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Operator: Thank you for standing by. My name is Liz, and I will be your conference operator today. At this time, I would like to welcome everyone to the Outset Medical, Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to James S. Mazzola, Head of Investor Relations. Please go ahead. James S. Mazzola: Good afternoon, everyone, and welcome to Outset Medical, Inc.’s first quarter 2026 earnings call. Today’s speakers are Leslie L. Trigg, Chair and Chief Executive Officer; Derek Elliott, EVP of Commercial; and Renee M. Gaeta, Chief Financial Officer. The company issued a news release after the close of the market today which can be found on the investor pages at investors.outsetmedical.com. This call is being recorded and will be archived on the Investors section of the Outset Medical, Inc. website. All forward-looking statements made during today’s call are intended to be protected under the Private Securities Litigation Reform Act of 1995. Outset Medical, Inc. assumes no obligation to update these statements. For a list and description of the risks and uncertainties associated with the business, please refer to Outset Medical, Inc.’s public filings with the Securities and Exchange Commission, including its latest annual and quarterly reports. Leslie L. Trigg: Thanks, Jim. Good afternoon, everyone, and thank you for joining us. The first quarter reflected consistent execution across console utilization, new customer additions, gross margin expansion, and disciplined cash management. While variability in capital order timing impacted our capital sales performance in the quarter, we remain confident in our growth plan for the year, supported by the upcoming launch of the next-generation Tableau, a deep sales pipeline, and the addition of an experienced commercial leader in Derek Elliott, who I am pleased to personally introduce to you today. Beginning with the quarter, revenue of $27.9 million was down slightly from the fourth quarter due to the lumpiness of capital sales, but we are confident in our growth plans for the full year. Treatment and service performed exactly as we expected, and we achieved excellent gross margin expansion with product margin reaching over 52%, the result of our ongoing margin expansion programs and mix. More broadly, our end markets remain healthy and providers continue to allocate capital to projects that deliver clear benefits like those we offer. We are reaffirming our annual guidance today because we remain very confident in the depth, diversity, and maturity of our pipeline. In particular, we are in the late stages of closing several large new deals and also an emerging refresh opportunity with existing customers who have older Tableau consoles and intend to buy replacement units in future quarters and years. We had several key wins during the quarter and managed successful go-live implementations at both new customer sites and with existing customers expanding Tableau insourcing to new facilities within their network. A very recent example occurred just a few weeks ago in Texas. Over the course of two days, our team set up dialysis service lines at multiple hospitals owned by one of the largest health systems in the country. These facilities had a total of approximately 400 beds and required support to train the nursing staff, ensure replicable procedures were in place, and prepare the internal team to manage the new service line. Our service and implementation teams are truly the shining stars of Outset Medical, Inc. Extending our unique dialysis clinical expertise to customers, these teams ensure nurses are well trained, policies and procedures are in place, and that customers have a reliable, seamless transition from their outsourced provider to an insourced model. Here in the second quarter, our team is replicating this success with go-live implementations occurring at more than 30 facilities involving nearly 200 consoles. From an operational perspective, we are well prepared for the initial transition to next-generation Tableau later this quarter. We believe this platform is the first dialysis system cleared under the FDA 2025 cybersecurity requirements, and includes hardware and software enhancements that improve performance and system reliability. A dialysis system that meets FDA’s cybersecurity guidance helps protect hospitals by reducing the risk of compromise, limiting the risk of spread, and safeguarding patients. We view Tableau’s Secure by Design principles, layered access controls, and controls intended to reduce the risk of unauthorized access as a significant new competitive advantage. It provides yet another compelling value proposition on top of the cost savings and clinical outcomes improvements associated with insourcing that we believe will be recognized by health systems amid ever-increasing concerns over cybersecurity, continuity of care, and patient safety. We plan to begin with a limited release extending into the third quarter, then ramp to a full launch. In early customer discussions, there has been strong reception to the cybersecurity benefits and other enhancements that next-generation Tableau will provide. We are very excited for the rollout and will share additional details on our August call. Finally, I would like to reiterate our strong cash position and unwavering focus on reaching profitability. During the quarter, we expanded margins to record levels and remained disciplined in our spending, both of which contributed to a lower-than-expected use of cash. I am proud of the progress our team continues to make streamlining our supply chain and manufacturing operations, strengthening our service organization, becoming more efficient in every corner of the business, and expanding our partnership and presence with acute and post-acute care providers. Before Renee walks through the financials, I want to take a minute to introduce our new commercial leader, Derek Elliott. Derek has been on the job for a month and is already making an impact through his deep customer relationships, sales and marketing expertise, and disciplined approach to pipeline management. I would like to invite Derek to say a few words about himself and his priorities. Derek? Derek Elliott: Thanks, Leslie, and good afternoon, everyone. As Leslie said, I joined Outset Medical, Inc. about one month ago and spent that time conducting a deep dive into the business. I have met with our leadership and sales teams, conducted thorough reviews of our pipeline and forecast methodology, and visited many customers. One month in, I can say with confidence that we have a great team, a strong and differentiated product fit, and customers who are deeply interested in improving the dialysis experience for their patients and organizations. When Leslie first approached me about this position, it became clear that my background was a unique fit for Outset Medical, Inc. I have spent more than 30 years serving many of the same customers in sales leadership positions, including 17 years at Stryker across national accounts, capital equipment, and professional services. More recently, I have worked closely with customers to sell EMR connectivity, software, and data analytics across hospitals and health systems nationwide. It is all very similar to Outset Medical, Inc.’s business, customer call points, and value proposition. My near-term priorities include working with our commercial team to prepare for the launch of next-generation Tableau and being very involved at the customer level as we advance and close business in 2026. We have a meaningful opportunity to improve the lives of patients and the providers who serve them. I see how that mission motivates people across Outset Medical, Inc., and I am proud to now be a part of this team. With that, I will turn the call over to Renee. Renee M. Gaeta: Thank you, Derek, and good afternoon, everyone. Revenue in the first quarter was $27.9 million, a 6% decrease from $29.8 million in 2025, largely due to some lumpiness in the timing of capital orders. Product revenue was $18.6 million, down 13%. We anticipated this year-over-year dynamic on our last earnings call and also saw about $1 million in capital deals shift from the first quarter that are expected to close later in the year. Capital sales were $5.4 million, and consumable sales were a bit stronger than anticipated at $13.2 million. We remain