of 2026. The key takeaway this morning is that, despite continued disruptions within our industry and ongoing uncertainty in the global economy, we were able to deliver results that exceeded our original operating plan. We are optimistic that certain headwinds we have faced for the past two quarters could turn into tailwinds in the back half of the year. And if we could get some resolution to the military conflict in the Middle East, we would expect a strong positive effect on consumer sentiment and consumer demand globally. Meanwhile, we are maintaining our focus on delivering value for our customers, optimizing our operations around the world, and successfully executing our strategic plans to drive profitable growth, further expand our margins, and maximize return on invested capital. We believe we are on track to achieve or exceed the full-year targets that we set out for you back in February. We expect to provide a more formal update on guidance, as we typically do, in conjunction with our second quarter results. We also believe we are solidly on track to achieve our longer-term strategic financial targets for adjusted EBITDA margins and return on invested capital. This concludes our prepared remarks. Operator: We will now open the call for questions. Operator: Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your telephone. If you are using a speakerphone, please pick up the handset before entering your request. To withdraw from the queue, press star then the number 2. One moment, please, as we assemble the queue for questions. The first question comes from Nathan Jones from Stifel. Please go ahead. Analyst: Good morning, everyone. This is Andre Sourette Molla on for Nathan Jones. Thanks for taking my questions. There was a nice step up in new business from 2024 to 2025, and now $128 million in January. I think you released that about $32 million of net new bids were coming from BEV and full hybrid. Can you give us a split between how much of that is within Sealing or Fluid for Q1 2026 as well? Just so we have an indication—obviously, more content on the Fluid business on those powertrains—so curious to hear about that. Jeffrey S. Edwards: Yes, sure. Good morning. The $128 million that we have booked so far in Q1 is about 60% Fluid and 40% Sealing. Not a surprise. Around 50% of it is North America-based, and a large percentage is China-based—again, not a surprise. I think as we go forward and there are continued hybrid products introduced into the market, you will continue to see the content per vehicle for Fluid continuing to rise. Last year, to your point about the nearly $300 million of net new business, I think Sealing actually had more of that than Fluid, so it does not surprise me this year that Fluid is outpacing the Sealing net new business. It tends to fluctuate like that. But I do think Fluid, going forward, is going to benefit significantly from the additional hybrid coming into the market. And, as we have said in the past, that can result in more than double the content per vehicle than what we have seen from the traditional ICE programs that were booked within our Fluid business. So, really a positive story. We are on our way to exceeding the $400+ million of net new business for 2026. Analyst: Thank you. And then just one more, switching gears to margins. Can you discuss the impact higher input costs are expected to have on margins this year? How should we think about that and maybe the escalators and de-escalators you have in place? Jonathan P. Banas: Good morning, Andres. When you think about the significant oil price increases that the industry is bearing, as well as higher aluminum prices for some discrete reasons that suppliers are raising globally, we are fairly well protected. As we have discussed in the past, we are in excess of about 70% covered on contractual indexes with our customers or otherwise negotiate on a regular cadence—every quarter or every six months—with customers to claw that back. So we think any increases will be adequately addressed with those historical mechanisms we have in place overall. There is a lag when you think about our spend versus the timing of recovery. The indexes will traditionally reset every quarter and therefore you then go back in and recover the previous quarter's inflationary impact, or in a good-news situation, you would give some of that back. That is the typical cadence. In Q1, just given the timing of the oil price ramp-up, there was not a significant inflationary impact. But we certainly expect to see that headwind come in Q2, and then the recoveries would come online in that sequential recovery cadence. Analyst: Thank you. Thanks for taking my questions. Operator: Thank you. Your next question comes from Kirk Ludtke from Imperial Capital. Please go ahead. Kirk Ludtke: Hello, Jeff, John, Roger. Thank you for the call. On slide 16, another impressive quarter for new business, and one of the bullets says 74% related to innovation products. If I remember correctly, those are materially higher margin than your existing average margins. I am just curious if you would be willing to quantify how much more profitable they are? Jeffrey S. Edwards: Yes, Kirk, this is Jeff. As we have said, going forward—whether it is innovative net new business or traditional products—we have been very consistent with targeting hurdle rates and achieving those hurdle rates as we book net new business. It is why we are able to put out the type of strategic targets we have related to VCM increase, overall margins, and the significant increase of return on invested capital that is forecast over the next several years. That is actually happening. You can see the 160 basis point increase over the last two years. You can see the VCM well over 30% this particular quarter. As all this business launches—from what we booked in 2024, 2025, and what we are booking here in 2026—those numbers will continue to go up. We expect our return on invested capital to be well over 20% at the end of our 2028 business year, tracking to the same strategic targets that we put out last June. Your point is well taken related to innovation. We are seeing further expansion as we launch products that provide customers with cost-down opportunities, light-weighting opportunities, and recycling opportunities. I would expect those numbers to be even better as we present our five-year plan. We have a meeting coming up with our board in June where we will roll out the next five years, and I would expect to see continued margin expansion beyond what we have even said. Kirk Ludtke: Got it. I appreciate it. Thank you. And then maybe a follow-up on the higher gasoline prices. Have you seen any change in schedules since prices went up? Jeffrey S. Edwards: The volumes that we have in our business plan had some pluses and minuses as we usually do each quarter. As we start into the second quarter, we are seeing the volumes basically on our plan. As I said on the call, I think that as long as the Middle East conflict gets resolved here in short order, I expect it to end up being a tailwind in the second half. If that does not happen, then your guess is as good as mine. But so far, I think we are well positioned for the first half of the year. We will manage through the increase in oil prices versus our plan for the second quarter, and then hopefully be well positioned for the second half of the year to be stronger than planned. That is what I am hoping for. Operator: Thank you. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star followed by 1 on your telephone. If you are using a speakerphone, please pick up the handset before entering the request. Your next question comes from Doug Carson from Bank of America. Please go ahead. Analyst: Great, team. Thanks for hosting the call and for taking my question. As I look at the bridge from 2025 to 2026, I know you will be out with more detail in Q2, so I do not want to get ahead of it. But there was a goal that was set—investors thought it was optimistic—but it looks like you are going to hit it or potentially exceed it. A large part of that bridge was lean manufacturing, improvements in purchasing, and in this tough market, to be able to beat that number—could we get a sense if this is going to be coming more from business wins, or you feel like the lean could get even higher, or maybe more pricing, because volume is going to be challenging? Just a little sneak peek on what to be thinking about as far as the guidance. And then separately, during the deal you talked about 51% of your awards coming from high-growth Chinese OEMs. How has that cadence been with the Chinese? Jeffrey S. Edwards: Thanks for the questions. Related to how we continue to expand margins, it is all of the above. We have teams in both our Sealing and Fluid businesses across 20-plus countries, and each month and quarter they have detailed plans they are executing—plans that are developed well in advance of a particular business year. As Jonathan and I said on the last call, we had a high level of confidence that execution of cost reductions to help offset inflation was well on its way to being a record performance. We had not seen a year where they came in with 90%+ of these ideas already identified and being worked on before we even started 2026. That is why you see the execution and the ability to deliver on what we told you we would. I would expect that to continue for the rest of this year and next year. It has been our approach for well over a decade—the process is the process, the team is the team—and they continue to exceed expectations. Related to net new business, when we talk about 2027 and 2028, 85% to 95% of that is already booked. We know what those prices are, we know what our costs are, and we know what the investment is going to be to launch it all. Hence the confidence we have in more than doubling our return on invested capital over the next couple of years. The only thing I cannot forecast is volume and mix. Despite that being a challenge for the last number of years, we continue to expand profitability and returns because of how we are running the business, the decisions we are making, and—most importantly—the people we have in our plants executing. Oil prices have shot up versus what we had in the business plan, but contractually we are largely covered for recovery. There will be some timing issues in the second quarter, but for the full year I am still bullish. I believe the overall macroeconomic environment is positive, and I think the geopolitical environment has to become more positive. That is why I believe the second half could have some tailwinds. We will talk more about that in August. On the China question, the cadence with high-growth Chinese OEMs remains strong and aligned with what we outlined—consistent opportunities and awards as they expand globally, which supports our growth in Asia and beyond. Operator: It appears that there are no more questions. I would now like to turn the call back over to Roger Hendriksen. Roger Hendriksen: Thanks, everybody. We appreciate your continued engagement with our calls. If you have questions that did not come to mind and you would like to get in touch with us, we would certainly be open to further conversation—just feel free to reach out to me directly. Again, we appreciate your participation this morning, and thanks for your continued trust and confidence. This will conclude our call. Thank you. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Advanced Flower Capital Inc.'s first quarter 2026 earnings call. At this time, all participants are in a listen-only mode. I would now like to turn the call over to Gabriel A. Katz, Chief Legal Officer. Please go ahead. Gabriel A. Katz: Good morning, and thank you all for joining Advanced Flower Capital Inc.'s earnings call for the quarter ended 03/31/2026. I am joined this morning by Robyn Tannenbaum, our President and Chief Investment Officer; Leonard Tannenbaum, our Chairman; Daniel Neville, our Chief Executive Officer; and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our April 2026 press release and is posted on the Investor Relations portion of Advanced Flower Capital Inc.'s website at advancedflowercapital.com, along with our first quarter 2026 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, market developments, anticipated portfolio yield, and financial performance and projections in 2026 and beyond. These statements are subject to inherent uncertainties in predicting future results. Please refer to Advanced Flower Capital Inc.'s most recent periodic filings with the SEC, including our Quarterly Report on Form 10-Q filed earlier this morning, for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections. Today's call will begin with Robyn providing an overview of our results. Len will then provide commentary on the lower middle market, and then Dan will provide an overview of our portfolio and pipeline. Finally, Brandon will conclude with a summary of our financial results before we open the lines for Q&A. With that, I will now turn the call over to our President, Robyn Tannenbaum. Robyn Tannenbaum: Thanks, Gabe, and good morning, everyone. We appreciate you joining us to discuss Advanced Flower Capital Inc.'s first quarter earnings. Before turning to earnings, we are pleased to have completed our first quarter operating as a BDC. The conversion to a business development company has expanded Advanced Flower Capital Inc.'s investment flexibility, which has allowed us to pursue opportunities beyond real estate-backed loans. We believe that this expanded opportunity better positions Advanced Flower Capital Inc. to diversify its exposure across industries and credit risk profiles. During the quarter, we closed two non-cannabis deals in the lower middle market, totaling approximately $90 million in new commitments. Additionally, we received $41.2 million in cannabis loan repayments during the quarter. For Q1 2026, Advanced Flower Capital Inc. had net fundings of $39.1 million. The two lower middle market deals are similar to other transactions in our pipeline and have many of the characteristics we look for: cash-flowing operating businesses backed by experienced sponsors. Turning to earnings, for the first quarter of 2026, Advanced Flower Capital Inc. generated net investment income of $0.21 per basic weighted average share of common stock. Additionally, the Board of Directors declared a first quarter distribution of $0.05 per share, which was paid on 04/15/2026 to shareholders of record on 03/31/2026. Before turning the call over to Len, I would like to note that the Board of Directors has put a $5 million share buyback program in place. We view the share buyback authorization as a flexible component of our capital allocation strategy designed to enhance long-term shareholder value. Now I will turn it over to Len to discuss the state of the middle market. Leonard Tannenbaum: Thank you, Robyn, and good morning, everyone. I want to explain why we are excited about private credit and why we believe the timing is particularly compelling. As private credit experienced meaningful reductions in net inflows, many lenders have exited the lower middle market in favor of moving upmarket to support their existing portfolios. This reduction in capital and resulting shift upmarket has created a sizable opportunity for a small, nimble lender like us to capture what we consider to be an exceptional vintage in the lower middle market. In this part of the market, we are seeing better risk-adjusted returns with absolute yields running approximately 100 to 300 basis points higher than they were just six months ago. Our ideal sweet spot is in the $5 million to $50 million EBITDA range, largely below the threshold where the larger private credit platforms operate. We believe that the lower middle market assets that we are currently underwriting carry a meaningful distinction from the covenant-light structures common in the upper market, where lenders often rely solely upon a liquidity covenant. Our deals typically include a cash flow measure and a fixed charge coverage ratio covenant, so we are not allowing the aggressive EBITDA add-backs endemic to larger deals. This is a further indicator of the strong underlying credit quality opportunity available in the lower middle market. Strategically, we are actively expanding our pipeline and continuing to diversify our portfolio. We believe this vintage offers an attractive opportunity, and we are positioning ourselves to capture it thoughtfully and at scale. I will now turn it over to Daniel Neville to discuss the state of our portfolio and our pipeline. Daniel Neville: Thanks, Len. I will begin with an update on our expansion into private credit outside of the cannabis space, followed by an update on our portfolio. As Len described, we feel good about the supply and demand dynamics in lower middle market lending and are excited about the opportunities we are seeing. Since expanding our investable universe, our active pipeline remains strong, with over $1.5 billion of deals as of today. We are focused on sourcing deals and backing companies in the lower middle market across a variety of industries, including healthcare, consumer, manufacturing, and services. We are focused on deals where we have expertise or can add value and have no interest in stretching beyond our core competency. Our sweet spot is providing loans to cash-flowing borrowers with $5 million to $50 million of EBITDA. We are primarily participating in sponsored transactions, though we selectively engage in non-sponsored deals as well. The financings we are looking at are often used for expansion capital, acquisitions, refinancings, or recapitalizations. During Q1, Advanced Flower Capital Inc. closed two loans totaling $90 million, and subsequent to quarter end, Advanced Flower Capital Inc. closed an additional $5 million of loans. In January, Advanced Flower Capital Inc. closed on a $60 million senior secured credit facility to support the combination of STAT and the Mooresby Group, which is backed by Cambridge Capital. In February, Advanced Flower Capital Inc. committed $30 million to a $60 million senior secured term loan to support the acquisition and growth of a leading healthcare benefits platform tailored toward hourly and lower-wage employees. At closing, Advanced Flower Capital Inc. funded $20 million of this commitment, and the remaining $10 million was funded subsequent to quarter end. As I stated last quarter, we currently have three loans on non-accrual and are focused on receiving paydowns on these loans to redeploy that capital into performing credits that should contribute to current income. The receiver has continued the liquidation for our investment in Debbie Holdings. During Q1, we received a $6.2 million paydown, which brings the total paydown since Debbie entered receivership to $20.8 million. Lastly, I wanted to take a minute to touch on Justice Grown. The loan matured on 05/01/2026 and is in maturity default. Now that the loan has matured, we intend to exercise our rights and remedies under the credit agreement, including our rights under the shareholder guarantee and parent guarantee. As a reminder, our loan to Justice Grown is secured by the vertical asset in New Jersey, including an owned cultivation facility and three dispensaries, two of which are owned. In Pennsylvania, we are secured by three dispensaries and an owned cultivation facility, which is currently not operational. We remain laser focused on pursuing our rights and remedies under the credit agreement and realizing maximum value from this loan. Now I will turn it over to Brandon to discuss our financial results in more detail. Brandon Hetzel: Thank you, Dan. For the quarter ended 03/31/2026, we generated total investment income of $9.8 million and net investment income of $4.8 million, or $0.21 per basic weighted average share of common stock. We ended the first quarter of 2026 with $356.6 million of principal outstanding spread across 15 loans. As of 05/01/2026, our portfolio consisted of $370 million of principal outstanding across 17 loans. As of 03/31/2026, we had total assets of $394.9 million, total shareholders' equity of $185.8 million, and our net asset value per share was $7.90. This is an increase of $0.44 per share over the prior quarter. The increase in net asset value per share was primarily driven by net investment income of $0.21 per share and an increase in unrealized appreciation on investments of approximately $0.28 per share, offset by the Q1 dividend of $0.05 per share. During the first quarter, Advanced Flower Capital Inc. expanded its senior secured revolving credit facility to $80 million with an additional $30 million commitment from the facility's lead arranger, an FDIC-insured bank with over $75 billion of assets. The facility remains expandable to $100 million, subject to lender participation and our available borrowing base. During the three months ended 03/31/2026, we had an average balance drawn on the credit facility of approximately $22 million. Lastly, on 04/15/2026, we paid the first quarter dividend of $0.05 per common share outstanding to shareholders of record as of 03/31/2026. I will now turn it back over to the operator to start the Q&A. Operator: We will now open the call for questions. If you would like to ask a question, please press star one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, please press star two. Our first question comes from Aaron Thomas Grey with AGP. Your line is open. Aaron Thomas Grey: Hi. Thank you for the question. First one from me. Thanks for some of the comments you provided on Justice Grown. How should we think about potential outcomes here given the other litigation that is pending? The loan is now officially in default, so I am trying to think about the different potential outcomes that could happen over the near term. Thanks. Robyn Tannenbaum: Hi, Aaron. I am going to pass that one over to our Chief Legal Officer, Gabe. Gabriel A. Katz: Sure. Yes, the loan has matured as you noted. We are pursuing all rights and remedies to obtain maximum value from the credit facility, but it is too early to make any predictions on outcomes in this litigation. Aaron Thomas Grey: Okay. So just to clarify, there are still questions in terms of being able to fully take it over as the other litigation is pending, even if it is currently in default now? Gabriel A. Katz: No. We are pursuing our strategies to obtain maximum value from the collateral. Aaron Thomas Grey: Okay. Alright. Great. Next question for me is on incremental loans in the pipeline. I know you have talked before about expected yields. I understand the April ones were a little bit smaller, but I just want to confirm that the ones in the pipeline are expecting similar yields that we have seen, kind of that mid- to high-teens, as we go forward for the year? Robyn Tannenbaum: Hi, Aaron. I will pass that one to Daniel Neville. Daniel Neville: Aaron, we have a few loans in our disclosures, and you can look at those yield-to-maturities as a guidepost. Our overall target, and what we have said previously with the transition to the lower middle market, is that we would expect the yields to move down a touch into the low double-digit range on an overall basis, but we expect the quality of the borrowers and the counterparties on the sponsor side to improve significantly in the lower middle market relative to what is available today across the cannabis landscape. Aaron Thomas Grey: Mhmm. And just last question for me. With the recent rescheduling—currently FDA approved and if they are medical, legal, operations—does that change your outlook for the cannabis market, or are you still more broadly focused, maybe less focused on cannabis for the pipeline? Thank you. Daniel Neville: I will give a little color on the rescheduling side. It is great to see progress at the federal level finally after five years. The positives are it eliminates 280E liabilities for medical operators today and certainly decreases future uncertainty related to go-forward liabilities, given the path that we seem to be on at the federal level, with hearings related to adult use later this year as well. There is also potential relief of historical tax liabilities, at least for medical operators, as was highlighted in the actions over the last few weeks. The combination of those factors could potentially attract additional capital over time. The negatives are that none of the operators were really paying those taxes on a cash basis outside of GTI, and if you look at the cash flow statements for the last couple of years, that reflects a post-280E world on a cash basis today. Certainly, the industry is more competitive than it was five years ago, and it took a long time to get here. To the extent that additional capital is attracted to the industry, that would be positive for asset values—particularly medical asset values given that 280E is eliminated—and it could lead to better realizations for us on loans that we have on non-accrual. We are seeing better opportunities in the lower middle market today given the economics, the less competitive nature of the lending environment, and the quality of the borrowers and counterparties. So on a go-forward basis, while rescheduling is great and could be good for asset values and our loans on non-accrual, we are still focused on expanding into lower middle market lending generally. Operator: Thank you. One moment for our next question. Our next question comes from Pablo Zuanic with Zuanic and Associates. Your line is open. Pablo Zuanic: Yes. Good morning, everyone. You gave some color on the two large loans that you made in the first quarter to non-cannabis companies. Can you expand a little bit more? These are private companies, and we do not have access to their financials. Whatever additional color you can provide to understand better what those companies are doing and what their plans are for the proceeds from the loans would be helpful. Thank you. Daniel Neville: Sure, Pablo. As you mentioned, they are private companies; the majority of loans done in the BDC space are to private companies. We can give a bit of color on two of those businesses. For STAT, we put out a press release that described what the business does. They operate in the revenue recovery space related to suppliers into big retailers like Walmart, Target, and the Amazon ecosystem, and they recover deductions related to invoices for goods that are shipped into those retailers. If you think about the opportunity set there, Walmart has about $700 billion of sales, with cost of goods sold probably somewhere around $400 billion. On every invoice that goes into Walmart, you typically see deductions related to quantity mismatches, on-time in-full, and similar items. These folks work to recover those amounts, which represents a very large opportunity at scale for Walmart alone, and you expand that opportunity as you get to other retailers on the platform. The use of proceeds there was for a refinancing of an existing credit facility for the buyer as well as to partially finance the acquisition of the Mooresby Group. On the benefits platform borrower, that is a healthcare benefits platform that serves low-wage employees. In my previous life, I had 1,700 hourly employees and dealt with benefits, and one of the constant complaints is that regular-way healthcare insurance was too expensive, unaffordable, and honestly overkill for folks in the 18–35 age subset. This product provides a low-cost offering for virtual urgent care, primary care, and generic prescriptions, and it is good for the employee as a low-cost option and good for the employer as an avenue for some tax savings on FICA payroll taxes. The platform is seeing tremendous growth and is really attacking an interesting niche and unfilled need in the healthcare insurance market. Pablo Zuanic: Thank you. That is great color. My last question: you have the cash on the balance sheet that you reported for March plus the expanded credit facility. If I put all that together, do you see that you can deploy all of that this year? You have talked about the pipeline, but I am trying to think how we should model book loan growth from here to the end of the year. Robyn Tannenbaum: Pablo, it is Robyn. As we are entering the lower middle market, it is hard to provide guidance for the rest of the year as to what we are going to fund. We do have dry powder that we look to deploy over the course of the year, and as we get repayments, as we discussed this quarter, we will look to deploy that capital as well. Operator: I am not showing any further questions at this time. I would like to turn the call back over to our CEO, Daniel Neville, for any further remarks. Daniel Neville: Thank you for joining us this morning, and we look forward to updating you on our continued transition to lower middle market lending on future calls. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good afternoon, and welcome to Castle Biosciences First Quarter 2026 Conference Call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question-and-answer session. I would like to turn the call over to Camilla Zuckero, Vice President, Investor Relations and Corporate Affairs. Please go ahead. Camilla Zuckero: Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences First Quarter 2026 Results Conference Call. Joining me today are Castle's Founder, President and Chief Executive Officer, Derek Maetzold; and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, May 6, 2026. Therefore, if you're listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the Investor Relations page of the company's website for approximately 3 weeks following the conclusion of the call. Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements, including statements about expected addressable markets, statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2026 total revenue and the impact of our investments and growth initiatives, including our ability to achieve long-term growth and drive stockholder value. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties. There can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. Please refer to the risk factors in our most recent SEC filings for more information. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin and adjusted EBITDA that have not been calculated in accordance with U.S. GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. I will now turn the call over to Derek. Derek Maetzold: Thank you, Camilla, and good afternoon, everyone. We delivered strong first quarter results, building on our momentum from 2025. Thanks to the strong execution by the entire Castle team, we delivered revenue of $83.7 million. Test report volumes for our core revenue drivers grew 36% compared to the first quarter of 2025. Excluding DecisionDx-SCC and IDgenetix revenue, our revenue growth for the first quarter of 2026 is approximately 42% compared to the first quarter of 2025, highlighted by double-digit year-over-year test report volume growth for both DecisionDx-Melanoma and TissueCypher. Throughout the first quarter of 2026, our teams remain focused on executing our growth priorities and our strong performance gives us confidence to raise our 2026 revenue outlook to between $345 million to $355 million compared to our previous provided guidance of $340 million to $350 million. Now I will walk you through business highlights from the first quarter, and then Frank will provide additional financial highlights before we turn to your questions. Let's start with our core revenue drivers and what we see as the bulk of our 2026 top line growth story, DecisionDx-Melanoma and TissueCypher. For DecisionDx-Melanoma, we delivered 10,021 test reports in the first quarter, representing 16% year-over-year growth. Further, March of 2026 saw an all-time high record month for test reports delivered. We believe DecisionDx-Melanoma remains a durable growth driver and continue to expect mid- to high single-digit volume growth for the full year 2026. Driving test adoption and sustaining our competitive advantage through robust clinical evidence remains a key priority. We recently presented new data at the 2026 American Academy of Dermatology Annual Meeting, demonstrating that our DecisionDx-Melanoma test can significantly improve risk prediction within the American Joint Committee on Cancer, or AJCC, stages for patients with cutaneous melanoma. These data from 1,868 CE-linked patients showed that DecisionDx-Melanoma significantly stratifies 5-year melanoma-specific survival within AJCC stages and T categories, identifying patients whose mortality risk is substantially higher or lower than staging alone would predict. What this means is that in this study, DecisionDx-Melanoma provided clinically meaningful differences in risk within the same stage, enabling more personalized risk-aligned management decisions by helping clinicians identify patients who may warrant closer monitoring or early intervention while also recognizing those who may safely be managed less intensively. These great results are in addition to our recently published data from the prospective multicenter study evaluating DecisionDx-Melanoma's i-31 SLNB test result. Data from this prospective U.S.-based study confirmed again that our test identified patients with a less than 5% predicted risk, consistent with the National Comprehensive Cancer Network guideline thresholds while maintaining favorable outcomes and outperforming traditional staging criteria. Now let's turn to our gastroenterology franchise. During the first quarter of 2026, we delivered 11,745 TissueCypher test reports compared to 7,432 in the first quarter of 2025, which is 58% growth. Consistent with our DecisionDx-Melanoma test in March, March also represented an all-time record month for TissueCypher. Two studies were recently presented at the Digestive Disease Week by researchers at the Mayo Clinic. The findings demonstrated how molecular risk stratification with the TissueCypher test refined risk assessment and directly informed real-world management decisions for patients with Barrett's esophagus with one study showing changes in surveillance intervals in more than half of patients compared to recommendations guided by traditional histopathology alone, supporting more personalized, risk-aligned patient management. Look to our news release from earlier this month for more information on these studies. Looking to the full year, we expect to add a similar number of tests in 2026 as we did in 2025, indicating year-over-year growth approaching 50%. Let's move on to what we believe are our midterm, which we view as 2027 and 2028 revenue drivers, which includes our AdvanceAD-Tx test in addition to our core revenue drivers. As a reminder, AdvanceAD-Tx is our first-in-class test designed to guide systemic treatment selection for patients 12 years of age and older with moderate-to-severe atopic dermatitis, or AD. You may recall that we released this test under a limited access program mid-fourth quarter of 2025. Continuing on our limited access during the first quarter, we received approximately 650 orders. Initial responses indicate that clinicians appreciate that AdvanceAD-Tx integrates into their existing AD care pathway, helping them make more informed systemic therapy choices early in the patient treatment journey. Supporting this claim, during the quarter, we published data from a prospective multicenter clinical validation study in the Journal of the American Academy of Dermatology, demonstrating that AdvanceAD-Tx can identify patients with moderate-to-severe atopic dermatitis who are significantly more likely to achieve greater and faster responses when treated with a JAK inhibitor compared to a Th2 biological therapy. The data showed that AdvanceAD-Tx can stratify patients by molecular profile, identifying those more likely to achieve near-clear skin or EASI-90, faster time to response and meaningful patient-reported benefits when taking a JAK inhibitor, supporting improved outcomes and more biologically informed systemic treatment decisions early in the treatment journey with JAK inhibitor therapy as compared to Th2 targeted biologic therapy. Based on revenue cycle time lines, we expect to be in a position to provide more detail on reimbursement by the end of the third quarter 2026. And with that, I will now turn the call over to Frank. Frank Stokes: Thank you, Derek, and good afternoon, everyone. As Derek noted, our first quarter financial performance marks a strong start to 2026. Revenue was $83.7 million for the first quarter of 2026, driven by continued strength in our core revenue drivers. For total revenue for 2026, we are raising our revenue guidance to $345 million to $355 million, up from the previously provided range of $340 million to $350 million. This is growth of high-teens to low 20s in 2026 over 2025, excluding revenue from DecisionDx-SCC and IDgenetix from the 2025 and '26 totals. Our gross margin during the first quarter of 2026 was 72.8% compared to 49.2% in the first quarter of 2025. As a reminder, first quarter of 2025 gross margin reflects the onetime adjustment of an acceleration of amortization expense of approximately $20.1 million. Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods, was 75.6% for the quarter compared to 81.2% for the same quarter in 2025. Turning to expenses. Our total operating expenses, including cost of sales for the first quarter of 2026, were $102.1 million compared to $115.9 million for the first quarter of 2025. Sales and marketing expenses for the quarter were $41 million compared to $36.8 million for the same period in 2025, primarily driven by higher personnel costs and higher sales-related travel expenses. Increases in personnel costs reflect a higher headcount driven by sales force expansion as well as merit and annual inflationary wage adjustment for existing employees. Higher sales-related travel expenses reflect increased field activity to support growing test report volumes. General and administrative expenses were $23.9 million for the quarter compared to $21.8 million for the same period in 2025, primarily attributable to higher personnel costs, higher information technology-related costs and higher travel costs, partially offset by a decrease in professional fees. Increases in personnel costs reflect headcount expansions in our administrative support functions as well as merit and annual inflationary wage adjustments for existing employees. Cost of sales expenses were $20.5 million in the first quarter of 2026 compared to $16.4 million in the first quarter of 2025, primarily due to higher expenses for lab supplies, higher lab services costs, higher personnel costs and higher depreciation expense. The increase in expenses for lab supplies and lab services expense was driven by higher test report volumes. Increases in personnel costs reflect a higher headcount due to additions made to support business growth in response to growing test report volumes as well as merit and annual inflationary wage adjustments for existing employees. The higher depreciation expense reflects continued investment in and expansion of our laboratory facilities. R&D expenses were $14.4 million for the quarter compared to $12.6 million for the same period in 2025, primarily due to higher personnel costs and higher clinical studies costs. The increases in personnel costs reflect a higher headcount to support continued business growth and increases in clinical studies costs reflect investment in our pipeline products. Total noncash stock-based compensation expense, which is allocated among cost of sales, R&D and SG&A expense, was $9.8 million for the first quarter of 2026 compared to $11.2 million in the first quarter of 2025. Interest income was $2.5 million for the first quarter of 2026 compared to $3.1 million in the first quarter of 2025. Our net loss for the first quarter of 2026 was $14.5 million compared to a net loss of $25.8 million for the first quarter of 2025. Diluted loss per share for the first quarter was $0.49 compared to a diluted loss per share of $0.90 for the same period in 2025. Adjusted EBITDA for the first quarter was negative $5.1 million compared to $13 million for the comparable period in 2025. The year-over-year change primarily reflects a onetime noncash amortization expense recognized in 2025 related to the accelerated amortization of our IDgenetix test. Net cash used in operating activities was $22.1 million for the first quarter of 2026 due in part to annual cash bonus payments and certain health care benefit payments that do not recur through the remaining 3 quarters of the year. Net cash used in investing activities was $25.8 million for the first quarter and consisted primarily of purchases of marketable investment securities of $55.1 million, purchases of property and equipment, partially offset by the maturities of marketable investment securities and the sale of equity securities. As of March 31, 2026, we had cash, cash equivalents and marketable securities of $261.7 million. As we've discussed, we expect M&A to play a role in our growth story, and we intend to continue to evaluate candidates that fit within our strategic opportunities criteria. In closing, I'm pleased with our strong first quarter results and increased guidance, which reflect the consistent execution and momentum we are building across the entire business. I'll now turn the call back over to Derek. Derek Maetzold: Thank you, Frank. In summary, I am pleased with our strong start to 2026. We remain confident in our ability to execute our growth strategy and drive long-term value to our stockholders. Finally, I want to thank the entire Castle team for their dedication to advancing patient care and improving patients' lives. We're proud of our accomplishments and excited about the path ahead, and we look forward to sharing our continued progress in the coming quarters. Thank you for your continued interest in Castle Biosciences. Now we will be happy to take your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Mason Carrico with Stephens. Mason Carrico: I want to start out with TissueCypher volume, 58% growth year-over-year. Obviously, that's great growth. But volumes did decline very modestly quarter-over-quarter. That just hasn't happened since early 2024, I think. So any unique dynamics to call out in the quarter that may have contributed to that weather, seasonality, anything capacity related? Just I guess, any color there would be great. Frank Stokes: Yes. Sure, Mason. Thanks. As you noted, we continue to see really strong growth there with 58% year-over-year growth. On the sequential or quarter-to-quarter trend there, I think we finally have hit the penetration level where we are seeing seasonality and seeing and feeling the sense of that. Based on looking at IQVIA third-party data, historically, the first quarter of the year has fewer GI procedures than the other quarters. But having said that, importantly, March was a record month for TC and that trend continued in April. So I think we're going to add -- we would expect to add a similar number of test reports in '26 as we did in '25, and that gets us something close to a 50% year-over-year growth for the year. And so good performance on the test, and we continue to be pleased with what we're seeing. Mason Carrico: Got it. And you guys update -- or would you give us an update on the reimbursement initiatives for your AD-Tx test or the progress you've made on that front? And then I guess as kind of a follow-up to that, on the potential for revenue to become material there in 2027 or 2028, where does that -- where do you expect that revenue to come from? Is it all from appeals? Or could there be some other revenue model contributing next year by 2028? Derek Maetzold: So we don't -- Mason, Derek here. We think based upon the long revenue cycles from an RCM perspective, we could be in a position probably by the end of the third quarter to provide some good evidence-based clarity in terms of what we're seeing, what we can assume for 2027, 2028 under a traditional reimbursement approach. There are, of course, other avenues as well in terms of interested parties who may be interested in controlling the cost of having patients keep cycling around medications. And of course, there's always an opportunity to potentially partner with some of the pharmaceutical companies who might have interest in having their share shifted. But for -- right now, I would say if we rely primarily on traditional governmental or private payer reimbursement, probably in the third quarter so we can give some strong clarity based on evidence. Operator: Your next question comes from the line of Thomas Flaten with Lake Street. Thomas Flaten: Any -- I think you guys were relocating to a new Phoenix lab at some point this year. Any update on what impact that might have on gross margins going forward? Frank Stokes: I don't think we'll see much impact on gross margins, Thomas. We haven't made that change yet. We're moving into an expanded facility in the Phoenix area. And that's really towards -- an eye towards -- as you recall from working with us for a while, we try to stay a couple of years ahead of demand in terms of capacity. And so as we look at the expanding derm franchise and the growth in those test volumes, in particular, we're trying to stay ahead of it. So I don't have guidance for you on when we'll make that move, but I don't think you'll see much impact on gross margin at all as we shift from one facility to the other. Thomas Flaten: Got it. And then on to AdvanceAD, any thoughts on broadening this initial rollout? I think you had 150 accounts targeted as the first group. Will that stay at those 150 for the foreseeable future, at least until you have more visibility into reimbursement? Derek Maetzold: We opened up access a bit more in this first quarter of this -- late in the first quarter. And we'll kind of look at our volume, look at our early RCM assumptions here, make sure we're on track and then kind of continue to go and release it over time. But that being said, having 650 orders come in the door in the first quarter is very, very nice reinforcement of the opportunity that we have here when the field force is 100% focused on melanoma, and we have such limited access to our customer base. So we are quite pleased with the continued early response of the dermatologic clinicians out there in the field. Operator: Your next question comes from the line of Catherine Schulte with Baird. Catherine Ramsey: Maybe first for the mid- to high single-digit melanoma volume growth for the year after a really strong start there with mid-teens growth in 1Q, should that double-digit growth continue in the second quarter with some conservatism baked into the back half? Or how should we think about the phasing there? Frank Stokes: Yes. We did reiterate, Catherine, our 2026 mid- to high single-digit growth expectations. Q1 was a bit of an easier comp than we expect for the rest of the year. So we're pleased with that. I think that's where we see the business trending. Catherine Ramsey: Okay. And then I guess, have you guys been getting any feedback from clinicians regarding some of the moving pieces on NCCN guidelines? And any feedback you've received on the future oncology publication or any other data that you've put out recently? Derek Maetzold: So we continue to get good feedback on -- I don't quite understand what NCCN sees here. This is a failed study, failed to meet the 5% cut point here. So what's trying to be said, which is good for us. I think, unfortunately, from an NCCN standpoint, there's a belief that this is really more political than we even thought, I guess you would say. We're hearing that from most of our customers. The recent DeCIDE study, which came out in Future Oncology earlier this year was another strong reinforcement that if you use our test to look at accuracy. Once again, we have one more study showing that we comfortably get way below 5% predicted risk in people who actually underwent an SLNB. And as important in that same publication is that people who used our test to move away from SLNB, meaning you didn't know if you were going to be positive or negative, had extremely strong outcomes. It was 97.8% recurrence-free survival over the time period of the publication. That is a really safe melanoma patient, if you can, I guess, use those 2 words together, right? So that continues to be strong reinforcement that we've got data that they can rely upon that's consistent over time, which is excellent. And I think that's what also led to having our greatest month ever in March of this year. Operator: Your next question comes from the line of Subbu Nambi with Guggenheim. Unknown Analyst: This is [ Thomas ] on for Subbu. Frank, you mentioned M&A. Is that something you're looking at near term? Can you just walk us through those factors you're considering when evaluating targets that meet your criteria there? Derek Maetzold: I mean I think we always are open eye to what may be a possibility. We own things as we become aware of them. We don't feel compelled to chase anything. I think we've got a great opportunity with what we own and control today. But we do look at things as they come around or come across us. And as you know, the goldilocks approach is pretty tough. I mean things have to look pretty good, but we do think that could be part of the future. Unknown Analyst: Great. And then separately on -- maybe on sales force. Can you just give an update today on derm and GI? And then maybe how headcount expansion is expected to look for this year? And how does that translate to selling and marketing spend? Frank Stokes: Yes. We -- what we said is we think we can cover for the time being in the near term, both of those verticals with fewer than 100 reps, and that's where we are today. Operator: Your next question comes from the line of Matthew Parisi with KeyBanc Capital Markets. Matthew Parisi: This is Matthew Parisi on for Paul Knight at KeyBanc Capital Markets. Congrats on the quarter. You previously mentioned in 2025 that melanoma received FDA breakthrough designation. And I was wondering if Castle is still preparing for like an FDA submission in '26 that you mentioned? Derek Maetzold: We are moving forward with a submission along that same time line sometime in 2026 here, yes. Matthew Parisi: And then just one other follow-up. Just wondering if there's been an update on SEC. I know you guys had received acceptance of the reconsideration request for both Novitas and MolDx. And if there's just any update or an idea on timing? Derek Maetzold: No official update, I guess, from either one of the Medicare contractors, Palmetto or Novitas since, I guess, our year-end earnings call a few weeks ago. We still continue to believe that there -- that kind of a year plus review cycle should be plenty of time for a reconsideration request that was accepted in, I guess, July and September accordingly between Novitas and MolDx. So we aren't, at this point in time, thinking that there is a later posting of a draft LCD than sort of the second half of this year. That would be surprising. Operator: Your next question comes from the line of Kyle Mikson with Canaccord. Kyle Mikson: This has been covered, I apologize. But on the 650 orders for the atopic dermatitis test, could you just talk about recent trends and how you expect that to accelerate going forward? And when you think about that number getting into the thousands, I guess, in the relative near term here, how does that affect the cost structure of the company? I guess I know it's obviously not super material. But as we see gross margin decline sequentially and things like that, I'm just curious how we should be thinking about P&L impact. Frank Stokes: Yes. So Kyle, I think that what we see right now the primary hurdle for our AD test is just our -- candidly, our willingness to -- how available do we want to make it. In terms of impacting the overall COGS profile, that's a pretty efficient test. It's PCR-based test. And so even with some growth in volumes from where we were in Q1, we wouldn't expect a material impact on the blended adjusted COGS structure of the company, certainly in the next several quarters anyway. Kyle Mikson: Okay. Now on that note, I guess the -- how do you guys kind of anticipate expenses, the cadence of expenses throughout this year because it was a little bit surprising to see the net loss and the lower-than-expected EBITDA in the quarter. And as we think about cash flow positivity and that's been this goal for '26, '27 for a while with the SEC, how should we -- what's the updated thoughts on that metric? Frank Stokes: Yes. So as you know, we continue to focus growth on sort of 3 windows, Kyle, near, medium and long term. And as we support that, we do expect some growth in operating expenses. I think as we get through Q1 here and we lap the more meaningful change in FCC revenue, we'll get to a more meaningful comparability period going forward. But I think that we continue to grow into the P&L and leverage the cost structure and our intent there is to generate meaningful returns on those operating expenses driving value going forward. Operator: Your next question comes from the line of Puneet Souda with Leerink Partners. Puneet Souda: So first one, maybe on the guide itself, you beat by $4 million, raised by $5 million, largely banking the beat. Just wanted to understand how much of the beat was from FCC? And then I have a follow-up on the TissueCypher. Frank Stokes: Yes. Most of that beat was driven by TissueCypher. Puneet Souda: Okay. Got it. And then can you maybe provide a little bit more color on the TissueCypher ramp throughout the year? I think you called out you had the 2 best quarter -- I didn't mean March and April, 2 best months, March and April, but maybe that was sequentially down. I didn't exactly catch that. Maybe if you can provide some more color there. So how should we think about the ramp from 1Q to 2Q? I mean it seems it could be larger than what you saw last year, especially given another 18,000 up year-over-year. So maybe just talk to me in terms of the TissueCypher ramp. Frank Stokes: Yes. So as we said, Puneet, we continue to think we'll add a similar number of tests reports for '26 as '25. I think we're big enough or penetrated enough now that probably some seasonality is probably to the point where we feel it. And as I referenced, the number of procedures tends to be lower in Q1. So I think we'll see that growth come ratably through the year. I don't see amount of things quarter-to-quarter that should shift that from more of a ratable ramp. Operator: There are no further questions at this time. I will now turn the call back to Derek for closing remarks. Derek Maetzold: This concludes our first quarter 2026 earnings call. Thank you again for joining us today and for your continued interest in Castle Biosciences. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Trex Company, Inc. First Quarter 2026 Earnings Conference Call. Participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Note, this event is being recorded. I would now like to turn the conference over to our host. Please go ahead. Unknown Speaker: Thank you for joining us today, and good morning, everyone. With us on the call are Adam Zambanini, President and Chief Executive Officer, and Prithvi Gandhi, Senior Vice President and Chief Financial Officer. Trex Company, Inc. issued a press release earlier this morning containing financial results for the first quarter of 2026. This release is available on the company's website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see our most recent Form 10-Ks and Form 10-Q, as well as our 1933 and other 1934 Act filings with the SEC. Unknown Speaker: Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial measures can be found in our earnings press release at trex.com. The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. With that introduction, I will turn the call over to Adam. Adam Zambanini: Thank you, and good morning, everyone. Turning to the quarter, I want to acknowledge my first earnings call as CEO of Trex Company, Inc. Having been with the company for over 20 years, most recently as COO, I approach this role focused on continuity, execution, and accelerating the strategy already in place. Our five-year plan is clear. Our priorities are set, and our focus remains on disciplined growth, operational excellence, and delivering long-term value for shareholders. As part of that work, our leadership team has sharpened Trex Company, Inc.’s vision, mission, and values to ensure that we remain aligned as we scale. This is an evolution, not a reset, and it reflects both where Trex Company, Inc. is today and where we are going. Trex Company, Inc.’s vision is to shape the future of outdoor living through purposeful innovation that enriches people's lives. To support our ambitious growth and galvanize the organization, we recently codified five long-term strategic priorities. These priorities are designed to sharpen our focus and better leverage our strengths across marketing, innovation, and execution. Given their importance to our future growth, profitability, and long-term shareholder value creation, I would like to touch on each priority in detail. Our five long-term strategic priorities are as follows. First, to create an unbreakable bond with our end users—homeowners and pro contractors. Our goal is to deepen the Trex Company, Inc. brand preference and loyalty through superior marketing, product experience, and service. Trex Company, Inc. remains the undisputed brand leader in the wood-alternative market; we are committed to further strengthening that position through continued investment. We have already increased our investment in branding and marketing, highlighted by the launch of the next phase of our consumer- and pro-focused campaign centered around the “performance engineered for your life outdoors” brand platform. This multichannel media campaign will sharpen the focus on wood-to-composite conversion while also emphasizing many of our key differentiators, including technical innovations like our heat-mitigating technology as well as our marine and fire-rated solutions. I am excited about the momentum this campaign has produced and expect Trex Company, Inc. to become increasingly visible with both homeowners and pro contractors moving forward. Meanwhile, we are investing in technology to improve proactive lead generation among our programs to better support our valued pro contractors. This last quarter, we experienced a significant double-digit increase in lead generation, pointing to the early success of this investment. We are confident that these actions will help drive Trex Company, Inc.’s future growth. Next is our continued focus on high-performance innovation. As I mentioned on last quarter's call, driving high-performance innovation remains a central pillar of my leadership mandate. Shortly after joining the company, I led the development and launch of the game-changing technology that redefined the standards in the decking category, Trex Transcend decking. It was the first cap composite decking product that set a new standard of performance and aesthetics while serving as a catalyst to drive market share expansion over the following decade. At its heart, Trex Company, Inc. is the world leader in material science. We intend to sharpen our focus and leverage our tremendous development capabilities to invent and deliver a continuous stream of next-generation outdoor living solutions designed with what we believe is separator technology that makes the hardest innovation in the building products category imaginable. Our goal is to move beyond simply competing with our industry by introducing products with highly differentiated performance that effectively place us in a category of one. Building on the legacy of Transcend, our current pipeline focuses on category-defining performance. We are currently on track for a potential game-changing regional launch in 2027, followed by a more impactful national launch in 2028 through 2030. We are excited about our best-in-class products and our innovation pipeline and look forward to sharing more in the future. Our third priority is to optimize the channels for growth. Distribution remains a key component of the Trex Company, Inc. business model, ensuring that our products are readily available for pro contractors and homeowners. As a reminder, Trex Company, Inc. already has the most comprehensive distribution network with national coverage by two-step distributors and one of the very few brands in the world with a meaningful presence at both national home centers. The distribution channel has seen changes over the last five years with significant consolidation among both distributors and dealers in the two-step channel. We have seen rapid expansion of the home center retailers into the pro channel segment as they move beyond a purely on-shelf DIY focus. We expect the distribution landscape to continue evolving. Our goal remains clear: to maintain strong channel relationships at both the two-step channel and the home center retailers so that our products reach both homeowners and pro contractors across geographies. Our recent additional shelf-space wins at the home center, along with expanded territories with two key distributors, are proof of Trex Company, Inc.’s strong distribution network and demand for our comprehensive portfolio of products. And our recently redefined incentive and marketing programs have been well received by our two-step partners as we convert business away from the competition, further strengthening these valued relationships. Our fourth priority is more of a specific target—namely, lowering the cost of railing. Railing represents a material and rapidly growing part of our revenue mix, and with a large target of doubling our railing business in five years, its importance will only increase. Due to greater manufacturing complexity and a broader range of raw material components, the railing portfolio currently operates at a lower margin than decking, presenting opportunities for operational and cost optimization. We are applying the same continuous improvement initiatives and vertical integration strategies that successfully elevated our decking margins to our rapidly growing railing portfolio. And of course, as the product line continues to grow, we expect natural margin expansion due to economies of scale and greater utilization. Over time, we believe railing margins can approach those of the core decking products, contributing to an overall lift in the corporate margin. Our fifth and final priority, growth enablement, underpins all the others. This priority defines our approach in investing in our culture, technology, and talent to enable long-term profitable growth. We are strengthening our organization by building capabilities in digital and commercial excellence and fostering an innovation-driven culture that empowers teams to move with speed and discipline. We have already enhanced our leadership team, particularly in finance, adding significant capabilities in data analytics and forecasting, creating a new internal pricing group to implement a more nuanced portfolio-level pricing strategy that balances share and margin while improving responsiveness. Over the remainder of the year, I plan to add key senior roles, including a newly created Chief Commercial Officer who will integrate sales, marketing, and IT—which will enable technology, data and analytics, and customer insights—by providing sales and marketing the tools for commercial visibility that create revenue generation. Finally, we are aligning innovation and advanced manufacturing under a newly appointed Chief Operations Officer, Zach Lauer, to enable better coordination on commercializing initiatives in parallel. Our digital transformation is directly linking consumer inspiration to contractor execution, providing the TrexPro network with highly qualified leads and accelerating the wood-to-composite conversion cycle while optimizing our pricing analytics. As you can see, we are not waiting for repair and remodel demand to recover. Instead, we are taking proactive, disciplined action to accelerate growth, strengthen margins, and position Trex Company, Inc. for sustained outperformance. We are confident that these strategic priorities provide a clear roadmap for Trex Company, Inc.’s long-term success. Our team is laser focused on execution, and I look forward to updating you on the tangible progress we are making in these priorities. Turning to the quarter, we started the year with solid results, especially in light of adverse weather conditions and a continued uncertain economic environment leading many consumers to defer large-scale discretionary repair and remodeling projects. However, we are actively taking advantage of the current market environment to aggressively invest, ensuring that we capture a disproportionate share when demand normalizes. The trends underpinning our industry's long-term growth runway—the ongoing conversion from wood to composite materials, demand for low-maintenance outdoor living, and significant long-term repair and remodel tailwinds—have not changed. With that context, I will turn it over to Prithvi, who will walk you through the quarter in greater detail. Prithvi Gandhi: Thank you, Adam, and good morning, everyone. Unless otherwise noted, all comparisons are on a year-over-year basis. As Adam mentioned, we had a solid start to the year with net sales of $343 million, an increase of 1%. First-quarter volume is driven by both consumer sales and channel stocking to support the second- and third-quarter peak buying season. With our level-load production strategy implemented in 2025, we elected to reduce channel inventories for the early part of 2026 and rely on our own inventory to support peak channel requirements later in the year, resulting in lower first-quarter volume. From a channel perspective, we saw strong home-center-driven DIY demand early in the quarter, which shifted over the course of the quarter towards greater strength in higher-end pro-contractor-driven products. Gross profit was $139 million with gross margin of 40.5%, about 100 basis points better than we expected. A favorable mix of higher-margin premium decking products and lower sales of railing and margin improvements from continued operational excellence helped to offset an increase in depreciation expenses related to decking lines coming into production readiness at our Arkansas facility. Importantly, we did not experience any noticeable cost pressures related to the increase in oil prices related to the conflict in the Middle East. I would like to spend a few minutes diving a bit deeper into our raw material exposure, as it is the majority of our COGS—especially recycled LDPE. While recycled LDPE is a petrochemical, its pricing dynamic is quite distinct from virgin polyethylene, which is tied directly to the price of oil. Historically, recycled LDPE prices tend to lag virgin polyethylene by several quarters and generally exhibit less volatility. This reflects the substitution dynamic—users of virgin polyethylene typically need to see sustained higher prices before adjusting their production to incorporate even modest levels of recycled content, which in turn increases demand and prices for recycled LDPE. And supply of this material is not an issue, as we are entirely domestically sourced. As a leader in the use of recycled content, this is a significant competitive advantage, particularly during periods of raw material inflation when competitors relying on virgin inputs are more exposed to volatility. And while we are seeing increases in certain other input costs, such as diesel fuel and aluminum, we have a range of mitigating levers available, including cost-out initiatives, operational efficiencies, and product-specific pricing actions. Importantly, the same inflationary pressures also affect our competitors. Moving on to selling, general, and administrative expenses, which were $56 million in Q1, representing 16.2% of net sales. Excluding digital transformation costs of $1 million and Arkansas facility startup expenses of $200 thousand, SG&A was $54 million. SG&A came in below our expectations despite continued investments in branding and marketing programs to drive future growth. Lower self-insured medical costs and the timing of expenses more than offset higher investments in the quarter. Because we are in the final stages of the Arkansas facility build-out and did not finish as expected in Q1, interest expenses were capitalized on the balance sheet, resulting in no P&L impact. Our full-year guidance for interest expense now reflects completion beginning in Q2. Putting it all together, adjusted EBITDA of $103 million grew 2% in the quarter due to positive pricing and mix, cost control, and the timing of expenses. Free cash flow was negative $143 million as we built inventory and accounts receivable ahead of our peak selling season. This was an almost 40% improvement versus the prior year. As our capital investment needs declined significantly now that we are finishing the Arkansas facility, our balance sheet remains strong with our net debt leverage of 1x EBITDA at the low end of our target range of 1x to 2x. We are confident in our long-term free cash flow generation and continue to have balance sheet capacity to pursue our capital allocation agenda, which prioritizes an unwavering commitment to first drive growth, then return cash to shareholders through share repurchases, and lastly, to pursue disciplined M&A. In the quarter, the company took advantage of an opportunity in the stock price by executing continued aggressive share repurchases. For the first time in the company's history, we implemented an accelerated share repurchase, or ASR, to quickly buy back a large amount of stock. This $100 million ASR was part of our larger $150 million share repurchase announcement. We will be completing the full $150 million repurchase during the second quarter, and I am pleased to announce that the board has authorized a 10 million share increase to the company's existing share repurchase program, reflecting their confidence in the long-term intrinsic value of Trex Company, Inc. Turning to outlook. We are maintaining our full-year guidance based on our solid start to the year and our continued expectation for the broader repair and remodel market to be flat to down this year. We remain minimally exposed to input cost inflation. Our vertically integrated domestic recycling infrastructure and approximately 95% recycled content drive a highly stable cost profile, which helps protect margins during periods of petrochemical volatility. We continue to expect fiscal year net sales of $1.185 billion to $1.230 billion, adjusted gross margin of approximately 37.5%, and adjusted EBITDA of $340 million to $350 million. For the second quarter, we expect net sales in the range of $388 million to $403 million, and we expect to see a reversal of the gross margin benefit from product mix that we saw in Q1. Before turning the call back to Adam, I want to touch on two key metrics. The first is sell-in/sell-out. Sell-in represents Trex Company, Inc.’s sales to its distributors and home centers. Sell-out represents the sales from our distributors and home centers to dealers and end consumers. As we discussed in the past, quarterly sell-in and sell-out results can be influenced by timing, seasonality, and channel dynamics and, as a result, may not always reflect the underlying long-term trends of the business. To provide a clearer view of performance and how we manage the business, we are introducing a rolling 12-month sell-in and sell-out metric, which we will report each quarter going forward. This metric smooths short-term volatility and better captures fundamental demand trends by accounting for seasonality and other factors that are not fully reflected in quarterly movements. For Q1, growth for our trailing 12-month sell-in was 7% and growth for our trailing 12-month sell-out was 6%. The second metric is one which we believe will experience meaningful improvement not only this year, but for many years to come: free cash flow. As many of you are aware, we plan on ramping up production at our new Arkansas facility beginning next year. More importantly, the CapEx associated with the plant build-out will end this year, with the majority of our Arkansas-related spend finishing in the first half. We anticipate a total of $100 million to $120 million, down from $224 million in 2025—a more than $100 million improvement. And with construction substantially completed by the end of this year, we expect another meaningful decline in CapEx in 2027 to maintenance levels of approximately 5% to 6% of revenue, driving further improvements in free cash flow. We have built Arkansas to effectively more than double our revenue potential with just the purchase of additional lines. So this upfront investment will provide us with years of capacity expansion ability with minimal additional CapEx. This gives us a strong line of sight to continuous robust free cash flow generation regardless of the exact timing of a significant rebound in consumer demand. With our organic expansion needs met through our Arkansas campus, our capital allocation priorities will next focus on additional share repurchases and then on accretive bolt-on acquisitions. Trex Company, Inc. will return to the free cash flow generating machine that it had been before the recent necessary investment in capacity expansion, which started during COVID and will end this year. I will now turn the call back to Adam for his closing remarks. Adam Zambanini: Thank you, Prithvi. Hopefully, you can feel the excitement of the Trex Company, Inc. team about the great opportunities we see in front of us. While the current market environment remains challenging, we are investing in our business and aggressively innovating to capture a greater share of the growing addressable market. We remain the undeniable leader in our market, and we are infusing our team with a more focused, nimble, entrepreneurial culture that we had in the early days of my career at Trex Company, Inc. We are confident this is the right time to evolve our approach, leveraging our great history and brand. Before we close, I want to recognize our people. Their commitment, discipline, and focus on the customer continue to be the foundation of our performance. The progress we discussed today is a direct result of their work, and they remain committed to our long-term success. We believe when our people succeed, our shareholders succeed. Operator, we would like to open the call to questions. Operator: We will now open the call for questions. The first question comes from an analyst with Jefferies. Analyst: Hey, guys. Congrats on a really strong quarter—really good execution. And Adam, congrats on the new role. It was very noticeable in terms of the energy you laid out in longer-term strategic plans. Give us a little perspective on some of the things you are looking to impact. We have noticed leadership changes. You called out the new COO role and certainly a new head of marketing. There appears to be a bigger focus on innovation and streamlining efforts so you can put out product quicker. Help us think through how you are approaching things perhaps a little differently and how that potentially unlocks the growth engine and gets products to market a little quicker. Adam Zambanini: Good morning. Thank you for the kind words; we really appreciate it. When I look at the marketplace today, it is a very dynamic and challenging market. You start to look at the consolidation of national accounts and inflation, and you have to ask: do we have the right strategy in place—which I believe we do, and we laid it out on the call. Do we have the right people? Absolutely. Do we have the right structure? And that is really what I am focusing on—making sure that we have the right structure to execute the strategy. Now on top of that, once we have that structure in place, we innovate, and I think that is where I add the most value to Trex Company, Inc., because when I talk about separator technology, it is about what is going to make Trex Company, Inc. a category of one. And so that focus right now is to take what Trex Company, Inc. used to have—let us say 100 initiatives—and boil that down to 20 underneath five imperatives. So we are working on fewer things that are more impactful to the organization. We want $100 million programs on everything that we work on. That has been our focus as an executive team, and I think it has provided the organization with a tremendous amount of clarity moving forward. Analyst: In an uncertain macro backdrop, how did sell-out trends shape up in the quarter? I appreciate the LTM number, but any more color on how that progressed intra-quarter? And perhaps how things are looking in peak decking season—April and May—and how the channel responded to programs you have rolled out and any marketing efforts? Prithvi Gandhi: Okay, a lot to unpack there. Overall, in terms of the quarter itself, as we said in my remarks, we managed sell-in to the channel based on our level-loading strategy, and essentially overall demand is progressing as we expected in our assumptions for the year. As we go through the busy season, the channel is on the lighter end in terms of the inventory they are carrying—closer to 30 to 40 days of inventory. Assuming a normal busy season, we expect more impetus for sell-in as we progress through the second and third quarters. Adam Zambanini: The lower inventory on the channel side is a function of our decision to take out volatility. For some high-level context as we look at Q1, January and February were fairly challenging. I think most people came out of those two months wondering how this year was going to pan out, but we saw a nice rebound in March as we moved into April. Everybody is still projecting flat to slightly down in the market, but we are expecting to outperform. One trend we have seen over the last year or two is more national accounts acquiring independent lumber yards and carrying less inventory. In many cases, they would carry 90 or even up to 120 days of inventory, and now we see some of them carrying around 30 days. That means probably fewer trucks in Q1, but when in-season demand hits in Q2, you must make sure you have inventory on the ground to execute because there is going to be quick pull-through. Analyst: Thank you. The next question comes from an analyst with William Blair. First topic is gross margin. You beat your internal expectation nicely. Can you unpack what happened? It sounds like mix might have been favorable. Prithvi Gandhi: Yes. Thanks for the question. In Q1, relative to our forecast, we were ahead by about 100 basis points, largely driven by favorable mix from decking. If you recall, we announced a price increase around our aluminum railing in January, and we did see some pull-forward in Q4 and, as a result, a lower mix of railing in Q1. That was the primary driver of why gross margin performed better in Q1. Analyst: Got it. And then SG&A also beat a little bit. I guess the guide still assumes that it is up year over year the rest of the way. Was there some timing issue in Q1? Prithvi Gandhi: In Q1, SG&A came in about $5 million lower than we had planned, driven by two things. One is favorability in medical claims, and that is a hard one to forecast. We feel good about the full year, but in any quarter, things can move around, and that is what we think happened here. Second, there was timing around certain expenses related to our investments in growth and brand awareness. We expect those to come through in the second quarter. To level set, we still expect full-year SG&A to be around 18% of sales. In Q2, we expect a significant sequential dollar lift in SG&A, based on certain expenses that should have been incurred in Q1 moving into Q2 and our continued investment in marketing and innovation that drive growth and brand awareness. With those things, you should see a dollar step-up from Q1 to Q2. Adam Zambanini: We also were trying to be responsible. The war in the Middle East broke out in Q1, and we managed the manageable. That was one area we looked at from an SG&A perspective. As things have calmed down, we are going to continue with the execution of our plan. Analyst: Thank you. The next question is from an analyst with UBS. Good morning. The revenue outlook seems to imply a decent deceleration in the second half. It does seem to imply roughly 5% year-over-year growth in the second half despite a fairly easy comp in the fourth quarter. Is this really just conservatism given the conflict in the Middle East and macro uncertainty, or is there anything else you are trying to message? Prithvi Gandhi: You nailed it. In terms of growth, it is around 5%—our number is about 4%. When we look at this year, there are still some things we want to see in terms of how the war is going to pan out. If it keeps going on over the next several months, then yes, there is some conservatism. If we think this will settle down, there are opportunities for us in terms of execution. One wildcard is the lower-end consumer, who is still struggling. We still see the high end doing really well on the decking side, and we are definitely focused on converting more of the wood market—about 75% of the market is still wood—and we are getting more creative as to how we will convert that opportunity. A couple other things around the second half. We introduced a refuge PVC product; most of those sales will occur in Q2 to Q4. That should help revenue growth. Second, in line with the industry, we announced a mid-quarter price increase again around aluminum railings; that was not in our prior forecast. Third, our continued investments in marketing and innovation are showing green shoots—lead generation, sample orders—all progressing really well, and we expect to drive some conversion from that. Analyst: That is helpful. On the quarterly cadence of adjusted EBITDA margin, second-quarter revenue is expected to be up sequentially, but is it possible EBITDA margin is actually down quarter over quarter given factors like the step-up in SG&A? Prithvi Gandhi: From Q2 2025 to Q2 2026, you should expect EBITDA margin to be lower this year. We expect a little more than half of the Q1 gross margin favorability to reverse in Q2, and SG&A will see a significant dollar step-up between Q1 and Q2. Those two together create a different EBITDA profile versus Q2 of last year. Analyst: But sequentially, Q1 to Q2, EBITDA margin could be down as well? Prithvi Gandhi: Yes, Q1 to Q2 as well—you should see some decline in EBITDA margin. Analyst: Thank you. The next question comes from an analyst with J.P. Morgan. Analyst: Hi, this is [inaudible] in for Michael. First, on cadence throughout the year and the back half, can we get an update on how you are looking at the R&R backdrop and how that connects to the full-year guidance range? Prithvi Gandhi: Looking at the home center business, there has been a lot of forecasts from negative 1% to 1% growth. We have seen many forecasts at flat to slightly down. We are doing low- to mid-single-digit growth. For the full year, it is about 3% right now in terms of our year-over-year growth. Our overall macro assumption on repair and remodel is unchanged—still flat to down with the back half better than the first half, in line with indicators like LIRA. Analyst: You mentioned the relative strength between DIY and pro and how it shifted through the quarter. Could you provide more detail and how you are thinking about that going forward? Adam Zambanini: We are a marketing powerhouse, so we had to get back to our roots. That is the territory I have come from. We reinvested in that platform, made structural changes in marketing, and filled out that department. I feel like we are in a great spot. That really helps drive the high end of the marketplace. Once again, products like Trex Transcend and even our Select decking are doing really well, along with higher-end lines of railing. Those are the consumers buying right now. The focus is also on converting the low end—converting more wood users over to Trex Company, Inc. On the high end, there has been focus on the PVC area—not just with the introduction of Trex Refuge; we have other products that compete in the fire segment. There is plenty of opportunity, and a lot of the mid-to-premium end is doing well because our marketing is working. Analyst: Thank you. The next question comes from an analyst with D.A. Davidson. I was hoping to talk more about the shelf-space commentary. Can you help frame the magnitude of that expansion and how you expect that business to ramp over the next couple of quarters? Maybe some sense on price point? Prithvi Gandhi: Good morning. We would characterize it as meaningful. We have picked up both decking and railing slots in the recent line reviews. Trex Company, Inc. was one of what we believe are two winners at retail, and some peers did not do as well. We will not give a specific number, but it is meaningful for growth. In terms of timing, shelf resets are always challenging to time exactly. We will start to see some of those reset and some products in place now as we move into Q2, with momentum building from Q2 into Q3 and Q4. Analyst: A two-parter on railing. Can you talk about the pace at which you can drive improvements in controllable costs and how M&A may factor? Second, does lowering cost act as a catalyst for market share objectives and the pace of volume growth? Adam Zambanini: Great question. Railings are about material science. We have seen things this year that we are going to unlock on the material science side of the portfolio that will lower raw material cost of railing. In many cases, this will drive margin expansion. Trex Company, Inc. is aggressively priced in every segment—from the opening price point at home centers that can be $20 to $25 a foot, all the way up to systems at $250 a foot. Most of the material science benefits will drop to the bottom line. On vertical integration and acquisitions, these are very small companies we are looking at, but with meaningful impact in lowering raw material streams. In some cases, we can be more aggressive to convert, but we are satisfied with where railing sits today. The focus is on expanding margins. Prithvi Gandhi: Just to add, back in 2023 we said we would double our business by 2028. We are on track to do that. Analyst: Thank you. The next question comes from an analyst with Goldman Sachs. Analyst: Good morning. This is [inaudible] in for Susan. On the high priorities you mentioned earlier, where do you see the biggest opportunity to drive above-market growth in the near term relative to those more helpful in the long run? Analyst: Could you repeat which priorities? Analyst: Yes—within the five you mentioned, which provides the biggest near-term upside to drive above-market growth versus those that are longer-term? Adam Zambanini: Near term, it is creating an unbreakable bond with end users—getting back to basics on marketing and having the right people in the right spots to convert more downstream with contractors and consumers. Not far behind that is launching high-performance innovation. We will start regional launches in 2027 and see a much more meaningful impact from 2028 to 2030 with national launches. But near term, it is the unbreakable bond with end users. Analyst: You talked about optimizing channels for growth. Does that mean expanding presence in retail versus making changes to wholesale? We are seeing consolidation at the wholesale level—how does that provide more opportunities, and where do you see the biggest ones? Adam Zambanini: We created a pricing department to price our products by channel. You want to avoid channel conflict between home centers and the pro channel, and sometimes products cross-pollinate. Our perspective is to have the right products in the right channels at the right price. The market is very dynamic with a lot of consolidation at the dealer and distributor levels. As there is consolidation, there will be channel changes long term. We need the right pricing strategy for each channel with the right products. We have been creating that structure to allow us to take market share while maximizing margins over time. Analyst: Thank you. The next question comes from an analyst with BMO Capital. Analyst: Good morning. Looking at your full-year guidance, what is embedded within that in terms of sell-out—both decking and railing? Prithvi Gandhi: In total, our sell-in growth is about 3%. In terms of sell-out, we are assuming something close to that in the overall market. Analyst: That would imply a meaningful slowdown from the trailing 12 months, which was about 6%. But you are not seeing anything today that suggests that slowdown is happening—is that fair? Prithvi Gandhi: As Adam said, the year started slow, some of it driven by weather. Since March we have seen good order intake, and that continues through April. Overall, we do not see anything that would cause us to think otherwise. Analyst: Switching to capital allocation. You talked about CapEx coming down. As we sit here today and you have been active with share repurchases, can you talk about the M&A pipeline and how you rank priorities between repurchases and M&A? Prithvi Gandhi: Good question. Lee just joined us a couple of months ago, and we are actively doing the work. Adam has talked about areas of interest: number one, vertical integration and margin expansion; two, the whole outdoor living space from the fence back to the deck and house; and third, more distant, the exterior building envelope. That is the playfield. We are doing the strategy work now to identify targets and areas that would be very synergistic. We should have a point of view shortly, and then we will build out the pipeline. It is still early days around M&A. In terms of capital allocation, I always look at M&A against share buybacks—where is our share price, how much cash flow do we have, what is the intrinsic value, and the return of buying back shares versus using that capital for an M&A transaction. The big difference is M&A gives you future growth options; buybacks do not. That is the analysis we go through. Analyst: Thanks. The next question comes from an analyst with Wolfe Research. On your goal to lower the cost of railing and drive margin improvement, are there any numbers you can put around the opportunity in terms of cost reduction or margin improvement? You talked about eventually pushing margins closer to decking—can that happen in a five-year time frame? Adam Zambanini: In our strategic plan, that can happen in a five-year time frame. We have it broken out by year, but we are not sharing that detail at this time. Analyst: Expectations for inflation in 2026. You mentioned reasons why you should be shielded from inflation on LDPE. Can you put numbers around potential inflationary impact and what you are expecting in terms of price/cost relative to that inflation? Prithvi Gandhi: As we said at the start of the year, price/cost for the full year is relatively neutral, and we continue to have that expectation. Three areas have some exposure, but we have taken steps to mitigate it. One is around virgin resins—on that front, we essentially have a fixed cost for the rest of the year, and that is baked into the forecast. Second is diesel prices—we pay for inbound freight and transfers between plants. We have pushed back against vendors on the cost of raw materials to offset some diesel inflation and are managing internal transfers to mitigate impact. Third is PVC—the new product we have introduced. Our costs are fixed through the balance of 2026 with our third-party sourcing. On all these fronts, we are well positioned in managing any inflationary impact. Analyst: Thank you. The next question comes from an analyst with Loop Capital. You mentioned the cold start to the year in January and February. Did you see delays with the start of the spring selling season in seasonal markets such as the Northeast that could benefit Q2 sell-through? Adam Zambanini: Looking at the northern markets—New England across to Minnesota and that upper northern belt—we were down double digits in Q1. In the Mid-Atlantic—draw a line across the U.S.—about flat. In the southern U.S., we started to see double-digit growth again. We could see the weather influence, and we are just now starting to see some northern territories wake up. The promising part is where the weather has been good, we have seen nice numbers across the board. Analyst: Very helpful. And on the mid-quarter railing price increase, any impact from the new Section 232 valuation on your railing products, and will the increase fully offset inflation pressure you are seeing? Prithvi Gandhi: In terms of tariffs, in our overall cost position it is less than a 5% impact, and through our pricing initiatives we are able to cover most of that cost increase. Analyst: Thank you. The next question comes from an analyst with Benchmark Company. Most of my questions have been asked. Follow-up about inventory in the channel and your own inventory. Your inventory looks a little higher than usual in Q1. Is that just an extension of level-loading? Was it in part because of the slow start to the year? Or being prepared for a bounce-back? Adam Zambanini: We have our level-loading strategy in place. We want to be there to serve the market when demand is ready. Channel inventory is about flat to prior year, but with pricing in there, on a lineal-foot basis external to Trex Company, Inc., inventory is slightly down. As discussed earlier, larger customers like national accounts did not take as much inventory. We believe demand will be there in Q2; therefore, we have a little higher inventory now in Q1 because those customers are going to need it right away as we move into Q2. That is the key change. Analyst: Thanks, and congrats again. The next question comes from an analyst with Stephens. I want to dig into the railing impact on margin a bit more. You mentioned that lower railing sales helped margins in Q1. I think the expectation was for a higher mix of railing sales through this year to have roughly an 80-basis-point impact to gross margin. Is that expected to normalize in Q2 fully? With movements in raws and pricing and initiatives to grow margins—which I understand you are not ready to fully quantify—is that still the best way to think about the margin impact for this year, and then improvement from there more in 2027? Prithvi Gandhi: Let me start by reminding everyone of what we said back in November when we reported Q3 2025 results. At that time, we stated we expected about 250 basis points of headwind to adjusted gross margin in 2026 on a full-year basis. We continue to have this expectation for 2026, and we finished 2025 with adjusted gross margin of 40% for the full year. Also in November, we said 170 to 180 basis points of that 250 was entirely from the depreciation associated with bringing Arkansas to production readiness. The balance—70 to 80 basis points—is from railing growth, and we continue to expect that for the full year. In Q1, we saw about 100 basis points of gross margin favorability from railing being smaller in the mix. In Q2, we expect a little more than half of that to reverse, and the rest will reverse through the balance of the year. That is how to think about it. Analyst: Thanks. And Adam, you mentioned Trex Company, Inc. has historically been a marketing powerhouse and you are getting back to your roots. Is the thought that branding and marketing spend will continue at a similar level as a percentage of sales and grow with sales, or will there be a need to ramp that up more with new product rollouts? Adam Zambanini: As long as I am here, we are going to be investing in marketing. The 18% is a really good number. During COVID, you saw SG&A plummet—we were out of capacity—and we delivered strong numbers. If I go back in time, I would have invested more then to create more awareness around the Trex Company, Inc. brand. Will there be some leverage over time on SG&A? Sure, but it will not be 100 or 200 basis points. It might be 10, 20, 30 basis points as we expand and grow, because I want to make sure we are still investing in that platform to get more contractors and more consumers to buy Trex Company, Inc. We will continue to invest; when we can leverage, we will, but investing in marketing will remain very important. Analyst: Last one—on M&A appetite. Is there potential or appetite for larger deals, or more tuck-in, complementary stuff? Adam Zambanini: Our five-year strategic plan is tuck-in M&A, and we have been very consistent. Number one, vertical integration—this is about margin expansion. Number two, we have the license to own the backyard—from the threshold of your sliding glass door all the way out to the fence, Trex Company, Inc. could be anywhere in that backyard. That is where we would go next. Lastly, the envelope of the house. We view this as smaller tuck-in acquisitions that can add value. Our brand is our number one asset; there are a lot of smaller companies where the Trex Company, Inc. brand makes a lot of sense and helps us potentially grow our TAM. We reside in a $75 billion outdoor living market. Our TAM is around $14 billion, and if we can expand that over four to five years to $20 billion to $25 billion, that benefits Trex Company, Inc. in terms of opportunities to grow market share. Analyst: Thank you, and congrats on the quarter and new role. The next question is from an analyst with Barclays. First, on capacity dynamics: given demand trends and contractor sentiment, how does this support your strategy around incremental capacity, and how would you adjust the capacity network as the Arkansas facility ramps? Is Arkansas displacing any production elsewhere? Adam Zambanini: At the contractor level, we still see books out six to eight weeks on the low end, and in some areas eight to ten weeks. In some cases, contractors feel slightly better this year than last year. Part of that is our marketing investment—we are seeing significant double-digit growth in leads we are giving to our contractors, which may be extending backlogs. On capacity, we have been consistent: as we look at Little Rock and our growth, we would be looking at opening that in 2027 from where we sit today. Even if we did not see as much growth, Little Rock provides leverage—it is going to be our lowest-cost facility. We have one facility in the Winchester footprint that is over 30 years old. We will maximize our manufacturing footprint over the longer term. Our expectations are for good growth in 2027 through 2030, and we are going to need all that capacity—from Little Rock to Winchester to Nevada. Analyst: With the introduction of your PVC product, how is it faring regionally—Northeast, West Coast? And more broadly, on pro versus DIY, is higher-end luxury still outperforming the opening price point? Adam Zambanini: We still see outperformance from the middle to higher-end consumer, which has been consistent over the last several years. Trex Company, Inc. is putting more marketing effort into conversion from wood. We have a new campaign called “No Regrets.” If you have seen it on TV, it shows a dock owner maintaining wood versus a dock owner with a Trex deck who can go enjoy the boat for the day—No Regrets. It is a strong visual. Targeting wood is a huge focus. On PVC, we had a great rollout on the West Coast and are ahead of expectations on manufacturing. We are getting increased supply from our supplier. The largest market for PVC is in New England and the Mid-Atlantic, and we have quickly opened those two regions as we rolled into Q2. It is a roughly $0.5 billion market, and Trex Company, Inc. had not played in it. We plan to expand that over time as a great growth opportunity. Analyst: Thank you. The next question is from an analyst with Bank of America. Can you talk about the right level of leverage for the business longer term, and would you be open to buying back more stock as free cash flow frees up next? Prithvi Gandhi: Thanks for the question. We want to manage company leverage between 1x and 2x. This year, free cash flow will increase by about $100 million versus last year. We expect to complete $150 million in buybacks by the end of this quarter. Then we will look at the rest of the year—where free cash flow is and how the business is doing. With the board's new authorization, we have capacity to do more buybacks. Based on where the stock price is relative to intrinsic value, it is still a compelling opportunity. Going forward into 2027, we will have even more free cash flow because we will essentially be done with capacity expansion. Share buybacks will continue to be a significant part of capital allocation. Analyst: And on reinvestments you are making, can you give more color on allocation and priorities between hiring more sales versus marketing? Adam Zambanini: A bigger portion will be marketing-related and the investments we are making to create awareness—linear TV, streaming, podcasts, and all forms you can think of to get the Trex Company, Inc. name out. Then drive to trex.com—there are investments in the website—and investments in innovation. If you want game-changing innovation, you have to invest in R&D. The major buckets are marketing and innovation, with some in sales to support and execute the strategy longer term. Operator: That concludes the question-and-answer session. I would like to turn the floor to management for any closing remarks. Adam Zambanini: Thank you, everyone. Prithvi and I look forward to speaking to you and seeing you at upcoming conferences in the coming weeks. Operator: This concludes today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q1 2026 Vanda Pharmaceuticals, Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Vanda's Chief Financial Officer, Kevin Moran. Kevin Moran: Thank you, Jordan. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals First Quarter 2026 performance. Our first quarter 2026 results were released this afternoon and are available on the SEC's EDGAR system and on our website, www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website. Joining me on today's call is Dr. Mihael Polymeropoulos, our President, Chief Executive Officer and Chairman of the Board. Following my introductory remarks, Mihael will update you on our ongoing activities. I will then comment on our financial results before we open the lines for your questions. Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations and assumptions that involve risks, changes in circumstances and uncertainties. These risks are described in the cautionary note regarding forward-looking statements, risk factors and Management's Discussion and Analysis of Financial Condition and Results of Operations sections of our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and other filings with the SEC, which are available on the SEC's EDGAR system and on our website. We encourage all investors to read these reports and our other filings. The information we provide on this call is provided only as of today, and we undertake no obligation to update or revise publicly any forward-looking statements we may make on this call on account of new information, future events or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO, Dr. Mihael Polymeropoulos. Mihael Polymeropoulos: Thank you very much, Kevin. Good afternoon, everyone. Thank you for joining us today for Vanda Pharmaceuticals First Quarter 2026 Earnings Conference Call. Vanda delivered strong commercial execution in the first quarter, highlighted by 26% year-over-year growth in Fanapt sales, the groundbreaking U.S. launch of NEREUS with its pioneering direct-to-consumer platform at nereus.us and the FDA approval of BYSANTI. We believe that these achievements, combined with meaningful pipeline progress and our raised 2026 revenue guidance position the company for continued growth and value creation. Financial highlights, the total net product sales reached $51.7 million in the first quarter of 2026, a 3% increase compared to $50 million in Q1 2025. Fanapt net product sales were $29.6 million, up 26% year-over-year. Full year 2026 revenue guidance was raised to $240 million to $290 million, including $10 million to $30 million from newly launched NEREUS. Key commercial highlights. Fanapt saw continued strong momentum with total prescriptions, TRx, up 32% and new-to-brand prescriptions NBRx, up 76% versus the first quarter of 2025. In April 2026, weekly TRx for Fanapt reached an 11-year high of over 2,600 prescriptions for the week ending April 24, 2026. NEREUS is now commercially available nationwide through nereus.us, Vanda's innovative direct-to-consumer platform. This pioneering patient-centric model enables convenient ordering online with rapid direct delivery, eliminating traditional pharmacy barriers and providing a seamless modern access experience. As the first new prescription therapy approved for the prevention of vomiting induced by motion in adults in more than 40 years, NEREUS represents a breakthrough in both science and patient access. Some key regulatory and clinical development highlights. BYSANTI, milsaperidone received FDA approval for the treatment of bipolar I disorder and schizophrenia. BYSANTI is protected by data exclusivity through February 20, 2031, and multiple patents, the latest of which expires on May 31st, 2044. Vanda's ongoing late-stage clinical studies are progressing rapidly and are expected to generate top line results in 2026 or early 2027, including the Phase III study of BYSANTI as a once-daily adjunctive treatment for major depressive disorder with results expected in Q1 2027. The HETLIOZ Phase III study of NEREUS for the prevention of vomiting in patients receiving GLP-1 receptor agonist therapies with results expected in 2026. The Phase III study of VQW-765 in the treatment of adults with social anxiety disorder with results expected by the end of 2026. The FDA accepted the biologic license application for imsidolimab in Generalized Pustular Psoriasis with a Prescription Drug User Fee Act target action date of December 12, 2026. The results of the pivotal clinical study were published in the April 28, 2026, issue of the New England Journal of Medicine Evidence. In summary, 2026 is developing into a transformational year for Vanda with an extensive and diversified portfolio of commercialized products that include Fanapt, HETLIOZ, HETLIOZ LQ, PONVORY, NEREUS, BYSANTI and potentially imsidolimab by year-end. Our recent innovative launch of NEREUS through the nereus.us platform revolutionizes customer experience through a convenient ordering system at a significantly discounted cash pay price. Finally, our late-stage pipeline with several late-stage Phase III studies are poised to further diversify our pipeline and strengthen Vanda's commercial presence for years to come. With that, I'll turn now to Kevin to discuss our financial results. Kevin? Kevin Moran: Thank you, Mihael. I will begin by summarizing our first quarter 2026 financial results. Total revenues for the first quarter of 2026 were $51.7 million, a 3% increase compared to $50 million for the first quarter of 2025 and a 10% decrease compared to $57.2 million for the fourth quarter of 2025. The increase as compared to the first quarter of 2025 was primarily due to growth in Fanapt revenue as a result of the continued commercialization efforts for Fanapt in bipolar disorder, partially offset by decreased HETLIOZ revenue as a result of generic competition. The decrease as compared to the fourth quarter of 2025 was primarily driven by the impact of insurance plan disruptions and deductible resets that are typical in the industry at the beginning of the year. Let me break this down now by product. Fanapt net product sales were $29.6 million for the first quarter of 2026, a 26% increase compared to $23.5 million in the first quarter of 2025 and an 11% decrease as compared to $33.2 million in the fourth quarter of 2025. The increase in net product sales relative to the first quarter of 2025 was attributable to an increase in volume, partially offset by a decrease in price net of deductions. Fanapt total prescriptions or TRx, for the first quarter of 2026 as reported by IQVIA Xponent, increased by 32% compared to the first quarter of 2025. Fanapt new patient starts as reflected by new-to-brand prescriptions, or NBRx, for the first quarter of 2026 as reported by IQVIA Xponent, increased by 76% compared to the first quarter of 2025. The decrease to net product sales relative to the fourth quarter of 2025 was attributable to a decrease in volume and price net of deductions. Fanapt TRx for the first quarter of 2026 decreased by 1% as compared to the fourth quarter of 2025. The decrease in volume was primarily driven by the impact of insurance plan disruptions and deductible resets that are typical in the industry at the beginning of the year and that we have observed with Fanapt and the broader atypical antipsychotic market in prior years. Historically, Fanapt inventory at wholesalers has ranged between three and four weeks on hand as calculated based off trailing demand. As of the end of the first quarter of 2026, Fanapt inventory at wholesalers was slightly above four weeks on hand, which was generally consistent with the level of inventory weeks on hand as of the fourth quarter of 2025, but slightly above the historic range. Turning now to HETLIOZ. HETLIOZ net product sales were $15.9 million for the first quarter of 2026, a 24% decrease compared to $20.9 million in the first quarter of 2025 and a 3% decrease compared to $16.4 million in the fourth quarter of 2025. The decrease in net product sales relative to the first quarter of 2025 and the fourth quarter of 2025 was attributable to a decrease in volume as a result of continued generic competition in the U.S., which has contributed to declines in dispenses for both comparative periods. Of note, for the first quarter of 2026, HETLIOZ continued to be the leading product from a market share perspective despite generic competition now for over three years. HETLIOZ net product sales continue to be impacted by changes in inventory stocking at specialty pharmacy customers from period to period. HETLIOZ net product sales have fluctuated and may continue to fluctuate from quarter-to-quarter depending on when specialty pharmacy customers need to purchase again. HETLIOZ net product sales may decline in future periods, potentially significantly, related to continued generic competition in the U.S. And finally, turning to PONVORY. PONVORY net product sales were $6.2 million for the first quarter of 2026, a 10% increase compared to $5.6 million for the first quarter of 2025 and an 18% decrease compared to $7.6 million in the fourth quarter of 2025. The increase in net product sales relative to the first quarter of 2025 was attributable to an increase in volume and price net of deductions. The decrease in net product sales relative to the fourth quarter of 2025 was primarily attributable to a decrease in price net of deductions, partially offset by an increase in volume. The specialty distributor and specialty pharmacy inventory on hand levels during these periods were in line with normal ranges. Of note, underlying patient demand was essentially flat between the fourth quarter of 2025 and the first quarter of 2026, even in light of the negative impact of insurance plan disruptions and deductible resets at the beginning of the year. Additionally, as we have previously discussed, an amount of variable consideration related to PONVORY net product sales is subject to dispute, of which approximately $3 million was recognized for the three months ended December 31, 2024. For the first quarter of 2026, Vanda recorded a net loss of $48.6 million compared to a net loss of $29.5 million for the first quarter of 2025. The net loss for the first quarter of 2026 included income tax expense of $0.1 million as compared to an income tax benefit of $7.9 million for the first quarter of 2025. As a reminder, the company recorded a onetime tax charge in the fourth quarter of 2025 to establish a valuation allowance against all of Vanda's deferred tax assets. Tax expense is expected to be nominal going forward until such time that a valuation allowance is no longer required. Operating expenses for the first quarter of 2026 were $101.9 million compared to $91.1 million for the first quarter of 2025. The $10.8 million increase was primarily driven by higher SG&A expenses related to spending on Vanda's commercial products as a result of the continued commercialization efforts for Fanapt in bipolar disorder and PONVORY multiple sclerosis, expenses associated with the preparation for NEREUS and BYSANTI commercial launches and higher legal expenses. These increases were partially offset by lower R&D expenses on our imsidolimab program, partially offset by an increase in expenses for our BYSANTI major depressive disorder program, VQW-765 social anxiety disorder program and other development programs. The first quarter of 2025 included an upfront payment to Anaptys for the exclusive global license agreement for the development and commercialization of imsidolimab. On the commercial side, during 2024 and 2025, we conducted a host of activities as a result of the commercial launches of Fanapt in bipolar disorder and PONVORY in multiple sclerosis, including an expansion of our sales force and the development of prescriber awareness and comprehensive marketing programs. Additionally, in the first quarter of 2025, we launched our direct-to-consumer campaign, which has driven meaningful gains in brand awareness for the company and our products, Fanapt and PONVORY. Throughout 2025 and the first quarter of 2026, we maintained strategic investments in our commercial infrastructure, including increased brand visibility through targeted sponsorships with the goal of supporting long-term market leadership and future commercial launches. Vanda's cash, cash equivalents and marketable securities referred to as cash as of March 31, 2026, was $202.3 million, representing a decrease of $61.5 million compared to December 31, 2025. The decrease to cash was driven by the net loss in the first quarter of 2026 as well as a onetime milestone payment of $10 million made to Eli Lilly in the first quarter of 2026 for the approval of NEREUS in the U.S. Seasonal compensation and benefit payments, which generally hit during the first quarter of the year of approximately $7 million and payments to third parties for manufacturing of commercial and clinical product of approximately $11 million, which is significantly higher than recent quarters. As a reminder, payments made in advance of production are capitalized as a prepaid expense. Commercial products are capitalized as inventory on our balance sheet after production, while pre-commercial products are generally expensed as research and development costs as incurred. The timing of manufacturing of pre-commercial products may result in future variability of our R&D expense depending upon the timing of production. When adjusting the decrease in cash for these items, the change in the first quarter of 2026 would have been closer to $40 million. With regard to the launches of Fanapt in bipolar disorder and PONVORY multiple sclerosis, as I mentioned, the launches were initiated in 2024, and we continue to enhance our commercial efforts through the first quarter of 2026 with the impact of these commercial efforts contributing to revenue growth in 2025 and expected to continue to contribute to our revenue growth in 2026 and beyond. We have already seen significant growth in our commercial activities. Several lead indicators suggest a strong market response to our commercial activities related to Fanapt for bipolar disorder, including total prescriptions or TRx increased by approximately 32% in the first quarter of 2026 as compared to the first quarter of 2025. In April of 2026, weekly TRx for Fanapt reached an 11-year high of over 2,600 prescriptions for the week ending April 24, 2026. New patient starts as reflected by NBRx increased by 76% in the first quarter of 2026 as compared to the first quarter of 2025. Of particular note, Fanapt was one of the fastest-growing atypical antipsychotics in the market throughout 2025 and in the first quarter of 2026 based on several prescription metrics. Our Fanapt sales force continues to expand. Our Fanapt sales force number approximately 160 representatives at the end of 2024 and increased to approximately 300 representatives at the end of 2025. These expansions have allowed us to significantly increase our reach and frequency with prescribers. To that end, the number of face-to-face calls in the first quarter of 2026 was more than 80% higher than the number of face-to-face calls in the first quarter of 2025. In addition to our Fanapt sales force, we have established a specialty sales force to market PONVORY to neurology prescribers around the country. We have grown this sales force to approximately 50 representatives. Fanapt performance remains the focus of Vanda's commercial initiatives and encourages us to continue to invest in this differentiated medicine and the franchise extending launch of BYSANTI. Before turning to our financial guidance, I would like to remind folks that with Fanapt, HETLIOZ, PONVORY and now NEREUS already commercially available and with BYSANTI recently approved for bipolar disorder and schizophrenia and a biologics license application for imsidolimab now under review by the FDA, Vanda has five products currently commercially approved and could have six products commercially approved by the end of 2026. Turning now to our financial guidance. Vanda is raising its full year 2026 total revenue guidance to reflect the potential contribution of newly launched NEREUS while maintaining prior ranges for Fanapt and other products. Vanda expects to achieve the following financial objectives in 2026. Total revenues from Fanapt, HETLIOZ, PONVORY and NEREUS of between $240 million and $290 million. The midpoint of this revenue range of $265 million would imply revenue growth in 2026 of approximately 23% as compared to full year 2025 revenue. This compares to the previous guidance of total revenues from Fanapt, HETLIOZ and PONVORY of between $230 million and $260 million. Fanapt net product sales of between $150 million and $170 million. The midpoint of this revenue range would imply Fanapt revenue growth in 2026 of approximately 36% as compared to full year 2025 Fanapt revenue. This guidance is consistent with the previously communicated revenue guidance. Assuming consistent gross to net dynamics between 2025 and 2026, the bottom end of the range assumes high single-digit to low double-digit sequential quarterly TRx growth for Fanapt in the remainder of 2026. The top end of the range assumes mid-teens to high-teens sequential quarterly TRx growth for Fanapt in the remainder of 2026. Other net product sales of between $80 million and $90 million. This range assumes a further decline of the HETLIOZ business due to generic competition and modest growth of the PONVORY business, where we are seeking to significantly improve market access to the product. Depending on our success in these efforts, we could see meaningful improvements in patients on therapy, prescriptions filled, and prescriptions written by prescribers. This guidance is also consistent with the previously communicated revenue guidance. Finally, NEREUS net product sales of between $10 million and $30 million. This guidance was not previously provided and is being introduced as part of the Q1 earnings update. Vanda is currently making conditional investments to facilitate future revenue growth, both in the form of R&D investments, commercial manufacturing, and potentially outsized commercial investments, which could vary moving forward depending on the success of these commercial strategies. As previously communicated, Vanda is not providing 2026 cash guidance at this time. However, it is likely that Vanda's 2026 cash burn will be greater than the cash burn in 2025. With that, I'll now turn the call back to Mihael. Mihael Polymeropoulos: Thank you very much, Kevin. At this point, we'll be happy to answer your questions. Operator: [Operator Instructions] Your first question comes from the line of Olivia Brayer from Cantor Fitzerald. Olivia Brayer: Can you run through what the pushes and pulls are that you're using for that $10 million to $30 million guidance range for NEREUS? It seems like somewhat of a big range, just given that it's so early in the launch. So, I'm curious what the higher end of the range assumes versus the lower end. And then on BYSANTI's launch, what's the progress on getting that to patients at this point? And should we assume that any contribution from BYSANTI this year is essentially embedded in your Fanapt guidance? Or is it just too early to start attributing revenues there? Mihael Polymeropoulos: Maybe, Olivia, I will start off by saying it is very early on the NEREUS launch. And you have seen that we're approaching it as a broadly available commercial product with a direct-to-consumer platform, which is in the early days. And of course, we're working through all the dynamics and logistics of that. We'll have a better idea on progress by our next call. And in terms of the $10 million to $30 million, we're excited about the opportunity. We know we are tapping a market of potentially 70 million people with motion sickness and a good percentage of them suffering from severe motion sickness that is not properly treated today. The $10 million to $30 million is a relatively wide range, but it is not informed by experience. It is more modeling from the total market opportunity and other treatments for motion sickness. But I'll turn it to Kevin. Kevin Moran: Yes. And that's right, Olivia. That's what's driving the range there. It's obviously not informed by actual data at this point. It's informed by modeling and what we've seen in some of our qualitative and quantitative research. And so, as we gather more information there, obviously, we'll be able to provide additional context as the year progresses. Maybe on the BYSANTI side, what we previously communicated there is that we were looking to have the product available in the back half of the year, and that's still on track. So, we're working to bring that product to market. And then as far as the revenue contribution goes, obviously, still pre-launch, so a little bit early on this. But I wouldn't necessarily think about it being as embedded in the Fanapt revenue item because we expect that we'll see demand for BYSANTI independent of Fanapt. And for any demand that we see for BYSANTI that replaces Fanapt demand, we're expecting to see meaningful net price favorability, which obviously would lead to a larger revenue contribution from a BYSANTI unit versus a Fanapt unit. Olivia Brayer: Okay. Got it. So, for BYSANTI specifically, is it just a matter of waiting until it's officially commercially available before providing any sort of revenue numbers around that? Or is 2026 maybe just a little bit too early to start modeling BYSANTI? Kevin Moran: I think it's going to be -- obviously, we haven't -- we're not committing to providing revenue guidance on BYSANTI at any point in time. But obviously, the launch is, I think, going to be critical to us having better visibility into providing revenue guidance. And then we'll be looking to provide additional updates on it. But I don't think it's necessarily too early depending on the timing at which we launch the product. Operator: Your next question comes from the line of Ram Selvaraju from H.C. Wainwright & Co. Raghuram Selvaraju: Firstly, I was wondering if you could provide us with some additional color regarding the timeline to reporting of top-line data for the tradipitant study assessing its ability to attenuate nausea and vomiting and other GI side effects associated with GLP-1 drugs. Kevin Moran: Yes. Thanks, Ram. So, what we've communicated there is that in the press release today, we said results by the end of 2026. And our timing obviously is consistent with that, and that's consistent with what we communicated in our most recent and our initial launch of the program. And obviously, we're actively enrolling patients at this point. So that's informed by actual activity. Raghuram Selvaraju: And can you talk a little bit about what your expectations are for that data set? What you would consider to be a clinically meaningful result? And if you are also going to have additional information regarding the impact of tradipitant use on adherence and efficacy outcomes on the GLP-1s for patients enrolled in the study? Mihael Polymeropoulos: Thank you, Ram. This is Mihael. First of all, the Phase III study is of a very similar design like the Phase II study for which we reported positive results in November. And that is a week of pre-treatment with tradipitant or placebo and then a single injection of Wegovy at 1 milligram and follow-on for another week. So, what we aim to do with this study is confirm the previous finding of the significant reduction in vomiting episodes that we saw. And certainly, that was highly clinically meaningful. On your question whether this will improve adherence, of course, with this short study, we will not have this information. But it is widely known that this GI decreased tolerability, especially around dose escalation to higher doses, is a significant contributor to decreased adherence. Raghuram Selvaraju: And just two other things on that front. Can you comment on the possibility or likelihood of any off-label use of tradipitant given the fact that it is now an approved drug for motion sickness among those folks taking GLP-1 drugs who may potentially have obtained them via some consumer health initiative, potentially to assist them in achieving long-term adherence? Mihael Polymeropoulos: So first of all, the key word here is off label. Of course, we don't have any approved use for that indication. We cannot promote off label, especially in the midst of clinical studies and certainly not before approval in that indication. So, we cannot have any insights for that. We certainly hope that upon approval there will be a significant interest in the use of the drug. Raghuram Selvaraju: And then last question for me is with respect to the long-acting injectable formulation of iloperidone. Can you provide us with an update on that? And how rapidly you expect to be able to advance the product candidate in this context at this juncture? Mihael Polymeropoulos: Yes. Thank you. For context, this is a long-acting injectable iloperidone being used in the study to measure relapse prevention in schizophrenia. The study is ongoing in the U.S. However, it is going slowly and slowly recruiting. We think that is a phenomenon of the field of these studies and the required design of a placebo controlled. And I know you're quite familiar with this type of designs, but we're highly concerned that this exact model that has worked extremely well for Fanapt oral and other antipsychotics is becoming less and less amenable to study new drugs. And what we are thinking and potentially discussing with the FDA soon is that not only recruitment has become slower in the U.S. for this type of placebo-controlled schizophrenia relapse prevention study, but the rate of relapse has historically been significantly reduced. We observed a significant rate of relapse on placebo in the study that was completed in 2015. We've seen since with other drugs that follow this design, a significant reduction on placebo. It is too early for us to say what the exact placebo rate will be in this study. But certainly, we already believe will be much lower rate of relapse than the oral REPRIEVE study of iloperidone. All these go together to say that we are concerned about the timing of -- and the progress of the study. But we do have several ideas. We plan to engage the FDA in a constructive discussion and perhaps even modify the development plan. Operator: Your next question comes from the line of Madison El-Saadi from B. Riley. Madison Wynne El-Saadi: Maybe I'll ask about the recent New England Journal publication on imsidolimab in GPP. So, we're looking at a potential Christmas time approval again. Are you taking steps now to kind of lay the groundwork for a potential year-end commercial launch? Will this likely be something where there's like a one quarter cushion before the launch? And then is the expectation that you would receive approval in both the acute and the maintenance settings out of the gate? Mihael Polymeropoulos: Yes. Thank you very much, Madison. And you're correct. We're very excited with the publication in such a high-caliber journal, the New England Journal of Medicine evidence on this result, a testament of peer reviewed scrutiny around this very impressive data. I will answer the question on indication first. We believe that the data that we've seen from the GEMINI-I, GEMINI-II studies do support both immediate treatment of acute flares with a single injection and maintenance of that relapse in responders with the once every four-week injections. So that is our proposed indication with the FDA. And we're also making progress with -- towards regulatory filings in Japan and in Europe, but they are much earlier than the FDA submission. In terms of launch timing, this is, of course, a complex project to manufacture being a monoclonal antibody. We do not expect that we will be commercially launching right after the PDUFA date. There would be some lag time. But hopefully, we can do that within the first half of 2027. Madison Wynne El-Saadi: Understood. And then if I may ask, so on the Fanapt prescription data, this kind of reacceleration in April, BYSANTI was approved late February. Just wondering if there was maybe some type of a halo effect that could have fed into that or if that was purely kind of the sales force that you described earlier? Kevin Moran: Yes, Madison, thanks for the question on that. So, the reminder there is that historically, including this year, we've seen the first quarter be -- have seasonality with both Fanapt and the broader atypical class. And this first quarter was no exception. And in line with our expectations, we saw a flattish first quarter on prescription demand, which is, again, consistent with what we saw last year and in years prior to that. What we saw last year was after the first quarter, we saw an acceleration and sequential quarterly growth in the double-digit range in the second, third and fourth quarter of last year. And that's our expectation of what we'll see this year, and that's supported by what we see on the April data, which includes our highest TRx prescription number in over 11 years, right, which was over 2,600. So, the pattern that we've seen in prior years and expected to see this year is what we've seen play out to date as the year has gotten started here. Mihael Polymeropoulos: Yes. I agree with all that. But also, I want to emphasize that the commercial infrastructure is mature. We have approximately 300 representative sales force, which is now well trained, mature, developing their relationships in the field and supported by both a significant awareness speakers' program, but also our brand awareness direct-to-consumer marketing. Operator: Your next question comes from Leszek Sulewski from Truist. Leszek Sulewski: So first on Fanapt, do you have a sense of what portion of the TRxs and NBRxs are coming from bipolar versus schizophrenia? And with inventory running above normal, should we expect any wholesaler destocking in 2Q? And then on BYSANTI, can you rank the launch priorities, new patient starts versus switches from Fanapt and targeting the Medicaid heavy patients? And then third, I see the MDD readout was moved to the first quarter of '27 from year-end '26. What drove the timing shift? And I have a follow-up. Kevin Moran: Thanks, Les. Maybe I'll start with the first two, and then Mihael can take the one on the MDD. So first on the split. So, while we don't analyze the data at an indication level, our expectation on the Fanapt growth is that the primary driver is going to be the bipolar label expansion that we got in 2024. And that's what we seen, and that's what's informed our targeting strategy and call points and call guidance. So, the expectation would be that the growth that we're seeing in the Fanapt business is driven by increased demand from the bipolar patient population. As far as the stocking question goes, so just to point you to what I said in my prepared remarks there, historically, we've seen the Fanapt inventory levels at three to four weeks. What we've seen in the -- at the end of the first quarter of 2026, fourth quarter of 2025 and as far back as the fourth quarter of 2024 is that the inventory levels were at or slightly above four weeks on hand. So actually, the inventory at the end of the first quarter is largely consistent with what we've seen over the recent period. And what we would expect to see for a product that's growing, right? Because as you're measuring this, it's based off a trailing demand figure. But if the demand is growing, then it's actually on a lag. So, I wouldn't expect that. I'd expect the inventory levels to maintain at this as long as Fanapt continues to grow. The second question you had there was around the prioritization of new patients versus switches from Fanapt to BYSANTI. And what I would tell you there is that we're going to be prioritizing both. And that's because with BYSANTI being launched as a newly approved atypical antipsychotic, we're certainly going to be detailing it in that light. And as part of that, we'll be deploying commercial strategies to have prescriptions moved from Fanapt to BYSANTI as appropriate. And the last kind of point I would make on that is that with the nearest -- or sorry, with the BYSANTI launch in the back half of this year and the Fanapt potential loss of exclusivity at the end of next year, we've got five quarters or so where both products will be in the market, and we can execute on a switch strategy while executing a launch strategy as well. With that, Mihael, I think, can address the question on the MDD timing. Mihael Polymeropoulos: Yes. Les, you're correct. we moved the timing of end of study and results for the MDD in the first quarter of 2027 from end of '26. We're still working hard to get the results as soon as possible and could be by year-end, but we have better data now on recruitment speed and especially bringing on new sites and those in Europe as well. So, it is a reflection of projections from the actual recruitment data. Leszek Sulewski: That is helpful. And then on your commercialization and motion sickness, can you provide some color around the patient access to the drug and how that pricing looks like outside of the website via the retail pharmacy channel? And then lastly, maybe just kind of curious on your pricing strategy given the competing NK-1s out there and how this would translate to the GLP-1 adjunct opportunity. Kevin Moran: Yes. Thanks, Les. So, as we look at the insurance reimbursement landscape, obviously, with the product relatively recently approved, that will be a process that plays out over coming quarters and years as the payers conduct their clinical assessments and then their periodic reviews. So, I expect to have more information to share on NEREUS access and progress on that front as we move further into the launch, but it's certainly something that would like to secure as well in addition to the cash pay model. But the cash pay model is our immediate focus for the actual NEREUS launch with the innovative platform that we've deployed. And I'm sorry, Les, what was the second question after that? Leszek Sulewski: The pricing strategy around and read-through for the GLP-1 opportunity. Kevin Moran: Yes. Sorry. Thanks, Les. Yes. So, as we kind of evaluate the space and we look at the competitive class for the NK-1s, they range anywhere per dose from the 200 range up to about the 600 range. So, with our pricing strategy there, we're kind of deployed in the middle on the lower end. And we think with an eye towards gastroparesis potentially, if we're able to be successful on the regulatory front there and with the GLP-1 that pricing would put that at a competitive market price to service those patients as well. So certainly, the considerations for us as we launched the pricing were having the appropriate price for the motion sickness market but having an eye towards the potential for a gastroparesis market and a GLP-1 market, hopefully, in the near future. Mihael Polymeropoulos: And what I would add is a couple of things. We chose this commercial model because we believe motion sickness is a prototypical consumer product. And as you can see on our website, we provide the product in increments of two capsules, which may be enough to supply somebody for their business or personal travel, where they may experience motion. So that's important to us, and we're receiving good comments on being very patient-centric. And while in recent, I would say, years or a year, we've seen a model of cash pay at discounted prices, coming on, especially for drugs like the GLP-1 analogues. This is the first instance we know that you can directly coordinate with manufacturer. And this is an innovative system that we have built at Vanda and works in conjunction with a mail order pharmacy that can get expeditiously the product to patients. We also are working to continue to add value-added measures, including a telemedicine platform so that patients can conveniently obtain the prescriptions. So, it's all focused on the customer experience, and we want this to be really an example for others to follow. You mentioned, I think, briefly other NK-1 antagonist. And yes, there are other approved drugs in the class. None of them have ever been studied or approved in motion sickness or as an adjunct to GLP-1. The lead product there has been precedent by Merck in chemotherapy-induced nausea and vomiting and postoperative nausea and vomiting. And there are some key things and key differences on the label that can make potentially NEREUS more attractive for our consumer base. And what I'm alluding to is the absence of interaction in the study imsidolimab study, which actually differentiates NEREUS from event on Emend contraindication or warning around contraceptive use. So that and other items on the prescribing information, we believe can make the product attractive, especially for this approved indication. Leszek Sulewski: That's very helpful. Just to clarify one thing, does it seem that you would weigh out the option of a dual model approach for GLP-1 adjunct opportunity, meaning you could roll it out with a DTC plan and also a traditional insurance channel as well? Mihael Polymeropoulos: Yes. First of all, our premise here is broad access. So, any way people want to acquire the product, we want to make it available for them. At the same time, we recognize the difficulties people are going through with all the, let's call it, middleman, the pharmacy benefits organizations, their own plans. Pharmacies and all the markups of prices that go along. And we know there's a national discussion around that. As Kevin said, the WACC price, the list price of $255 a capsule is within the range of other NK-1 antagonist. However, on the cash pay, we are offering it at about a more than 65% discount from $255 to $85 a capsule, making it affordable for folks who travel for business or pleasure engage in these motion sickness activities. At the same time, we are making the drug available to pharmacies, and we ensure that wholesalers would either stock the drug or will make it available upon demand. So, the premise here is access, but access is not just insurance negotiations is appreciating independence and convenience by individual patients in accessing this drug. And we think this dual model can achieve that. Operator: Your final question comes from the line of Andrew Tsai from Jefferies. Unknown Analyst: This is Faye on for Andrew. So, we have two questions. Number one is about milsaperidone. We want to gauge your views on its likelihood of success in the Phase III MDD trial. We know that not all antipsychotics work in MDD. So, do you want to talk about your confidence why milsaperidone should succeed? And is there any existing data to support any of its benefits as antidepressant? Mihael Polymeropoulos: Yes. We think actually we're quite confident. That's why we're running this study, and we're running it with the once-a-day BYSANTI. We think the study is properly powered to detect a clinical meaningful improvement in symptoms of depression. And generally, atypical antipsychotics are effective as an adjunctive treatment in major depression. Now there are individual receptor binding properties of BYSANTI that differentiated and may increase the ability of effectiveness. And that is not only the dual dopamine and serotonin receptor antagonism, but also the strong and unique in the class alpha-1 receptor antagonism. And whether this will be necessary to achieve the effects or not in major depression will remain to be seen. But we remain very confident on the ability of BYSANTI to achieve the effect. Unknown Analyst: Okay. And the second question we have is for NEREUS. So, it launched earlier this month, and you briefly touched on the pricing strategy, but can you talk about the sales cadence for this drug later this year moving into 2027? Kevin Moran: Yes. So obviously, with us launching mid-second quarter, we would expect the revenue to grow as the year progresses. And that's both with the passage of time, but also with the increase of our promotional activities associated with the product launch. So, one of the key elements to the commercial strategy here is a direct-to-consumer campaign, which we have worked on implementing over recent quarters, but will be continue to investing in as the year goes on. So certainly, we're optimistic about the prospects for NEREUS, and we expect the revenue cadence to increase and accelerate as the year goes on. Operator: There are no further questions. I'd now like to turn it over to Vanna Pharmaceutical management for closing remarks. Mihael Polymeropoulos: Thank you very much all for joining this call and for your questions. We look forward to talking to you soon. Operator: That concludes today's meeting. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Sight Sciences First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Hannah Jeffrey, Investor Relations. Please go ahead. Hannah Jeffrey: Thank you for participating in today's call. Presenting today are Sight Sciences Co-Founder and Chief Executive Officer, Paul Badawi; and Chief Financial Officer, Jim Rodberg. Also in attendance is Sight Sciences' Chief Operating Officer, Ali Bauerlein. Earlier today, Sight Sciences released financial results for the first quarter ended March 31, 2026, and raised its revenue guidance and maintained its adjusted operating expense guidance for full year 2026. A copy of the press release is available on our website at investors.sightsciences.com. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements, including statements about materials business considerations, 2026 outlook and financial guidance. These statements are based on plans and expectations as of today, which may change over time. In addition, actual results could differ materially from projected results due to a number of risks and uncertainties. For a discussion of factors that may affect the company's future financial results and business, please refer to the earnings release issued prior to this call and the company's most recent SEC filings. We undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. Also on this call, management refers to certain financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including adjusted operating expenses. We believe these non-GAAP financial measures are important indicators of the company's operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. See our earnings release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as additional information about our reliance on non-GAAP financial measures. I will now turn the call over to Paul. Paul Badawi: Thanks, Hannah. Good afternoon, and thank you for joining us. We delivered a strong start to 2026 with first quarter results that demonstrated a return to double-digit revenue growth, continued strength in gross margin and disciplined operating expense and cash management. We drove solid execution across both segments, Interventional Glaucoma and Interventional Dry Eye. This included a third quarter in a row of revenue growth in Interventional Glaucoma and continued positive commercial traction in Interventional Dry Eye, where revenue nearly doubled from the fourth quarter, representing early validation of our procedural in-office recurring revenue business model. Based on our performance and outlook, we are raising our full year 2026 revenue guidance while maintaining our adjusted operating expense guidance. We are continuing to build an interventional eye care company focused on 2 significant anterior segment diseases, glaucoma and dry eye disease, where we believe procedural options can play a larger role in the treatment paradigm. Our 2 flagship technologies, OMNI and TearCare are designed to address the root underlying causes of disease and can efficiently integrate into established practice workflows. They each support our focus on earlier procedure-based care while helping providers deliver consistent clinical outcomes for patients. We believe there is meaningful customer and patient overlap in our 2 business units, particularly in high-volume cataract and MIGS practices, where ocular surface disease is common and where physicians are increasingly incorporating procedural options in their treatment algorithm. Glaucoma and dry eye disease are often present in the same patient and eye care providers often want to address both as part of the patient's treatment plan. We're already seeing this overlap where we are driving new TearCare adopters from our existing glaucoma customer base. As we continue to drive earlier procedure-based care across these 2 significant market opportunities, OMNI and TearCare can fit naturally along the same patient journey, supporting consistent clinical outcomes for patients as well as practice efficiency for providers. Over time, that broader portfolio participation can help deepen account penetration and support our efforts to scale both of these businesses and drive sustainable growth long-term. Our strategy is to help advance interventional care earlier in the treatment paradigm of both glaucoma and dry eye disease and to accelerate these efforts by leveraging the overlap of our 2 interventional business segments that we call the intersection of intervention. We began to drive momentum from this unique intersection in the first quarter. As we build on this progress, we remain focused on delivering sustainable growth and creating long-term value for our stakeholders. Now turning to our segments. I'll begin with Interventional Dry Eye. In our first full quarter following initial market access, we drove expanded traction in our reimbursed dry eye business and increased customer adoption of our TearCare technology. We are increasing our Interventional Dry Eye revenue guidance by $1 million at the midpoint based on our strong results ahead of expectations and our confidence moving forward. We are very pleased by the commercial traction we generated with our dry eye customers in the first quarter, where we delivered revenue of $1.4 million, nearly doubling our fourth quarter revenue. The majority of this revenue was from our disposable SmartLids, and we sold approximately 1,500 in the first quarter, up from approximately 700 in the fourth quarter of 2025, more than doubling the volume. This includes sales to 96 accounts made up of a balanced mix of new accounts and reordering accounts. Average SmartLids utilization increased from approximately 9 per active account in the fourth quarter to approximately 16 per active account in the first quarter. Our strong dry eye performance is primarily in the First Coast and Novitas regions, where fee schedules were recently established. We are pleased with the early validation of our reimbursed business model and solid customer engagement with TearCare. In addition, we are driving encouraging cross-selling dynamics with approximately half of all active accounts coming from our existing glaucoma customer base and with higher utilization in those accounts versus the Interventional Dry Eye-only customers. These early indicators demonstrate the depth and value of our established relationships and the synergies that exist between our 2 business segments. Importantly, early utilization trends are improving with a growing number of accounts reordering and increasing procedure volumes. For accounts that reordered in the first quarter, utilization more than doubled from fourth quarter volumes. In addition, new accounts onboarded in the first quarter are ramping at higher initial levels than those in the prior quarter. Together, these dynamics point to improved customer targeting and enhanced office workflow training, strengthening adoption and early momentum for scaling this business. We are also focused on supporting practices as they incorporate TearCare into their workflow. A growing number of accounts have successfully completed reimbursed procedures and reordered SmartLids, which we view as a positive early indicator of repeat utilization. This adoption reflects the effectiveness of our targeted commercial approach, prioritizing high-volume dry eye practices with significant Medicare patient volumes. These efforts are translating into meaningful traction with increasing interest from both new and existing accounts, supporting the broader shift towards Interventional Dry Eye care. To build on this foundation, we have continued to expand our commercial team in the first quarter, adding resources in both our sales rep and clinic support functions to enhance execution and deepen provider engagement. Our focus remains on scaling efficiently within established reimbursed markets while positioning the organization to drive meaningful growth as we move through 2026. In parallel, we are also focused on expanding market access through engagement with additional MACs as well as commercial payers. We are actively engaged in discussions with multiple MACs, including detailed reviews of our clinical and economic data and submitted TearCare claims reviews. Based on these activities and discussions, we expect additional payers to establish fee schedules this year. We are encouraged by our continued progress and view expanding TearCare market access as an important catalyst to support long-term growth. Building on a foundation of clinically differentiated technology, initial reimbursement in select markets, ongoing reimbursement discussions and strong commercial traction, we are excited about our opportunity to drive the development of this large and underpenetrated reimbursed interventional dry eye market. Turning to Interventional Glaucoma. Our OMNI technology continues to demonstrate its clinical value within the evolving glaucoma treatment paradigm and its increasing importance as a differentiated technology and durable growth driver in the expanding field of Interventional Glaucoma. In the first quarter, we delivered strong performance and generated the third consecutive quarter of year-over-year growth. Revenue was $18.3 million, up 7% versus the prior year period. Ordering accounts increased 6% compared to the prior year period, driven primarily by reactivating dormant accounts and adding new accounts. The revenue growth was primarily driven by increased volume and price and partially offset by slightly lower utilization per account. We finished the first quarter with a strong March with procedure volumes increasing from a slower than typical start in January and February. Additionally, we drove continued strong adoption of OMNI Edge, which helped in reactivating accounts and adding new accounts. OMNI Edge includes a higher capacity viscoelastic delivery feature while maintaining the trusted safety, efficacy and usability of the OMNI technology platform. For 2026, our Interventional Glaucoma strategy is anchored in consistent execution as we work to expand the combo cataract market and capture additional share as well as further unlock the stand-alone market opportunity. In the combo cataract market, we are focused on adding accounts through training new surgeons, capturing share in existing accounts, expanding adoption and penetration with MIGS-naive surgeons and increasing combo cataract volumes through Interventional Glaucoma activations. In stand-alone, we have hired a dedicated market development team and are encouraged by the early progress they are making in activating stand-alone glaucoma interventions. Together with our differentiated technology and experienced commercial organization, we are in a strong position to deliver our growth targets in 2026 in Interventional Glaucoma. Looking closer at the stand-alone opportunity, as the shift toward earlier interventional treatment continues to shape the glaucoma treatment landscape, our effective market development team has been instrumental in partnering with surgeons and their staff to help them introduce a streamlined and actionable Interventional Glaucoma patient workflow that is modeled after the well-known and proven cataract patient workflow. This differentiated approach is helping practices identify patients and support increased procedural interventions in those practices adopting this workflow. We believe this new Interventional Glaucoma patient workflow partnership with our customers represents an important driver of market development and a growing contributor to long-term revenue growth. Before turning the call over to Jim, I want to briefly touch on the latest regarding our patent infringement case against Alcon. In April, the court issued its final judgment, which upheld the jury's finding of willful infringement by Alcon and confirmed past damages and interest totaling approximately $55 million as well as ongoing royalties of 10% of Hydrus revenue through patent expiration. This ruling is subject to appeal, and no cash has been received to date. To close, we delivered a strong start to 2026 in both our Interventional Glaucoma and Interventional Dry Eye business segments and the progress we made in the first quarter reinforces our confidence in the year ahead, including our decision to raise revenue guidance while maintaining our adjusted operating expense guidance. In Interventional Glaucoma, we generated our third consecutive quarter of year-over-year growth and remain focused on expanding our leadership position in the combo cataract segment while continuing to activate stand-alone intervention. In Interventional Dry Eye, we are encouraged by increasing customer adoption and utilization, and we remain focused on scaling efficiently in markets where reimbursement is in place while working to expand market access over time. We are also excited about the increasing recognition within the eye care community that there is strong patient overlap between Interventional Glaucoma and Interventional Dry Eye. We are uniquely positioned to leverage this synergy with 2 leading interventions for these 2 large and overlapping disease categories as we build something bigger, a leading interventional eye care company. Across the company, we are investing to support growth while maintaining the operating and financial discipline needed to improve cash usage and advance our path toward cash flow breakeven. With that, I'll turn the call over to Jim to walk through the financials. Jim Rodberg: Thanks, Paul. Before discussing the first quarter results, I want to underscore that we are executing against our strategic goals from a position of strength with the operating discipline and cost structure we need to support growth, and we believe this positions us to achieve cash flow breakeven without the need to raise additional equity capital. Unless otherwise noted, my comments reflect results for the first quarter of 2026 and comparisons are to the same period in the prior year. In the first quarter, total revenue was $19.7 million, a 13% increase, driven by growth in each of our 2 Interventional segments. Interventional Glaucoma revenue was $18.3 million, an increase of 7%, driven by increases in ordering accounts and average selling prices and partially offset by lower utilization per account. Ordering accounts grew 6% from the prior year as well as 1% sequentially from the fourth quarter. Interventional Dry Eye revenue was $1.4 million, up from $0.4 million and nearly doubling from the fourth quarter of 2025. Dry eye results were driven by increases in average selling prices, utilization and ordering accounts, reflecting strong momentum in our reimbursed Interventional Dry Eye business model. Gross margin was 86%, flat compared to the prior year. Interventional Glaucoma gross margin remained strong at 87%, in line with the prior year period on higher average selling prices and product mix, slightly offset by tariff costs. Interventional Dry Eye gross margin was 72%, up from 71% in the same period in the prior year, primarily due to higher average selling prices and increased SmartLids sold, mostly offset by a onetime inventory overhead adjustment in the prior year. Over time, we expect our dry eye margins to continue to improve as we scale our reimbursed business model and offset absorption and overhead costs. Total operating expenses were $29.4 million, an increase of 2% compared to $29 million. primarily due to a $5.4 million one-time fee earned upon a successful final judgment in the Alcon litigation case described above. Excluding this fee, operating expenses were down 17%, driven primarily by lower personnel-related expenses and stock-based compensation. As a reminder, we conducted a reduction in force in the third quarter of 2025, and this past quarter was the second full quarter of our lower cost structure. Adjusted operating expenses were $21.2 million, down 14% compared to $24.7 million. Net loss was $13 million or $0.24 per share compared to a net loss of $14.2 million or $0.28 per share. We ended the quarter with $85 million of cash and cash equivalents compared to $92 million at the end of 2025. Cash used was $7 million in the quarter, which was down significantly from $11.6 million in the first quarter of 2025. We ended the quarter with $40 million of debt, excluding unamortized discount and debt issuance costs. Moving to our revenue outlook for full year 2026. We are raising revenue guidance to $83 million to $89 million, which reflects growth of 7% to 15% compared to 2025 versus the prior guidance of $82 million to $88 million. This includes revenue for our Interventional Glaucoma segment of $77 million to $81 million, representing growth of 2% to 7% and our Interventional Dry Eye segment of $6 million to $8 million compared to $1.6 million in the prior year. This guidance reflects our philosophy of setting achievable targets and our focus on disciplined execution and the growth we believe we can deliver. Looking closer at the second quarter, we expect total revenue to grow low-double digits compared to the second quarter of 2025. We expect Interventional Glaucoma to grow mid-single digits compared to the second quarter of 2025. Interventional Dry Eye revenue is expected to be in the range of $1.5 million to $2 million in the second quarter, and we expect that revenue to continue to scale throughout the year. We are reaffirming our full year 2026 adjusted operating expense guidance of $93 million to $96 million, representing an increase of 6% to 9% compared to 2025. The increased spend compared to the prior year is driven by targeted commercial investments to capture growth opportunities in both Interventional Dry Eye and Interventional Glaucoma, while we continue to manage the business with operating discipline. We are pleased with our return to double-digit revenue growth in the first quarter. Looking ahead, we are excited to continue pioneering the Interventional Glaucoma and Interventional Dry Eye markets, and we are laying a strong foundation for sustainable growth and continued success. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Frank Takkinen of Lake Street Capital Markets. Nelson Cox: This is Nelson on for Frank. Congrats on the solid progress. Maybe just to start, I want to start on the SmartLids utilization stepping from 9 to 16 in the quarter per active account. So, a strong read there. For your most mature kind of fully reimbursed accounts, can you talk about that steady state utilization and how we should think about that trajectory for the broader kind of installed base moving forward? Alison Bauerlein: Yes. Thanks, Nelson. And it's a great question. And the good news is I don't think we're anywhere close to a steady state yet. All of our accounts are still relatively early in their usage of TearCare across their Medicare -- traditional Medicare fee-for-service population. And so, I think even our largest accounts are not yet fully activating this across their patient population. And then, of course, once we can also get additional coverage, that will also allow our customers to treat more and more patients across their patient pool. I will say when we look at our customer mix, there are a handful of accounts, probably 10% of the accounts that are driving a larger portion of the total volume here. And that's -- those are accounts that have really figured out the workflow, how to put this into their overall practice. And frankly, we're really proud of the progress that we had in the first quarter, almost 100 active accounts. These accounts are really like the true early adopters of TearCare, the true believers in the future of procedural dry eye interventions. And we really see all of our customers are still very early in their utilization curves, which is really just a testament to how large this market is and how many patients could benefit from a procedural dry eye intervention. Nelson Cox: That's very helpful. And then just quickly, you called out adding sales reps and clinical support resources during the quarter. Can you maybe size the Interventional Dry Eye team today and where we should see that going just throughout the year? Alison Bauerlein: Yes. So, we're not going to provide a detailed sales force headcount every quarter, but we did incrementally add in the quarter. I know we reported at the end of 2025, we had about 10 between our direct sales force as well as clinical specialists. So that team is still very small and growing. So, we are investing in the team, really focused on those First Coast and Novitas areas where we have Medicare fee schedules established, and we would expect to continue to grow that team throughout the year. Operator: Our next question comes from the line of Adam Maeder of Piper Sandler. Adam Maeder: Congrats on a good start to the year. Two for me. And I guess the first one, I wanted to start on Interventional Glaucoma. And I really was hoping you could kind of double-click and contextualize the good result there, the plus 7% year-over-year. Curious to get your view on kind of underlying market trends, competitive dynamics. I think one competitor may have had a little bit of a supply issue, pricing. And then you obviously talked about some increment weather. So did you recapture those patients in the quarter. So just maybe kind of bring that all together for us? And then I have a follow-up. Paul Badawi: Yes. Hi, Adam. We're excited to be back in growth mode in IG, in Interventional Glaucoma. The glaucoma community recognizes now that intervening earlier is better long-term for patients. So, there's this real tailwind in the ophthalmic community. You can feel it. We were just at ASCRS, A-S-C-R-S, American Society of Cataract and Refractive Surgery meeting last month, and there's just so much talk around earlier intervention, both IG, Interventional Glaucoma as well as IDE, Interventional Dry Eye. On the glaucoma side, we all know there's millions of glaucoma patients that are currently on medications and could benefit from an earlier intervention. That market is growing. We're excited to be a leader. We're the leading implant-free microinvasive glaucoma surgical option in the market. And over time, as this category grows, we expect to continue to innovate and lead the category we've created. We've got new technology coming out. We're trying to stay ahead of the market with OMNI Ultra later this year. It's our third straight quarter of year-over-year growth. So, we're excited about that, excited about the tailwind of Interventional Glaucoma and continuing to lead as the implant-free market leader in IG. Jim Rodberg: Adam, this is Jim. On the Q1 dynamics, we closed the quarter very strongly. As you can imagine, March tends to be a pretty significant part of the first quarter and team executed really well. And we leave the first quarter feeling really good about where we're at. We had strength in March. We expect that strength and momentum to continue into Q2 and the balance of the year. And overall, confident about our path forward. Adam Maeder: Okay. Fantastic. Very helpful color and great to hear the comments on the market. And then maybe switching over to dry eye. Congratulations, Ali, on the progress there. I wanted to push a little bit in terms of market access and try and better understand the expectations for new payer adds, whether it's on the commercial or the MAC side. I'm not sure if you can be any more specific in terms of potential timing there. And I guess, really, the -- one of the questions I have is, can you hit the updated $6 million to $8 million without any additional payer wins? Alison Bauerlein: Yes. Thanks for the follow-up here. And of course, we are also very focused on increasing reimbursed access to TearCare with both Medicare payers as well as commercial payers. We're having continued good conversations across the payer mix really focused on the SAHARA data, the health economic data and also showing claims utilization and interest in the procedure. And so we are, of course, building a category here. It does take time. We still expect to have additional payer wins in 2026. It is hard to predict exact timing there, but we fundamentally don't feel any different about our ability to get payer wins over time here to get access to this technology for our patients and our ECP provider partners. I will say that we do have some incremental positive movement with -- there are some commercial payers that are paying regularly, while they haven't established coverage policies. There are payers that are moving towards those types of activities, and we feel good about it. In terms of guidance, yes, we still feel extremely confident -- the guidance is put in place that only takes into account First Coast and Novitas fee schedules in place for 2026. And really, that market potential alone is still very large for us. We're still a very small fraction of the patients that have moderate to severe dry eye disease with MGD even within that traditional Medicare fee-for-service population. So very much early stages, and it's a large market, and we feel very good that we set appropriate guidance, taking into account all those factors for the areas where we currently have fee schedules established. Operator: Our next question comes from the line of Steve Lichtman of William Blair. Steven Lichtman: Congratulations on the progress. Wondering if you could talk about customer accounts for dry eye in the regions that you are approved with reimbursement. What's your latest view on sort of the denominator, the number of viable centers that you think are target sets for you within the regions that you're currently in? Alison Bauerlein: Yes. I'm going to shift that question a little bit and talk about ECPs, eye care providers because that's an easier way of thinking about this opportunity. When we talk about across the U.S., really the targeted payers -- targeted providers that do a lot of prescription eye drops, do procedural interventions for dry eye, have strong populations of patients here. We've talked about historically about 6,500 ECPs fall into that bucket as kind of that initial target population. Within First Coast and Novitas, there's 2,000 ECPs that would meet that same criteria. So, we are still very small. Obviously, active accounts is a little different than eye care provider counts. But even with there being a couple of ECPs per active account, we're still very much in the early penetration days of the opportunity within First Cost and Novitas. Steven Lichtman: Great. And then just a follow-up on the patent suit. Obviously, a decent amount of cash pending here for you guys. Either Paul or Jim, can you talk about the next steps here? I think Alcon has an opportunity to potentially appeal, but within the next couple of weeks, if that -- or there could be a settlement. What's the next steps and remind us of the interest accrual if it does go to appeal? Jim Rodberg: Yes. So, I can give an update on at least the amount. So, in April of this year, final judgment was issued and that preserved the jury verdict from 2024. That awarded us updated damages, interest and royalties of approximately $55 million as well as ongoing royalties of 10% of future Hydrus sales through the patent expiration. We have not received any cash to date, and we will not book anything, obviously, until such time when appeals would be exhausted and cash would change hands, for example. The final judgment is subject to appeal. And beyond that, we won't comment further on pending litigation, but we feel we are in a very strong position in this case. Operator: Our next question comes from the line of Tom Stephan of Stifel. Thomas Stephan: First one on dry eye. Nice to see the guidance raise already really strong sequential growth in utilization. Maybe I'll just ask sort of a big picture question. Like what have been, call it, the top one or two upside surprises or learnings amidst kind of this relaunch, if you will? And part two to that, how do you feel about the playbook you're developing for when different markets and patient populations hopefully unlock and sort of your ability to deploy that quickly? I'll leave it there. Alison Bauerlein: Yes. So, one to two areas, we've had a lot of learnings since launch, and most of them have been very positive, both about how large of an opportunity this is, how many patients really are looking for a better treatment, but also the synergies with our IG business. That's probably the largest benefit that we've seen is that those accounts are a large part of the accounts that have activated in these early stages. They have larger traditional Medicare fee-for-service populations, and they are looking for ways to help their patients who also experience a significant amount of dry eye. And so that is a very large part of our initial launch here, initial success. And we also see that those accounts are having higher utilization than the non-IG synergistic accounts. So really positive momentum there and good synergies across the team. In terms of the playbook and what we see as we move forward here, there is still a lot of workflow activation that needs to occur when account decides that they want to implement procedural dry eye. So, we do think that this is involved with people, people really being in accounts and helping the clinics set up their workflow, identify the patients and identify how best to put them into a dry eye treatment workflow. And so, because of that, we do think that as we have additional market access wins, particularly in new geographies, that will involve additional commercial investments as we grow the team and, of course, work with the accounts that we already have in those areas as well. And then as we have additional density happening with additional payers coming on in already markets where we have Medicare fee schedules, those are easier to activate because those accounts is just adding new payers that can process and add those patients into that same workflow. Over time, that may also shift the accounts that we're targeting. As you know, we are targeting right now a lot of those higher-volume ophthalmology practices that do have a lot of Medicare patients, which is where we're seeing the synergies with IG. Over time, that population may shift where we know that there is -- when we look at the dry eye disease market, 70% of patients are covered by commercial plans and 30% are being covered by Medicare or Medicare Advantage plans. And so right now, we're targeting a subset of a subset there. As we get the commercial plans, that can really shift our strategy in terms of account targeting and where we look to really partner with people. But we're really happy with the progress we've seen in terms of creating workflow within accounts, and it is being replicated very efficiently across accounts so they can work TearCare into their procedure flow, whether that's I'm going to have a TearCare day or I'm going to have multiple TearCare afternoons or TearCare morning. They tend to stack them up in the day to be efficient. But all of that is being worked through and then we're having the assessment upfront to identify those patients that may benefit from a procedural dry eye intervention and working that into the workflow. So, a lot of different things coming together right now, but we do think we're in a good spot to continue to execute across this new area. Paul Badawi: And Tom, I just want to add a few thoughts to Ali's comments around the intersection. Sight Sciences started -- we were born interventional. We started with OMNI and then we developed TearCare. These are 2 very strong interventions for 2 of the leading diseases in eye care. So, while that's been our philosophy, I think what we've seen and we've been pleasantly surprised by is the rate at which our customers and specifically surgeons, as Ali mentioned, have recognized the overlap of these 2 disease categories and the possibilities of offering these same patients multiple interventions. So, the alignment between the ophthalmic community and our philosophy of building an interventional eye care company has come faster, I'd say, than even we expected. When we go out in the field and we meet with our happy OMNI surgeons and we're working with our dedicated commercial team, it's amazing how many of our glaucoma surgeons talk about how many of their glaucoma patients have dry eye disease, and they're complaining about their dry eye disease because you can feel that. They're not complaining about their glaucoma because it's a silent disease, unfortunately. And so, the -- us being able to show up as their interventional partner having an intervention for their glaucoma patients, having an intervention for their glaucoma patient who also has dry eye disease. It's a very powerful partnership. And I think we're just -- we're surprised and very happy about how fast the community is acknowledging that. We're calling it again internally IX. It's the intersection of intervention. It's this proprietary angle we have, and we're looking forward to like driving the benefits and the synergies of these interventional platforms to reach more patients with better interventions, offering better care more quickly. Operator: Our next question comes from the line of Joanne Wuensch of Citi. Joanne Wuensch: You seem to be making a fair amount of progress on expense management, cash management and everything else that goes along with it. Can you sort of give us a view on your philosophy of how do you balance everything that you're doing in terms of penetrating the MAC and educating the physicians and ramping them with the other metrics that we come to view and love on the side of Wall Street. Jim Rodberg: Joanne, thanks for the question. I'll take that one, and Paul and Ali can add as needed here. But we're in a really good spot with a really healthy balance sheet and a strong pathway to cash flow breakeven, while at the same time, having the ability to go invest in these 2 significant opportunities. As we look at 2026, the most important investments for us this year are in -- on the dry eye side, both in market access resources as well as commercial resources to scale up that business in markets where we already have reimbursement. And then on the glaucoma side, continuing to invest in the stand-alone opportunity there. So, the balance for us is we want to make disciplined, high-return investments. And we're fortunate, I think, to have the flexibility to go faster on some of those investments where there's outsized opportunity for growth. Paul Badawi: And the only thing I would add to that, Joanne, on the R&D front, look, we have a history of developing -- cost effectively developing clinically differentiated interventions that can elevate the standard of care. I think we've done that well with OMNI. We've done that well with TearCare. We're making very selective -- we've got a number of selective R&D programs that we're investing in that we're going to be very excited about, all within this interventional category as we build a focused interventional eye care company. But we've got very interesting pipeline that we're developing cost effectively. And in due course, we're looking forward to sharing more about that, hopefully later this year. Operator: Our next question comes from the line of David Saxon of Needham & Company. David Saxon: So, I wanted to ask a similar question to Adams, but from a slightly different angle. So, I think you're only in 4 of the 13 states in First Coast and Novitas, those 2 regions or jurisdictions, I should say. So, does the guide assume you get into any more of those states? Or is the 6% to 8% really just reflective of presence in like a fraction of the total immediate opportunity? Alison Bauerlein: Yes. So, to your point, we have sales really across -- first of all, most of the 13 states, we have some level of sales. So, we do have some sales support across them. But you are right, we do have density within 4 or 5 main states that have the majority of the sales resources in them. We do expect to continue to expand the resources there, whether we expand them within those specific 4 to 5 states as there are still opportunities, as you can imagine. One rep in Florida would not be sufficient to cover the entire state of Florida, for example. So, we are looking at where we invest those resources. The plan does take into account that we do have incremental investments in commercial resources in those areas. We aren't going to get into specific territories or how we're going to break that out. But all of that is accounted for in our operating expense guidance. So, we have already adjusted for that appropriately. David Saxon: Okay. And then on the IG side, Paul or Ali, would love to get an update on Omni Ultra timing of that clearance. And is that embedded in the IG revenue guidance? Or would that be upside when that comes out? Paul Badawi: Yes, David, this is Paul. We are in discussions with the FDA on OMNI Ultra. While nothing is definitive, as everybody knows, with 510(k) clearance pathways, we feel confident that we should have a clearance, hopefully, within the coming months, certainly by the end of the year. So, we're very excited to launch Ultra, again, hopefully, by the end of the year it will be out in the market. It's got a number of great features, surgeon informed. We obviously partner very closely all the time with our surgeons and take their feedback to continue to innovate in IG and move the OMNI platform forward and stay ahead. It's got single pass, single incision, single pass 360. It's got viscoelastic delivery on both advancement and retraction, which is a really nice feature. It's got markings on the catheter to tell the surgeon how far they've advanced. It's got better ergonomics. The handle has better ergonomics. It's got a number of features that we think will help elevate this category even further. Hopefully, it's getting released by the end of the year. We don't know when, ultimately, we can't predict with specificity when the clearance will come. I can say this. We've put out guidance that we are very confident we can deliver regardless of when Ultra arrives. Hopefully, it arrives sooner rather than later, and we can do even better. Operator: This concludes the question-and-answer session. I would now like to turn it back to Paul Badawi for closing remarks. Paul Badawi: Thank you all for attending today's call. We appreciate your interest in Sight Sciences, and we look forward to updating you on our progress in the future. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Team will be happy to help you. Welcome to Forward Air Corporation's 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. Lastly, if you should require operator assistance, please press 0. I would now like to turn the call over to Tony Carreño, Senior Vice President of Treasury and Investor Relations. Thank you, operator. Tony Carreño: Good afternoon, everyone. Welcome to Forward Air Corporation's first quarter earnings conference call. With us this afternoon are Shawn Stewart, President and Chief Executive Officer, and Jamie G. Pierson, Chief Financial Officer. By now, you should have received the press release announcing Forward Air Corporation's first quarter 2026 results, which was also furnished to the SEC on Form 8-K. We have also furnished a slide presentation outlining first quarter 2026 earnings highlights and a business update. The press release and slide presentation for this call are accessible on the Investor Relations section of Forward Air Corporation's website at forwardair.com. Please be aware that certain statements in the company's earnings release announcement and on this conference call may be considered forward-looking statements. This includes statements which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events or trends, and other matters that are not historical facts, including statements regarding our fiscal year 2026. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the SEC and the press release and slide presentation relating to this earnings call. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. During the call, there may also be discussion of metrics that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Management uses non-GAAP measures internally to understand, manage, and evaluate our business and make operating decisions. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in today's press release and slide presentation. I will now turn the call over to Shawn. Shawn Stewart: Good afternoon, everyone, and thank you for joining us. I appreciate your interest in Forward Air Corporation. There are three main topics that I would like to cover on today's call. First, I will provide an update on the customer transition and our strategic alternatives review that we announced in our press release. Second, I will share some thoughts on our first quarter results and the logistics market in general. Third, I will comment on recent awards earned by our team before turning the call over to Jamie. Let me start with the customer transition. While no formal notices have been delivered, we are in discussions with one of our largest customers to transition a significant portion of their business to other providers. How much of the business will be transitioned and the timing thereof are still being discussed, but we are currently anticipating that the majority of what will ultimately transition will start in early 2027 and take place throughout the balance of the year. It is important to note that we believe this has little, if anything, to do with the impeccable level of service that we provide them and more about their own internal diversification strategy. We are still in active discussions to retain as much of the business as possible, and we are doing everything we can to minimize the impact to our company. I want to reiterate that we believe the customer's decision is entirely related to their own operation and supplier diversification initiatives and has nothing to do with the exceptional service we have provided them during our long-term partnership. This leads me to an update on our strategic review and the new actions we are now pursuing to enhance value and help offset this potential impact. As you know, in January 2025, the Board initiated a comprehensive review of strategic alternatives to maximize shareholder value. We have had extensive negotiations and discussions with multiple parties. However, due to a variety of factors, including the developments that I just mentioned, no actionable proposals for sale of the company were received. We continue to consider all opportunities to enhance shareholder value, and we are now pivoting our focus to pursue a sale of non-core assets, including our intermodal segment and two of our smaller legacy Omni businesses, which in aggregate represent approximately $394 million of our 2025 revenue. These targeted sales are intended to advance our efforts to delever the balance sheet and further focus our services around the core of what we do every single day, which is providing service-sensitive logistics to our customers around the world in air, ocean, ground, and contract logistics markets. With that, let us turn to the second topic, our quarterly results. In the midst of an incredibly complex integration, a fairly weak industry backdrop, changing tariff regulations, and the disruption in the Middle East, our team continues to make progress executing our transformation plan, overhauling operations, and improving the quality of our earnings results, which is reflected in our results. For the first quarter, we reported operating income of $20 million compared to $5 million last year, and consolidated EBITDA, which is calculated pursuant to our credit agreement, was $70 million compared to $73 million a year ago. Regarding the overall logistics market, domestic transportation supply has continued to tighten, driven in large part by increased regulatory and enforcement actions over the past year. These dynamics have accelerated carrier exits, particularly among smaller operators, while limiting capacity additions. A tightening supply environment is a component in rebalancing the freight market and supporting a return to more favorable market dynamics after years of prolonged freight recession. However, supply is only one side of the equation. Improvement in demand will ultimately determine the pace and sustainability of a recovery. Encouragingly, early indicators suggest that the industrial economy, which has weighed on freight demand, may be approaching an inflection point. Manufacturing PMIs have now remained in expansion territory for four consecutive months. Readings above 50 have historically served as a leading indicator for increased freight volumes, as rising manufacturing activity typically drives higher shipment of raw materials and finished goods. Additionally, the ratio of inventory to sales continues to decline. Outside of the post-COVID destocking, the current levels are at or slightly below the 10-year average, with shippers operating with conservative inventory levels amid ongoing tariff uncertainty and evolving trade policy. Depressed freight demand in the most recent past also creates the potential for a restocking cycle, which could serve as a meaningful tailwind for freight volumes when demand improves. Also, do not lose sight of the recent increase in truckload spot rates and corresponding spike in tender rejection rates. That said, while the VIX may have settled, macroeconomic risks remain. Ongoing geopolitical tensions in the Middle East and the associated rise in fuel prices introduce a key source of uncertainty. Sustained increases in energy costs could pressure manufacturers and consumers, raising input costs, compressing margins, and ultimately dampening demand. Outside of this week's announcement and subsequent sell-off in oil, if elevated fuel prices persist, they could lead to tempered demand, offsetting some of the positive momentum emerging in the industrial economy and delaying a recovery in the freight markets. While we are optimistic about the improving freight dynamics, we remain focused on prioritizing customer service and thoughtful cost management. We have been operating as one company for over two years now, and I am proud of what our team has accomplished and even more excited about our future. Finally, it gives me a great deal of pride for our team of dedicated logistics professionals to be recognized for their hard work, diligence, and commitment to our customers. Forward Air Corporation was recently named the 2026 Surface Carrier of the Year by the Air Forwarders Association, whose members are freight forwarders that rely on our expedited ground network to maintain the integrity of their airfreight schedules. This recognition reflects the strength of our network, our team's performance, and our commitment to delivering exceptional service on a consistent basis. Forward Air Corporation was also recently named to Newsweek's list of the Most Trustworthy Companies in America 2026. The annual ranking recognizes companies across industries that have earned strong trust among customers, employees, and investors. This award follows the company's selection to Newsweek's list of Most Responsible Companies in 2025. This recognition underscores the significant transformation our team has achieved over the past two years in optimizing operations, improving performance, and enhancing customer relationships. Both of these honors are a reminder of the high service standards that we are known for. They reflect the dedication of our people whose efforts continue to drive our reputation for excellence. With that, I will now turn the call over to Jamie to go through the detailed results of the first quarter. Jamie G. Pierson: Thanks, Shawn, and good afternoon, everyone. As you heard from Shawn, we reported consolidated EBITDA of $70 million in the first quarter compared to $73 million in 2025. As a reminder, the comparable results a year ago were favorably impacted by $4 million of annualized cost reduction initiatives that were actioned in 2025. The credit agreement allows for the inclusion of the unrealized and pro forma savings from these actions to be included in our historical consolidated EBITDA and requires that they be spread back in time to the period in which the expense would have occurred. On an LTM basis, consolidated EBITDA was $3[inaudible] million. Like we normally do, we have detailed the information used to reconcile the adjusted and consolidated EBITDA results on Slide 30 of the presentation. On an adjusted EBITDA basis, we reported $70 million in the first quarter compared to $69 million in the first quarter of last year. Turning to the segments. Expedited Freight reported EBITDA improved to $28 million compared to $26 million a year ago, with the exact same margin of 10.4%. The Expedited Freight segment's first quarter results also improved sequentially compared to the $25 million of reported EBITDA and a margin of 10.1% in 2025. At the OmniLogistics segment, reported EBITDA of $25 million in the first quarter of this year was in line with the $26 million we reported a year ago. The margin improved from 7.9% to 8.3% year-over-year, driven by an increase in contract logistics volume with a higher margin compared to a decrease in air and ocean volumes that have lower margin. At the Intermodal segment, we continue to see a challenging market, especially from reduced port activity. International trade-related softness among several core customers contributed to declines in shipments and revenue per shipment compared to a year ago. In the first quarter, the Intermodal segment reported EBITDA and margin were $5 million and 10.1%, respectively, compared to $10 million and 16.4% a year ago. Externally, and going back into the back half of the year, we expect to see capacity tighten as JIT supply chains for our BCO customer base loosen as tariffs stabilize, and as additional capacity exits the market due to financial difficulties and bankruptcies of smaller drayage carriers. Internally, we have a strong pipeline and have recently enacted strategic rate increases to several key accounts. Turning to cash flow and liquidity. Net cash provided by operating activities in the first quarter was $46 million, an improvement of $18 million, or more than 60%, compared to $28 million in the first quarter of last year. As for liquidity, we ended the first quarter with $402 million, which is an increase of $35 million compared to the end of 2025 and about a $10 million increase from last year's comparable $393 million. The $402 million is comprised of $141 million in cash and $261 million in availability under the revolver. And as usual, I would like to leave you with a couple of additional thoughts. The first of which is liquidity and how we manage the business, especially in uncertain times. As you heard earlier, our ending liquidity included $141 million in cash, which is the highest ending cash balance in the past eight quarters. When compared to our publicly traded peers, we are at the upper end of the spectrum when calculating liquidity as a percent of both total assets and LTM revenue. And on Slide 22 of the earnings presentation, you will also see, on a non-GAAP basis, we generated $58 million in operating cash flow in the first quarter, which is approximately $12 million better than last year's comparable result. Secondarily, as you heard from Shawn, we are cautiously optimistic about improvements in freight demand, especially in the most recent past. However, there are numerous crosscurrents, including potential continued improvement in the freight demand counterbalanced by ongoing headwinds from inflation, subject to consumer confidence, and macroeconomic risks. We will need these to play out to see if the improvement in demand is sustainable. Regardless of when we see the market fully turn in a positive direction, we plan to continue focusing on the customer, increasing sales, and tightly managing expenses. I will now turn the call over to the operator to take questions. Operator? Operator: We will now open the call for questions. The floor is now open for questions. To provide optimal sound quality. Thank you. Our first question is coming from J. Bruce Chan with Stifel. Your line is now open. Andrew Cox: Hey, good afternoon, team. This is Andrew Cox on for Bruce. I just wanted to touch on the customer loss or customer transition here. We understand that nothing is set in stone, but we are talking about 10% of total revenue. Would just like to get some more details on what segment it is in and what the margin profile is, and how much fixed or structural costs are associated with this customer, and how fast you expect to be able to flex down either the cost or backfill the revenues? Thank you. Shawn Stewart: Hey, Andrew, thank you for the question. Yes, it is quite diverse and dynamic in terms of the service offerings we provide them. It is mainly in contract logistics and some transportation. So margins are different depending on what segment of that business it sits in. We are still in conversations, so it is very fluid. Obviously, we do not want to be overly transparent today. But we are still in heavy conversations, and it is a very good relationship. So it is not a situation of anything other than what we understand and believe to be diversifying their overall supply chain portfolio between providers. Jamie G. Pierson: Yes, if I can add on there, Andrew. We are positioning ourselves to hold on to as much of this business as possible. Shawn said it perfectly, which is our belief that this is about their growth and their concentration with us. It is a simple diversification play. It is important to note that we do not see any meaningful impacts to the current year, and as you noted, it is ongoing. To date, the conversations have been positive. Stephanie Moore: Hi, good afternoon. I guess maybe going back to the situation with the customer, maybe I will ask this a little more directly than the prior question. I am trying to understand how much leeway or time you saw this coming. Has this been a conversation that has been going on for some time? It is hard to believe for a customer of this size to make these changes quickly. If you could give a little bit of color on what services this customer provides or end market, just to get some color there, maybe a little history on other customer losses. If it is not due to service and it is just diversification, that is obviously having a really large impact this year. If you could touch a little bit more about when this started happening, and then at the same time, what can be done on your end to hopefully try to retain this as much as possible? Jamie G. Pierson: Hey, Stephanie, Jamie here. In terms of the timing, it is still happening. The dialogue to date is active and constructive. We are putting ourselves in the best possible spot to hold on to as much of the business as we can. If it were a service-related issue, I might feel differently, but if we look at our service KPIs with this customer, they are incredible, in my opinion. These are my words, Stephanie, not anybody else’s. We are incredible. So it is more about their concentration with us. They have grown with us. They have been a long-term partner with us. I think it is more about a risk management perspective on their behalf than anything else. In terms of how quickly, it is May. It is going to take some time. The best that we can tell is there is not going to be any impact to 2026. It will not be until early 2027 that we see anything meaningful and material, if at all. We are not throwing in the towel, but we felt that it was the right thing to do to let you know that we are in these discussions as quickly as we possibly could. Stephanie Moore: I worded it today, and then in the release, that part of the strategic alternative review process was impacted by this development with this customer. As we think about this, how much does this weigh on the strategic process? And then once there is some definitive decision—whether it is bad or if this customer does decide to walk away—what does that mean in terms of ongoing strategic processes once this is cleared up? Jamie G. Pierson: I cannot answer that second question about what will happen after it is cleared up. In terms of the impact, anytime you have a large customer concentration like this, it is going to weigh either positively or negatively. In terms of its impact on the strategic alternatives process, the fact that you look at a customer that is approximately $250 million, plus or minus, in revenue is going to have an impact. Stephanie Moore: Absolutely. I guess one last one for me—just on the core business itself, we wanted to get a sense of the ongoing pricing environment. There are certainly some green shoots and some positives in the freight environment. If you could talk a little bit about pricing across your business and your level of comfort given we are seeing what appears to be a bit of an uptick in the underlying freight market? Shawn Stewart: Hi, Stephanie, it is Shawn. We feel really strong about pricing. We had the hiccups in a prior period, and I feel strongly that we are extremely solid in all of our revenue streams, whether it be in the global freight forwarding market, the ground LTL business, or in truckload. I am extremely confident in what we are doing both on a cost management basis and on a revenue generation basis. And as you can see, the consistency in our margins and profitability is proof that we learned a lot and have continued to enhance our sales from there going forward. Jamie G. Pierson: If I can jump in. If you look at the spot rate over the last six months, it is up about 40% since late last year. Tender rejections are up almost 2x, so up 100%. Inventory-to-sales ratios continue to lean out. PMIs have been positive for four months in a row. I think the macro indicators are pointing in our direction. My experience in this space is it generally takes three to six months for it to really take effect, and we are coming into that third to sixth month now. We are not pricing for yield, and we are not pricing for volume. We are pricing for profitability. Scott Group: Hey, thanks. Good afternoon, guys. Just to follow up on the business trends. Tonnage was down about 2% and yields ex-fuel down about 1%. What are you seeing as the quarter progresses so far in Q2? Are things accelerating? I know you said you feel good about price, but yield ex-fuel down a little bit—just a little more color would be great. Thank you. And then, Jamie, I want to clarify that you said the business that you are selling is $390 million of revenue. That is intermodal plus the two smaller Omni businesses, right? What are the two smaller Omni businesses? Any sense of profitability there? And then your intermodal business—are there containers here, or is it all asset-light? What exactly is your intermodal business? I do not think it is like a J.B. Hunt intermodal business, but maybe I am wrong. And do you own trucks, or do you have owner-operators? Lastly, with this customer loss, I know the leverage thresholds as the year plays out start to get a little bit harder. Maybe this customer is more 2027, but any conversations with the lending group at all? How should we be thinking about this? Shawn Stewart: Hey, Scott. I am going to let Jamie go because I know he wants to say he is not going to give you guidance, but great question. Let us see if he is nicer today. Jamie G. Pierson: At the risk of not giving guidance, I would say over the last two weeks of the quarter and going into April, we have seen a fairly strong volume environment from our perspective. I do not want to preordain that the recovery is here. I stick by what I said about the spot, the tender, the inventory-to-sales ratio, and the PMI—there is a lag. But I would say the last couple of weeks of the quarter and going into April, we have seen a fairly strong volume environment. On the asset sales, that is exactly right—about $390 million of revenue across intermodal plus the two smaller legacy Omni businesses. I am not going to disclose which those two are; there is confidentiality with buyers. You can see the $390 million, with roughly $230 million intermodal, so you are talking about approximately $160 million that is remaining for the two Omni businesses; it is not that much. On intermodal, it is mainly port and railhead drayage with what we call C/Y or container yard management—storage of containers on chassis—and mainly port and railhead drayage to final customers. We utilize owner-operators and we have owned and leased chassis. On leverage and the lending group, it is the right question. We ended the quarter with $40 million in cushion. This is a small step down from where we ended the year, but we ended the quarter with the highest cash balance we have had in two years and over $400 million in liquidity. If you look at liquidity as a percent of total assets or liquidity as a percent of LTM total revenue, we are at the upper echelon of that spectrum of our publicly traded peers. So $40 million in cushion is a position I can live in, and $400 million-plus in liquidity is a very good place to be. Harrison Bauer: Hey, thanks for taking my question. One quick follow-up on the Omni businesses that you are selling—about $160 million. Is there any crossover of the potential lost business of the $250 million? And then taking a step back—general competitive dynamics. With the announcement of Amazon Supply Chain Services this week, is there any relation to that and the loss of this business at all? Are there other areas of your business that are potentially exposed to what Amazon is trying to lay out and some aggressive pricing actions they may take? Lastly, in the remaining Omni business and in Expedited LTL, now that you have a handful of capacity that you may need to backfill, how are you thinking about pricing for that going forward—the trade-off of volume and price? Jamie G. Pierson: Not that I can think of, Harrison. If there is any crossover, it is certainly not material. Shawn Stewart: I will take the Amazon question. There is no correlation between Amazon and our customer. The news of Amazon is fairly new, but we know them extremely well over the years. We are not surprised by their announcement, but we also need to let things evolve a bit and see where it goes. Ultimately, we are not particularly susceptible to this announcement by our volumes, etc. We respect what they are doing and respect Amazon a lot. We will keep an eye on it and not be naive, but we are not overly concerned today as we sit here about the impact to us from this announcement. On pricing and backfilling, we are not going to get into any kind of desperate situation. We have a great organization, great solutions, and a fantastic product, and we will continue to price aggressively but with profitability in mind. We will get strategic where it makes sense in a given customer or a given origin-destination pair, but not at the detriment of the company and our overall margin. You have seen us pick up new logos and new business, and we will continue with that mantra. We are not going to overreact—we will stick to what we do well and move forward with replacing any potential loss in different areas as we see fit. Christopher Glen Kuhn: Hey, guys. Good afternoon. Thanks for the question. I just wanted to clarify. So that customer loss is $250 million—that is the total amount of the customer's business with you, and you may or may not lose all of it. You are in negotiations for that right now. Is that the case? And if you do lose some of this, would that change the margin profile—within the Omni business—or is it relatively similar to where your EBITDA margins are? And is the negotiation on price? Because the service seems pretty solid there. What would be the issue aside from just diversification? Lastly, if you lost any of it, is there a way to backfill it with another customer? Is there a plan for that? Shawn Stewart: It is a total 2025 revenue of $250 million. We are giving you a holistic view of what the revenue is. That does not, by any means, state that we are losing $250 million. That was the total spend in 2025. Jamie G. Pierson: It will be less than that. Shawn Stewart: On the nature of the discussion, it is diversification. You have to think about what we do for some of our customers—we handle an incredible amount of their supply chain. It is wise from a risk management perspective for them not to put too much of a percentage in any one particular supplier’s hands. Throughout the years, we have grown with them and provided that level of service. In our opinion, it is simply a diversification play, and that is understandable. Jamie G. Pierson: We do not talk about margins on any one particular customer. We will see how this shakes out here in the near future. The takeaway is threefold. One, the conversations have been both active and constructive. Two, we see no impact occurring in 2026 given the complexity of what we do for our customers. And three, the discussions have been fairly positive to date, and we will continue them. Shawn Stewart: On backfilling, that is the plan every day, whether we are losing customers or seeing down-trading customers. Growth is the number one strategy of our combined organization. It has been a tough market, but at the same time, you have seen us be very sustainable over the last two years. We need this market to turn, but we are not changing anything because of this announcement. We may just run a little faster, with an already sprinting organization. Jamie G. Pierson: The only thing I would add, Chris, is that, as best as I can tell going back and looking at history, we are a fairly high-beta performer. We do better in times of volatility and especially when capacity gets tight. We all do well when capacity gets tight; we seem to do better than our peers when that occurs. That is certainly part of the plan. Christopher Glen Kuhn: You have talked about this in the past, but have you seen any truckload-to-LTL conversions in your business? Shawn Stewart: We have heard “yes” because of rising truckload rates, and I do not want to get too far ahead of ourselves—back to Scott’s question, we are seeing volumes—so it could be, but we do not have enough information to say that definitively. As you have probably been watching in the true domestic intermodal market, you are seeing a lot of diversions from over-the-road onto the domestic intermodal. You are also seeing, slowly, an influx of the ocean containers coming back in. There is going to be a point of inflection where a lot of things are going to shift as the demand comes through. It could be the early stages, but do not quote me on that; we are watching it. We have heard from certain customers that the transition is starting because of the overall price of truckload. Operator: At this time, there are no further questions in queue. Let me turn it over to Mr. Stewart for any final remarks. Shawn Stewart: Thank you so much for your time, attention, and interest in our organization. In closing, in recent quarters, we have navigated a challenging environment with discipline and focus while taking actions to strengthen our company and our overall business. We are extremely confident in the foundation we are building and the steps we are taking to improve our performance. We really appreciate your time today. As usual, if you have any follow-up questions, please reach out to Tony directly. Thank you. Operator: This concludes Forward Air Corporation's first quarter 2026 earnings conference call. Please disconnect your line at this time and have a wonderful evening.