very focused on our forecasting methodology for treatments, which, as I mentioned last quarter, now includes closer collaboration with our largest customers on their ordering patterns. Service and other revenue of $9.3 million grew 10% from $8.5 million in the prior-year period. Recurring revenue from the sale of Tableau consumables and service was $22.5 million, roughly flat sequentially and with 2025, both as we anticipated. Next, I will walk through gross margin and operating expenses for the quarter. Please refer to the table in today’s earnings release for a reconciliation of GAAP to non-GAAP measures. Non-GAAP gross margin expanded 620 basis points from last year, reaching 43.8% for the quarter. Product gross margin was driven by sales mix and increased 400 basis points to 52.4% from 48.4% in 2025. Service and other gross margin was 26.7%, increasing again sequentially and growing more than 1.6 thousand basis points compared to 10.3% in 2025. This reflects strong execution and keeps us on track for the next milestone of 50% company-wide gross margin. Moving to operating expenses, non-GAAP operating expenses increased nearly 4% to $25.6 million compared to $24.6 million in 2025, driven by investments in systems and people. Non-GAAP operating loss was $13.4 million, even with the prior-year period. Non-GAAP net loss of $15.4 million improved 32% compared to $22.8 million in 2025. These results reflect continued progress as we work to achieve profitability. Moving to our balance sheet, we ended the quarter with $161 million in cash, cash equivalents, short-term investments, and restricted cash. We used approximately $12 million during the quarter, which is less than we previously forecast due to ongoing expense discipline and working capital management. As we look ahead to our cash needs for the remainder of the year, we now anticipate using less than $40 million, which is roughly 15% better than we previously expected. Turning to our guidance for 2026, we continue to expect revenue to be in the range of $125 million to $130 million, a 5% to 9% increase over 2025, with the majority of the 2026 growth coming in the third and fourth quarters. For non-GAAP gross margin, guidance assumes that as we ship more consoles, gross margin will approach the lower end of the range, just as a higher mix of consumables will move gross margin towards the higher end of the range. Balancing these two factors, we continue to expect gross margin to be in the low- to mid-40% range for the full year. With that, I will turn the call back to Leslie for closing comments. Leslie L. Trigg: Thanks, Renee. I want to close by emphasizing Outset Medical, Inc.’s strong market position. With more than 1 thousand facilities using Tableau and more than 3.5 million cumulative treatments performed, we continue to gain ground as the leader of dialysis insourcing. We expect next-generation Tableau, as the only dialysis system we believe to have been cleared under the FDA’s rigorous guidelines for cybersecurity, will continue to solidify and extend that position. There are now more than 8 trillion data points in our cloud platform, which helps fuel our analytics and innovation engine, improve the customer experience, and ultimately enhance patient care. With insights from this data repository and our strong suite of professional implementation services, Outset Medical, Inc. is increasingly recognized as the trusted partner. We improve dialysis patient care while reducing costs and streamlining operations, and we get to see the results every day for customers of all sizes. For example, a regional 400-bed multisite health system reported an approximately six-fold decrease in their dialysis costs during their first year of insourcing with Outset Medical, Inc. and Tableau. This health system performs approximately 2 thousand dialysis treatments per year; the cost savings are substantial. As meaningful, they saw no central line bloodstream infections, improved their documentation and Joint Commission readiness, and operationalized a more sustainable staffing model. All of the progress we have made provides a powerful foundation for value creation over the long term, which we look forward to demonstrating in the coming quarters and years. We will now open the call for questions. Operator, please open the lines. Operator: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the queue. Your first question comes from the line of Rick Wise with Stifel. Please go ahead. Rick Wise: Good afternoon, everybody. Hi, Leslie. You will not be surprised that I am hoping you can give us a little more color on, as you described it, the capital order variability and lumpiness. Just when I look back to the fourth quarter, you characterized the pipeline as building positively — sounds like it still is — and a healthy balance of larger and smaller deals, new and existing customers, and I doubt that has changed. What resulted in lumpiness? Why the delay? And maybe help us better understand when we are likely to see those sales happen or what you are expecting. Leslie L. Trigg: Yes. Hi, Rick. Good to hear your voice. Let me start with the capital order variability and the pipeline. The pipeline did continue to grow in Q1 as well. We saw good sequential growth in new opportunities that were added to the pipeline. As you remember from Q4, the way we look at the health of the pipeline, of course, is in terms of its size, depth, the diversity, the size of each deal, new customers versus existing customer expansions, and then the maturity — the stage that the deals are in in that pipeline. Across all these dimensions, the pipeline for 2026 and beyond is robust. We, in particular, are in the late stages of several large new deals that we do expect to close in 2026, and are also at the cusp of an emerging refresh opportunity with existing customers who have older Tableau fleets and have conveyed an intent to buy replacement units in future quarters and in future years. In terms of the lumpiness of the capital order sales cycle, it is less predictable for us than Tableau utilization. We have talked in the past about the stability and predictability of the utilization of the consoles once sold and installed. That continues to serve us well — it served us well in Q1 — and yet again, the lumpiness of the capital sales cycle makes it less predictable. It is really around the close timing, which might be stating the obvious. Beyond that, all the other areas of our business performed exactly as we expected, and we do remain on track with our guidance for the year, because the couple of deals that we saw slip out of the quarter are expected to close here in the Q2 through Q4 timeframe. That gives us a lot of confidence in the guidance range, in addition to a couple of new tailwinds coming later in Q2 and through Q3 and Q4 in the form of the next-generation Tableau launch and the additional firepower our new commercial leader is going to bring to our organization. All of those things make us very bullish about executing Q2 through Q4. Rick Wise: Gotcha. Maybe just a second one for me. There is a lot to unpack here. But just on a more mundane level, help us think through the quarterly phasing — the quarterly flow. It sounds like it is going to be a more back half–loaded year based on your comments, or at least what we should assume today for the moment. It could happen sooner — some of those delayed orders, for example. But the second quarter — does the second quarter, as opposed to stepping up like it did sequentially the way it did last year — is it flat with the first quarter or down? And since you are holding guidance constant, if we take the midpoint of your $125 million to $130 million range, do we evenly step it up in the third, fourth quarter? And again, last year both were around $29 million. Are these going to be roughly equal quarters and whatever the remainder is to get to the midpoint of the guide? Help us think through the phasing. Thank you. Renee M. Gaeta: Sure, Rick, I am happy to give some color here. As we sit here today with just one quarter in, we have spent a lot of time looking at not only the pipeline, as Leslie mentioned, but of course all of the factors that roll up into our full-year guidance. At this point in time, we would say that Q2 would be a modest step up, and then, as we indicated on the call, Q3 and Q4 will see the larger percentage of the growth. Whether or not Q3 and Q4 are flat, you might continue to see some step up — it will again be based on the timing of the close of these capital orders and pull-through. But as 70% of our revenue is coming from consumables and service and other, that part we expect to see stable. The 5% to 9% growth that we are expecting for the top line would certainly be across all of those categories. Rick Wise: So just to sum it up, modest step up in the second quarter, and it is not like you are saying that all of the remainder to get to the — just to focus on the midpoint of the guide — it is not all in the fourth quarter. You will see sequential step up in each quarter. Renee M. Gaeta: Correct. I think that is a good way to think about it. Rick Wise: Great. Thank you very much. Renee M. Gaeta: Thanks, Rick. Operator: Your next question comes from the line of Colin Clarke with TD Cowen. Please go ahead. Colin Clarke: Hi, thanks for taking my questions. First, on the delayed orders in the first quarter, I am curious — you talked about having several large orders in the pipeline expected to get landed in the February period. What is driving your confidence there? What about those orders in size and scale and the stage of that process is driving the reiteration of guidance here? Thank you. Leslie L. Trigg: Sure, I am happy to take that. I have had the opportunity to remain extremely close to all of our largest deals and forecast for 2026. First and foremost, we look at the staging of those deals. We have talked in the past about the stages of our sales process, and so we look at how many of those deals are in the later stages of the pipeline. We now have the ability to use historical data to inform the probability of close between, let us say, Q2, Q3, and Q4. The confidence, to answer your question, is informed by the data that we have about where these customers are — both new customers and existing customers that, based on their financial and clinical results with Tableau, are choosing to expand into new facilities. Informed by that probability-of-close data, we feel we have a good understanding and a good handle on which of those deals are likely to land in Q2, Q3, and Q4. In addition to that, I just alluded to next-generation Tableau, which we will be in full launch mode with in the second half of the year, and we do expect next gen to be a demand driver as hospitals and health systems continue to tell us that cybersecurity is at or very near the top of their priority list. As we believe we have the only dialysis system in the market to meet these very stringent FDA requirements, we believe that will be a demand driver based on how well this is resonating thus far in our early sales conversations. We view that as an incremental tailwind for the second half of the year. Colin Clarke: Understood. That is very helpful. I am curious on the next-gen system — does it have the potential, do you think, to accelerate these trade-in timelines as far as replacing older-generation Tableaus? Leslie L. Trigg: That is an excellent question. The short answer is yes, I think it could. Colin Clarke: Perfect. One final one from me. Thank you for hosting the webinar this afternoon with the dialysis supervisor at Reid Health — we found it really helpful. We were interested in what she said about bidirectional integration of Tableau into the EMR. Can you talk about the functionality that enables and what that does for your revenue recognition when Tableau not only uploads data to the EMR, but the operators have the potential to input orders from the EMR to Tableau? Leslie L. Trigg: Sure. Thank you for listening to the webinar — I appreciate that. Yes, Reid Health has had a lot of very positive benefits clinically and financially through insourcing with Tableau. To fill other listeners in, what is being alluded to is a potential future capability for bidirectional data transfer. Today, what we offer is uniquely one-way data transfer. We are directly integrated with Epic and Cerner and many other EMRs, which again is unique to Tableau. Health systems use that today to directly transmit or upload all of the treatment data from Tableau after every treatment up to their EHR. There is an opportunity to add a new feature in the future that would allow prescription data or information to be transmitted directly from the EMR to Tableau. That is something we are excited about as a future direction and that we have heard — and it sounds like you heard from Reid Health — would deliver quite a bit of value to our customers. When we think about our recurring revenue foundation that Renee alluded to — roughly about 70% of our total revenue — our overarching revenue strategy is to drive the highest possible percentage of our total revenue from recurring revenue sources. It is visible and very predictable. EMR is an example of a recurring revenue layer that we have added around service and around consumables, and we have had good early success with selling EMR both in terms of upfront implementation and recurring maintenance fees annually. Were we to add new features like bidirectional, we would view that as an incremental revenue opportunity, further fueling the recurring revenue foundation that we enjoy. Colin Clarke: That is very helpful. Thank you. I will hop back in the queue. Leslie L. Trigg: Thank you. Operator: We have no further questions at this time. I will now turn the call back over to Leslie L. Trigg for more closing remarks. Leslie L. Trigg: Terrific. Thank you to everybody for joining today. I would like to close by thanking our customers and our team for the difference that they make every day in the lives of dialysis patients. Have a great evening, everyone. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Valvoline's Second Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I will now hand the conference over to Elizabeth Clevinger, Investor Relations at Valvoline. Please go ahead. Elizabeth Clevinger: Thank you. Good morning, and welcome to Valvoline's Second Quarter Fiscal 2026 Conference Call and Webcast. This morning, raveling released results for the second quarter ended March 31, 2026. This presentation should be viewed in conjunction with that earnings release. A copy of which is available on our Investor Relations website at investors.valvoline.com. Please note that these results are preliminary until we file our Form 10-Q with the Securities and Exchange Commission. On this morning's call is Lori Flees, our President and CEO; and Kevin Willis, our CFO. As shown in the accompanying presentation, any of our remarks today that are not statements of historical facts are forward-looking statements. These forward-looking statements are based on current assumptions as of the date of this presentation and are subject to certain risks and uncertainties that may cause actual results to differ materially from such statements. Valvoline assumes no obligation to update any forward-looking statements unless required by law. In this presentation and in our remarks, we will be discussing our results on an adjusted non-GAAP basis, unless otherwise noted. A reconciliation of our GAAP to adjusted non-GAAP results and a discussion of management's use of non-GAAP and key business measures is included in the presentation appendix. With that, I'll turn it over to Lori. Lori Flees: Thanks, Elizabeth, and thank you all for joining us this morning. We delivered strong second quarter results that reflect consistent execution across our business. Our results included robust top line growth EBITDA margin expansion and improved cash flow generation. On the top line, performance was strong across the system. Systemwide store sales increased nearly 20% and net sales grew 25%. System-wide same-store sales outperformed our expectations and grew 8.2% and 14% on a 2-year stack. Ticket drove about 2/3 of the comp with net price, premiumization and NOCR service penetration all contributing. Transactions also grew across the network. Moving to profit. We improved SG&A leverage in the quarter, resulting in our EBITDA growing faster than sales. Kevin will cover those details. We remain confident in our proven business model, resilient customer demand and execution track record. Preventive maintenance is a nondiscretionary purchase and Valvoline makes it quick easy and trusted for every guest. We have not seen any signs of trade down or deferrals, and we expect to see this