Operator: Welcome to the Evolent Earnings Conference Call for the First Quarter ended March 31, 2026. As a reminder, this conference call is being recorded. Your hosts for the call today from Evolent are Seth Blackley, Chief Executive Officer; and Mario Ramos, Chief Financial Officer. This call will be archived and available later this evening and for the next week via the webcast on the company's website in the section titled Investor Relations. This conference call will contain forward-looking statements under the U.S. federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in our current and periodic filings. For additional information on the company's results and outlook, please refer to our third quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available in the Investor Relations section of our website or in the company's press release issued today and posted on the Investor Relations website, ir.evolent.com, and the Form 8-K filed by the company with the SEC earlier today. In addition to reconciliations, we provide details on the numbers and operating metrics for the quarter in both our press release and supplemental investor presentation. And now I will turn the call over to Evolent's CEO, Seth Blackley. Please go ahead. Seth Blackley: Good morning, and thank you for joining us. Today, Evolent reported strong first quarter results that were in line with our expectations. Our performance reflects the continued focus and discipline with which we are executing the plan we laid out to you on our call in February. For the quarter, Evolent reported total revenue of $496 million, representing 9% sequential growth versus Q4 2025, excluding the divestiture of Evolent Care Partners or ECP, and adjusted EBITDA of $22 million, consistent with our expectations and the outlook we provided in February. Our medical expense ratio or MER for Q1 2026 was 93%, improving 150 basis points versus Q4 2025, excluding ECP. This performance, we believe, underscores our disciplined execution and our belief in the growing importance and demand for Evolent solutions in the marketplace. Looking ahead to the full year, we feel confident in our ability to continue delivering against our outlook and priorities. Accordingly, we are reiterating our 2026 revenue guidance range of $2.4 billion to $2.6 billion as well as our adjusted EBITDA guidance range of $110 million to $140 million and estimated MER will be approximately 93% for the full year. Mario will walk you through our financial results in more detail in a few moments, but I first want to touch on several key business highlights. Starting with our new Performance Suite launches, we had a successful launch with Aetna on January 1, supported by strong collaboration with the Aetna team. While it remains early, initial indicators are encouraging with our clinical intervention and provider engagement metrics above our internal targets for Q1. We will have greater visibility into the performance over the course of the year, but we're happy with the start. We're also pleased to have launched with Highmark on May 1. We have had great collaboration with the Highmark team on the launch, and I will be excited to give you a broader update on Highmark in the coming quarters. Our pipeline for new business remains strong as we continue to see demand for our products, specifically in oncology. While the market has seen some positive developments this quarter, overall medical trend remains elevated for our plan partners and oncology, in particular, continues to be one of the most challenging categories for health plans to manage as they seek to balance quality outcomes with affordability. We believe Evolent is recognized as a leader in helping health plans manage both quality and cost for cancer care. Our recent wins with marquee plans like Highmark and Aetna as well as our renewal rates with existing partners point to our market position today. At the core of our work in oncology are 2 simple principles: first and foremost, ensuring patients receive the very best care; and second, the cost of that care is thoughtfully managed. I often share with our partners that if I had a family member diagnosed with cancer, I'd absolutely want the Evolent clinical team to review the case. The clinical reality is that according to certain studies, up to 30% or more of cancer cases involve either an incorrect diagnosis or a suboptimal treatment plan prior to any second review, which is somewhat understandable when you consider, for example, that there are up to 32 different approvable regimens for a typical advanced metastatic non-small cell lung cancer case. While some of this gap can be addressed through traditional utilization management, we believe to more fully close the gap, treating oncologists need to have ready access to the very latest evidence and data as well as the right financial incentives to select the best care plan for my family member or yours. Further, pairing our traditional oncology solution with consumer-facing solutions like our member navigation platform are critical to fully close the gap. And of course, we believe we've been able to show that when we help oncologists and patients pick the right care plan the first time, costs on average come down, a win-win for the patient and the system. As a result of all these dynamics, we're increasingly seeing interest in our solution, and we're addressing this market demand with both our technology and services solution and with our enhanced Performance Suite solution, which has narrow corridors and the protections we've shared with you on the last earnings calls. Enhanced Performance Suite structure allows us to reduce some of our direct risk exposure while still offering guarantees to our clients. We believe this shift creates a more sustainable, attractive operating model for our clients, Evolent and our shareholders. In terms of new announcements, we have 2 new contracts to announce today. First, an existing Performance Suite client has signed a contract for our advanced imaging solution for 4.5 million lives across commercial, Medicaid and Medicare Advantage. We expect this contract to go live in Q3, subject to state regulatory approvals in certain states, and we view this agreement as further validation of our ability to cross-sell solutions into our existing client base. More broadly, we believe this new contract validates the nation's leading payers are looking for a trusted partner, not just for our leading solution in oncology, but that there is value in having our company provide our services and technology for multiple integrated solutions. Imaging, in particular, benefits from product integration given the importance of diagnostics for oncology, cardiology and musculoskeletal specialties. And second, in the Performance Suite, one of our national payer clients is expanding their existing oncology and cardiology solution in several new markets across commercial and Medicare Advantage. This expansion is expected to generate over $200 million of annual revenue and slated to go live in Q3, subject to regulatory approvals in certain states. We believe this new win is strategically important, reflecting growing client confidence in our platform and our ability to scale existing solutions across new populations. Similar to our other new Performance Suite launches, this oncology and cardiology expansion will run at higher MERs initially due to reserve building. We had already incorporated this new expansion into our full year MER expectation, so this announcement does not change our outlook. With respect to our update on the exchange impact, we've seen declines in exchange membership in the Performance Suite as clients saw reduced membership in select markets as previously communicated over the last few quarters. On the specialty D&S side of the business, early indicators are that the exchange membership decline may be slightly lower than the 40% we had assumed, but the data is still coming in, and we expect better clarity around this by the end of Q2. For now, our guidance for the full year continues to take a cautious approach and assumes the 40% decline we referenced previously. Turning to our continued efforts around AI and automation. We recently added a number of strong technology and data science players to our team, including naming Archie Mayani as our Chief Product Officer. Archie brings deep expertise scaling technology-enabled health care platforms and her leadership further strengthens our ability to execute against our product and automation road map. We continue to test automation initiatives while preserving and in many cases, enhancing the value we deliver to our customers and patients. Our ability to automatically approve authorizations through the use of technology and AI continues to expand and remains central to our goal of auto improving approximately 80% of authorization volume with the goal of making the process easier for providers and patients while driving down our internal operating costs. Deployment of new AI models is accelerated, particularly within our imaging solution. Our initial rollouts have shown auto approval increases in the high teens on cases evaluated by these models and in some cases, up to 30%, all with minimal clinical value loss for our customers. Finally, touching on our capital structure. We ended the quarter with unrestricted cash of $142 million and net debt of $792 million. With no debt maturities until 2029, we continue to believe that we have the balance sheet strength to support near-term execution while maintaining a clear and credible path to deleveraging over the long term. To conclude, Evolent is off to a solid start in 2026. Our disciplined execution in Q1, expanding Performance Suite footprint and strong early momentum gives us confidence in our full year outlook. Stepping back from the quarter and 2026, we believe there is a large long-term opportunity for Evolent that is supported by 2 major super cycles. First, despite the strength of our product and the opportunity to reduce variability in care and oncology care, Evolent today only manages approximately 10% of the oncology market. We believe this is due to 2 factors. One, we've only been accelerating our work in this area across the last 5 years. And two, we believe that approximately half of the market is still in-sourced by health plans. As costs and complexities to treat cancer diagnoses have continued to accelerate over the last 5 years, more plans are making the decision to outsource oncology management and upgrade to a more sophisticated partner like Evolent. We believe this will further accelerate over the coming decade as the oncology drug pipeline continues to grow and complexity increases. As such, we expect to be able to meaningfully increase our market share, which in turn should provide a long-term growth opportunity for Evolent. The second super cycle is the massive opportunity that AI can provide in automating specialty reviews. I covered this topic earlier, so I'll just add that our specialties outside of oncology care are especially well suited to automation, and we're investing to be a market leader in the innovations necessary to reach the 80% automation threshold goal I referenced earlier. Taken together, we believe these 2 super cycles should help Evolent continue to meet our near-term commitments and expect them to fuel our long-term success. With that, let me turn it over to Mario to dive into the quarter. Mario Ramos: Thank you, Seth, and good morning, everyone. We delivered solid first quarter financial results that were in line with our expectations and consistent with the outlook we discussed on the Q4 call in February. Total revenue was $496 million, representing 9% growth versus Q4 2025, excluding ECP. In addition, adjusted EBITDA for the quarter was $22 million. Performance Suite revenue was $323 million, up 26% sequentially versus Q4 2025, excluding ECP, driven primarily by membership from our new Performance Suite launches, partially offset by exchange membership declines in select markets and market exits from clients rationalizing underperforming markets. Specialty Tech and Services revenue totaled $81 million, a decrease of 16% sequentially. The lower revenue reflects not only actual exchange membership declines, but also includes our estimate of the revenue impact from additional disenrollment following the grace period expiration. We have contractual provisions with our specialty T&S clients that require us to return funds after members disenroll. Taken together, this total impact is in line with the 40% membership decline we have previously discussed. We expect to have better visibility into exchange membership by the end of Q2. The impact of exchange membership declines was partially offset by growth in Medicare Advantage membership and the launch of a new specialty for an existing client. Administrative services and cases revenue was $92 million, down 11% quarter-over-quarter, reflecting the expected termination of an administrative services client at the end of last year. This decline was partially offset by better-than-expected membership growth from existing clients in the first quarter. Our medical expense ratio or MER for Q1 was 93%, improving approximately 150 basis points versus Q4 2025, excluding ECP. As a reminder, Q4 2025 MER was temporarily elevated due to out-of-period true-ups as we recognized a full year of savings shared with clients. Excluding this impact, we saw sequential improvement even though Q1 trend ran above expectations due to higher-than-anticipated prevalence in oncology in a few markets. These markets are almost exclusively exchange markets that experienced membership declines and acuity shifts. We expect the negative impact on our MER from higher prevalence will be retroactively addressed later in the year based on our contractual protections. This cost pressure was partially offset by net favorable prior year development in Q1. Adjusted cost of revenue, excluding medical claims, but including medical device costs and adjusted SG&A totaled $173 million for the quarter. The variance versus our expectation was driven primarily by elevated exchange member servicing costs within Specialty T&S. This is because we are required to continue servicing members during the grace period even if they ultimately disenroll. This impact was partially offset by efficiency gains in our shared services organization and lower-than-budgeted vendor spend. We believe this exchange-related cost pressure to be temporary and to normalize as we see expected disenrollment in late Q2. We ended Q1 with $142 million in unrestricted cash and $792 million of net debt. Cash decreased modestly from our Q4 balance, reflecting roughly $1 million of cash used in operating activities and $6 million of capital expenditures during the quarter. Operating cash flow includes the settlement of a onetime $15.5 million client overpayment that we highlighted in February's earnings call. It also includes approximately $20 million of pass-through PBM proceeds that were received in Q1 with the corresponding payment occurring at the beginning of Q2. Excluding both the onetime client overpayment and the pass-through timing benefit, normalized operating cash flow for the quarter would have been approximately negative $6 million, which was in line with expectations. Turning to full year 2026 guidance, as Seth noted, we remain confident in our ability to deliver on our 2026 plan. However, given we're only days into the Highmark launch and do not yet have certainty around the ultimate exchange disenrollment impact, we are reiterating our 2026 guidance, revenue range of $2.4 billion to $2.6 billion and adjusted EBITDA range of $110 million to $140 million. We continue to expect MER for the full year to be approximately 93%. In the Performance Suite, our revenue guidance assumes the continued ramp of our new launches, offset by the membership declines we experienced in Q1 from exchange membership and market exits. In Specialty P&S, our revenue guidance assumes the approximately 40% decline in exchange membership we referenced earlier. As noted, the impact of both the actual and the expected incremental disenrollment required to reach the 40% decline is reflected in Q1 revenue. We should have better visibility into the final outcome of this dynamic by the end of Q2. On MER, we continue to expect MER to increase throughout the year and peak in Q3 as we see the full impact of the Highmark launch. As discussed, this reflects elevated reserves consistent with a new contract combined with normal seasonality. From there, we expect MER to improve steadily through year-end as the impact of our clinical programs and favorable contractual true-ups flow through in the second half of the year. Finally, on the quarterly adjusted EBITDA cadence, we believe Q2 will be in line with Q1 due to typical seasonality with a $10 million to $15 million sequential improvement per quarter in both Q3 and Q4. A few additional items related to our full year outlook. We continue to expect adjusted cost of revenue, excluding medical claims, but including medical device costs plus adjusted SG&A of approximately $675 million for the year. The elevated Q1 cost pressure related to exchange volumes is expected to moderate, and our efficiency initiatives are tracking on plan. We continue to expect cash flow from operations of $10 million to $20 million for the year after approximately $60 million of annual cash interest expense. We continue to also expect $25 million to $30 million in software development and capital expenditures for 2026. To wrap up, we are pleased with our first quarter execution and the underlying trends we're seeing across the business. While we're still in the early stages of the Highmark ramp and continue to monitor exchange dynamics, our Q1 performance reinforces our confidence in the plan we laid out and our ability to deliver on our full year priorities. We are reiterating our 2026 guidance and remain focused on disciplined execution, operating efficiency and delivering value for our clients and shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question will come from John Stansel with JPMorgan. John Stansel: Maybe a bigger picture one here. I think we've heard commentary in the space around not just relaxation of prior authorizations, but standardization across payers and prior authorizations. I guess as we think about the longer-term outlook and how payers are approaching complex care and prior authorizations in general, how are you thinking about that kind of compare and contrast the near-term demand that you see with a robust pipeline and some of those changes that may come down the pipe? Seth Blackley: Yes. Great, John, thank you for that question. I'd make, I guess, 3 comments on that. Number one, we're big fans of the standardization that's happening. I think it's the right answer for patients and for physicians and it's very consistent with what you heard us doing with the application of AI to improve as much as possible. So that's kind of point one. I think point two, I think it's important for you guys to have the framing around sort of Evolent is a bit of a tale of 2 cities, meaning vast majority of Evolent's growth is coming in oncology, but about 95% of Evolent's approval volume, like the factory that we have to go through to do the work is not oncology. It's all of our other specialties because there's so much volume in things like imaging or cardiology, right? So -- and I think oncology, in particular, right, is so much more complex. It's going to be harder to standardize. That example of 32 approvable regimens, the pace of scientific innovation, there's 300 journal articles a month getting published in oncology. So I think the 95-5 rule of the 95 or whatever the example is for the entire industry being as automated as possible, fantastic. Good for everybody, good for us, good for our cost, good for patients, everybody. I think the 5 in our example that is the oncology is where our growth is coming from, where you need such deep clinical expertise and where you're going to need a little bit more of a human touch to help manage this because it's not -- in most cases, these things are not something that is subject to UM. A lot of these interventions we're making are about nudges or incentives or a conversation with the treating oncologists. And then the third thing is just to reiterate it because I think the industry needs this narrative. AI is amazing for doing the automation. We and nobody is ever going to be using AI to provide an adverse determination or a suggestion for a different plan. That's where a human has to come in. Operator: Our next question comes from Charles Rhyee with TD Cowen. Lucas Romanski: This is Lucas on for Charles. Congrats on a good quarter. Your guys' 1Q MER ratio was better than our estimate. Can you talk about what you saw in the quarter from an oncology and cardiology perspective? And then also, did you guys see any benefit in the quarter related to heavy weather storms in January and February? Mario Ramos: Great question. On oncology and cardiology, I think we're pretty much where we thought we would be very close. The exception is a couple of markets where we had higher prevalence because membership dropped a bit, as I had in my comments, membership dropped a little bit. And as a result, acuity was a bit higher than expected. But again, as we've been talking about for the last few quarters, that's exactly the type of contractual protection that we have. So the good news is even though we absorbed a little bit of higher MER in those couple of markets, we expect to make up for that via these contractual protections later in the year. Seth Blackley: Yes. And then on the weather thing, I do not think that's material for us. I mean people for elective things, I think it's more material for things like oncology treatment, people tend to figure out a way to get there and get it done. Operator: Our next question comes from Jared Haase with William Blair. Jared Haase: Seth, I think you talked a little bit about the early indicators being good with the launch with Aetna. And I think you mentioned some of the metrics around clinical intervention and provider engagement are maybe tracking above expectations. And I just wanted to double-click on that. I'm curious if there's anything unique to that partner specifically or just perhaps it's an indicator that just as you sign more and more of these deals over the years, you're just getting more efficient with launches. And I wonder if you could then extrapolate that into maybe a faster margin ramp with some of these new Performance Suite engagements. Seth Blackley: Yes. Thank you for the question. Yes. Look, I think the metric we really look at is this clinical intervention rate, which think of that as how often are we engaging successfully around our pathways, right? And that should be the leading indicator of the value that we create. I do think it's largely attributable to the teams doing a great job, and that's the Aetna team and the Evolent team together. A lot of credit to Dan and our team for the work we're doing to execute on our clinical team. And so I do think it's about execution. As to whether that then translates into a faster margin ramp, I don't think we're ready to go there yet, but I do feel like the operations Human team is doing a great job. Operator: Our next question comes from Kevin Caliendo with UBS. Kevin Caliendo: I've got 2. In terms of the 2 new contracts, I appreciate that, and congrats on each. How should we think about the potential earnings contribution ramp from those? Just given there's a sort of new diligence around reserving for these and the likes, there used to be a fact pattern around how to think about the profitability ramp as the new contract came on board over 1, 2, 3 years. I'm just wondering if those ramps, and I understand the 2 contracts aren't the same, but how to think about the contribution expectations from each? And then the second one is just to follow up on the prior auth questions. Did anything change in 1Q? Are there any different behaviors happening in the beginning of 2026 versus what was happening in 2025? Is there a movement to more biosimilars? Or are you seeing anything in the marketplace? Are you guys doing anything different that could be affecting trends and particularly in oncology? Seth Blackley: Great. Mario, I will start with the build, and then I'll come back to around your... Mario Ramos: Kevin. No change to what we've discussed in the past. There is a ramp to ability, which one of the contracts is a risk contract. So it does impact the short term. Nothing that we haven't accounted for in our guidance and our commentary. But again, I think it just creates more potential for next year as we ramp up profitability. The other contract, it's -- there is a gain share component. So there's a little bit of an impact also in the beginning. But again, nothing different than what we've accounted for and discussed with you guys for the year. So basically, no news in that regard. We still are working through different types of structures actually going forward. We may be able to make some changes and tweaks where we can improve the ramp-up. But for now, it's what we have discussed with you guys in the past. Do you want to address? Seth Blackley: Yes. Yes. Look, on the your question on is anything new this quarter versus a year ago. Look, I'll reiterate what I said earlier. It is a bit of a tale of 2 cities where in the categories of specialties that are standardizable, simpler, more rote, we're all moving aggressively to doing as much as we can using technology to quickly authorize and automate that work, which, again, I think if I'm a patient, to my family member, it is exactly what I want. I want it simple, I want it fast, I want it done. It's good for the patient. It's good for the doctor. It's good for the health plan. It's good for Evolent's cost structure if we're able to do that, right? So that's new and different across the last years ramping, and we're really supportive of it and trying to lead in that area. In oncology, which I think was maybe even more of your question, I think there, it really is exactly what it's been now for 5 years, and I think it's going to be for the next 5 or 10, which is incredible pace of innovation. Even as some things may go biosimilar, KEYTRUDA is going to go biosimilar in a couple of years. There's some cutaneous version. There are new applications. There's gene therapy, there's cell therapy. I think if you go do your market checks, call 10 payers and ask them what their #1 cost issue is, it's going to be Part B drugs, particularly in oncology. And I think that is going to continue to be the case for a long time. These are things that are going to be harder to standardize. They're approvable, right, which this is not a UM thing. This is about using evidence and incentives and scorecarding to get to the right answer, and that's really what we do. Operator: Our next question comes from Jessica Tassan with Piper Sandler. Jessica Tassan: Apologies if you've been through this already. But I guess just any perspective on kind of the competitive landscape given Cigna's decision to pursue strategic alternatives on eviCore? Just any thoughts on why a large competitor might want to get out of the market and how that might impact the competitive landscape? And then I guess -- again, I apologize if you've been through this, but just can you elaborate a little bit on the elevated oncology trend you're seeing? Like is that exclusively in exchange? And then can you comment just a little bit on trends within Medicare relative to your expectations? Seth Blackley: Yes. James, on your first question, obviously, we wouldn't comment on any specific situation, but I do think -- I'll say 2 things. One, I think there is a major long-term trend that is happening, and I talked about it earlier, where I think generally, the plans are going to want to look to third-party specialists to do a lot of this work. And I think the third-party part of that is important, like some separation, right? But the specialist part is probably even more important, which is the level of sophistication required to do this kind of work, whether it's the clinical sophistication or the AI sophistication, I think, is where the industry is headed generically. So I think that's number one. And number two, I'll just say generally Evolent, this is what we do. And I think we're here to be a long-term part of the answer for the industry to help solve this problem to balance how do you manage good things for patients and providers and the best quality, first and foremost, but also help moderate the cost pressure, which will translate into rates for consumers and everything else. So I think we view these types of things as positive and in generally, the direction of travel over the next kind of 5 to 10 years. Mario Ramos: Yes. And on the trend, Jess, as I said, the only elevated sort of trend that we've seen has been isolated to a couple of markets where we saw membership drops and acuity went up significantly. So it did not appear to be from utilization or any other factor other than prevalence. So other than that, I think things -- the trend has been as expected, fairly stable. And just to reiterate, that prevalence in those couple of markets are -- is exactly the type of protection that we have in our contracts going forward. Operator: Our next question comes from Jeff Garro with Stephens. Sahil Veeramoney: It's Sahil on for Jeff. I wanted to follow up on the new business wins, specifically the new advanced imaging contract with the existing Performance Suite client. I think historically, you've described imaging as the entry point that drives cross-sell Performance Suite. I think it's like novel to see sort of the reverse direction this quarter with the PS client adding imaging. So anything to call out on what this client did or saw in consolidating on to more of your unified platform? And is there any sort of recent innovation in the imaging suite that could potentially reinvigorate it as stand-alone growth going forward? Seth Blackley: Yes. I think a thoughtful question. I think you're right. It's a first for us. Look, I think that it highlights a couple of things that you're pointing out. I think one is that if I'm a health plan and I'm trying to manage my cost and quality and patient experience, I've got today dozens and dozens and dozens of partners. And I'd rather have fewer partners to do this kind of work rather than more niche partners. So integration is generally good. I think imaging in particular, usually when you're doing a scan, it's of a tumor or of a bone or of a heart and therefore, our ability to integrate across those things is valuable. That is a little bit new. We're going to be doing more and more and more in that area over time. And so I think that component is also benefits from the work we're doing. So we're really excited about this partnership. I hope to see more of these, and it's a good step for us. Operator: Our next question comes from Matthew Gillmore with KeyBanc. Zachary Haggerty: This is Zach on for Matt. So looking at the reserve to claims table in the slide deck, it looks like there was a favorable revenue true-up of $12 million. Can you remind us what causes the revenue true-ups and give us some context for the $12 million that was booked in the quarter? Mario Ramos: Yes. The revenue true-up is actually -- it brings revenue down. So it's unfavorable. It kind of nets out with the claims favorability. And there are a number of factors, but typically when we reserve at the end of the year. We're obviously making estimates on both the revenue side and the claims side because we don't actually have claims information. So everybody typically focuses on IBNR on the claims. But from time to time, if claims come in lower than we expected in some markets, we actually have a downward revision to the revenue side, and that's what's causing it in the quarter. Operator: Our next question comes from David Larsen with BTIG. David Larsen: Can you just talk about the actual revenue in the quarter and your expectations for the remainder of the year? I mean revenue came in well below our expectations. I'll take the EBITDA beat any time. So I like the higher quality revenue, but revenue was low relative to our expectations and you reaffirmed the full year guide. I think that calls for about 30% year-over-year revenue growth. Just color there, like maybe by division or by plan would be very helpful. Mario Ramos: Sure. I think it's a spread issue. Obviously, we spent a lot of time trying to explain what our EBITDA ramp was. It's a little harder with revenue because of all the launches, in particular, the very big Highmark launch, which is why we're not moving off of our revenue guidance for the year. I think last time, we had talked about the fact that Aetna as they were exiting some markets, our expectation was the membership was going to be a little bit lower than what we had talked about before. That has actually been the case. So that pushed down the first quarter revenue. But we also talked about the fact that Highmark had been coming in higher from a membership expectation than what we expected. So that's exactly how it's playing out. That plus these couple of very, frankly, attractive and big deals that we now are able to announce, which we really couldn't get into prior caused a little bit of a challenge in walking everybody through what the revenue progression was for the year. But I think the takeaway is even though the headline number might be a little lower than what consensus were, it really -- nothing has changed. If anything, we feel even more confident about the rest of the year. As I said, we're not ready to make any changes to the guidance just because of the very meaningful impacts that we're going to see over the next 2 months, High Mark and the exchange disenrollment. But I would just say that there's a little bit of timing in the first quarter that was really a lot harder to model. But hopefully, it's clearer now where we're going for the rest of the year. Operator: Our next question comes from Jailendra Singh with Truist Securities. Eduardo Ron: This is Eduardo on for Jailendra. You touched on the prior period revenue portion, but can you speak to the $23 million favorable PYD in the quarter? Was that focused on oncology or cardiology parts of the business? And I guess, how much of that, I guess, relative to the revenue adjustment flow through to EBITDA in the quarter? Mario Ramos: Yes. So you got to net out the revenue and the claims PYD. So on a net basis, it was a little bit higher than a $10 million favorable impact for the quarter. That's a little higher than the same quarter last year. But for the year, we're not expecting that number to change significantly, and it's very consistent with the prior year, 2025 in particular. On the claims side, the PYD was roughly split a little bit higher on oncology than in cardiology. Again, some very specific markets where as we saw claims run out coming in, they were a little bit better than what we had anticipated and had reserved for. But very consistent with the commentary that we've given you guys over the last few quarters where either trend has been coming down and being stable or in select spots where trend has popped up, we've had contractual protections. And sometimes it's a little harder to determine exactly what the adjustment should be during the quarter. And that's a little bit of what you're seeing there as claims came in, we saw favorability and we're ready to adjust that in the first quarter. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Seth Blackley for any closing remarks. Seth Blackley: Thank you for the time this morning. We look forward to connecting over the next week or 2 with everybody. Thanks a lot. Mario Ramos: Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Blue Owl Capital Corporation's First Quarter 2026 Earnings Call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Mike Mosticchio, Head of BDC Investor Relations. Mike, please go ahead. Mike Mosticchio: Thank you, Operator, and welcome to Blue Owl Capital Corporation's first quarter 2026 earnings conference call. Joining me today are Craig Packer, Chief Executive Officer, Logan Nicholson, President, and Jonathan Lamm, Chief Financial Officer. I would like to remind listeners that remarks made during today's call may contain forward-looking statements which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in OBDC's filings with the SEC. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we will refer to non-GAAP measures on the call which are reconciled to GAAP figures in our earnings presentation available on the Events and Presentations section of our website. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information. Yesterday, OBDC issued its financial results for the quarter ended 03/31/2026, reporting adjusted net investment income of $0.31 per share and net asset value per share of $14.41. All materials referenced during today's call, including the earnings press release, earnings presentation and 10-Q, are available on the News and Events section of OBDC's website. With that, I will turn the call over to Craig. Craig Packer: Thanks, Mike, and good morning, everyone. Thanks for joining us. I would like to start by highlighting that our credit performance remains strong, with no new non-accruals, stable borrower performance, and underlying performance in line with recent quarters, and we continue to feel confident in the underlying credit quality of our portfolio. I would also like to acknowledge that the first quarter was a more challenging environment for OBDC from an earnings perspective. Lower base rates and tighter market spreads weighed on our results, reflecting headwinds that have been building over the last year and were fully realized this quarter. Given the market uncertainty this quarter, the deal environment was also slower, which led to minimal fee and repayment income, which was at a three-year low. In addition, we operated with lower leverage and preserved capital, which has positioned us well for the more attractive opportunity set we are starting to see. As we have highlighted on recent earnings calls, our dividend has been a key focus as we have watched these dynamics unfold, and we believe this is the right moment to address our dividend. As a reminder, when we went public in 2019, we set our dividend at $0.31 per share and maintained it there for more than three years while rates were low. When rates began to rise in 2022, we increased the dividend to reflect the higher earnings power of the portfolio and introduced the supplemental dividend framework in an effort to provide shareholders with a predictable base dividend while distributing excess income above that level. Similar to what a number of our peers have recently done, we are reducing the base dividend for the second quarter back to $0.31 per share, representing an approximate 8.6% yield on net asset value and an over 10% yield at the current share price. We believe this is the appropriate level given the forward earnings power of the portfolio, particularly with spreads now widening and the rate environment appearing more stable. At the same time, we are maintaining the supplemental dividend framework. As a reminder, under this framework, we pay out 50% of NII above our base dividend, allowing shareholders to benefit in a predictable manner when earnings exceed the base dividend. Separately, spread widening across the credit markets drove unrealized losses this quarter, resulting in a net asset value decline. Because our portfolio is marked quarterly, and spreads are a key valuation input, this drop in NAV was mostly driven by broader market moves across public and private credit, and not a deterioration in the underlying quality of our assets, which remains strong. Approximately 75% of the write-down was attributable to spread widening across our debt portfolio. Now, as a key point I want to emphasize, while this quarter reflected a more challenging earnings environment, the underlying portfolio continues to perform very well. Credit selection and portfolio construction are the parts of the business we can control most directly and that continue to be a source of OBDC's strength. Non-accruals remain low and declined again this quarter. Borrower revenue and EBITDA growth remained healthy. And repayment activity at par has been consistent. In the first quarter, we saw a market-wide reassessment of risk and a reduction in flows into private credit, which has resulted in a much better balance of supply and demand and a more favorable investing environment. We will come back to our outlook at the end of the call, but we believe we are very well positioned from here given our lower leverage, the strength of the portfolio, and the more attractive spread environment we see today. I will now turn the call over to Logan to provide more details on our investment activity and portfolio performance. Logan Nicholson: Thanks, Craig. Starting with investment activity, we approached the environment more conservatively this quarter, which contributed to lighter origination activity and lower leverage at OBDC. As market volatility increased and deal activity slowed, we remained disciplined in our pace of deployment, and now we are encouraged to see opportunities coming to market at wider spreads. In the first quarter, OBDC had fundings of $525 million against almost $1.5 billion of repayments and sales, resulting in an ending net leverage of 1.13 times, our lowest level in two years. The majority of our deployment was related to fourth quarter transactions that closed in the first quarter, which were committed at spreads lower than what we are seeing in the market today. As noted, we intentionally kept leverage low and, with ample dry powder, we are well positioned to deploy as the pipeline builds. Consistent with our approach of investing in diversified, accretive assets, we continued to deploy selectively into our joint ventures and specialty finance investments in the first quarter. For example, within our life sciences specialty finance vehicle, LSI, OBDC increased its allocation primarily to support an investment in TG Therapeutics, a company we have backed since 2024 that continues to perform well. Blue Owl served as sole lender in a $1 billion financing to support the company's continued growth. The LSI vehicle has generated returns of more than 14% to OBDC since inception, underscoring the attractiveness of our specialty finance and JV investments. Turning to the portfolio, credit performance remained stable and our borrowers continue to perform well. As a reminder, OBDC is a broadly diversified portfolio across 30 industries, with an average position size of approximately 40 basis points, and our focus remains on lending to large, non-cyclical, defensive businesses. Our borrowers delivered year-over-year revenue and EBITDA growth in the high single digits, consistent with last year and a reflection of the fundamental health of the businesses we finance. Zooming in, our software borrowers also demonstrated revenue and EBITDA growth consistent with the rest of the portfolio. As a reminder, these are primarily first lien senior secured loans with conservative LTVs even at today's valuations. As you will recall, we invest in mission-critical, scaled enterprise software providers with characteristics that we believe make them durable. While we remain appropriately cautious about the potential impact of AI on some areas of software, we are not yet seeing any material impact on our software borrowers' performance. Additionally, we saw meaningful repayments from software names during the quarter, including Intelerad, which was an over $400 million investment across the Blue Owl platform, including $169 million in OBDC. Intelerad is a provider of medical imaging software solutions which was sold to GE Healthcare at a $2.3 billion valuation, resulting in a full repayment. This is another example of the quality and strategic value of the software businesses in our portfolio. As a result of this and one additional large repayment, software exposure declined to approximately 16% of the portfolio, down from roughly 19% last quarter. Turning to our key credit KPIs, the picture is healthy and stable in all respects. Interest coverage ratios remain healthy at approximately 2.0x. Revolver draws remain at conservative low levels. Amendment activity is stable, and our 3-to-5 rated names remain in the same range as last year. PIK income was also stable compared to last quarter on a dollar basis but rose slightly to 11.7% as a percentage of total investment income due to a decrease in cash interest as a result of lower rates. PIK remains down from the peak of over 13% in 2024. Also, as we have highlighted in previous earnings calls, over 85% of our PIK names were underwritten that way at inception, and we have never taken a principal loss on those intentionally structured PIK positions. Finally, our non-accrual rate declined to 1% at fair value as we removed two names from non-accrual with no new additions. Over the last few quarters, our non-accruals have remained relatively stable, with a three-year average of approximately 1% at fair value, and this quarter's decline is a good reminder that our borrowers are performing well and fundamental performance is stable. We would note that LTVs moved modestly higher this quarter, which we attribute to the broader valuation environment rather than a deterioration in borrower fundamentals. Our average LTV across the portfolio sits at 47%, implying that over half of enterprise value would need to be impaired before we incur any losses. To close, the breadth and resilience of our portfolio remain intact. With lower leverage, more dry powder, and the sourcing advantages of the Blue Owl platform, we believe we are well positioned to take advantage of opportunities that this environment may bring. Now, I will turn it over to Jonathan to review our financial results. Jonathan Lamm: Thank you, Logan. In the first quarter, OBDC earned adjusted NII of $0.31 per share. As Craig outlined, results this quarter reflected several earnings headwinds that have been building over time and came through more fully in Q1. Most notably, three rate cuts between last September and December totaling 75 basis points are now fully reflected in our results, given the lagged impact that lower rates have on our mostly floating rate portfolio. Non-recurring income was also light this quarter, coming in at more than $0.01 below our historical average after running above that level last quarter. In addition, the earnings benefit from the low-cost unsecured notes we issued before rates moved higher over four years ago continues to roll off as those maturities come due. Since last July, $1 billion of those notes have matured, with another $1 billion set to mature this year. These factors together with lower leverage throughout the period drove the decline in adjusted NII this quarter and are now mostly reflected in our current run-rate earnings. The Board declared a second quarter base dividend of $0.31, which we believe aligns with the portfolio's forward earnings power in the current environment. The dividend will be paid on 07/15/2026 to shareholders of record as of 06/30/2026. Our spillover income remains healthy at approximately $0.28 per share, providing a meaningful cushion that further supports the base dividend going forward. Moving to the balance sheet, our first quarter NAV per share was $14.41, down from $14.81 last quarter, primarily reflecting the impact of mark-to-market adjustments. We would note that the realized losses reflected on the income statement were related to investments previously on non-accrual that had already been written down over the past several years and did not contribute to the NAV decline this quarter. We continued to execute on our share repurchase program in the first quarter, buying back $35 million of stock, which was accretive to NAV per share by $0.02, while balancing that activity with a focus on deleveraging and maintaining capacity to deploy into a more attractive market environment. Over the past two quarters, we have repurchased a total of $183 million, reflecting our conviction in OBDC's long-term value. The Board of Directors also authorized a new $300 million share repurchase program in February, replacing the previous $200 million plan, leaving approximately $265 million remaining following first quarter activity. We ended the quarter with net leverage at 1.13 times, within our target range of 0.90x to 1.25x, as we decreased leverage to preserve flexibility. Turning to our capital structure, we continue to be active in further strengthening our balance sheet and enhancing our liquidity profile. In January, Moody's upgraded our credit rating to Baa2. Beyond serving as meaningful recognition of the quality of our platform, the consistency of our performance and the strength of our balance sheet, we believe this is a validation of our efforts to build a best-in-class BDC credit profile. Subsequent to quarter-end, we accessed the unsecured debt markets with a $400 million note offering, demonstrating OBDC's continued ability to raise capital amid broader market volatility. The strong institutional investor demand we received is a meaningful vote of market confidence in OBDC's credit profile. With this offering, our liquidity has increased to over $4 billion in total cash and capacity on our facilities, which comfortably exceeds our unfunded commitments and provides ample capacity to invest in the current environment while addressing upcoming debt maturities. Overall, we are pleased with the proactive steps taken this quarter to strengthen our balance sheet, and we believe OBDC is well positioned from a capital and liquidity standpoint. Now I will turn it over to Craig for some closing remarks. Craig Packer: Thanks, Jonathan. I want to close by reflecting on where we are today and our outlook. Over the past few years, private credit has benefited from a very constructive backdrop, but it also became increasingly competitive as significant amounts of capital entered the space at a time of moderate private equity M&A. That drove spreads tighter and, together with lower base rates, put pressure on returns and earnings across the sector, including at OBDC. That environment has begun to shift. Volatility in the broadly syndicated loan market has driven a meaningful widening in spreads, while the rate backdrop appears to be stabilizing. On the deals we are seeing today, spreads are generally about 50 to 75 basis points wider and terms are more attractive than they were just a few quarters ago. At the same time, retail capital inflows have slowed into private credit and the supply-demand balance for new deals looks more favorable than it has been in years. Put simply, we believe this is a more attractive investment environment than the one we have been operating in over the last two years, and we believe OBDC is well positioned to take advantage of it. Our portfolio is in good shape. Our balance sheet is strong, and our leverage is at its lowest level in two years. Repayments over the past year have contributed meaningfully to that positioning, giving us additional flexibility at a time when spreads are widening and the opportunity set is improving. Combined with our scale, incumbencies, and deep sponsor and borrower relationships, we believe we are well positioned to deploy selectively into attractive risk-adjusted opportunities as they emerge. While overall deal activity has been more modest in recent months, periods like this have historically created a more favorable setup for direct lenders. As the broadly syndicated loan market becomes more volatile, borrowers increasingly turn to established direct lenders for certainty of execution, and Blue Owl is well positioned to capture that demand. As borrowers adjust to new market realities, refinancings will resume, driving spread widening and fee income. And even if new deal flow stays moderate, we will naturally have the opportunity to put capital to work through regular activity from our existing portfolio, including add-ons and upsizings with borrowers we know well and have backed through multiple cycles. Lastly, this quarter also marks an important milestone for OBDC, as the fund has reached its ten-year anniversary. Over that time, we have delivered a 9.6% annualized total return while managing the portfolio through multiple periods of volatility, maintaining strong credit performance and low loss rates that have averaged just 31 basis points annually. This recent volatility highlights the importance of risk management across the balance sheet. We remain focused on conservative asset selection with well-matched liabilities, sufficient liquidity, and the right protections in place. We have conviction in our strategy, remain focused on acting in the best interest of shareholders, and believe that our long-term track record is the clearest demonstration of the quality of this platform. Thank you for your time today. We will now open the call for questions. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, you may press 1. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing 1. Our first question today is coming from Brian J. Mckenna from Citizens. Your line is now live. Brian J. Mckenna: Okay, great. Thanks. Good morning, everyone. So on the new $0.31 quarterly dividend, should we view that as a floor in NII over the next several quarters? And since you are keeping the supplemental dividend framework in place, is there the potential for some supplemental dividends to come through later this year depending on the trajectory of NII from here, as the environment begins to normalize with wider spreads, a recovery in transaction activity along with stable base rates? Craig Packer: Hey, Brian. Thanks. We thought very carefully about where to set the dividend. We think that this is the right level. In terms of it being a floor, I hope it is a floor. I expect that we will have a really good environment. I think spreads, as we talked about, will go wider from here. Obviously, it is very base-rate driven as well. Right now, rates are expected to stabilize here. We had very little prepayment income this quarter. That is not an easily predictable variable, but our history shows we typically have it. So I hope and expect it to be a floor. But, you know, in any quarter, things can happen, so I do not want to overstate the level of precision there. I appreciate you highlighting the supplemental dividend. I do think that there are going to be quarters where we overrun the $0.31, and again, at the risk of saying this multiple times, this is not a special dividend. We are really expressing a commitment to pay out 50% of everything over $0.31. So we hope investors appreciate that versus “special,” which is much more discretionary. I am quite optimistic over the next twelve months it is going to be a better investing environment, and we will have the ability to generate some really attractive earnings for the portfolio, hopefully in excess of the dividend. Brian J. Mckenna: Okay. That is helpful. Thanks, Craig. And then, Jonathan, it would be helpful to get a little more color around your framework and approach to marking the portfolio. I know your process is very thorough. I think it would be timely just to get a little bit more detail here. And then do you have any historical data around the average markup between final realized marks across the portfolio relative to the prior unrealized marks? Jonathan Lamm: Sure. Just in terms of our valuation approach, it has been consistent for the last ten years. We will remind you and remind everyone that here we do not mark our book at all. We go out to an external valuation agent every single quarter for every single name—a large, well-regarded valuation agent. They are not providing a range of values, but rather marking the book to the point value, and so we are not putting a number where it is at the top end of the range or the bottom end of the range, etc., but rather we are just a price taker ultimately for every single valuation. We do, as part of our overall requirements with our Board and obviously internally, a look-back analysis on, first of all, comparable valuations to peers. We have always been marked on a conservative basis, but not too much. We obviously do not want to be just taking marks down without thought, but we are always analyzing where we mark relative to the peers. And another thing that we do is always look at where we exit versus where we were previously marked in the prior quarter. So on a realization basis, we will look at where the unrealized values are and then ultimately where those realizations come in. And you are talking about generally a very, very small amount, unless obviously in the particular quarter there is some massive change relative to where we were. In the context of the unrealized or the realizations that we had in this quarter, all of those realizations—some of them were historical non-accruals where we effectively realized them exactly where they were because we had already taken the pain. And there were some realizations on the way up, like a name like SpaceX is obviously moving dramatically, so there was a realized gain associated with SpaceX in the quarter because the valuation changed between 12/31 and 03/31. Craig Packer: Yes. I would just add, we are a lender. Our loans are contractual and due at par. Loans, if they are performing and going to get taken out, should be getting taken out at par. It is very different than a private equity portfolio where a private equity firm is marking the value and then they have to exit at an indeterminate value up or down. So the vast, vast, vast majority of our loans in our history are exiting at their fair value because as we approach that refinancing or repayment or maturity, it gets closer and closer to par. And as we have highlighted, we have only had 35 basis points of loss in the history of the fund. So almost everything has gotten repaid at par. The average—just so you have it at your fingertips—the current spread in the book is 560 over, and the average loan is marked at 95.4. And we expect to get par on almost all of those loans. Brian J. Mckenna: Really helpful. Thank you, guys. Craig Packer: Thanks, Brian. Operator: Thank you. Our next question today is coming from Sean Paul Adams from B. Riley Securities. Your line is now live. Sean Paul Adams: Hey, guys. Good morning. It looks like your headline non-accruals declined, but it looks like you marked Walker Edison on non-accrual. But you kept the first lien at a 96 mark while effectively taking that delay draw to basically a zero. It looks like that was an opportunity to kind of draw down, or do you have estimates of a better recovery from that specific name? Jonathan Lamm: Walker Edison has been on non-accrual for a significant period of time and has been marked down to very, very low levels with a certain view of recovery. There was a realization this quarter, Sean Paul, so that is probably what is tripping you up. But in terms of non-accrual, it is not a new non-accrual and has been marked down drastically, not much more significantly this quarter, and no impact to NAV. This was just a realization of an already unrealized markdown that we had. So there was no change to NAV net at the end of the day. Sean Paul Adams: Correct, yes. It has been a longstanding non-accrual. I am just more questioning the marks of where it is—the fair value at 96%. On the new non-accruals for the quarter, Cornerstone OnDemand, you know, was a new addition, and that is kind of cross-held within the Ares portfolio as well. That is within the SaaS business. That mark has kind of deteriorated pretty rapidly. Do you have any extra color on that specific name? Craig Packer: Well, sure. Before I do, I just want to make sure it is clear: we did not have any additional non-accruals this quarter. We can talk about Cornerstone. Cornerstone has public loans that trade, and when we are in an investment that has public loans that trade, we certainly—and our valuation firm certainly—take the marks of those public loans heavily into account for obvious reasons. And so in that particular case, the mark that we have is heavily fact-weighted by the public marks. We believe it is a performing credit. It has had some volatility. Look, there is a lot of public market concern about software names, and sometimes that trading volatility may or may not line up with our view of credit fundamentals. But we feel good about having it on accrual, and we feel like we have marked it appropriately. Sean Paul Adams: Yes, my apologies to clarify. Your non-accruals were lower for the quarter, but your watch list—you know, with the aggregate marks below 85%—did increase. And so the Cornerstone callout was from the watch list increasing while the non-accruals are going down. So my question was more pointed towards whether, you know, headline non-accruals might be going down, but the aggregate watch list credits or the risk ratings within the portfolio—could those be going up? Or is that rather just a mark-to-market, like you said earlier in the call, when a number of these names are cross-held positions within other BDCs? Logan Nicholson: I would add our 3-to-5 rated names, which we would view as more expansive than just the names below 85, and the names that we spend a lot of time considering all of the factors around credit performance—that is stable. And it has not gone up. So the subset of names that you are looking at that have had volatile trading prices—there are a few. Most notably, Cornerstone that you highlighted had a relative value to a first lien that traded down significantly with the volatile public market, particularly around software names, in the first quarter. On that name in particular, earnings and revenues in that company are perfectly stable. It is a public market volatility point related to the first lien. So when we look at our more expansive proxy for a watch list—our 3s to 5s rated—the numbers are not going up. They are stable. Sean Paul Adams: Okay. Thank you for the color. Appreciate it. Operator: Thank you. Our next question is coming from Robert James Dodd from Raymond James. Your line is now live. Robert James Dodd: Hi, guys. A couple of questions if I can, kind of unrelated. On the first, kind of earnings trends going forward—three-year low in fee income, two-year low in leverage—so there are a lot of potential drivers. What do you think could be the primary drivers of earnings one way or the other through the remainder of the year? Do you think fee income—prepays, etc.—is actually likely to increase this year given how choppy the market is and spreads are wider, maybe people do not want to refi? Or do you think leverage is more likely to be the primary tool for the direction of NII through the course of this year? Craig Packer: Look, Robert, I think it is a mix. I do not think there is one primary driver. In any quarter, different things can happen. I think our fee income and prepayment income were unusually low this quarter. In almost all market environments, it is higher than we saw this quarter. It just wound up being an exceptionally low quarter. Without getting too far ahead of myself, I suspect it will be higher in the second quarter, but we will see. I do think that refinancings will take place throughout the year. That will allow us to add some spread to the book. I think that we are going to be cautious on leverage, just because I think it is an environment that deserves caution. But if we see attractive opportunities, which I think we will, taking the leverage up a bit is certainly something we have the flexibility to do. So I think it is all those things. We have our joint ventures—they pay dividends. They are very predictable dividends, but in any one quarter they can be a little bit higher or a little bit lower. And obviously credit performance needs to continue to be very strong. So it is all the factors. I guess what I would say is, as we said in the script, and I just want to be really clear: this quarter, you saw the culmination of a period of time where spreads were ground down in the industry and rates came down, and there is a lag effect to the rates as borrower elections turn over. And so you saw this in our results, but I think you are seeing it in our peers' results pretty consistently, and you are seeing it in the first quarter. For investors that do not follow the space very closely, what we are highlighting is that now that that has really washed its way through, I am optimistic because of the supply-demand in the industry that spreads are widening from here, and I think the expectation is base rates have stabilized from here. So if we get to some reasonable repayments, that is a cause for hope around earnings for the industry over the rest of the year. It is all those factors. Robert James Dodd: Got it. Thank you. And one more if I can. On the LTVs—there has been an area of focus for the space to talk about LTVs as a capital protection indicator. Can you give us any more color on how rapidly you update or where the V part of that comes from in your disclosure? Is it the underwriting value? Is it updated quarterly, which I presume? And also, what is the kind of range across the portfolio in terms of LTVs for the overall portfolio? I am also interested in the software side in terms of how that V is moving and what the range is in software as well as the overall portfolio. Craig Packer: I will start and anyone from the team can chime in. We update the LTVs every quarter. That is something we have disclosed consistently in our history. We called out in the script that the LTV for OBDC this quarter went from 41% to 47%. If you have followed us for a long time, you know that we have been in the low 40s, so this is a little bit higher. That move is very much driven by the drop in valuation in software, which is the largest sector in the book. To the spirit of your question, we look at this every quarter. The teams look at it. They look at a number of factors for when they are valuing a name. Certainly, entry valuation is a key factor in the early years because that is the most clear indicator. But as names season in the book, we update it for other comparable valuation—where assets are trading at M&A value, what has happened to the underlying credit. So this gets updated. I would say this quarter, we all recognize that there has been a real sea change in valuation for software assets. I think that is very clear to us and to the market. And so I think we took extra special care around valuing the software names, and that is reflected in the increase from 41% to 47%. In terms of your broader question around the range, I do not have it at my fingertips, but the vast majority of the names are going to be in that zip code and, if you were doing statistical analysis, they would cluster around 30% to 55%. We certainly have names—we always have and we always will—that are more challenged, and they are going to be higher loan-to-value. Just as any lending book has that, we have that. You can see that reflected in valuation levels. But we feel really good about our cushion even in today's environment, even in software. We highlighted it in a name like Intelerad—it is a software name—got sold to a strategic for 20 times cash flow. Our LTV on that loan was, at the end of the day, 25% or something. So we feel good about it. We update it. It is only one metric. I think it is an easy metric for people to wrap their head around. There are hundreds of other metrics that we look at to assess the quality of the portfolio. But I think the fact that the LTV went up this quarter should give investors some confidence that these are statistics that we put a lot of thinking into. Robert James Dodd: Got it. Thank you. Craig Packer: Alright. Thanks, Robert. Operator: Thank you. Our next question today is coming from Paul Conrad Johnson from KBW. Your line is now live. Paul Conrad Johnson: Thanks for taking my questions. I appreciate all the color that you have provided. I just had one—actually two—questions here, but realize this is a more recent development. You have seen relatively strong performance in the public equity markets for software companies over the last few weeks. I think they have bounced a little over 20% from the bottom that they hit at the end of last quarter. I was just curious—has that been reflected within conversations and engagement with the sponsor community, where maybe there is a little more of a narrowing of the bid-ask between these companies, or anything that is happening to allow these sponsors to get a little bit more comfortable transacting in that sector, just given the bounce we have seen in the public markets? Craig Packer: I do think it is nice to see some of that bounce, and I think the markets in general are being a little more thoughtful about software and the impact of AI. The initial reaction was so dramatic, and I think you are starting to see the market focus on the high-quality aspects of software and the stickiness and the durability even in an AI world. I think it is too soon—we are not seeing any significant different dialogue with sponsors based on a few weeks of trading activity. But I can tell you the sponsors are very focused on making sure that their companies are prepared for an AI world and investing considerable resources and doing what we would expect them to be doing to make sure their companies continue to prosper. That is the biggest part of our dialogue with them, but I do not have anything to add beyond that. Paul Conrad Johnson: Got it. Thanks. That is helpful. Last one—just higher level—but it feels like banks could certainly become more competitive here and lean into the BSL market a little more if they wanted to. In terms of the repayments of $1.5 billion this quarter and a little over $5 billion last year, how much of that is going to the BSL market? And whether or not you could actually use something like that to your advantage where you could potentially reduce software exposure or improve liquidity—that sort of thing—where perhaps getting some of these deals refinanced into the BSL market is not such a bad thing? Craig Packer: We compete with the broader syndicated market. That has been core to our business over ten years. There are times the market is really strong, there are times the market is weak. I think right now it is not especially strong. I do not think this is an environment where the banks are leaning in on underwriting, and I think if you follow that market closely, you will know that there have been some challenges in some syndications in the BSL market. It is part of the model. Sometimes names get refinanced; sometimes they do not. All of our names get refinanced—whether they get refinanced in the private market, public market, or the companies get sold. It is an expected part of our economic model. In those repayments, yes, I do think that this environment over the next twelve months is going to give us an opportunity when we get repayments to recycle those dollars into higher spread assets, and it could be just refinancing some of our own names and marking those to market. So I do think this is an environment where through refinancings and repayments—whether it comes from a BSL syndication or private refinancing—we will have a chance to add spread to the book. We reduced software exposure this quarter from 19% to 16%. That happened naturally due to some repayments. And I think that we are going to continue to be very cautious in software, and as we get repayments, probably look to continue to take that down. But we continue to have conviction on our software names. It is a wider sector, there is more uncertainty there, and I think you will see that reflected in a very high bar to add new names, and probably a disposition to reduce our software exposure. But they have performed very well, and this quarter was all just repayments. Paul Conrad Johnson: Got it. Appreciate it. That is all for me. Thank you. Operator: Thank you. Our next question is coming from Arren Saul Cyganovich from Truist Securities. Your line is now live. Arren Saul Cyganovich: Thanks. I was hoping you could discuss some of the conversations you are having with sponsors in terms of the pipeline that you are seeing right now. I know things have slowed down quite a bit, but is anything starting to show signs of opening up? And would we also expect the repayments to slow as well since new deal activity is slowing? Jonathan Lamm: Sure. Thanks, Arren. We are starting to see a little bit of an uptick in activity. The vast majority of the activity so far has been on our incumbent positions—so add-ons, bolt-ons, small acquisitions. But in the last couple of weeks, we have seen a couple of M&A processes underway, more in the healthcare, industrial, and distribution space. Software still remains relatively quiet. But we are starting to see some more activity, particularly with the bounce back in public markets and equity markets. For now, the activity still remains relatively light. Repayment activity really just depends. We have seen areas where, over the years, public market volatility slows repayments. It is a fair point, and those are oftentimes correlated. But in the past quarter, as an example, a number of our takeouts were strategic buyers taking out assets like Intelerad. Strategic buyers have certainly had strong equity market performance, strong valuations, and strong earnings in public investment-grade companies. So it really just depends, and this is not like the last few bouts of volatility. We will just have to see what happens. Arren Saul Cyganovich: Okay. Thank you. Operator: Thank you. Our next question today is coming from Kenneth Lee from RBC Capital Markets. Your line is now live. Kenneth Lee: Hey, good morning. Thanks for taking my question. Just another one on the new dividend level there. Would you talk a little bit more about some of the embedded assumptions behind there? Are you embedding potentially either further spread compression or, conversely, some benefit from spread widening? Anything else you would like to articulate around what drove the new dividend level there? Thanks. Jonathan Lamm: Sure. We are constantly analyzing our model and forward earnings. We are taking into account the forward curve and thinking through stresses to that. We are also looking at spreads and the compression that we have seen over the last couple of years and stressing the relative up/down of spread—further compressing relative to widening—and obviously we have a view on that. We are also looking at historical levels of fee income relative to where we are currently performing. All of those things—leverage, credit performance—go into that. We have set our dividend at a level that we think is a supportable level, and we took our time thinking through that process over the course of several quarters. Over the last few quarters, we have talked about it, and we think that this is the level that makes the most sense given all of those factors, Ken. Kenneth Lee: Got you. Very helpful there. And then one follow-up, if I may, just in terms of share repurchases. Given where valuations are and given some of the leverage considerations you have there, how active could you be in terms of share repurchase over the near term? Thanks. Jonathan Lamm: I think you have seen us over the last couple of quarters be active. We have upsized the total size of our repurchase plan. This quarter, we were a little less active. As you can see, notwithstanding the overall credit spread movements and therefore declines in NAV, we were able to bring leverage down and into a level that puts us in a very, very comfortable range. When we think about repurchases, we are thinking about it in the context of capital allocation, which is thinking about your leverage, thinking about future deal opportunities relative to current deal opportunities, and all of those elements. We want to be active, and we think that we are accretive in all of those things depending on where the best capital allocation is on the forward, and we think bringing down leverage this quarter is helpful to all of those potential allocations. Kenneth Lee: Got you. Very helpful there. Thanks again. Operator: Thank you. Our next question today is coming from Derek Hewitt from Bank of America. Your line is now live. Derek Hewitt: Good morning, everyone. I might have missed it because I was jumping between calls earlier. Could you discuss what is your net leverage on the total portfolio? And then also, what is the net leverage specifically on the software portfolio? Jonathan Lamm: You are talking about at the investment level, the BDC, not the company. Is that right? Derek Hewitt: Okay. Logan Nicholson: Yes. We have typically been running between 5.5x and 6.0x on our portfolio companies for net leverage, and that has not moved dramatically over the last few quarters. Similarly, interest coverage, as we have talked about, has picked up from 1.6x at a trough to around 2.0x. Software companies, given the strong cash flow dynamics, have typically run a little bit higher—so north of 6.0x for leverage. But that has not moved dramatically in the last few quarters either, given fundamental performance of our software borrowers has been strong. And as we mentioned, earnings growth for the software portfolio companies is still low double-digit EBITDA growth, in line with the rest of the portfolio. So the leverage statistics have not moved around dramatically. Derek Hewitt: Okay, great. And then just in terms of the software portfolio, what is the LTV for the software portfolio? You had mentioned the overall portfolio was 47%. Logan Nicholson: We mentioned 47% for the overall portfolio, and it is approximately 48% for the software portfolio. So it is not materially different. It is 48% for the software portfolio and 47% for the overall. Derek Hewitt: Okay. And does that include kind of mark-to-market in terms of what has happened with software values quarter-to-date? Craig Packer: Correct. That is our current view, marked to the quarter end. Derek Hewitt: Okay. Thank you. Operator: Thank you. Our next question today is coming from Patrick Davitt from Autonomous Research. Your line is now live. Patrick Davitt: Hey, good morning. Thanks for letting me join the party today. I just had a follow-up on the software EBITDA growth. I think you said it is low double digits versus last quarter’s 16%. Am I hearing that correctly? And if so, can you give more color on what is driving that decline? Thank you. Logan Nicholson: Great. Yes, sure. Thanks for the question. Last year, we saw software EBITDA growth for our borrowers in the low double digits. The fourth quarter, as you mentioned, was a little bit of an outlier higher. It is not a perfect measure in any one quarter given some of it includes M&A and the portfolio has puts and takes, given there are names exiting and names entering, and there is some seasonality. We will see what the trend is over time, but I would say that low double digits has been consistent for the last year, and you are right that the fourth quarter was a slight outlier higher. Patrick Davitt: So the 16% was not a full-year number—that was just the quarterly? Logan Nicholson: That was the year-over-year reference last quarter. Patrick Davitt: Got it. Cool. Okay. Thanks a lot. Operator: Thank you. Our next question today is coming from Christopher Nolan from Ladenburg Thalmann. Your line is now live. Christopher Nolan: Hi, thanks for taking my questions. Most of the questions have been asked. On loan sales, there were roughly $400 million in loan sales in February according to the Q. Are these the same loan sales that were discussed in the last quarterly call? Jonathan Lamm: Yes. Christopher Nolan: Okay. Just want to clarify. Thank you. Operator: Thank you. We have reached the end of our question-and-answer session. I would like to turn the floor back over for any further or closing comments. Craig Packer: Terrific. Thank you all for joining. We appreciate your interest. As always, we are accessible if you have follow-up questions. We would be happy to engage with you—just reach out. And hope everyone has a great day. Operator: That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Hello, everyone. Thank you for joining us and welcome to Essential Utilities, Inc. Q1 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 on your keypad to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Brian Dingerdissen. Brian, please go ahead. Brian Dingerdissen: Thank you. Good morning, everyone, and thank you for joining us for our first quarter 2026 earnings call. If you did not receive a copy of the press release, you can find it on our Investor Relations website. The slides can also be found on the website along with a webcast. As a reminder, some of the matters discussed today include forward-looking statements that involve risks, uncertainties, and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Please refer to our most recent 10-Q, 10-Ks, and other SEC filings for a description of such risks and uncertainties. References may be made to certain non-GAAP financial measures. Reconciliation of any non-GAAP to GAAP financial measures is posted in the Investor Relations section of our website. We will begin with Christopher H. Franklin, our Chairman and CEO, who will provide an update on the company. Then Daniel J. Schuller, our Chief Financial Officer, will provide an overview of the financial results. With that, I will turn it over to Christopher H. Franklin. Christopher H. Franklin: All right. Thanks, Brian, and good morning, everyone. Let's begin with a few updates on slide five. First, on the merger. As you likely saw in a press release we put out two weeks ago, we accomplished our first milestone regarding regulatory approval. The Kentucky Public Service Commission officially approved our merger request. This is our first regulatory green light and it is a big step toward bringing our two companies together. This momentum follows the clear “yes” we received from both sets of shareholders back in February, where the transaction was approved by an overwhelming margin of 95%. Now for the quarter, we reported GAAP earnings per share of $0.79, which includes about $0.04 of merger-related costs. While the quarter itself was up against a difficult comparison, with the previously discussed nonrecurring items from the first quarter of last year and merger-related costs this year, when we look at 2026 overall, we are very confident that we will meet our 5% to 7% annual growth in earnings per share compared to the non-GAAP 2024 earnings per share of $1.97. And Daniel is going to cover this in a lot more detail in a few moments. While the quarter was a bit challenging, largely due to the extreme weather we faced in some parts of our service territory, we are continuing to invest capital prudently and where it matters most. This quarter, we invested $269 million in our water, wastewater, and natural gas infrastructure. These investments help us to meet federal and state regulations—things like PFAS and lead—and boost reliability and safety for our employees and our communities. Our current trajectory indicates that we will meet our plan this year to make $1.7 billion in critical improvements by year’s end. Our customer rates remain affordable, and our planned investments and associated financing are built to meet our affordability goals. I have to tell you, I am really proud of the team in both gas and water for maintaining service for our customers during what were pretty challenging winter weather conditions this year, especially in January and February. Lastly, in March, we closed the Greenville Water acquisition. You may recall that we closed Greenville Wastewater in 2025. I will provide an update on our overall acquisition program in a few moments. If you turn to slide six, you will see a road map of what is ahead for completing our merger with American Water, which, by the way, is still on track to close by the end of 2027. Once we cross the finish line, the combined company will serve more than 4.7 million water and wastewater customers and more than 740 thousand natural gas customers. It really is an exciting path forward and we are moving full steam ahead. Slide seven shows the heavy lifting behind the scenes. Integration planning efforts are continuing with both Essential and American Water employees involved as part of the integration management office, the core integration teams, as well as subject matter experts. The focus is simple: ensuring we are ready to hit the ground running as a world-class organization the day after we close this transaction. These work streams and the partnership between leaders and subject matter experts from both companies are meant to ensure that the best practices of both companies are melded together in the combined company. We will have a lot more to say on this as we make progress. Now let us shift to the next slide—slide eight—to provide an update on our utility operations this year. Our continued mantra internally here to employees and everyone else is that we will conclude our time as an independent company with the same level of operational excellence we have enjoyed for nearly a century and a half. If you reviewed our proxy statement, you have seen the strength of our operating metrics—meeting and exceeding our targets and achieving many first- and second-quartile rankings versus our peers. I will mention that extreme cold causes challenges for both natural gas and water utilities. For gas utilities, it can cause increased leaks and more difficulty completing capital projects. And in the water business, it can cause treatment issues, especially in wastewater, increased main breaks, and, across the board, there is the added cost of things like snow removal. Despite all of these challenges, our year-to-date water quality, safety, gas leaks, among other metrics, are all on track for another strong year. Through 2026, five more PFAS projects have been completed and another 45 PFAS projects are under construction. We are on track for 106 PFAS project completions this year. Company-wide, in our water division, the 15 operational metrics we track include things like construction, safety, main breaks, leaks, and average time to address unplanned disruptions. Twelve have a green status, and only three are in yellow. The team is, of course, focused on moving the three that are yellow over to green. On the gas side, we are installing Intellis gas meters, which are advanced meters designed for enhanced safety. Last year, we installed 71 thousand Intellis meters and this year have a target to install at least 80 thousand more. Our gas division is focused on metrics associated with safety, construction, responsiveness, leaks, and damages. Of the 16 metrics we focus on, all but three are green, and we would expect them all to be green by year end. Despite winter weather and potential distractions associated with the merger with American Water, I remain very proud of our team’s continued focus on operational excellence. And with that, Daniel will now take us on a deeper dive into the results for the quarter. Daniel J. Schuller: Thanks, Chris, and good morning, everyone. Today, I am going to focus our conversation on our earnings performance and its drivers. There is some complexity due to nonrecurring items, both in Q1 last year and in Q1 this year, and I will discuss those items to provide clarity. Let us turn to slide 10 to walk through the bridge from last year. We are starting with our Q1 2025 earnings of $1.03 per share, which includes some positive one-time items. In terms of revenue drivers, earnings per share this quarter were positively impacted by $0.07 in regulatory recoveries and surcharges, $0.01 from higher water volume, and $0.01 due to a larger customer base thanks to both our recent acquisitions and organic growth. This was partially offset by a $0.01 impact from lower gas volumes, but overall, the top-line drivers remain solid. Now looking at the $0.10 decrease in earnings per share due to expenses, O&M increased by about $38 million, with the largest driver being $16.3 million in merger-related expenses. Also, last year we had $5.6 million of insurance proceeds that positively impacted earnings for the quarter, which did not recur this year. In terms of operational expenses, due to the extremely cold weather early in the year, we incurred about $2 million in incremental outside services costs and an additional $1 million in overtime related to water main breaks, snow removal, and callouts in our gas business. Cold weather also resulted in a slower start on our capital work, which resulted in less capitalization in Q1 of this year versus Q1 of last year. For the full year, though, we expect to achieve our capital targets for both water and gas totaling $1.7 billion. When adjusting for nonrecurring items and abnormal weather, we expect our year-over-year O&M expense increase to be in line with historic norms. Finally, we have the “other” bar with a $0.22 negative impact on earnings per share. This bar reflects the impact of a $22.6 million favorable tax reserve adjustment in the first quarter of last year due to the conclusion of the Aqua Pennsylvania rate case, as well as increases in depreciation and amortization due to additional rate base and some higher depreciation rates; increases in interest expense due to higher borrowings; and some weather normalization and tax impact. Together, this takes us to $0.79 for the quarter on a GAAP basis. If you back out the nonrecurring merger-related costs for financial advisory, legal, and other fees, our adjusted non-GAAP earnings come out to $0.83. You can find the full reconciliation on our website or in the appendix of this deck. As Chris mentioned earlier, the big picture has not changed. We are fully committed to our long-term goal of 5% to 7% EPS growth from our non-GAAP 2024 base of $1.97 through 2026 and 2027. I will wrap up on slide 11 touching on our regulatory activity. So far this year, we have completed regulatory recoveries totaling $15.1 million in annualized revenue, with about a third of that coming from water and wastewater and the rest from our gas business. Looking forward, the pipeline is active. Our water and wastewater segment has five cases pending for roughly $102 million in annualized increases. A few of these cases are nearing completion, and we will have updates on those in August if you are not watching the state regulatory dockets directly. Meanwhile, our gas subsidiary has a base rate case pending here in Pennsylvania for $163.2 million, which is critical for supporting our long-term infrastructure improvement plan, thereby enhancing the safety and reliability of our system and further reducing emissions. As always, our focus is on balance. We are maintaining these filings to ensure we are providing safe, reliable service and earning a fair return on our capital, all while keeping a very close eye on affordability for our customers. And with that, I will turn the call back over to Chris. Chris? Christopher H. Franklin: Hey. Thanks, Dan. Let us move to slide 13 to recap our growth-through-acquisition program. On March 4, we closed on our $18 million purchase of the Greenville Municipal Water Authority in Mercer County, Pennsylvania. The system serves 3 thousand customers in Greenville Borough, as well as Hempfield Township and West Salem Township, right here in Pennsylvania. We remain excited about our continued growth in Pennsylvania and welcome our new customers in Greenville. Now, aside from the selected opportunities on the slide, looking forward, we have signed purchase agreements for several small systems in Pennsylvania, Texas, North Carolina, and New Jersey, many of which we expect to close in 2026. Including these signed purchase agreements, in total we are adding about 201 thousand customers with a purchase price of approximately $285 million. This includes our DELCORA transaction. I will remind you again that the progress on our DELCORA transaction continues to be stalled by a stay put in place by a federal bankruptcy court judge related to the bankruptcy of the City of Chester. The pipeline of potential water and wastewater municipal acquisitions stands at approximately 400 thousand customers, and we remain very optimistic about the consolidation of water and wastewater systems in the United States and look forward to leveraging the combined resources of Essential and American Water to accelerate our business development work. I will wrap up our prepared remarks here on slide 14. As we have discussed before, we are reaffirming our 5% to 7% multiyear earnings per share guidance through 2027. Upon announcement of the transaction with American Water, we informed investors that we would continue growing EPS by 5% to 7% annually using our adjusted 2024 earnings per share of $1.97 as the base. As a reminder, this outlook includes the acquisitions we expect to close this year but does not include DELCORA. Beyond the numbers, our priorities have not changed. We are focused on keeping the balance sheet strong, improving our cash position, and growing the dividend while keeping our payout ratio between 60-65%. As part of our strong focus on customers, we are investing $1.7 billion in regulated infrastructure this year. With that, I will hand it back to the operator so we can take your questions. Operator: We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Paul Zimbardo with Jefferies. Paul, your line is open. Please go ahead. Paul Zimbardo: Hi. Good morning, team. Thank you for the time. First, I just wanted to check in. Pennsylvania has been very topical, and you all sit locally. I am curious if you have any thoughts on the latest affordability headlines and feedback on the Pennsylvania governor’s letter. Do you think that impacts your pending rate case, and just overall thoughts would be useful? Christopher H. Franklin: First of all, I think we would all agree we are aligned with the governor on the issue of affordability. Clearly, every utility is trying to accomplish pretty significant capital improvements while figuring out strategies to keep rates affordable for our customers. That is noble work, and we are aligned on that. In terms of the governor’s specific initiatives in his letter, I would say we are in ongoing conversations with the governor’s team. Daniel and I were on the phone with them as recently as yesterday. The conversation continues. We are trying to get real direction on how they are thinking about these issues. We know the issues; he outlines them pretty specifically in the letter. But how they will be applied and how they will actually materialize in terms of the Public Utility Commission, I think, is still being worked out. In terms of our filed case at Peoples, so far we are proceeding as though there is no change given we are already filed. We have a water case yet to file this year, and we are working through that case—preparation of that case—as we digest this new information from the governor. Paul Zimbardo: Thank you for that background. And then, with the adjusted EPS to exclude the merger charges, prospectively, should we think about adjusted EPS just adjusting out the merger items, or is there anything else that you think about adjusting at this point? Looking at the $0.79 going to $0.83, what is included there? Daniel J. Schuller: At this point, when we look at the $0.79 going to $0.83, the only adjustment in there is merger-related expenses. You will see that in the non-GAAP table—think bank fees, legal fees, filing fees, things of that nature. Prospectively, just those types of items adjusted out. Paul Zimbardo: Great. Thank you very much. Operator: Your next question comes from the line of Travis Miller with Morningstar Inc. Travis, your line is open. Please go ahead. Travis Miller: Hi, everyone. Just following up real quick on the Pennsylvania topic. I understand your comments in terms of your rate cases. What about the merger approval? Have you had conversations with the governor’s office on that, and how do you think that might impact the review of the merger? And then, more generally, how is the pending merger impacting discussions you are having with municipalities, and are you having discussions alongside your American Water colleagues? Christopher H. Franklin: I would say there is ongoing dialogue, but I cannot say we are in specifics on the merger. I would expect the governor would let the Commission adjudicate that case as they see fit. We just completed, as of today, the last of 14 public hearings throughout Pennsylvania, and I would position those as very positive. Very few people actually had anything to say, and several who did were positive. So I would say very successful hearings in Pennsylvania, and for that matter in North Carolina, where we have completed hearings as well. I would not expect the governor to give specific thoughts on the merger at this point, but generally people seem to think it makes sense, though I do not want to pigeonhole anyone into a position because nobody has actually staked out a position at this point. On municipalities, there are legal rules that would prohibit us from jointly marketing or coordinating with American Water pre-close. Interestingly, in at least two places we are still competing with American, which is a strange circumstance, but until the transaction is completed, we both have to do business as usual. Sellers—municipals in large part—understand that we will be one company within about a year, and they recognize that. It is part of their considerations, but we are business as usual out there, knocking on doors and trying to do as many transactions as possible. I cannot say that the transaction has inhibited our ability to pursue opportunities in any way, and I have not sensed any negativity at all from potential sellers. It is generally business as usual. Daniel J. Schuller: And, Travis, recall we are in some states that American is not in, and certainly in some states we are in different geographies. As Chris said, we are doing everything we can to continue to drive useful acquisition growth. Travis Miller: Okay. Great. I appreciate the thoughts. Operator: Your next question comes from the line of Davis B Sunderland with Baird. Davis, your line is open. Please go ahead. Davis B Sunderland: Good morning. Thanks very much for the time. Maybe a follow-up to the first question on the merger and the backdrop in Pennsylvania. I am sure, as far as states go, this will be the heaviest lift. Could you expand a bit more on what there is still to be done in the back half of this year and whether it is just time, or if there are any other potential road bumps we should consider as the process moves forward? And then, a two-parter for Dan: any thoughts on the shaping for Q2 and the rest of the year, and any considerations for equity issuance or other sources of capital through the year? Christopher H. Franklin: Regulatory process is generally one that we have to address as we go. We know who the parties to the case are at this point. We have seen filings already and will work through those through the summer. As we conclude the public hearings today and move to the more formal Commission process over the summer, we will get a good sense of where we can settle, and we are still optimistic that we will be able to settle with most of the parties. We will see how people come to the table. So far there has been nothing that we would put in the “unexpected” category. It seems to be proceeding as normal—plenty of interrogatories being asked and answered by the company and by the intervenors. I do not want to paint an overly rosy picture, but there has been nothing that has come up that we would say is unexpected. Daniel J. Schuller: For capital, you probably saw we did a $500 million debt offering earlier in the year. We will continue to raise equity when it is opportune using our ATM program. As we think about earnings for the year, as we said in the prepared remarks, we do expect to hit our target level of earnings per share based on the 2024 adjusted baseline of $1.97 with 5% to 7% growth off of that. In terms of quarterly shaping, it is difficult to give a precise breakdown, but I would point you to the same quarterly percentage ranges we have provided in the past—the chart showing the four quarters with a percentage of annual earnings, a range for each quarter—and use that as your guide here. Davis B Sunderland: That is very helpful. Thank you. Operator: We have reached the end of the Q&A session. I will now turn the call back to Christopher H. Franklin for closing remarks. Christopher H. Franklin: Thanks, everyone, for joining us today. As always, Daniel, Brian, and I are available for questions and follow-up afterwards. Thanks for joining us today. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Good day, and welcome to the Magnera Corp. Second Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question, you will need to press 11 on your touchtone telephone. Please note this call is being recorded. I would now like to turn the call over to Robert Weilminster, Vice President of Investor Relations. Please go ahead. Robert Weilminster: Thank you, Operator, and thank you, everyone, for joining Magnera Corp.'s second fiscal quarter 2026 earnings call. Joining me, I have Magnera Corp.'s Chief Executive Officer, Curtis L. Begle, and Chief Financial Officer, James M. Till. Following our prepared remarks, we will have a question-and-answer session. To allow everyone the opportunity to participate, we ask that you limit yourself to one question with a brief follow-up, then fall back into the queue for any additional questions. A few things to note before handing over the call. On our website at magnera.com, you can find today's press release and earnings call presentation under Investor Relations. You can also go directly to ir.magnera.com to review the investor presentations from our recent conference attendance. Our annual report and proxy statements with the SEC can be found on our website under Investor Relations. As referenced on Slide 2 during the call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures in our earnings press release and in the appendix of the presentation available on our website. Additionally, a reminder that we will make certain forward-looking statements. These statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore are subject to risks and uncertainties. Actual results or outcomes may differ materially from those expressed or implied in our forward-looking statements. Some factors that could cause the results or outcomes to differ are in the company's latest SEC filings and our news releases. These statements speak only as of today, and we undertake no obligation to update them. I will now turn the call over to Magnera Corp.'s CEO, Curtis L. Begle. Curtis L. Begle: Thank you, Robert. Good morning, and thank you for joining our call. I am pleased to present our second quarter results and highlight our performance amid ongoing macroeconomic uncertainty. My remarks today will focus on four key themes. First, our earnings of $90 million of adjusted EBITDA were in line with expectations after adjusting for weather-related factors highlighted during our February earnings call. Our strong free cash flow enabled us to pay down $36 million of debt in the quarter. Second, I will discuss the winter storms that affected more than 50% of the United States, causing significant supply chain disruptions impacting both our customers' operations and our own. Third, the war in the Middle East has created global challenges on many fronts, including having a direct impact on our raw material and supply chain costs. Lastly, I will discuss how Magnera Corp. has responded to these challenges and continues to strategically invest in our business to position us for future success. The global economic environment remains strained, though there are signs of resilience within the Americas. Elsewhere, we continue to encounter tempered demand, particularly in Europe. Compounding these challenges, new geopolitical conflicts have contributed to higher operational costs and further supply chain disruptions. Magnera Corp.'s scale and global footprint are built for times like this. Through localized sourcing, disciplined cost management, and success in Project CORE initiatives, we have mitigated many of these impacts. We remain focused on managing our controllables. As mentioned, our largest region, North America, was impacted by back-to-back winter storms, Fern and Hernando. Fern required the temporary shutdown of 13 manufacturing sites, resulting in lost production and impacting shipping days depending on the location. The second storm, Hernando, affected seven plants, but as with Fern, there was no significant damage and shipping resumed. We anticipate recouping most weather-related setbacks in the second half of the fiscal year. Transportation lanes remained tight in the quarter and are expected to require additional time to stabilize. Our teams did an excellent job responding to the storms by working together to prioritize the safety of our employees and assets. As the weather improved, our teams quickly assessed impacts and initiated plans to restart production and supply to our customers. We had no major weather-related damage at our plants. Next, I want to talk about how the conflict in Iran impacted us in the quarter. Our strategic principles to procure, manufacture, and sell within our regions provide a competitive advantage given our extensive asset base and leading positions in specialty materials. The majority of our business is sourced and sold locally within the respective regions, providing us and our customers reliability of supply. The rising cost in raw materials, fuel, container shipping, and delivery times, notably affecting resin, pulp, and energy expenses, constitute approximately 70% of our cost of goods sold. Additionally, inbound and outbound transportation expenses have increased. To address these pressures, we are working closely with customers to transition pricing mechanisms to a monthly cadence, helping mitigate timing lags in cost recovery. While enhancements to our global energy program have helped offset some of the increased costs, prices remain above pre-pandemic levels. Further details on the financial impact and working capital implications will be provided by James in his update. Before transitioning to James, I want to reiterate the resilience demonstrated by our organization in a persistently challenging market. In the Americas, industrial activity remains subdued, despite signs of stability as the sector contends with tariffs, geopolitical uncertainty, and policy ambiguity. The U.S. economy persists in a stable yet cautious state, while South America shows early signs of improvement following proactive measures addressing deflationary pressures and elevated transport costs from Asia. We expect a stronger performance in the latter half of the year in this region, and excluding weather impacts, volumes in the Americas would have reflected a positive year-over-year increase. In Europe, the manufacturing index has seen modest improvements; however, business sentiment remains cautious, mirroring trends from recent years. In the rest of world, year-over-year volume change was down 4%. We achieved mid-single-digit volume increases globally in infrastructure product lines driven by seasonality and continued emphasis on consumer solutions. Adult personal care categories, especially incontinence and feminine hygiene, also experienced solid growth, supported by demographic shifts and higher consumer adoption. Initiatives from governments and NGOs to destigmatize incontinence products, combined with customers' preferences for innovative and premium features, have bolstered demand. We are investing in our business for growth and improving our competitive position. We initiated two critical projects at our Gernsbach and Lidney facilities that will reduce our energy consumption and help advance our sustainability agenda. Our Lidney project will reduce our electricity and water usage by installing modern vacuum blowers. We appreciate the support from the Industrial Energy Transformation Organization in our decarbonization efforts. Our team at Don Buell recently commissioned a new film asset that will modernize our product offering for elastic backsheets in hygiene, generate new volume, and provide energy, raw material, and plant efficiency improvements. Each of these investments is aligned with our capital allocation strategy and demonstrates our commitment to improving our business over the long term. Finally, I would like to highlight the ambitious commitments detailed in our latest corporate sustainability report. This document underscores our resolve to operate transparently and deliver measurable progress. We have set targets to reduce scope 1 and 2 emissions by 42% and scope 3 emissions by 25% by 2035. We are also aiming for a 10% reduction in water consumption and plan to achieve zero waste to landfill at 75% of our sites, or 34 locations, by 2035. These goals reflect our commitment to building a more resilient, sustainable enterprise and making meaningful contributions to a better world. I will now turn the call over to James for a comprehensive financial update. James M. Till: Thank you, Curtis. Good morning, everyone. Turning to our financial results on Slide 11, after adjusting for the impacts of the winter storms in North America, we delivered performance that was in line with our expectations. Volumes and earnings came in as anticipated while we continued our trend of strong free cash flow generation, which we have demonstrated since the closing of the merger. Our teams have done an exceptional job of advancing synergy realization and making substantial progress on Project CORE, which resulted in adjusted EBITDA remaining essentially flat for the quarter as gains from internal initiatives were offset by external headwinds. During the quarter, we generated a robust $73 million of free cash flow, reflecting our focus on operational excellence, a disciplined capital expenditure approach, and working capital improvement initiatives. Over the last twelve months, we generated $128 million of adjusted free cash flow, representing a free cash flow yield of over 40% relative to our quarter-end market capitalization. For the quarter, sales were $796 million, as solid performance across adult and infrastructure product categories was offset by weather-related disruptions in North America and continued broad-based market softness in Europe. Adjusted EBITDA for the quarter was $90 million, as contributions from synergies and Project CORE were offset by the headwinds from the winter storm shutdowns, as well as weaker demand in Europe and negative mix in South America. Turning to our segment performance, beginning with the Americas on Slide 12. Despite the winter storm impacts, we achieved volume growth in our adult and infrastructure categories and saw normalization toward the end of the quarter in South America as we lap the Asia import pressures discussed on prior calls. Reported revenues reflected the contractual pass-through of lower raw material costs during the quarter, which pressured pricing but did not have a material effect on underlying profitability. Adjusted EBITDA in the Americas declined by $6 million compared to the prior year. Although winter storms pressured reported volumes, the most pronounced impact was on our conversion cost and product mix. As constrained capacity areas did not fully recover during the quarter, we do anticipate recovery of these areas in 2026. Turning now to the Rest of World Division on Slide 13. We experienced a year-over-year decline in revenues in the quarter, as strength in the European wipes business was more than offset by ongoing general softness in Europe and the pass-through of lower raw material costs. Adjusted EBITDA for the Rest of World division increased by an impressive 19% to $32 million. The improvement reflects our progress on disciplined cost management and synergy realization, as the division's performance illustrates the positive impacts of our focus on operational efficiency and portfolio optimization. Turning to capital allocation on Slide 14. Aligned with our capital allocation priorities, we repaid $36 million of outstanding debt during the quarter, bringing our debt repurchases for 2026 to $63 million. These actions reflect our continued focus on strengthening the balance sheet while maintaining a disciplined and balanced approach to capital deployment. We closed the quarter with approximately $600 million of available liquidity, providing a strong financial foundation to navigate ongoing inflationary pressures, fund strategic investments, and pursue attractive growth opportunities while preserving flexibility in an increasingly dynamic geopolitical environment. From a guidance standpoint, after incorporating the March inflation, our target range remains unchanged. However, while we benefit from efficient pass-through mechanisms, we are operating in an environment of potentially unprecedented volatility, both in terms of the magnitude and timing of raw material inflation. As a result, we would expect some headwinds in the third quarter followed by recovery in quarter four. This concludes my financial review, and I will turn it back to Curtis. Curtis L. Begle: Thank you, James. This quarter's performance reflects the balance we have in our portfolio, our global scale, and our focus on improving our cost competitiveness. We have recovered from operational disruptions caused by the winter storms, worked closely with our customers to manage the negative impacts of the war in Iran, and maintained our long-term focus on business improvement. Our confidence in our business drove our debt repayment in the quarter. As we look ahead, there is uncertainty, but we remain steadfast in our commitment to delivering improved value for our stakeholders. Operator, please open the line for questions. Operator: Thank you. Please press 11. If your question has been answered and you would like to remove yourself from the queue, press 11 again. Our first question comes from Gabrial Shane Hajde with Wells Fargo. Your line is open. Gabrial Shane Hajde: Curtis, James, good morning. I know it was one month in March that you faced some of these