continued resilience. Despite the increases in crude oil prices, we did not see a material increase on product costs during the second quarter. As we enter the third quarter, however, we have started to see costs increase, and we anticipate this will continue depending on the length of the Middle East conflict. We're working closely with our suppliers to ensure we mitigate any supply constraints and both company and some franchisees have taken pricing actions, which we expect will mitigate the cost increases on a dollar basis. We continue to make steady progress integrating Breeze Auto Care into our platform. The financial contributions from Breeze were better than expected for the quarter. Driven largely by improved execution related to store level expenses and early delivery of G&A synergies specific to payroll and procurement. We continue to approach integration deliberately. Prioritizing operational stability and capturing learnings to support long-term value creation. Turning to network growth. We added 31 new stores for the quarter with 20 coming from franchise and 11 on the company side. We did have 2 closures and 4 transfers from franchise to company in the quarter. We finished the quarter with a total store count of 2,409. The timing of the new store additions continues to weigh towards the back half of the year, especially on the franchise side. Overall, our development pipeline for both company and franchise remains healthy, and we expect to deliver new store growth within our full year guidance. Q2 was another strong quarter for Valvoline. We're executing our playbook to deliver meaningful growth at both the top and the bottom line. Our business model continues to demonstrate resiliency and scalability. We're pleased with the momentum of the business, and we're updating our guidance for the full year to reflect that. Before I wrap up, I want to take a moment to recognize a couple of achievements that reflect the values of our company and the strength of our team and our franchise partners. We are very proud to have been named one of America's most trustworthy companies by Newsweek. We strive to provide a quick, easy and trusted service to our guests, and this recognition speaks directly to the trust our customers place in us every day. I'm also pleased to share that 97% of all Valvoline Instant Oil Change locations were named a CARFAX top-rated service center for 2025. Across our network, our service center teams deliver a V-class service every day with care, consistency and pride. It's rewarding to see that dedication being recognized by the customers we serve. With that, I'll turn the call over to Kevin to provide more details on our financial performance and updated guidance. John Willis: Thanks, Lori, and good morning, everyone. A summary of our financial results is included on Slides 5 and 6. Let's take a look at the highlights. We delivered strong top line growth with net sales of $504 million, a 25% increase over the prior year with a balanced contribution from the core business and the inclusion of Breeze Auto Care for the full quarter. The gross margin rate of 37.1% and decreased 20 basis points year-over-year with leverage and product costs, offset by an increase in other service delivery costs, including the impact of new store depreciation. Excluding the impact of depreciation, the gross margin rate would have improved by 40 basis points. Also, as Lori indicated, Breeze performed better than expected in the quarter. SG&A as a percent of sales decreased 70 basis points year-over-year to 18% with the substantial planned investments largely behind us, we will continue to focus on cost efficiencies and operating leverage while still supporting the business. As a result, EBITDA increased 28% and to $134 million with margin expanding 60 basis points to 26.5%. And EPS increased 21% to $0.41 per share which includes $0.06 per share of impact from interest expense. Year-to-date, operating cash flows improved to $160 million and free cash flow was $45 million, an increase of approximately $57 million over last year. We're making good progress on leverage reduction. Net debt to adjusted EBITDA was down 20 basis points sequentially to 3.1x. We remain focused on getting to our target leverage as quickly as possible so we can resume our share repurchase program. We had a strong quarter and are delivering on our commitments for sales and profit growth, EBITDA margin expansion and improved free cash flow. Now let's look at our expectations for the remainder of the year. We enter the back half of the year with strong momentum. On Slide 7, you'll see our updated guidance, which includes raising same-store sales, EBITDA and EPS outlook for the full year. To provide more color on the outlook, we are seeing increased costs in the third quarter, and we expect that to continue. The severity and duration of those will be impacted by the length of the Middle East conflict. As Lori mentioned, both company and some franchisees have taken pricing actions already, which should mitigate the impact. I'll also remind you that product cost changes in either direction are passed through to the franchisees based on moves in the base oil index. Also, the Breeze Auto Care contribution was stronger than we expected. While integration remains in its early stages, we're encouraged by the initial performance. The updated outlook reflects the momentum and execution we've seen in the first half of the year, which has continued into April and confidence in our ability to deliver on our financial commitments. I'll now turn it back over to Lori to wrap up. Lori Flees: Thanks, Kevin. We delivered another strong quarter. I have to thank our team members and our franchise partners for the work that they're doing to deliver these results. Our performance for the first half of the year gives us confidence in our strategy and our team's ability to execute. Therefore, while we're mindful of an ever-changing macro environment, we're updating our full year guidance. The fundamentals of our business model are strong, and we have confidence in the resiliency of customer demand. As a result, we expect to continue to deliver strong profitable growth. I'll turn it back over to Elizabeth now to begin the Q&A. Operator: [Operator Instructions] Your first question is from David Bellinger with Mizuho. David Bellinger: Very nice results here. Maybe we could start on the top line, same-store sales super strong, above 8%. Can you tell us where the outperformance came in the quarter, whether a company or franchise or geographical? And then as you went through the quarter, did you see any pockets of the country or any indications of demand softening, maybe where spending on gas makes up a higher proportion of discretionary spend. I mean have you seen anything like that as you move through the quarter and so far into early May? Lori Flees: Thanks, David. Yes, we had really strong same-store sales growth at 8.2%. And as I mentioned, it did exceed our expectations. About 2/3 of that came from ticket with actually all things contributing healthy amounts on the ticket side, net pricing was good, premiumization and then OCR penetration all positive. There were some pricing moves that happened in the quarter for our franchisees and that was not expected, some of that tied to the forward-looking cost increases on lubricants. So some of that would have been higher than what we would have expected. And then on the transaction side, which made up the remainder really good growth across the network. So when we look across all the metrics, all geographies there's always puts and takes, but some of that is given where lapping is happening. So for example, California, transaction growth was really strong because we were lapping some California wildfires. Some of the other systems had more new stores contributing to the transaction growth. Some of those things we know, just the outperformance sort of happened across the board, with really the only notable thing being some of the pricing changes on the franchisee, which were modest overall. So really good on that. In terms of demand, we continue to look for trade down and deferrals, and we do not see it the customer demand for preventive maintenance is very resilient. So we're not seeing that happen. If you look at history, going back to COVID, gas prices can have an impact on miles driven, but it takes a long time to change consumers' day-to-day behavior. And so we don't see any impacts of that, and we don't expect them. Now if the Middle East conflict were incredibly protracted, then we may see a little bit. But even in COVID, where miles driven was down considerably there's a habitual nature of preventative maintenance, particularly around key driving patterns. So we're not expecting to have any significant impact. David Bellinger: Very thorough. And then just a follow-up on the oil pricing and the impact on your cost of goods. Is there a way to quantify the expected impact you're looking for in Q3 and Q4? And understanding there's a bit of a lag until your price increases catch up to that. How should we think about the offsets and particularly gross margin rate? Is that something you could hold as you move pricing throughout the system and onto the consumer at some point? John Willis: Sure. I'll address that. So first, as Lori indicated, we didn't see any cost pressure in Q2. As we've moved into Q3, base oil indexes have moved and we're starting to the impact of that in product cost. As a reminder, we tend to have about a month or so worth of inventory on hand. So we'll take a little bit of time for that to flow through on a complete basis, but we do expect it to flow through. And we also expect some of the cost increases to continue. To mitigate that, we have implemented price increases to cover those cost increases on a dollar basis. Most of our franchise partners have done the same or in the process of doing the same. So we feel like we will fully cover any cost impacts. In terms of overall margin recovery, we would expect that the margin rate to be modestly impacted based upon the cost that's rolling through. But to put it in perspective, for us, first of all, we passed through on pretty much a dollar-for-dollar basis, increased cost to our franchise partners for the product that we sell them. So that's more than half of the volume that we would purchase in a year. Second part is you look at lubricant or overall product as a percent of COGS, it's 20%, 25% and the lubricant is by far the largest piece of that. Rule of thumb for us is if base oil goes up $1 a gallon, we need to raise price $0.50 to $0.60 per oil change to cover that. So it's not a huge impact given that we and the franchise partners are north of $100 per ticket today. And so again, it's not a huge impact, but it is something that we have to be proactive about and we are being proactive with it to make sure that we do maintain dollar profit. The last piece of that will be waste oil we do get paid for waste oil. Typically, we see waste oil move more or less in line with crude. There can be a lag. We didn't see any movement in waste oil we have seen very modest movement in waste oil that we sell so far in Q3, but that is a partial offset to any kind of cost increase that we see around base oil. Operator: Your next question is from Simeon Gutman with Morgan Stanley. Simeon Gutman: I wanted to ask about Breeze for a second. Can you talk about milestones, integration, anything good or anything less than good. Lori Flees: Thanks, Simeon. Yes, our integration efforts are progressing well. We're pleased with the performance of Breeze as both Kevin and I talked about in our prepared remarks, we delivered some of the SG&A synergies earlier than planned. So as we brought and integrated our corporate support teams, we were expecting to have a good fit between the teams, and we had some open roles, which we were able to not fill with outside hires and instead use the Breeze talent. So those were some of the things that we had hoped but hadn't exactly planned for. And then the team has worked really hard across all the procurement contracts to look for opportunities. Those are things that when we did the planning, we did not have the detail and the team has worked really quickly to deliver some procurement savings earlier than what we would have expected. So all of those are really great. Our focus -- we're still only 4, 5 months into this process, which we know will be a multiyear integration effort. And our focus really is on operational stability of the stores, making sure that we retain the talent in the stores, particularly as the FTC required some divestitures in and around the stores we maintained. So that's been a big focus of our team, making sure that we get out and talk about our plans for the business and for the people in that business, so they get excited about staying on with Valvoline. And then we've completely integrated and aligned all the support teams and the management team members making sure that our financial reporting line cadence that we have eyes on and more detailed understanding of their business. So I think it's -- the integration effort is going very well, and the business is performing very well. The Breeze team did a nice job managing store operating expenses in this quarter and delivered well against their plan. Simeon Gutman: And a follow-up on the demand and maybe the macro. It looks like your spread versus at least one of the public peers that we can track, widen. Can you talk about market share in the quarter? And then if demand slows because of price of oil, that's just deferral, right? I mean that's a business that just has to come back unless miles driven takes a step down. But I would assume you're looking at this backdrop is more temporal than structural. Lori Flees: Yes. When you look at market share, Simeon, to your first question, we definitely grew share across our business. Even when you take the impact of Breeze out of the numbers, which obviously was a share capture we still had really strong growth across our system, not just in same-store sales, but also the new store contribution. So 25% growth overall with a healthy mix coming from the business that we had, not including Breeze just shows you the power of our proposition and our real estate placement and execution. So feel really good about that. In terms of deferral, you're exactly right. Miles driven and more timing interval as I always like to remind people, when you're going to take a long car drive, people want peace of mind. And given the complexity of the vehicles today, they want somebody with eyes on, hands on their vehicle just to do safety checks. And in our proposition of quick easy trusted it's also thorough. We do a comprehensive safety check. And oftentimes, people will go ahead and get their oil changed at the same time even if they're not exactly due because they're timing it with a road trip with their family or a significant drive for other reasons. So when we look at drive interval, there's very little deferral on drive interval and our miles driven is fairly consistent across the network. Again, it takes a protracted duration of high gas prices to start to impact miles driven. People can't change their daily habits and routines that quickly or it's done very much on the margin. You also have trade down activities of people choosing not to fly instead to drive that all bodes well for our business. Operator: Your next question is from Mark Jordan with Goldman Sachs. Mark Jordan: Congrats on great quarter. Just wondering if you can talk a little bit about same-store sales trends, how they progressed throughout the quarter. And maybe what kind of momentum we're seeing thus far during 3Q? Because I think if we take the updated guidance and couple that with the fact that 2/3 of the comp in the 2Q were driven by ticket kind of implies things slow down a little bit in 3Q. So just any commentary you can provide there? Lori Flees: Sure. I'll cover Q2 and then I'll ask Kevin talk about how Q3 has started. The comps overall, there were some puts and takes by month in the quarter. We talked about January in our last earnings call, we ended that month fairly light because there was weather in the last week that pushed demand into February. We talked about the fact that we expected to get that volume back. I think we did February was very strong given the January push, but it was also strong because last year in February is when we had weather, which pushed volume to March. So we had kind of a double whammy really driving volume in February. And our teams across franchise and company did a great job responding and ensuring that we have labor in the stores to deliver on that demand. And then March, we saw good growth, but it was more modest, given