higher costs, and the raw material suppliers tried to push in some price increases pretty quickly. I suspect that you had some level of raw material that sits on the books, and then by the time it filters through the income statement, maybe that mitigates some of the impact in the immediate short term. But you talked about having a lag impact on the third quarter. Can you give us a sense, with five months left for the second half, how you are thinking about the cadence and what you alluded to at the end of your remarks there, James, on EBITDA progression? Curtis L. Begle: I will cover the first part and then kick it over to James, Gabe. First, as we did see some of the inflationary measures coming through and anticipated them—historically, we have experienced some of these things, even if you go back to Katrina and Rita, where you had unprecedented lifts in a very short period of time—the most responsible and appropriate thing to do is to ensure continuity of supply for our customers. That is going to require whatever it takes to ensure that you are paying for the product to get it in. The immediate action and response from our commercial team I was extremely pleased with and proud of, getting with customers as soon as possible to start to address where we may have a quarterly price change versus monthly. In many cases, as we have talked about before, we are very efficient in our pass-through mechanisms for those inflationary costs. But whenever it goes up to the levels that it has, it is going to require shortening that window, and these are abnormal times. In terms of the collaboration with customers, it has been very positive. Ensuring that we get them supplied is paramount across the globe, and, more importantly, staying in regular communication. One thing we did not highlight as much on the script that I want to address is there are other increases you experience outside of just the raw material pass-throughs—freight, logistics, energy, etc. In addition to moving with the monthly price index moves, we work with customers on identifying surcharge opportunities and ensuring continuity of supply for them. James, I will let you cover how we are seeing the back half and the recovery. James M. Till: Thanks, Gabe, for the question. As Curtis highlighted, from an earnings standpoint the teams jumped in quickly to mitigate those gaps. The current environment is pretty fluid. My remarks in terms of headwinds are more in terms of cash. From a cash standpoint, the teams are working with customers and with vendors to offset any pressure that we would see in Q3 and offset that through the remainder of the year as we finish out the back half. Gabrial Shane Hajde: For posterity, you talked about reiterating the guidance—I think $3.8 to $4.1 of EBITDA and free cash of $90 to $110. Both of those elements are what you are talking about. And then, relatedly, cash flow generation was super strong in the first half—congratulations on that. Is there anything seasonally we should consider? There is not a lot of history to look to. It would seem to suggest, to your point, suppliers may give you a little bit of relief on the AP side, but with cost going up, it would consume cash. One of your prior parent companies gave a rule of thumb that for every penny it was roughly $7 million of cash consumption. Is there anything that you can help us with in that regard? Thank you. James M. Till: Sure. I remember that well. Unfortunately, it is not quite as mechanical for us. The straight math is $2 million a penny, but that is before offsetting actions. Then you think about working with customers, working with vendors, working on inventory levels. I would be remiss if I did not highlight that it is very fluid in terms of where we will be by the end of the year in terms of this inflation—it has even changed a lot in the last 24 hours. You are absolutely right that we had a very strong first half of the year. Q3 generally is a softer cash generation quarter for us due to timing of some payments and things like that. I am really proud of where the team started; it gave us a good head start as we get into the back half. There is a lot of uncertainty in terms of where it all plays out, but the teams are working diligently to offset the pressures that we see on cash, and on earnings we were very quick to try to address those gaps. Gabrial Shane Hajde: Last one for me. Order patterns or anything that you have observed, 60-some days into the conflict, that you would share with us? Orders—anything like that that is flagging? Curtis L. Begle: That is a good callout, Gabe. If you recall last year at this time, we had concerns related to order bookings with the announcement of the tariffs and some of the behaviors that we started to see from customers. In this case, as we headed into Q3, bookings are very normal for us. If anything, we are still fulfilling orders that were impacted by the storms in February, so there is still some catch-up there. There are customers that get low on inventories in a couple of areas, so we have looked to support them. From a year ago to now, I would say we feel good about where our bookings are. I do not want to declare victory or have a one-month trend declare what the next two months might look like, but coming out of March into April, we feel good about where the volume sits and the demand outlooks are. We are staying close to customers, both existing and potentially new customers, as they are identifying challenges within their own supply streams. We are being very responsible and looking to make sure that whatever we pick up from a customer order standpoint is above our expectations from a profit margin standpoint. Operator: Thank you. Our next question comes from Kevin William McCarthy with Vertical Research Partners. Your line is open. Kevin William McCarthy: Curtis, I think I heard you reference a shift to a monthly pricing paradigm. Would you elaborate on that in terms of the reception among your customers, what constraints, if any, you may have given existing contracts, and how we should think about lag effects as you shift to this new pricing strategy? Curtis L. Begle: Thanks, Kevin, and good to hear your voice. Historically, as we have communicated, we are very efficient in terms of the pass-through mechanisms in a normal environment. If polyolefins go up or down 3% to 6% in a quarter, it typically does not have a material impact, positively or negatively, on our financials. In this case, these are abnormal times. Contracts are meant to be established for normal environments. We acted quickly. Our customers told us we were the first ones to come to them with this, and that is what we would expect as the largest player. The entire market understands the negative impact this can have on businesses in our space. I am really proud of what the team has done in terms of collaborative discussions with customers—ensuring supply so they can run their lines and provide products on the shelf is of the utmost importance. As expected, after tense early negotiations, our customers as a whole have been very supportive. We are shifting in the near term from quarterly to monthly with some customers, understanding that will persist until things settle down. Then we would go back to our normal pass-through mechanisms. Kevin William McCarthy: Understood. I want to follow up on your comments regarding winter storms Fern and Hernando. What was the EBITDA impact on Magnera Corp.'s fiscal second quarter from those storms? Do you expect to recover the majority of it or all of it in the back half, and what is the cadence of that? Curtis L. Begle: If you recall during the earnings call in February, we highlighted $4 million to $6 million of pressure because of those shutdowns, and it came in at about $5 million total for the quarter. It is a matter of us catching up with those orders and getting the lines to run efficiently, and our expectation is to recover that through the balance of the year. Kevin William McCarthy: Last one for me, James, just to follow up on your reiteration of the free cash flow range. Can you provide an update on some of the moving parts? I would have thought that working capital today would require a larger use of cash than we might have thought pre-war. What are you doing to try to offset that and maintain the range? James M. Till: We were roughly $10 million positive through the first half, thanks to really good work by the team and all the efforts that delivered a strong quarter as well as first half and enabled us to pay down debt. As we think about the inflationary pressure we are going to have on working capital from a cash standpoint, the outlook is very fluid. The teams are doing a nice job of working with customers in terms of shortening terms—which they understand as we are having the conversations on shortening the lag as well. We are talking with our vendors in terms of temporary terms, as well as looking at our inventory levels. All the things we would normally do, but in this situation, everything gets heightened even more to offset those pressures. Operator: Thank you. Our next question comes from Roger Spitz with Bank of America. Your line is open. Roger Spitz: Hi, thanks very much. I think at one point you gave a split of your sales by the amount subject to contract with pass-through mechanisms, which we have been talking about going from quarterly to monthly resets; secondly, subject to general price change announcements; and third, spot sales. Do you have an update on that? Curtis L. Begle: Thanks, Roger. We have done a really good job—and we talked about it last year—as we started to put in new contracts, particularly around some of the legacy Glatfelter customers, which is a good portion of the fiber-based business. We were roughly 70% a year ago; that is closer to roughly 85% on any contract customers. If you think about the mix across the organization, I would say about 20% of the total portfolio is subject to general price increase mechanisms or spot business. Product lines like Typar, for instance, typically have annual adjustments, and we have recently gone out with an increase in that infrastructure space. Roger Spitz: Great. That is it for me. Thank you. Curtis L. Begle: Thanks, Roger. Operator: Thank you. Our next question comes from Edward Brucker with Barclays. Your line is open. Edward Brucker: Thanks for taking the question. Just to add on to that, the business that is not on contract pass-throughs—how does pricing work there? Is it through negotiated pricing or price increases? And secondly, the contract pass-throughs—are those just for raw materials, and then you have to do surcharges on top of that to offset freight, energy, and logistics? Curtis L. Begle: Yes, correct. To answer your second question first, historically and strategically our input raw material costs make up the majority of our cost of goods sold, and those are on indexes and baked into the contracts. In times like this—when it escalates so quickly—those are the discussions we have with customers to ensure we can keep them in supply. For other inflationary costs, we typically have openers in the contract language to have those discussions with customers, show them the benchmarks and the changes, and then put those through as a temporary or somewhat longer-term surcharge to recover some of those costs. If escalation continues, we have to address it with additional surcharges. At this point, we have worked really closely with customers on roughly 80% to 85% of our total portfolio. The other portion is balanced out by some of our branded business that we sell in the market, like our Typar brand in the building construction market and our Centerra and Chicopee wipes businesses. Those are price pass-throughs and updates throughout the year where needed and appropriate. Less than 10% of our business I would consider spot, and that is negotiated typically quarter to quarter or order to order, much like bidding on a campaign for a particular quarter if we have some line time that makes sense to go out and get some spot business. Edward Brucker: That is helpful. And on capital allocation, you have done an impressive job reducing debt the past two quarters. Do you expect to continue to chip away at debt? Maybe if you have a debt reduction goal, that would be helpful. And how have you been taking that debt out—has it been through open market purchases? James M. Till: Our capital allocation approach has been to delever and pay down debt, and we do that efficiently with our cash, including in the open market, as you would expect. That has been the case for the entirety of this current year. We gave a target at the beginning of the year of roughly a 100 of debt paydown this year based off our guided free cash flow range, and that has not changed. Edward Brucker: Got it. Thanks. Operator: Thank you. Our next question is a follow-up from Kevin William McCarthy with Vertical Research Partners. Your line is open. Kevin William McCarthy: Yes, thank you and good morning. Question for you on your sequential margin progression. As we think about this wave of cost inflation, particularly on resins, being unprecedented—if you were to recover that cost inflation dollar for dollar, maybe your top line would inflate rapidly and you would be EBITDA neutral because you recovered one for one. But one consequence is your percentage margin would decline sequentially. Is that the right way to think about it as you move from March into June? I think you are a FIFO accounting company—maybe that helps a bit. Can you talk through the moving parts and what we should expect in terms of your sequential margin trajectory? Curtis L. Begle: You are spot on. As you think about the pass-through mechanisms, it will increase the top line, which is why we cover both top line and volume—overall organic volume growth—in a particular quarter. You would anticipate stable and expected EBITDA dollars on a higher sales dollar number, which in essence would reduce your EBITDA percentage by some basis points. In general, for us, it is really focused on earnings, free cash flow generation, and—even in a deflationary environment—you may see your top line drop while bottom-line margin improves. We focus on the physical volume we sell and the EBITDA dollars that come along with that. Kevin William McCarthy: And just to follow up on the customer order patterns—are your customers, in any cases, trying to get ahead of what is likely to be meaningful inflation, or are they not doing that? If they are, how do you approach that? Do you try to control the pace of orders in some fashion? What are you seeing and hearing? Curtis L. Begle: We did not experience swings as much as we have historically. In some cases, there is only so much we can make in a given quarter, month, or week. As we take those orders, we ensure we keep customers in supply, understand where their inventory positions may be, and we may have certain inventory levels we keep as safety stock for them. We have not seen anything particularly abnormal. They typically operate on lower inventories and have limited warehouse space. We are FIFO, with roughly 60-day turns as a whole, and certain product lines at about 14 days. We are still catching up with some of the orders that were impacted by the February storms, and that is what we expect throughout the balance of the year. Kevin William McCarthy: Perfect. Thank you again. James M. Till: Sure. Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to Curtis L. Begle for closing remarks. Curtis L. Begle: Thank you, Operator, and thank you again for joining us today and for your interest in Magnera Corp. We look forward to updating you on our progress in our next quarter and seeing many of you at the conferences scheduled in June. Have a great day, everybody. Operator: Thank you for your participation. You may now disconnect.
Operator: Good afternoon, and welcome to Savers Value Village's conference call to discuss financial results for the first quarter ending April 4, 2026. [Operator Instructions] Please note that this call is being recorded, and a replay of this call and related materials will be available on the company's Investor Relations website. The comments made during this call and the Q&A that follows are copyrighted by the company and cannot be reproduced without written authorization from the company. Certain comments made during this call may constitute forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from expectations or historical performance. Please review the disclosure on forward-looking statements included in the company's earnings release and filings with the SEC for a discussion of these risks and uncertainties. Please be advised that statements are current only as of the date of this call, and while the company may choose to update these statements in the future, it is under no obligation to do so unless required by applicable law or regulation. The company may also discuss certain non-GAAP financial measures. A reconciliation of each of the historical non-GAAP measures to the most directly comparable GAAP financial measure can be found in today's earnings release and SEC filings. Joining from management on today's call are Mark Walsh, Chief Executive Officer; Jubran Tanious, President and Chief Operating Officer; Michael Maher, Chief Financial Officer; and Ed Roma, Vice President of Investor Relations and Treasury. Mr. Walsh, you may go ahead, sir. Mark Walsh: Thank you, and good afternoon, everyone. We appreciate you joining us today. We are pleased with our first quarter results as we once again delivered strong sales performance and continued our earnings inflection with the second consecutive quarter of year-over-year adjusted EBITDA growth. We increased segment profit in both of our major markets through a combination of continued strength in our U.S. comp store fleet, the ongoing maturation of our new stores, profit improvement initiatives and tremendous operational discipline. We also made continued progress on our innovation agenda, which is already delivering benefits to our business. Let me start with a few highlights from the quarter. Sales in our U.S. business grew 11.2% with comps up 6.4%, driven by both average basket and transactions. The secular trend towards thrift remains a powerful tailwind and our maturing new store fleet is in the early stages of contributing to comp sales growth. In Canada, our sales trends were largely as expected with a 0.6% comp decrease during the quarter, reflecting a roughly 70 basis point headwind due to an early Easter. I'm especially proud of our Canadian team's execution this quarter. Despite flat comps, we grew Canadian segment profit almost 24% as we tightly manage production levels and benefited from some significant and sustainable profit improvement initiatives. We opened 3 new stores during the quarter, all of which were in the U.S., and we continue to expect around 25 total new store openings this year. Our new store portfolio continues to perform in line with expectations, giving us confidence in our ability to drive profitable sales growth as these stores mature. Financially, we generated $44 million of adjusted EBITDA in the quarter or 11% of sales. And finally, we are reaffirming our outlook for 2026, which Michael will address in more detail. Turning to our results by geography. Let's start in the U.S., where we believe that we are still in the early innings of consumer thrift adoption. Our 6.4% comp despite some unusually disruptive weather was broad-based with strong growth across regions, categories and income cohorts. We continue to see the strongest growth in our younger and more affluent consumer cohorts, which speaks to the power of our model and its ability to resonate with shoppers across demos. We feel very good about our competitive positioning and value gaps as new clothing and footwear prices continue to face upward pressure. Additionally, on-site donation growth continues to be robust, which helps power our flywheel, enabling our compelling assortment. In short, the U.S. business is firing on all cylinders, and we are excited about our continued expansion in this market. In Canada, our 0.6% comp decrease was largely in line with our flattish comp expectation with the Easter shift negatively impacting our comp by roughly 70 basis points. Macro conditions remain stable but sluggish, particularly in our key Southern Ontario market, including the Greater Toronto area and Windsor, where we have roughly 35% of our Canadian store fleet. We do not expect a material change in the economic conditions in Canada in the near-term, and we continue to plan our business around a roughly flat comp. Having said this, our first quarter results demonstrated our ability to drive meaningful profit improvement in Canada despite limited top line growth. Canadian segment profit increased $6 million over last year and profit margin expanded 310 basis points, which we attribute to our continued focus on productivity and tight management, matching demand and production. We also have a number of tests and initiatives underway to drive meaningful improvements in sales yields and cost per unit in our off-site facilities. We are quickly sharing learnings and best practices across our central processing centers and expect incremental benefits in the coming quarters. Moving on to new stores. We opened 3 new store locations in the U.S. during the quarter and continue to be pleased with the results as they are performing in line with our expectations. As I indicated earlier, we are excited to continue growing our store fleet in the U.S. and believe we can expand at current rates for years to come. For 2026, we are planning to open around 25 new stores, over 20 of which will be in the United States across 11 states with a nice mix of infill and new markets. An upcoming highlight this quarter is our first North Carolina store as our Burlington location opens later this month. Repeating our theme, our new store growth remains the highest return and most important use of our capital, and we are excited to bring our value offering to more consumers. Shifting now to innovation where our key priority areas are strengthening our price value equation, driving efficiency and cost reduction and expanding our data science and business insights. Last quarter, we announced the launch of ABP Light, an asset-light extension of our automated book processing or ABP system. I am pleased to report that we have completed our rollout plans ahead of schedule with the vast majority of the fleet now leveraging our ABP capability. We expect these stores will now reap the proven benefits of ABP and think this is a great example of how we can deploy technology in a cost-effective and high-return way across our store portfolio. We also continue to significantly strengthen the foundation of our data science and business insights. The team has been working hard to transition to a more robust data estate, structuring operating data that allows us to translate and communicate insights to drive field action, thus improving our ability to: one, react to changes in sales trends; two, improve productivity; three, support margin discipline; and finally, to help us continually refine our value proposition for consumers. I would like to highlight the progress we're making through a strategic partnership with Microsoft. For several months, Microsoft has had a team of forward deployed engineers working closely with Savers to embed AI agents directly into our operating model. Our first Agentic AI capability monitors our loyalty program, empowering our field organization with insights to boost consumer engagement and drive productivity. Our loyalty program is a strategically important part of our business as it represents roughly 73% of our sales and is a key focus as we continue to grow our store fleet. This deployment also provides us an Agentic template for an agile future rollout of AI capabilities and insights across our enterprise. We have already identified several other use cases for AI agents across our business and are either deploying or finalizing for implementation as part of our broader innovation road map. We look forward to sharing more updates on future calls. I'd like to thank our nearly 24,000 team members for their efforts in driving a strong start to 2026 and helping us deliver our commitments to our customers, nonprofit partners and shareholders. Our mission is to make secondhand second nature, and that continues to gain momentum. We are well positioned to build on this momentum and deliver continued success. I'll now hand the call over to Michael to discuss our first quarter financial performance and the outlook for the remainder of 2026. Michael Maher: Thank you, Mark, and good afternoon, everyone. As Mark indicated, we had a solid first quarter. Total net sales increased 8.9% to $403 million. On a constant currency basis, net sales increased 6.9% and comparable store sales increased 3.5%. We are especially pleased with our sales results in the U.S., where net sales increased 11.2% to $234 million. Comparable store sales increased 6.4%, fueled by both average basket and transactions, with broad-based gains across categories, regions and income cohorts. Given the breadth of our sales performance and the fact that we have yet to see a material lift from our new store openings, we remain very confident in our ability to grow the U.S. business. We also saw continued stability in Canada, where net sales increased 6.7%. On a constant currency basis, Canadian net sales increased 2% to $131 million and comparable store sales decreased 0.6%, reflecting an earlier Easter that negatively impacted comp by 70 basis points due to store closures on Good Friday. In the near-term, we do not assume any material improvement in the Canadian economy. And as such, we'll be planning our Canadian business conservatively. However, as Mark mentioned, we did successfully expand segment margins and grow profit contribution even without comp sales growth through strong execution, efficiency gains and the continued maturation of our new stores. All things considered, we believe this quarter is a good model for how we will continue to grow segment profit contribution even with limited sales growth going forward. Cost of merchandise sold as a percentage of net sales decreased 10 basis points to 45.4% due to comp leverage and efficiency initiatives as well as growth in on-site donations, partially offset by the impact of new store openings. Salaries, wages and benefits expense was $86 million. Excluding IPO-related stock-based compensation, salaries, wages and benefits as a percentage of net sales was roughly flat at 20.5%. Selling, general and administrative expenses increased 13% to $98 million and as a percentage of net sales increased 80 basis points to 24.4%, primarily due to growth in our store base, increased routine maintenance costs, namely higher SNO removal expenses and increased occupancy costs. Depreciation and amortization increased 18% to $23 million, reflecting investments in new stores. Net interest expense decreased 15% to $13 million, primarily due to the impact of our debt refinancing last fall. GAAP net loss for the quarter was $5 million or $0.03 per diluted share. Adjusted net income was $2 million or $0.02 per diluted share. First quarter adjusted EBITDA was $44 million and adjusted EBITDA margin was 11%. U.S. segment profit was $43 million, an increase of $4 million, primarily due to increased profit from our comparable stores. Canada segment profit was $31 million or up $6 million due to disciplined management of production and expenses and the CPC productivity and efficiency initiatives Mark mentioned earlier. Our new stores continue to perform in line with our expectations and mature on schedule as their contribution ramps. However, as we mentioned last quarter, a more balanced store opening schedule this year means more front-loaded preopening expenses. While we expect preopening expenses for the year to be roughly flat with last year at approximately $14 million to $16 million, first quarter preopening expenses were approximately $1 million higher than last year. Our balance sheet remains strong with $62 million in cash and cash equivalents and a net leverage ratio of 2.5x at the end of the quarter. We also repurchased 1.2 million shares at a weighted average price of $8.51. Our capital allocation strategy remains unchanged as we continue to prioritize organically funding new store growth, repaying debt as we target a net leverage ratio under 2x by the end of next year and opportunistically repurchasing shares. I'd like to now turn to our guidance and discuss our outlook for fiscal 2026, which remains unchanged from the previous full year guidance we gave back in February. We continue to expect net sales of $1.76 billion to $1.79 billion. Comparable store sales growth of 2.5% to 4%, net income of $66 million to $78 million or $0.41 to $0.48 per diluted share. Adjusted net income of $73 million to $85 million or $0.45 to $0.53 per diluted share, adjusted EBITDA of $260 million to $275 million, capital expenditures of $125 million to $145 million and approximately 25 new store openings. Our outlook for net income assumes net interest expense of approximately $50 million and an effective tax rate of approximately 28%. For adjusted net income, we're assuming an effective tax rate of approximately 27%. We're projecting weighted average diluted shares outstanding to be approximately 163 million for the full year. This does not contemplate any potential future share repurchases. Finally, I'd like to briefly touch on our expectations for the second quarter. We expect total revenue growth to be 100 to 200 basis points lower than the first quarter due to the impact of foreign exchange rates. We expect constant currency total revenue and comp sales growth similar to the first quarter. We also expect Q2 adjusted EBITDA growth to be similar to Q1 with the cadence of earnings through the balance of the year to resemble 2025. We plan to open 6 new stores during the quarter, in line with our goal of more ratably opening stores throughout the year. This concludes our prepared remarks. We would now like to open the call for questions. Operator? Operator: [Operator Instructions] We'll go to our first question from Matthew Boss at JPMorgan. Matthew Boss: Congrats on a nice quarter. So, Mark, can you elaborate on the step-up in comp trends that you're seeing in the U.S. business, in particular, 2 straight quarters of double-digit same-store sales on a 2-year stack. Maybe if you can touch on new customer acquisition, secular shift tailwinds. And just any puts and takes to consider with the second quarter comp trend maybe relative to the mid-single-digit full year guide? Mark Walsh: Yes. Thanks, Matt. Look, I think it starts with what we've seen is widespread growth across geographies and merchandise categories. And that obviously plays into a great experience, value and selection winning. But on top of that, we're seeing accretive adoption trends amongst our younger and higher income households. We've seen that continue. So, we're seeing trade down, trade in. I would also say that demand is really healthy across a broad base of all income demographics. And I think that's a key difference versus Canada. The secular trend certainly remains a tailwind. And what's really great is basket and transactions have driven comp. And as we mentioned around the Agentic initiative, the loyalty program is an important element in how we consider and drive growth, and we've continued to see really nice growth in our loyalty program in the U.S. Michael Maher: And then, Matt, to your question about how we think about Q2. So far, what we've seen in April in the U.S. is actually a little bit of acceleration in the U.S. comps. But we do expect those comps get a little tougher to lap as we progress through the year. So still thinking about a mid-single digit. And Canada really haven't seen much change, remains roughly flattish as we've now lapped the Easter shift. Matthew Boss: That's great color. Michael, maybe just as a follow-up, could you update us on the new store waterfall and maturity curve? And just the expected contribution from the waterfall in this year's comp outlook relative to multiyear as more of the store cohorts mature? Michael Maher: Sure. So, new stores continue to perform in line with our expectations and consistent with the waterfall, as you describe it, that we've laid out here over the last year or so. So just as a reminder for everyone, typically, in year 1, we see about $3 million in top line sales. We do lose money both from the preopening expenses that we incur as well as in the first year of operations as we're still ramping volume and developing, building that on-site donation foundation. Profitability, we typically pass breakeven in the second year and then continues to ramp as the sales improve. Ultimately, we target a 5-year -- excuse me, a year 5 top line of about $5 million and something close to a 20% contribution margin. So, so far, our new store classes continue to perform in line with that waterfall. And thus far, Matt, we don't -- we're still too early in that pipeline for those stores to be meaningfully contributing to our comp. So, the comps that we're posting in the U.S. really are mature store comps. Recall now that we only started opening new stores at this pace in the last couple of years and really only the 24 class at this point has entered the comp base. So, it's less than 50 basis points in total benefit to the comp, but we expect that's going to continue to build as more of those stores enter the comp base going forward. Mark Walsh: Let me supplement Michael's answer, Matt. It remains the highest and best use of our capital to open up new stores. Operator: We'll move next to Brooke Roach at Goldman Sachs. Brooke Roach: I was hoping you could unpack the improvement in profitability that you're seeing in your Canadian business. How should we expect that to continue for the rest of the year? And then more broadly, can you help us understand what the quantitative opportunities that you see from your AI capability monitors and your agents in profitability as you look on a multiyear basis? Jubran Tanious: Yes. Brooke, this is Jubran. I can take the Canadian profitability question. The first thing I'd say is it's actually -- it's driven by a few factors. It's not one thing. So, the first of which is some of our initiatives in CPC. Mark talked about those in his opening comments. Those continue to get better, more efficient, more effective through a variety of process improvements. And we've been very pleased with that and proud of the team. We're in the midst of expanding that to all of our off-site locations. So that's one. The second thing, and we talked about this on past calls, is striking the right balance in total pounds process, right, the amount of production level and maintaining a good equilibrium so that we are feeding customers, fresh product, but also doing it in a very healthy gross margin way. And we think the team did an excellent job at striking that equilibrium this past quarter. The third thing I'd cite is just ongoing refinement and improvement of our data and analytical tools. And that's important because as you think about converting pounds into items, those improvements have helped us better align items that we supply to the customer at the category level. So, it improves our ability to put the right thing at the right time in front of the customer, and that obviously benefits our sales yield. And then, Brooke, the last thing I would cite is just the ongoing on-site donation growth, which we are seeing improve in a broad-based way. This past quarter, over 3/4 of our supply came from on-site donation and Green Drop mix, nice year-on-year improvement and one that we expect to continue. So, you put all that together. And yes, we absolutely expect those trends to continue through the balance of the year, and that's all contemplated in our guidance for Canada. Mark Walsh: Brooke, on your question around AI and the Agentic deployment, let me say that it's just one element of a much broader innovation approach that includes ABP Light, includes a number of process and efficiency improvements that we're driving in our off-site production centers and then applying data science and business insights to what is a data-rich business. So, from an AI-specific perspective, these efforts are primarily efficiency and productivity driven, and we will develop a better sense for how big of an impact it will be over time. Michael Maher: Yes. And Brooke, Michael, just one closing thought on that. I think, first of all, as Jubran stated, what we're seeing in Canada really pleased with that. We do -- while we don't guide segment profit specifically, we do expect directionally that to continue, and we have contemplated that in the guidance for this year. I think longer term, to your question about innovation, I think it just gives us added confidence in that longer-term algorithm of getting back to that high teens EBITDA margin as we continue to see the new stores mature but also see the innovation initiatives really take root. Operator: Next, we'll move to Randy Konik at Jefferies. Randal Konik: Michael, I just want to jump off on the last thing you said there in terms of segment profit or geographic profit margins continue to move higher. Can you give us some perspective on where we sit with those Canadian margins versus history in the U.S.? And what are you going to -- are there things you're doing in Canada that you intend to apply to the U.S. business to kind of further take those margins higher? Just give us some thoughts on some of these profit initiatives you're working on and where they are in that kind of life cycle. How much higher can we go from here? Michael Maher: Sure, Randy. Why don't I start and then maybe I'll let Jubran jump in and provide a little color, too. So, first of all, we've long seen that we have structurally higher contribution margins in Canada than the U.S. I actually think that gap probably widens in the short-term in 2026 because we continue to invest in growth in the U.S., which, as we have said now for a while, does create a short-term headwind. Long-term, it's absolutely value accretive. But we know that there's some short-term margin pressure as a result of opening new stores. Now we're generating nice comp growth, and we're seeing healthy gains from on-site donations and yield improvements in the U.S. as well. But you do have that headwind. Whereas in Canada, the focus really is on profit improvement and process optimization. We are not really investing meaningfully in new store growth in Canada at this point. We are a mature business there, much more highly penetrated, obviously, than we are in the U.S. And so that gives us a chance to really focus on the productivity and efficiency initiatives that Jubran described earlier and really see those flow through into the bottom line as you saw here in the first quarter and the improvement in our Canadian segment profitability. So, I do expect directionally that trend to continue this year. And I'll let Jubran speak to how we're thinking about leveraging that across both countries. Jubran Tanious: Yes. Randy, it absolutely is. When we think about production, productivity and efficiency improvements, that cuts across borders. The team does a very good job of working collaboratively on discovery, leveraging best practices, scaling that across all of our facilities. So I'll take 2 of them that we talked about earlier, offsites. The improvements that we have made in offsites are going to benefit all locations, not just in Canada. Data and analytics, that refinement that I mentioned, where we have tools that are better than they have been in terms of putting the right thing at the right time in front of the customer, that cuts across all segments. So the short answer to your question is, yes, we expect goodness broad-based from that. Randal Konik: And just a follow-up. It looks like you managed payroll well in the quarter. I think you've had some deleverage in that item in the last few quarters or the last 4 to 6 quarters. Is that something where now we're kind of turning the corner on that payroll side of things, we'll start to get some leverage going forward out into the balance of the year and into 2027 and beyond? How do you think about that? Michael Maher: Well, Randy, a couple of things on the OpEx line. So remember that we are -- salaries, wages and benefits line, I think you're referring to. So we are continuing to step down the IPO-related stock comp in that line. We've got 1 quarter left of that here in the second quarter. That's roughly $4 million in each of Q1 and Q2. That falls away completely in Q3 and beyond. So you will see that. Incurring -- excluding those sort of nonrecurring items, though, yes, I think so. We do still have some pressure from new stores and those maturing and getting to scale there. So I think you'll see that kind of normalize as we go forward, get past the onetime items. But I would expect actually more of the improvement this year to come from gross margin rather than the operating expense lines as we continue to see the new stores mature and the benefit of that and their related on-site donation ramp flowing through to the margin line. Operator: We'll go to our next question from Michael Lasser at UBS. Michael Lasser: How long can you continue to grow the profitability in Canada on a flat comp? At some point, do you start to experience deleverage if the same-store sales do not grow and do you need to take action to reinvigorate the same-store sales growth in that market? Jubran Tanious: Michael, Jubran, I'll grab the profitability question. Yes, I understand your question. Long-term, I think there is merit to what you're saying, but we think there is still a tremendous amount of opportunity, certainly for the remainder of this year on all the initiatives that we have to improve efficiency and effectiveness. And so the trends that we saw in Q1, we expect to continue this for the remainder of this year. Mark Walsh: Michael, thanks for the question. Look, we're not satisfied with the flat comp at all. We continue to test differential marketing approaches, whether it be using our influencers to a higher degree, social, paid and then broadcast opportunities. We are investing in the core fleet as well. We've got some renovations teed up, and we've also got some relocations planned. And we just continue to focus on that price value equation and making sure that we're delivering a terrific experience to our Canadian consumers. So our goal is to not have that deleverage happen, and we're certainly not going to sit still with a flat comp. Michael Lasser: Okay. My follow-up question is on the delta between your sales yield and what you are paying for donations. So a, what are you seeing with respect to the sales yield? How much of the improvement in sales yield is being driven by like-for-like pricing? And then on the payment for donations, are you experiencing any inflation as a result of the overall environment and some of the strains that charities are under around the country? Jubran Tanious: Yes. Why don't -- Michael, this is Jubran. I'll grab your supply cost question first. So a reminder to the group that our supply costs, these are a set of contracts that we have with all of our great nonprofit partners across our 3 countries that are typically anywhere between 1 and 3 years. And they are deliberately relatively short- to medium-term because we are always evaluating what market is that we can stay very competitive in terms of what we pay for, whether that is a delivered goods, delivered product as we talk about, or on-site donation, which we have reliably continued to grow across all segments. So the short answer to your question is, are we experiencing any unexpected upward pressure or cost on supply? No, we're not. That's all very, very predictable. It's contract-based, and we can see it clearly. And we plan for it many, many, many months in advance. And then I'll just also take the opportunity to say that in terms of availability of supply, both for our comp stores and to feed new store growth, no concerns at all. The team continues to execute well. We see no ceiling on how high on-site donations can go, and that's what we're seeing in the business. Michael Maher: Yes. And then, Michael, this is Michael. I'll take your question on the sales yield. So we were really pleased with the roughly 6.5% increase in sales yield that we delivered in the first quarter. There's an element of higher ASP in that. We strive to keep that, though, at or below inflation over time. And that's sort of a normal recurring thing. But really, what drove that outsized growth this quarter was kind of things Jubran talked about earlier, being very careful about how we're managing production and lining that up to demand, especially in Canada, but also the productivity initiatives in our off-site processing facilities, which is helping us to drive getting the right item to the right location at the right time and therefore, greater sales yields on those items as well. Operator: We'll take our next question from Bob Drbul at BTIG. Robert Drbul: A couple of questions for you. The first one is, when you look at, I guess, energy cost impact, is -- can you talk about how you're being impacted throughout the business from that perspective? And then I guess the second question I have is just, can you expand a bit more just new store productivity? And are you seeing any variations? And I think -- and as you more measured approach to this year, 5 in the first quarter, 6 in the second, like the benefits to a more measured rollout from an execution perspective, what you're seeing there? Michael Maher: Yes, Bob, let me take the first question, and then I'll let Jubran take the new store one. So energy costs, Yes. The run-up in fuel costs came fairly late in the quarter for us. So not really a material impact to our first quarter. At these levels, we think there is some modest pressure for the balance of the year. Nothing that we think we can't mitigate, but obviously, a fast evolving situation that we'll just continue to monitor. Jubran, do you want to talk about the new store question? Jubran Tanious: Yes. New stores have been very pleased, as Mark talked about in his opening comments, Bob. So in line with our expectations, I think our ability to pick winners and refine our modeling of new stores has just gotten better and better over the years, and we're seeing that in performance. So to your question of are we seeing any outliers, it's been pretty consistent. We feel very good about our ability to predict and then also execute all the things that have to go into play to make a new store open on time and be successful. And then in terms of our ability to prospect and find attractive new locations and fill up that pipeline, that has only gotten stronger as we think about the remainder of this year and what we have committed to in 2027, we are right on track with where we hope we would be. Operator: We'll move next to Mark Altschwager at Baird. Mark Altschwager: I wanted to follow up on the price value framework you've been building on here in the last few calls. With the U.S. comp now nicely in the mid-single digits and your competitive set continuing to take price, has anything in your testing changed your view on the AUR opportunity? Are you taking any incremental price tactically by category or by geography? And just how are you thinking about further opportunity if that value gap widens? Is it more about loyalty growth with new customer acquisition on that trade down? Or is there maybe some incremental AUR contribution to comp as we move forward? Mark Walsh: Great question. Look, I think it starts with we are very focused on maintaining a super deliberate and very attractive price value relationship for our customer base. And that's U.S. and Canada. I mean we're focused on it. We've got a great data set that informs our approach on where we're putting category pricing in a given geography, critical, critical element. As we think about watching the item ratio or flow-through, that really informs us as to where there are certain opportunities in certain geographies and certain categories. So again, very analytically data science-driven approach to how we're deploying pricing across our fleet. And again, that's U.S. and Canada. The differences are obviously the geographies and the sensitivities to price relative to how quickly those garments or those goods sell. So it is very data science oriented. We're monitoring our approach carefully. And in this environment, we seem to be winning. I mean we're really pleased with the throughput that we've gotten in both countries when it comes to our price value relationship. Mark Altschwager: And just a follow-up on the loyalty program, the loyalty file. Can you size up where that is today and how much it grew in Q1? Trying to get a better understanding of how much the U.S. strength is growth in that file versus deeper engagement with your existing base. Mark Walsh: Yes. The file is growing quite nicely. We're a little north of 6 million total loyalty members across North America. We continue to see nice growth. We're very pleased with -- I think the thing we're most pleased about is that top loyalty cohort behavior really continues to outperform in both countries. And it represents roughly 73%, 74% of our sales. A great ability for us to connect with our consumers very cost efficiently at any given time. Operator: Our next question comes from Peter Keith at Piper Sandler. Peter Keith: Nice quarter, guys. I know it sounds like Q2 has continued the trend. But with the backdrop of higher gas prices, in the past, you have spoken to a lower income element as a portion of your customer base. So wondering if with the loyalty program, are you seeing anything of note as it relates to sort of trade-in versus trade out in this kind of evolving economic backdrop? Mark Walsh: Yes, I'll take that one. So look, I think in both countries, we continue to see a real nice adoption trend amongst younger and higher income consumers. And when you think about higher income consumers, certainly trade in, trade down is part of our growth mix in our loyalty platform. There are some differences though between the countries. We see in the U.S. consistently that demand has remained healthy and broad-based across all income demographics. In Canada, where there is a little more of an economic sluggishness -- sorry about that. We see our lower household income cohort disproportionately impacted. So that's really the only difference we're seeing between the 2 countries and how they're engaging with us and through the loyalty program. Peter Keith: Okay. Helpful. And then, Mark, to follow up on the prepared remarks with using AI and applying it to your loyalty program. I guess I was hoping you can kind of unpack exactly what you guys are doing. It sounds like maybe something that would enhance sales, but I'd like to just get a better understanding of what's happening. Mark Walsh: Well, I think it's a really good question. So I think we're -- our goal is, and we're picking very important and critical strategic elements of our business model and what the stores do. So obviously, the loyalty program is an important element of our consumer engagement platform. Having our store managers, having our store leadership continually focus on this very critical element was a great starting point for us to kick off our agentic strategy. So what this agent is doing is basically communicating to our store managers, this is where you are relative to your peer set from a loyalty perspective, could be great, could be depending on where you are in that continuum. It gives you things to consider and actions to take relative to how you're engaging with the consumer at that moment when they could either sign up or the opportunity to get them signed up. We see this as the unlock for several more agents to come right behind that, again, to allow us to keep our team and our store managers focused on critical issues throughout the week, period, month and just -- and then providing the information upward so that regional district managers, regional managers, Jubran and the country leads can drill down when appropriate to ensure that those key disciplines are being met and focused on throughout the year. Operator: We'll move to our next question from Jeremy Hamblin at Craig-Hallum. Unknown Analyst: This is Will on for Jeremy. First, I was just wondering if you're able to quantify the weather impact you saw in Q1. And then you noted the 70 basis point headwind from Easter. I guess should we be considering a similar magnitude of benefit here in Q2 from the late Easter last year? Michael Maher: It's Michael. So yes, I don't know if I quantify a weather impact other than to say it really was more about how the quarter played out. Very lumpy in terms of the comps just given the weather patterns this year versus last. February was our best comp because February last year had some really extreme weather. January was our softest comp because we had some really extreme storms in both the U.S. and Canada this year. Actually, I would say that some degree of extreme weather is just par for the course in Canada, in particular. It was probably more extreme than normal in the U.S. and therefore, arguably even a little bit more disruptive to our U.S. comp, which continued nevertheless to be strong. So again, we're focused on what we can control. And as we exit the quarter and see that all kind of normalize, we're pleased with the reacceleration in the U.S. comp. As far as the Easter impact, yes, that headwind of roughly 70 basis points to Q1 will flip and benefit us in Q2 by a similar amount. Unknown Analyst: Got it. That's helpful. And then I just wanted to touch on the ABP Light rollout. It sounds like it's solidly ahead of case here. I mean it may be too early, but just curious if there's any quantifiable benefits you've been able to realize thus far from the rollout? Jubran Tanious: Yes. This is Jubran. It is a little bit early to cite the results, but very pleased with the rollout between our traditional automated book processing ABP and now it's derivative ABP Light. We've rolled it to roughly 85% of the fleet. The rollout has gone well. Reminder, books is only about 5% of our business, but I think ABP Light is a great example of our innovative process, data-intensive stress testing and a smart rollout plan that we feel good about. So we'll continue to monitor it in the coming months. Operator: We'll go next to Owen Rickert at Northland Capital Markets. Unknown Analyst: This is Keaton Schuelke on for Owen. You called -- with the strength in the younger and more affluent cohorts, I was curious to hear how their basket size purchase frequency and category mix has been trending versus legacy customers. And curious how you expect that to trend going forward? Mark Walsh: Thanks for the question. Pretty consistent. Nothing out of the ordinary in terms of the trend lines that we're seeing from that particular customer cohort. Unknown Analyst: Okay. And then any early read on Tennessee and North Carolina stores? Are those markets ramping faster or slower than prior cohorts? And kind of what are you expecting out of those? Mark Walsh: We're excited about those markets to be sure, we have not yet opened those stores. Our first store in North Carolina will open later this month. And then our first store in Tennessee will be several months beyond that, maybe end of this year, early next year, that sort of thing. So nothing to report on that. But suffice to say, very energized by the white space opportunity and the quality of the sites that we've secured. Operator: And we'll go next to Dylan Carden at William Blair. Dylan Carden: I guess I'm curious, is there any incremental or change in the competitive dynamic in Canada? I know that market tends to lag from an online migration standpoint, if that's a piece of it. And to the extent that there isn't, just the line of sight you have in some of the improvement in that market or if it's more -- if you're managing a business to a flat comp, that becomes more of a manifest destiny so you feel more comfortable with. Jubran Tanious: Yes. Jubran, I can take a piece of that and then guys can jump in. No, in terms of longer-term expectation of growing the top line, I think Mark spoke to that earlier. We're not satisfied with the flat comp. We think there's a number of things that we can test and tinker with and trial. What we do know is that we can control what we can control now, and that is efficient and effective use of our material and labor to put the right thing at the right time and the right amount in front of the customer. So I think doing that well in a more sophisticated way allowed us to have the gross margin improvement that we saw in Q1. In terms of competitive landscape directly for us in Canada, nothing specific that we could point to that's materially changed that. Mark Walsh: Not-for-profit is really our #1 competitive set in the Canadian market. And being within 12 miles of 90% of the population, we're fairly saturated. So we're highly competitive in every market in Canada. And again, we're not satisfied with our comp trend. We're going to -- we're doing a lot to try to improve those trends. Michael Maher: Yes. Dylan, I think -- it's Michael. Just to kind of put a bow on that, to your point, and just to underline what Mark and Jubran said, we continue to work to drive the business in all facets, including top line. In the near-term, though, we are mindful of the macro environment, and we believe it's prudent to plan for a flattish comp for the balance of this year. And we continue to believe that even with that backdrop, we can drive profit improvement on the order of what we saw in the first quarter. Dylan Carden: And then on the AI technology side of things, any incremental thinking on how you might use that from an inventory management standpoint, pricing, decisions on what to keep versus donate? Yes, I guess, sort of an open-ended question there. Mark Walsh: Yes. We've got a robust innovative pipeline for sure. And we've got a lot of promising initiatives in test. We're pretty conservative, though, about bringing them public. So once we get to a place where we're ready to deploy, we will certainly be sharing those opportunities. Operator: And that concludes our Q&A session. I will now turn the conference back over to Mark Walsh for closing remarks. Mark Walsh: I just want to thank everyone again for their interest, and we look forward to talking to you in roughly 3 months. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for holding, and thank you for joining us. Welcome to Warby Parker Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Jaclyn Berkley, Head of Investor Relations. Please go ahead. Jaclyn Berkley: Thank you, and good morning, everyone. Here with me today are Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-CEOs, alongside Adrian Mitchell, our Chief Financial Officer. Before we begin, we have a couple of reminders. Our earnings release and slide presentation are available on our website at investors.warbyparker.com. During this call and in our presentation, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in the company's latest annual report on Form 10-K. These forward-looking statements are based on information as of May 7, 2026, and except as required by law, we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of our non-GAAP measures to the most directly comparable U.S. GAAP measures can be found in this morning's press release and our slide deck available on our IR website. And with that, I'll pass it over to Neil to kick us off. Neil Blumenthal: Thank you, Jaclyn, and good morning, everyone. In the first quarter, we delivered top and bottom line results that exceeded our guidance. Revenue reached $242 million, representing 8.3% year-over-year growth, and adjusted EBITDA was $30 million, reflecting a 12.2% margin. We achieved these results in a dynamic operating environment. As we shared on our last call, the quarter was impacted by periods of extreme winter weather, store closures, and continued softness in category traffic and unit demand. Against this backdrop, our performance underscores that customers continue to choose Warby Parker for our compelling value proposition, exceptional products, and differentiated shopping experiences, a combination that positions us well to continue to drive sustained market share gains over time. As we outlined in February, we have 3 strategic priorities for 2026. First, we are focused on scaling our industry-leading omnichannel model while consistently delivering remarkable customer experiences. Second, we are preparing for the launch of our AI glasses. And third, we are continuing to invest in brand awareness and customer acquisition, including advancing our efforts to capture vision insurance spend. We are encouraged by the progress we are making across all 3 of these priorities as well as the momentum we are seeing quarter-to-date. We are driving strong performance in several key areas, including eye exams, online glasses after sunsetting our Home Try-On program, average revenue per customer, and insurance penetration. Before looking ahead, I want to express my gratitude to our team. Their unwavering commitment to delivering exceptional patient and customer experiences is the foundation of everything we do, whether they are welcoming customers with a smile after digging out from a snowstorm or embracing new technology that our team has developed. Their dedication and agility make Warby Parker unique. That same combination is exactly what positions us to redefine the eyewear category when we introduce intelligent eyewear. 16 years ago, Warby Parker reimagined how consumers shop for glasses.?Today, we are developing products that will fundamentally transform the role glasses play in our lives. Working closely with our partners, Google and Samsung, we expect to launch our first line of intelligent eyewear later this year. We're designing a product and shopping experience that feels distinctly Warby Parker, one that is seamless, fun, easy, and always centered on our customers. We believe they will be the world's first truly intelligent AI glasses designed for all-day and everyday wear. AI glasses will redefine personal computing, moving technology off the screen and seamlessly into our daily field of vision. Instead of reaching for a device, wearers will stay present in the moment, while the technology works alongside them, providing contextual real-time assistance. Dave and I are actually wearing our prototypes right now. As part of our rigorous testing program, these glasses have already become essential to our daily routines. We're reviewing our schedules and adding meetings to our calendars, checking cross-city travel times, and working through complex math problems right off the whiteboard. I even had them help me review my son's Spanish homework. The best part is that they integrate seamlessly with the apps we and billions of other people use every day. Building a category and a product that customers will incorporate into their everyday lives requires a high degree of precision across every detail. We've contemplated every millimeter and curvature of the product itself while evolving our supply chain to incorporate our most complex lens fulfillment process yet. We're progressing this work with intensity and focus. Our ambition is to help define this category in a way that creates value on day one for our customers, our partners, and our investors. We look forward to sharing more updates closer to launch. Turning to the balance of the year. We're pleased with trends quarter-to-date while continuing to take a disciplined and prudent approach to our outlook. Consistent with the framework we outlined previously, we are reaffirming our full-year 2026 guidance. We're encouraged by what we're seeing in the business today, and we have a number of initiatives underway that we expect will build as the year progresses. This outlook does not include any revenue contribution from AI glasses, but it does reflect the known operating expenses and investments required ahead of launch. With that, Dave and I will walk through the drivers of our Q1 performance before Adrian provides more color on our financial results and guidance. I'll start with our first strategic priority, scaling our industry-leading omnichannel model and delivering exceptional customer experiences. We focus on 3 initiatives in this area in Q1. First, we expanded our retail footprint. We opened 14 net new stores in the quarter compared to 11 in the prior year period and remain on track to open 50 stores in 2026. These openings included entry into a new market, Baton Rouge, Louisiana, as well as continued expansion in 9 existing markets. Consistent with our strategy, the majority of these openings were in suburban locations as we continue to broaden access to our brand. Importantly, this expanded footprint also positions us well for the future introduction of intelligent eyewear, allowing us to bring the product to customers at scale through a retail experience that supports discovery, education, and service. Next, we drove growth within our existing fleet, particularly through eye care and higher-value products. Exams were a bright spot in the first quarter, growing 30% year-over-year with demand rebounding as weather normalized, highlighting both the needs-based nature of this category and the progress we're making in scaling this part of our business. We are still in the early innings of this opportunity.?During the quarter, we expanded exam services to nearly 90% of stores, rolled out retinal imaging across all active exam lanes, and introduced new tools that reduce the administrative burden for our optometrists and allow them to focus more fully on clinical care for our patients. On the product side, we saw strong customer response to our new collections, including our sport collection, which launched in late April. This has been one of the most requested categories from our customers and represents our first entry into this growing segment of the eyewear market. We designed this collection to seamlessly bridge everyday style with sport-specific functionality, aiming to reach customers looking for products that can keep up with their multidimensional lifestyles. This is our most advanced performance offering and is built in partnership with leading Italian manufacturers that specialize in flexible, lightweight nylon production. It includes performance polarized lenses and wrap prescription capabilities, which we believe is a key area of differentiation. We also focused on delivering value by offering an accessible price point for prescription glasses with prices for our sport glasses starting at $195 for nonprescription and $295 for prescription, compared to competitive products that can exceed $800. During the quarter, we also introduced several new core collections, including Spring 2026 and The New Deco 2.0. These assortments lean into current trends such as 90's inspired oval silhouettes, which are resonating well with younger customers and are helping to drive engagement with that audience. Our $95 frames continue to outperform expectations, reinforcing our ability to deliver exceptional value while also driving mix towards higher-value products like progressives, lens enhancements and other add-ons. Finally, we continue to invest in e-commerce through an increasingly personalized online experience. E-commerce revenue was down 4%, in line with our expectations as we lapped a period that includes our Home Try-On program, which was sunsetted at the end of last year. We expect this headwind to diminish as the year progresses and excluding Home Try-On, underlying demand in the channel was healthy. We are driving engagement and conversion by introducing AI-powered tools like Photo Booth, a feature that leverages our Virtual Try-On technology to allow customers to see themselves as the model directly on product pages. We also unveiled a new personalized recommendations engine to further enhance discovery and relevance. The year-over-year online growth in non-Home Try-On glasses, driven in part by these features reinforce our confidence in the underlying trends of the channel, and the bets we have placed for the future. As we discussed on our last call, contact lens demand moderated late last year. In response, we've taken a more deliberate and disciplined approach to contact customer acquisition, reallocating marketing spend towards the growth of glasses, an area where we can continue to showcase the strength of our brand and grow more profitably. In the quarter, contacts revenue grew mid-single digits with penetration consistent at around 10% of revenue. This year, we are focused on building deeper customer relationships across our holistic vision care offering with exams and glasses serving as the key entry points. Our store footprint and doctor network remain a durable competitive advantage and a sustainable engine for long-term growth, and we have seen strong year-over-year growth in contact lens orders that follow an exam. Ultimately, customers who engage across glasses, contacts and exams generate the highest lifetime value, reinforcing our strategy of serving more of their vision care needs over time. I'll now turn it over to Dave to walk through the remaining two strategic priorities. David Gilboa: Thanks, Neil. Our second strategic priority in 2026 is organizational readiness for our intelligent eyewear launch later this year. This is a massive cross-functional effort. We are building the capabilities and infrastructure required to support both the initial launch and the long-term scaling of this category. We are making targeted investments across our omnichannel shopping experience to support how customers discover and engage with AI glasses.?This includes enhancements in our stores, such as dedicated display bays and improved acoustics alongside a tailored digital experience that enables customers to explore and interact with the product online. At the same time, we are expanding capacity at our optical labs and upgrading business systems to ensure we can scale this complex fulfillment process seamlessly. Marrying the standardized processes of consumer electronics with the precision and customization of prescription lenses isn't trivial, and we're investing to build the systems and infrastructure to do this reliably at high volumes. We are also investing in our brand and go-to-market strategy. We're treating the launch of our AI glasses as a milestone moment to redefine our category just as we did 16 years ago when we first introduced Warby Parker to the world. You can expect to see that same inventive spirit and creative ambition just at a larger scale. These investments are designed to not only support our expansion into the intelligent eyewear category but also establish a solid foundation for growth as we continue to scale our core business. Our third strategic priority is driving brand awareness and customer acquisition, including capturing vision insurance spend. We ended the quarter with 2.7 million active customers, up 4.8% on a trailing 12-month basis and average revenue per customer up 6.9% year-over-year, driven by a favorable mix of progressives, lens add-ons and higher insurance utilization. While we continue to see healthy long-term customer and spend trends, our priority is driving further acceleration in active customer growth, which I'll touch on in a moment. Looking back, Q1 was impacted by a few factors, including weather, tough comparisons against strong prior periods, broader industry softness and flat year-over-year marketing spend. We stayed disciplined on marketing spend as demand fluctuated throughout the quarter. As trends have improved, we are leaning back in with confidence in our ability to deploy that spend efficiently. This includes increased top-of-funnel investment to build awareness. Our recent campaigns, including those featuring Arch Manning, have driven meaningful gains and aided brand awareness. We continue to see a significant opportunity to reach new customers and further educate existing ones, many of whom still think of us as an online-only glasses company. We complemented these broader efforts with more localized activations. In the first quarter, this included community and influencer events in New York with partners such as Happy Medium and Fashion Fiction during New York Fashion Week, helping us engage customers in a more targeted way. As we look to the future, we have several initiatives underway to accelerate customer growth this year. First, we're reallocating marketing spend toward higher return categories, including shifting investment from contacts to glasses. At the same time, we're expanding efforts across additional channels such as YouTube, Reddit and TikTok to broaden our reach and drive higher customer engagement. We also see opportunities to expand our efforts across existing digital channels and direct mail. Second, we're building on the momentum we achieved in Q1 by further integrating insurance into the customer experience. We're increasing insurance-focused messaging in our marketing and are equipping our store teams with ways to better educate customers on how to use both in-network and out-of-network benefits at Warby Parker. In Q1, we delivered strong growth from in-network insurance, which reached approximately 10% penetration, up from approximately 8% in the prior year. We also saw increased adoption of our automatic out-of-network submission tool, which we rolled out to all stores in early March. This is improving the customer experience by making submissions more seamless at the point of sale and facilitating reimbursements.?Since we've rolled this out, we've seen strong early adoption and found that customers using this feature spend more than customers who don't. Our insurance strategy complements our broader marketing efforts and serves as an additional customer acquisition lever. Our pricing philosophy has always been to offer fair, transparent pricing, whether a customer pays out of pocket or uses an insurance. While customers at traditional optical retailers often still pay more than $200 out of pocket even when using in-network benefits at Warby Parker, they can purchase a complete pair of prescription glasses starting at $95.?We've always focused on delivering compelling value regardless of how a customer chooses to pay. At the same time, we recognize that many customers have vision insurance benefits, and we're making it easier for them to apply those benefits when shopping with us. Importantly, insured customers remain among our most valuable, spending more on their initial purchase, selecting progressive lenses at higher rates and returning more frequently over time. Third, we're driving newness across the business to attract new customers and reengage existing ones. This includes recent collection launches like sport as well as preparing for the AI glasses launch later this year. In total, across marketing, insurance and new product innovation, we expect these initiatives to build momentum as we progress through this year. Finally, before handing it to Adrian, I want to highlight our recently released 2025 impact report. Since our founding, we have believed that a business can scale while creating meaningful impact, and this report demonstrates how we're delivering on that commitment. In 2025, we surpassed 25 million pairs of glasses distributed through our Buy a Pair, Give a Pair program, expanded Pupils project to reach more students and continue to grow the Warby Parker Impact Foundation. But what matters most is what those numbers represent, millions of people with improved access to eye care and a model that continues to demonstrate the power of aligning purpose with performance. As we grow, our ability to deepen that impact grows alongside it. This commitment to mission continues to resonate deeply with our team, strengthening engagement, helping us attract exceptional talent and reinforcing the kind of company we're building for the long term. Thank you, team Warby for living our values every day. And now I'll hand it over to Adrian to cover our financial results and guidance. Adrian Mitchell: Thanks, Dave. Good morning, everyone.?After a full quarter on the job now, I continue to be incredibly impressed with Warby Parker's brand leadership, relentless focus on the customer shopping experience and its healthy pipeline of product, service and customer experience innovations. I'm even more excited about the long-term and sustainable growth trajectory for this business. Today, I'll review our first quarter results in more detail and our guidance for the second quarter as we reaffirm our full year guidance for 2026. Let's start with the first quarter. We are pleased to have delivered top and bottom line results that exceeded our guidance in the first quarter. First quarter revenue was $242.4 million, up 8.3% to last year despite early quarter disruption from extreme winter weather and temporary store closures. Retail revenue increased 13.6% year-over-year and e-commerce revenue was $63.6 million, down 4.1% year-over-year due to lapping a period that included Home Try-On. We continue to expect full year e-commerce growth to be in the low single-digit range as the headwind from Home Try-On diminishes throughout the year and underlying trends in the channel remain healthy. Turning to gross margin. In the first quarter, adjusted gross margin was 54.2%, 220 basis points below last year. As expected, the decrease in adjusted gross margin was primarily driven by deleverage in the fixed expenses portion of gross margin, which includes doctor headcount and occupancy as well as the impact of tariff costs related to glasses and increased optical lab and shipping costs. This deleverage also reflects the number of store openings in the quarter and continued investment in exam capacity, which drove 30% year-over-year growth in exams. These investments position us for future growth and support the rollout of AI glasses across our retail footprint. These impacts were only partially offset by selective price increases taken earlier last year in glasses and increased penetration of higher-margin progressive lenses and other lens enhancements. Looking ahead, we expect gross margin tailwinds from more favorable tariff dynamics year-over-year, and we've already seen early results from recent actions. For example, we're driving customers toward higher-margin products and made changes to our Pair and Save offer that are delivering higher average order values. Shifting to SG&A. As a reminder, adjusted SG&A excludes noncash costs like stock-based compensation expense. First quarter adjusted SG&A expenses were $117.1 million, or 48.3% of revenue, 100 basis points lower than last year. This reflects disciplined spend during the quarter as we navigated weather-related disruption and broader demand volatility. The leverage was primarily driven by the sunset of our Home Try-On program, which drove a year-over-year decline in marketing of 90 basis points to 11.6% of revenue. Adjusted non-marketing SG&A was 36.7% of revenue, 10 basis points below last year as we saw leverage from corporate expenses and our customer experience team, partially offset by increased retail compensation as a percent of revenue. For the remainder of the year, we expect marketing spend to increase as a percent of revenue, but still within our low-teens range as we lean into customer acquisition pilots and investments while continuing to drive efficiency in non-marketing SG&A. Importantly, our model continues to demonstrate strong flow-through from revenue to adjusted EBITDA, which gives us the confidence to lean into growth investments while maintaining our profitability targets. First quarter adjusted EBITDA was $29.6 million, which was above our guidance. As a percent of total revenue, it was 12.2%, 90 basis points below last year. Now shifting to capital allocation. We ended the first quarter in a strong cash position of $288 million, up $23 million from the first quarter of 2025. We generated approximately $8 million in free cash flow in the first quarter. We continue to prioritize reinvestment in the business while maintaining flexibility through our $100 million share repurchase authorization. As a reminder, we have a $120 million credit facility expandable to $175 million, which remains undrawn other than $4 million outstanding for letters of credit, providing us with additional liquidity and flexibility. Our partnership with Google also reflects a shared commitment to building the intelligent eyewear category, including a $75 million reimbursement that supports our ability to invest behind AI glasses as we scale the platform together. Now let's turn to our outlook for 2026. We are pleased with trends quarter-to-date yet remain disciplined and prudent relative to our outlook for the balance of this fiscal year. So, after one quarter of results, we are reaffirming our guidance for 2026, which does not include any revenue from AI glasses, but includes the known expenses we expect to incur before and after launch. For the full year 2026, we are reaffirming our prior guidance, which is revenue of $959 million to $976 million, representing approximately 10% to 12% year-over-year growth. Adjusted EBITDA of $117 million to $119 million, which equates to an adjusted EBITDA margin of 12.2% across our revenue range and 130 basis points of expansion year-over-year. Turning to the second quarter. We are guiding to revenue of $235 million to $238 million, or growth of approximately 10% to 11% year-over-year. Adjusted EBITDA of $27 million to $29 million and an approximately 12% adjusted EBITDA margin at the midpoint of our range. This outlook takes into account a recovery from weather-related impacts in the first quarter and a continuation of current trends in the business while maintaining a prudent stance. It also reflects investment in certain growth initiatives that we expect will build momentum and drive greater growth and profit contribution in the second half of the year. We've made solid progress so far this year and are continuing to take share, reflecting the strength of our brand and the value we offer our customers. Looking ahead, we're focused on executing against a clear set of priorities for the rest of the year. With that, I'll now pass it back to Neil for closing comments. Neil Blumenthal: To wrap up, we're encouraged by the strength we're seeing across the business and the progress we're making against our strategic priorities. We look forward to sharing more about our AI glasses closer to launch. Above all, Dave and I want to thank the incredible Warby Parker team for their continued dedication and outstanding contributions to our mission. With that, operator, please open the line for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Mark Altschwager with Baird. Mark Altschwager: To start out, I was hoping you could help us unpack the drivers to the revenue acceleration that's embedded in the annual guide. You mentioned a few initiatives that will build through the year, but you're also lapping last year's price increases. So I just want to understand those puts and takes a bit better. Second, separately, you indicated you're pleased with the start of the quarter. Can you clarify if April is tracking ahead of that plus 10% to 11% Q2 guide? Neil Blumenthal: We're seeing positive trends quarter-to-date, but staying prudent in our guide. Where we're seeing strength is in our e-commerce business, in particular the non-Home Try-On portion of that business. Obviously, we're lapping our Home Try-On program, which we sunsetted at the end of last year. We're also seeing the benefits of some recent initiatives that we expect to continue to bear fruit in the quarters ahead. So that includes some new features around out-of-network reimbursement that we've rolled out to all stores that make it easier for our customers to check the eligibility of their vision insurance coverage and that enables us to file for reimbursement on their behalf. Also the launch of our sport collection, which is sort of our first in the category and some of the efficiency we're seeing in our marketing spend. From a customer perspective, we're seeing stable growth and anticipate acceleration throughout the year. Mark Altschwager: And to follow-up there, can you talk about the AUR trends you're seeing within glasses? It sounds like there's maybe a mix shift towards premium frames. And you just discussed the sport launch as well. How do you expect that to impact glasses AUR for the balance of the year? Neil Blumenthal: So we have a few tailwinds here as well. One is around progressives. As we know, that is an area where we continue to see strength. Also over time, we continue to introduce new collections, whether they're made in Italy or have complex constructions as we sort of leverage the expertise of our internal design team. We also continue to introduce more lens options, including various tents that we introduced towards the end of last year. That all benefits us. We've also made some changes to our Add a Pair and Save program that is expanding average revenue per customer and also has a positive benefit on our gross margins. Operator: Your next question comes from the line of Brooke Roach with Goldman Sachs. Brooke Roach: Neil, Dave, I was hoping you could unpack the results that you're seeing as you look to accelerate your active customer count? How are active customer counts trending on a per store basis as you open new stores versus the active customer count that you're seeing online? And what plans do you have for marketing and store activation plans as you move throughout the year, particularly as you get into the AI glasses launch time line? David Gilboa: Thanks, Brooke. I think it's important for us to provide some context around Q1. As you've heard from many other consumer and retail businesses, Q1 was a challenging macro environment with extreme weather that drove twice as many store closures as last year, lots of negative headlines for consumers, which resulted in consumer sentiment hovering near record lows. And so, we're, while we're pleased with how we exited the quarter and recent trends, it's worth noting that all of our metrics, including customer growth were impacted by these abnormal events in Q1. And when you look at our active customer growth, we report a trailing 12-month metric and over that time frame, the broader optical industry has faced significant pressure on traffic units, customer growth and really growth in the category coming from price. So our mid-single-digit active customer growth coming in spite of those Q1 headwinds, some tough comps and the sunsetting of our HTO program, Home Try-On program, I think, stands out relative to the rest of the category. That being said, we believe that there's lots of opportunity to drive more growth in the future. And those drivers to reaccelerate customer growth come from a few areas. The first is marketing spend. During Q1, we remain disciplined on marketing spend and given demand volatility and ended up with marketing dollars flat on a year-over-year basis and down as a percent of revenue. And given the trends that we've seen recently, we're confident we can deploy marketing dollars efficiently to fuel growth, and we're actively investing behind the highest return areas of the business. As we've mentioned, including allocating more dollars towards glasses where we're seeing some strength and unlocking some new channels. The second factor, as Neil just mentioned, but worth reiterating is that the Home Try-On and e-com dynamics will become more favorable as the year goes on with Home Try-On headwinds abating, and we're continuing to see strong non-Home Try-On-driven e-comm glasses sales. And then we're also benefiting from a number of newer initiatives like insurance expansion, exam strength, new launches like sport. And of course, we believe the AI glasses will drive a lot of traffic and momentum across the entire business. And so taken together, we remain confident in the customer growth assumptions embedded for guidance for the rest of the year and continue to see that when we open stores, they tend to perform in line with our high expectations and continue to be the primary drivers of customer growth for the business. Brooke Roach: Great. And then just one quick follow-up. Can you quantify the headwind that you saw in 1Q from weather and Home Try-On for the audience? Adrian Mitchell: When we think about the headwind with regards to Home Try-On, what we've actually seen is a pretty healthy growth without Home Try-On. Obviously, now that we've actually sunsetted it, we've definitely seen that benefit. Obviously, there's a bit of challenge with regards to weather. But with regards to Home Try-On, we're not lapping it this year. We're seeing pretty healthy growth with regards to year-over-year on the web side of the business. Operator: Your next question comes from the line of Anna Andreeva with Piper Sandler. Anna Andreeva: I wanted to follow-up on the active customer growth. You had previously talked about that younger demo that was pulling back. I don't think you mentioned that this morning. So has that improved? And then secondly, I guess, to Adrian, on the gross margin guidance, I think you still said flat for the year. Can you talk about what's implied for the second quarter? And what kind of a tariff rate are you embedding for the year? David Gilboa: Thanks for the questions. Yes, on the active customer growth front, we've seen consistency within the younger demo. Overall, the category continues the trend of traffic in units. And the younger consumer has been trending in line with kind of our previous commentary. Neil Blumenthal: I would add on the young customers, this is a segment of consumer that, as we all know, is under more stress, whether it's higher-than-usual unemployment rates, high consumer and student debt, that being said, we've never been more competitive for this consumer. Our opening price point of $95, which include premium acetate frames with polycarbonate lenses with anti-reflective and anti-scratch coating remains at that $95 price point from where we priced it when we launched the business in 16 years ago. And again, if we look at industry trends where growth has come almost exclusively from price as our competitors year after year have been increasing price, especially in the last few years, we are more competitive than ever at that price point, which we find that our customers really appreciate. Adrian Mitchell: So let me speak a little bit to gross margin. Let me set the context with regards to the first quarter, and then we'll talk about margin improvement as we actually get through the balance of the year. The main driver of the margin, gross margin rate decrease was really around cost deleverage. So as you saw, we had 30% growth plus in exams, which was driven by our doctors' compensation. Retail occupancy is a bit of a fixed cost in addition to opening 14 stores. But we also saw some compounding additional expenses as we were in a position where we had to close labs and stores, but also spend money in our recovery efforts. As we look ahead, the key thing to keep in mind here is that there are two drivers of margin going forward, but let me focus on gross margin in particular. The biggest thing is that we have a number of healthy initiatives that we're actually introducing. So on the gross margin side, the first thing we would say is that we're lapping more favorable rates this year versus last year. That will be a contributor that you start seeing in April. The second thing is we have a number of gross margin initiatives that are already in flight and already showing benefits as we look at quarter-to-date. As Dave and Neil mentioned, there are some changes to out-of-network states that's improving our gross margin position. The mix towards higher-margin products is what we're seeing in our data. And obviously, the momentum that we've seen in sport, which starts at $195 nonprescription and $295 prescription is definitely accretive to our business. The new dimension that we're also adding in are some operational initiatives that will improve our gross margin as we progress through the year. So efficiencies in our labs would be one example where we some of that up on the gross margin line. As we think about EBITDA margin, we'll continue to see leverage in terms of leverage against non-marketing SG&A. But overall, we're really focused on a number of profit-driving initiatives that will impact both gross margin as well as EBITDA margin for the balance of the year. Operator: Your next question comes from the line of Oliver Chen with TD Cowen. Oliver Chen: Hi Neil, David and Adrian, regarding your use of the glasses, what have been your biggest surprises? And what would you say might the top three use cases be? And related to this, there's been a lot of demand in the marketplace already. On fulfillment, on the AI glasses and the supply chain, what are you doing to prepare for that? Because some of the items components could be in shortage. And would love if there's a framework, Adrian, for the margin parameters because these glasses have unique characteristics in terms of cost as well as what you're thinking in terms of the service levels, I'm sure you'll add. A follow-up question, Adrian, on the traffic and unit as well as the interplay with your strategies regarding marketing and demand creation. How are you thinking about that interplay in order to just try to future-proof the business to that kind of volatility that you've been discussing? David Gilboa: Thanks, Oliver. I'll take the AI glasses question first. I'd say in general, we're super excited about the progress that we're making and our teams are working around the clock with our partners at Google and Samsung to build really incredible products. And as it relates to supply chain, we feel like we're in a well-positioned given the strength of the partnership that we have with those companies and the foresight and the access to components as a result. And as Neil mentioned, we've been wearing these glasses internally. And the moment you put them on, it becomes immediately clear that they offer a fundamentally more natural and human way to experience and interact with the world rather than looking down at screens in your hands. And for most of human history, interaction has revolved around voice, eye contact and shared context with those around you, screens and keyboards are a massive anomaly to how humans are used to interacting. And we're most excited that intelligent eyewear will move us back to a more natural human way of interacting. I checked my screen time the other day, and it was down 60% since I started wearing these AI glasses. And so underneath the hood, there's really incredible technology and some really magical use cases that we and our partners will talk about and demonstrate as we approach launch. But really the human element of bringing our attention back to the real world and away from screens is probably what we're most excited about. And of course, for that vision to become a reality, it means that the product has to look great, feel comfortable for all day wear, accommodate a range of prescriptions and work seamlessly from day one. And so we're working hard to achieve all that, which means that we've been deliberately investing in everything from supply chain capacity to advanced lens fulfillment and just making sure that all the elements line up for a very successful consumer launch later this year. Adrian Mitchell: Great. Oliver, great to be with you. My two use cases: one, math equations, which is actually pretty amazing. And the second is really around translation, given all the languages that can be translated. With regards to AI glasses economics, we'll share a bit more about the economics later in the year. So, I won't be able to speak to the margin impact at this point. That being said, our current guidance does not include AI glasses. So just a quick reminder there. To your point on demand, as we think about the balance of the year, I'll actually point you to kind of three things that we're focused on. The first is, as Neil described, is continuing to build on the progress that we've already made. We see momentum in exams. We see momentum in average revenue per customer, insurance, our Add a Pair and Save has actually driven higher AOV. But I think the biggest driver that we're seeing is just the continued newness, the new collection. Sport is doing well. Deco 2 is doing really well. So we're very pleased with the newness that's actually driving momentum in the business, and we've seen that quarter-to-date. The second thing that Dave pointed out is we no longer have the HTO headwinds as high as they were in the first quarter because we expect that to abate over the course of the year. We do expect e-commerce to have low single-digit growth this year, and we're definitely on track to achieving that. But the third thing, I think, to your point around demand is we're being very deliberate in the second quarter around piloting and investing in new tools and new tactics to build awareness, which ultimately will actually help us continue to build demand. And this is both in our digital channels as well as our direct channels. And so that experimentation really positions us well for the back half of the year. Operator: Your next question comes from the line of Paul Lejuez with Citigroup. Brandon Cheatham: This is Brandon on for Paul. I wanted to follow up on the active customer growth. Just do you view the first quarter as a low point for the year? Neil Blumenthal: You're a little bit hard to hear. We're having trouble hearing you. Brandon Cheatham: Is that better? Can you hear me? I want to follow up on active customer growth. Do you view 1Q as a low point for the year? And I understand weather was a factor, but how should we think about that with eye exams up 30% in the quarter? Are you seeing a shift in the eye exam customer converting? Or was there a timing issue there? I guess just any more details you can share on some of the offsets? Neil Blumenthal: Yes. We are expecting active customer growth to accelerate throughout the year. As we discussed earlier, we have a bunch of marketing initiatives underway and are already seeing green shoots this quarter. Brandon Cheatham: And anything on the eye exam customer converting up 30% is pretty strong growth, but your active customer growth wasn't quite as strong. So just are there timing issues there? Are they not converting like you expected? Neil Blumenthal: We're still in our early days of holistic vision care. So as we think about our consumers, we're still letting people know that we have stores. And then once they know that we have stores that we have a store near them and then that we offer eye exams. We have 90-plus percent of our stores offering eye exams, which is great. And we've been building out capabilities from our techs that help support our optometrists to the technology that our optometrists use to increase efficiency and exceptional patient care and experiences. There sometimes can be a lag between an eye exam and a purchase, but our conversions tend, are what we consider same-day conversions tend to be at or exceed industry norms. Brandon Cheatham: Got it. That's helpful. And to follow up on the increased costs related to your AI glasses rollout that's included in the guidance. I guess, should that build as we get closer to launch? Are those onetime in nature or kind of ramp? And then are you training your staff now or adding labor hours? Or does that come closer to launch as well? Adrian Mitchell: I'll take that. As it relates to the cost, the key thing to keep in mind is that those costs are actually shared between Google and Warby Parker. But to your point, we are investing in training. We are investing in labs. We're investing in our stores. We're investing in systems. We're investing in R&D. We're investing in branding. And we do expect a number of those expenses to show up, obviously, prelaunch, but also there will be some additional costs post launch. But at that point, we would certainly have demand in our favor. So when you think about some of the expense items that we've reflected in our guidance for Q2, to your point, Brandon, that's really the investments in preparation for a launch later this year. Operator: Your next question comes from the line of Dylan Carden with William Blair. Dylan Carden: Adrian, were those costs at all in the first quarter? Is that some of the add-back from an EBITDA from a system standpoint? Or is that just all the optometrist system support? Adrian Mitchell: It's really the cost in the first quarter, especially when you think about the deleverage was really around our doctors and recovery efforts. And so when you think about closing our labs, closing our stores, the recovery efforts, some of the additional costs with snow removal and those sorts of things, that certainly added cost as we think about the first quarter. But the cost with regards to AI glasses was more moderate like what we expect and what we saw in previous quarters. Dylan Carden: More so in the guide for the second quarter from a cost standpoint. Is that fair to assume? Adrian Mitchell: We elevated in the second quarter. That's why you see a little bit of additional expense in the second quarter guide. But obviously, we'll benefit from those investments in the back half of the year. Some of those investments also include some of the brand awareness efforts that we referenced a bit earlier in terms of some pilots and investments around building brand awareness in preparation for later this year as well. Dylan Carden: My actual question is, you're seeing an absolute explosion in demand for this category. Clearly, that's tax refund related and on the heels of 5 years of sort of a low in the repurchase cycle. And so I'm just curious, I get that there might be hesitation to kind of fully invest in that trend given that it could be pull forward. Are you seeing that? And if there's that level of volatility out there in the market, how do you navigate that? Neil Blumenthal: In regard to kind of the explosion in demand, I think there are a few different data sources. I'm not sure which one you're referring to that kind of track category demand. Certainly, we've seen a lot of consumer demand for AI glasses that exist in the market, and that's been driving a lot of excitement and adoption and that makes us even more eager to have our own product in market later this year. And we believe that our offering will be differentiated and have unique features and properties that we're excited to unveil. In the past, we really haven't seen tax refunds have a material impact on our business, the same as it may on others in the category. So we don't view that as kind of a material factor in the trends that we're seeing and aren't anticipating kind of a significant pull forward as a result. Dylan Carden: And then just to be clear about this, when you speak to efforts to reignite actives, is that code for sort of marketing deleverage? AI or smart glasses should presumably have some, if not significant, traffic effect. Are you kind of baking some of that even though you're not baking in the revenue? And just remind us the relationship between store growth and active customer growth as far as sort of what we should expect from where we sit, right? I mean you've been growing stores high teens for 3 years straight. I get it's a trailing metric, but it continues to kind of come in. And you're getting this question. Is there a potential need, effort, willingness to adjust the store strategy to some extent if you kind of see that disconnect continue? Adrian Mitchell: Let me go ahead and take that. With regards to the investment in active customer growth, there are really two dimensions: the amount of marketing spend, which we remain committed to be in the low teens, and the way that we actually deploy our marketing tactics, both in the digital channel as well as the direct channel. We are experimenting with some different digital channels. We're looking at some different tactics in order to really grow that active customer number. And we'll be able to speak more to that as we get into our next earnings call and speak to the results that we've seen in Q2. With regards to store growth, the reality is there are a number of dimensions that you have to think about. So when you think about street locations, which tend to be super high-volume locations versus grocery-anchored, very different volume profile. So the actual store count is probably not a good indicator of the actual dollar volume because different stores are going to have different volume profiles. Our stores are meeting our expectations. We're very pleased with what we're seeing with regards to our new stores. They're certainly benefiting from the elevated average order values. They're benefiting from increased conversion, which we've seen over the course of the year. But it's really a little bit of apples and oranges, even though we do focus on our new stores really providing access to customers in a physical dimension in new markets and in different neighborhoods in existing markets. Neil Blumenthal: Yes. The other factor there is e-commerce and our Home Try-On program, where if you look at the blended customer number that's across channels. And as we've noted, we sunset our Home Try-On program after kind of spending a few quarters winding that down. And so that has served as a headwind that will abate as we move throughout the year. Operator: We have time for one more question. This question comes from the line of Janine Stichter with BTIG. Janine Hoffman Stichter: Just want to dig into the vision insurance side of things. Nice to see the growth. I think you said 10% penetration, whereas I think you said 60% of your customers have insurance. What's the realistic target penetration? And maybe speak to some of the initiatives as you bridge that gap? And then I would also be curious if you have any stats on how much the insurance customer spends versus the uninsured consumer. Neil Blumenthal: Sure. We think about insurance sort of in two ways. One is how do we capture more lives in network. And then of that pool of in-network lives, how do we get them to spend with us? And right now, we have 35 million lives that are in network at Warby Parker, and they can come and seamlessly use their insurance. And as we expand that, it then takes time for those individuals to know that we're in network and then actually need glasses or primary eye care. Second, we think a lot about how do we make it easier for people to spend their out-of-network benefits with us. And that's where we've made tremendous progress over the last 6 months as we've made it easy for individuals in store to check their eligibility and then for us to file for reimbursement on their behalf. With both in-network and out-of-network insurance customers, we do see higher average order values and higher customer satisfaction as well. Adrian Mitchell: Just to build on that very briefly, we're very pleased to see the increased penetration of insurance usage. And we believe, to your point, Janine, that there's tremendous headroom still ahead of us. As we think about our branding and awareness efforts, this dimension of being able to use your insurance with Warby Parker is certainly a dimension that we want to lean into in order to really take advantage of closing the gap on that headroom. The one thing that we're very pleased with also is we did scale to all stores the out-of-network option, and we've seen tremendous traction. So we're very pleased with that. But as Neil said, when you look at a cash-pay customer versus a customer either using in-network or out-of-network benefits, the average order value is meaningfully higher. Operator: This concludes today's call. Thank you for attending. You may now disconnect.