the comp from last year's Feb push to March, we expected a lower comp on the transaction side for March, and we saw that, but still really good growth across the quarter when you take out some of those puts and takes. John Willis: And Mark, looking at Q3, we're still early, but we do have a full month end plus a week in May. And we're seeing no change in behavior. We're seeing no change in how the business is performing. April was a good month to start the quarter. Net sales and same-store sales growth were both solid. Consumer behavior remains very consistent with what we've been seeing. NOCR is performing pretty much as it has been as well. So we're not seeing any trade down or deferral on really anything in our customer base. As we think about the full year we're really pleased with how the first half landed. Company and franchise performed really well. Breeze is performing ahead of expectations as well. So we've got good momentum going into the remainder of the year. We did raise the guide as indicated, same-store sales growth profit metrics. That reflects the strong first half we had. But just to be transparent, we're still being a bit measured as we consider the uncertainties that exist in the back half. with the Middle East conflict and nobody knows what the duration of that is going to be or the overall impact. And so we do continue to be measured. That said, we remain incredibly focused on delivering on the financial commitments that we discussed at the December investor update. And thus far, I think we're doing a good job of that. As we think about the rest of the year, we do typically see operating leverage across our store base in the second half of the year. We'd expect to see that this year as well. More specifically, we should see some labor leverage for the full year, but that's going to be a bit muted for two reasons. Number one, we had some big wins last year, and that's hard to comp. Also Breeze is a negative impact to margin, albeit less than we expected so far, and we expect that to continue. So that's really a lot of what we're thinking about when we think about the overall guide and the second half of the year. Mark Jordan: Okay. Perfect. And then just last one, if I could. The competitive landscape, it's changed a little bit here, I think, in recent months with one of your larger competitors announcing the sale. I guess with that, do you expect any changes to the competitive environment either intensity or maybe impacts to your white space projections? Lori Flees: Yes. No, I think our industry is still incredibly fragmented, and we haven't seen nor do we expect at least in the near term to see any material changes in the competitive environment? Obviously, with -- there's a lot of distraction in our category. But I do think that we compete against the players that exist today. And we performed very well. So when you look at our stores proximate to the next largest players, we've been competing against these brands for a long time. We continue to add stores in markets where we compete against these brands. We deliver -- we're delivering very good returns still maintaining mid-teens or higher returns on invested capital in the stores that we build and our franchisees are still building. So it's unclear how new ownership and some of the turmoil is going to impact or change, but we're confident in the strength of our business model. Our customer proposition, our marketing execution and just our overall store execution across the network. Operator: Your next question is from Chris O'Cull with Stifel. Christopher O'Cull: Congrats on the great report. Lori, could you elaborate a bit more on the risk of lubricant shortages? Lori Flees: Yes, I'll do a little bit at a high level and Kevin, you can add on to it. the lubricants that we use in our business are blended from a number of different base oils. Our supplier who develops that is always looking on its formulation to meet the OEM specs. And so this is something that they're always looking at in terms of managing supply and demand across the base of products that they produce. When you look at the Middle East conflict, it's really base oil trees. That tend to be -- are potentially being impacted, and we're working very proactively as our supplier is to make sure that we mitigate any risk. But that -- that is something that will depend on how long the conflict continues. But at least as it relates to the guidance that we've updated, we believe we've been very measured to outline more of the bottom end would have that taken into account to the extent we see any risk. John Willis: Yes. I think Lori said it really well, but we've got very adequate supply today and for the foreseeable future. And it really will be about the duration of the conflict. But again, in very close contact with our supplier on this, and they get it and are doing everything they can to ensure that we remain and continue to remain supplied. Christopher O'Cull: Okay. And then Kevin, I had a question on the guidance. The comp range was raised meaningfully, but the full year revenue range wasn't changed. I was hoping maybe you could just elaborate on what else changed in the underlying assumptions. And then I wanted to clarify, the EBITDA range was also increased on the same revenue range. Is that because Breeze margin is better than initially expected? John Willis: So, Breeze is performing better than initially expected, and we would expect that to continue based on how they're executing. So that does certainly play some part in it. As we look at the overall revenue range, I would say at this point, we were comfortable with the range, which is why we didn't change it. I would say that we are trending above the midpoint. I think another point worth making here is depending on how much price movement we need to do there could be a need to change that range down the road. But we're comfortable with where it is right now and feel like there's room in there based on our current forecast of the business. Operator: Your next question is from Steve Shemesh with RBC Capital Markets. Steven Shemesh: Nice results. Just a follow-up on cost inflation and pricing and kind of where that pricing has gone into the market company operated versus franchise. And then just thinking about have you priced to where you think inflation is going to go or based on what you've seen in the market today? And could we see additional pricing throughout the year? Lori Flees: Yes, great question. So as we mentioned, we started to see our cost forecast for lubricants go up for the third quarter. And therefore, on a company basis, we did take some pricing actions within this third quarter to mitigate. We are trying to stay measured with that to make sure that we cover the cost increases, but we're also putting those into the market in an appropriate way, much like we do our pricing all the time. So we've been running in test and some of this pricing, we feel very comfortable and confident in the customer elasticity benefit or a net benefit that we would receive. So we feel very good about the company side. Our franchisees, not all of them, have taken pricing actions. Some took some pricing action already in the second quarter. Some are still reviewing. Some have decided or are in the middle of deciding what they will do in the month of May. So we're really in a transition phase as we're looking at cost increase wanting to make sure that we are appropriately pricing to pass that through to the consumer where we can't mitigate it otherwise. Steven Shemesh: Understood. And then just a follow-up. I mean, presumably, as price goes into the market, your list price contribution to same-store sales should increase as well. So I guess just as we think about the contribution of traffic versus ticket for the back half of the year, should it be a little bit more weighted towards ticket? Or do you expect it to be balanced with what we saw in the first half? John Willis: Yes. It most likely will be a bit more weighted towards ticket. I think the other piece of the equation, though, is especially in the non-Breeze part of the business. We do tend to have a pretty high transaction level in the second half of the year compared to the first half of the year just due to the seasonality of the business. So we would expect the transactions will also remain a meaningful contributor in the back half of the year. But I think the way the math will work is we will see incremental improvement to the comp more on the ticket side. Operator: Your next question is from Scott Stember with Roth Capital. Scott Stember: Well, and congrats on the very strong results. I'm not sure if you mentioned this in the call already, but could you talk about whether there is any meaningful difference in same-store performance versus franchisees versus company-owned stores? Lori Flees: Yes, I did mention this, but I'll go ahead and cover it again. Overall, same-store sales across the network of 8.2% was really strong. The franchise stores did outperform company relative to the average. That was higher driven primarily by transaction growth. There were puts and takes on the ticket, but ticket was largely the same. So the majority was coming from transaction growth. And there are a number of different factors I mentioned. One is new store contribution. We had a couple of our franchise system, fairly larger ones that had more new builds and they're coming into their cost than they would have had a year ago. Another system is lapping weather with the wildfires in California. And so there are different puts and takes that drive some of that transaction growth that we know and can point to. But overall, when you step back and you look at company store performance and franchise store performance, averaging out to 8.2%, it's meaningful, and the comp was strong on both. So we're really pleased with where Q2 landed. Scott Stember: Got it. And could you talk about how fleet did in the quarter? Any meaningful improvements over what we've been seeing over the last few quarters? John Willis: Fleet continues to perform very consistently across the board, and we would expect that to continue. Just as a reminder, fleet continues to make up less than 10% of our system-wide sales, but growing at a very rapid rate. We have a lot of room to run in the fleet business, both on the company and the franchise side. We have resources devoted to those customers to not only serve them, but also to continue to build that business. Again, both for us and our franchise partners. And we're very bullish on not only where that is, but where we expect it to go. Lori Flees: Yes. When we look at fleet growth -- when we look at fleet growth, just to chime in there a little bit, there was a little bit slightly higher fleet contribution on the franchise side, the same store sales and company, it was small but meaningful on its base. I think the other thing that's happened that we're really pleased about is our last large franchise system has just decided to move their fleet business to be managed in our managed sales group, which we do on behalf of all of the other large franchisees, but this was the last one, which will allow us to really go after meaningful business across the nation when you look at key regions. So we're really excited about the opportunity to grow fleet. There will likely be meaningful fleet growth. On the franchise side, just because we've started to focus on that on behalf of our franchisees more recently. Operator: Your next question is from Peter Keith with Piper Sandler. Peter Keith: Good morning, everyone. Great results. With the guidance range I'm curious if you've touched the back half of the year, the guidance seems to imply a bit of a step down in the comp trend despite the continued momentum, certainly can understand being conservative, but maybe just help us understand the guidance raise is it mostly flowing through what's happened in the first half? And has there been any changes to the second half? John Willis: Again, we are being measured in the second half in terms of the overall guide. You're right, the second half guide remains largely unchanged. We started off strong in Q3. We feel very, very good about where we are, the momentum of the business and how it's performing. But again, we did want to be measured based on the things that we don't know and that we can't control. And as we get through Q3, we'll take a fresh look at it again. And if we need to adjust, we will. But you are correct. The second half is largely unchanged from where we started. Peter Keith: Okay. That's very helpful. And then for Lori, I'm always curious around the efficiencies you're getting from moving your tech architecture to the cloud. And you've talked in the past around improved marketing analytics. Is there anything you could update us on that front where you've made some recent progress. Lori Flees: Yes. We continue to look at our net pricing and the efficiency of our discounting activity. And I would say that we've made a lot of progress in that as we continue to grow ticket, we're managing the discount levels very effectively. We've been able to pilot some different offers in a very targeted way to figure out if there are things we want to do more broadly. Probably nothing too early to share the impact. Some of the things that we have are in our plan. Some of them would be upsides to the plan, which obviously, we're always working to deliver. We're very early in the shift of some of our budget from local media spend and national media spend, that's driving our cost per impression down or increasing the number of impressions for the spend that we're using. And we're seeing increased organic traffic to our brand assets, which obviously lowers our customer acquisition cost. So overall, probably too early to share some of the metrics, but we're seeing some very promising results of the investments that we've made both to move our marketing data and assets into the cloud, but also in the early stages, very early stages of the shift to more of the national media spend. Operator: Your next question is from Steven Zaccone with Citi. Steven Zaccone: Congrats on the strong results. Most of my questions are answered, so I wanted to follow up on a couple of model things. First on -- let's talk about gross margin for the second half of the year. So you talked about 2Q being up 40 bps ex the depreciation. How should we think about the second half because you still have Breeze being dilutive? And then it sounds like labor efficiencies will kind of be a bad guide. So just can you talk about second half gross margin expectations? John Willis: Yes, Steve, we would expect gross margin in the second half to improve as it normally does, given that we do tend to have higher volume in the second half with the summer drive season and just general seasonality in the business on an overall basis for, call it, the non-Breeze part of the business and we fully expect that to continue. On the labor piece of the equation, we were really, really strong on labor leverage in the second half last year. And so we don't expect a lot of improvement on the labor side, but we would expect some nominal improvement there, partially offset by Breeze. Because just as a reminder, they do have lower volume stores. And so their labor as a percent of sales does run higher than ours. It's one of the advantages that we'll gain as we build momentum in that system. But on an overall basis, we'd expect to get a bit of leverage from most store expenses, again, just through the throughput that we'll see in the second half. And while you didn't ask the question, I will also say we would expect to see continued SG&A leverage in the second half, again, as that is a stronger part of the year for us. Steven Zaccone: Okay. When you say improved, do you mean sequentially gross margin rate, not necessarily year-on-year? John Willis: That's right. And part of that is due to the fact -- just to clarify, remember, we do have Breeze included in the equation, and that is a bit of a margin headwind much less in Q2 than we expected, and we would expect it to be less for the full year than where we thought it was going to be, but it will be directionally a small headwind to margin in the second half as well. Lori Flees: And part of that is because when you look at the volume in our stores, and the way that it ramps during drive season for much of the country, it's less so in states like California, though there is some. And when you look at their volume per store, just the amount of leverage that we'll get because it will take time to drive that demand curve on the Breeze sites. Steven Zaccone: Okay. Understood. And then the other follow-up I had is I may have this wrong, but the original thinking for Breeze dilution was about 100 basis points to EBITDA, that one was that right? And two, what should we be thinking about as the dilution from Breeze on an EBITDA basis? John Willis: Yes, that was right. We expected about 100 basis points of overall EBITDA margin dilution. We didn't really talk about the gross profit piece of that. But it was much less in Q2 than 100 basis points. That said, we did have synergy capture that was earlier than expected. So on an overall basis, it will be less than 100 basis points for the full year. Not really prepared to disclose exactly what we think it's going to be, but it will be less than 100 basis points. Operator: Your next question is from David Lantz with Wells Fargo. David Lantz: On your expectations for second half SG&A leverage, Curious if you can parse out how we should think through some of the moving pieces within advertising, payroll and G&A? John Willis: Sure. Advertising as a percent of sales will be fairly consistent sales will be higher, advertising will be higher in the second half as it normally is. But on a percent of sales basis, it doesn't change very much typically. May move around a little bit on a month-to-month basis, but for a quarter or the full year, it's pretty consistent. As far as the rest of SG&A, goes. As we think about the full year, we'll talk about Q2 first. We had about 60, 70 basis points of leverage. And I think most of the big tech investments are behind us. We've lapped that, and we're seeing that come to fruition. But one of the things we're really pleased with is that the improvement is really coming across a broad range of categories. which is how it should happen. So we're not seeing outsized impact from any one area like labor or what have you, kind of all the big areas are improving a bit. And we would expect that to continue. There's -- there will be a natural amount of that again in the second half because it's busier for us. We'll see more sales and the labor and other costs to support those sales really won't change very much. And so we should naturally see leverage higher leverage in the back half. That said, we are also very focused on making the business more efficient every day. we're looking at ways to do more with less to employ technology in new and better ways and to generate as many ideas as possible to continue to create and build SG&A leverage going forward. David Lantz: Got it. That's helpful. And then could you also talk about the cadence of new unit openings in the second half and provide an update around new unit economics as well? Lori Flees: Sure. I'll talk about the new unit profile of openings and Kevin can talk about capital. Obviously, we added 31 stores to our network, 29 netting out the 2 closures. The new units continue to wait to the back half. It's typical given the geographies that we serve and the weather patterns of when construction and conversion can happen. We actually had 14 openings in April, 9 of which were franchise. So again, we continue to feel really good about the health of our pipeline, both on the company and the franchise side. That includes both ground-up builds and independent Quick Lube acquisitions. So overall, you can expect to see a weighting of unit openings in the back half, particularly on the franchise side. John Willis: As we think about unit economics, we and our franchise partners have been very focused on reducing the amount of capital that it takes to build a ground-up store as well as the capital required to convert an acquired store to Valvoline Instant Oil Change. And the team has been pretty successful with that, bringing that cost down, call it, 10%, 15% with line of sight to do another 10% to 15% over the course of time. It will take some time for that build cost to roll through as -- especially with ground ups because there is a certain amount of time it takes to open one of those from start to finish. That said, as we look at unit economics, it really hasn't changed. From an IRR perspective, we see mid- to high teens. That's why we continue to invest in the units. It's why our franchise partners have increased their investment in the units and made commitments around that with new development agreements. So we really see no change there, and we will continue to invest in new units for the foreseeable future. Operator: Your next question is from Bret Jordan with Jefferies. Bret Jordan: In the non-oil change revenue mix, did you see anything of note there, whether customers either push back on some of the higher ticket stuff like a differential flush as the quarter progressed? And I guess if you could talk about sort of strengths or weaknesses in that category. John Willis: NOCR was a good contributor in the quarter. And as we look at the trending of NOCR -- I think we've said this in the past. NOCR tends to run around 25% of ticket, give or take. As we looked at that in Q1 versus Q2, April versus Q2 and Q1, et cetera, it remains very consistent, both across the company and the franchise partners. So there's been no change there thus far. Bret Jordan: Okay. And then I guess when you think about past oil volatility, as you take prices up, and obviously, they might come down if we resolve the Middle East, can you capture margin as you hold price for a bit against the lower input cost? Or does it ratchet down pretty quickly with competition? John Willis: Lori can correct me if I'm wrong, but I don't think we've ever lowered list price on our oil changes. And that's just -- that's an industry standard, I would say. So there is potential opportunity for some margin recapture going forward as a result of that if we do see declines in the cost of lubricants. Operator: Your next question is from Thomas Wendler with Stephens. Tom Wendler: Great quarter. Most of my questions have been answered, maybe 1 more quick one for me. With the Breeze acquisition, I think there was an expectation from any rollout of additional services there at the Breeze locations. Can you give us an update there? Lori Flees: Yes. We're in the process of looking at the menu and understanding what equipment would be required to expand the menu of offering between an oil changers location and a Valvoline Instant Oil Change is fairly consistent. Obviously, the lubricant offering has some differences that we're working through. And then they don't offer tire rotations. And so we're working through what equipment that would be required in training as we look at that opportunity and the oil changers, there are pretty small other changes here and there still an opportunity for upside, which is factored into our overall growth expectation for Breeze. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending, and you may now disconnect.
Operator: Greetings. Welcome to the Fortuna Mining Q1 2026 Financial and Operational Results Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Carlos Baca, Vice President of Investor Relations. You may begin. Carlos Baca: Thank you, Holly. Good morning to all, and welcome to Fortuna Mining's conference call to discuss our financial and first quarter of 2026. Hosting today's call on behalf of Fortuna, our Jorge Ganoza Durant, President, Chief Executive Officer and Co-Founder; [ Lzaro and Osa ] Chief Financial Officer; David Wille, Chief Operating Officer, West Africa, and Cesar Velasco, Chief Operating Officer, Latin America. Today's earnings call presentation is available on our website at fortunamining.com. Statements made during this call are subject to to the reader advisories included in yesterday's news release, the webcast presentation or management discussion and analysis and the risk factors outlined in our annual information form all financial figures discussed today are in U.S. dollars unless otherwise stated. Technical information presented has been reviewed and approved by Eric Chapman Fortuna's Senior Vice President, Technical Services and a qualified person as defined by national instrument for 1 I will now turn the call over to Jorge cartoanosa, President, Chief Executive Officer and Co-Founder of Fortuna Mining. Jorge Durant: Thank you, Carlos, and good morning, and thank you for joining us today. The first quarter of 2026 marked an exceptionally strong start to the year for Fortuna. We delivered strong operational and financial performance. And importantly, we achieved these results with 0 recorded lost time injuries during the period. This extends our safety performance to 5 consecutive quarters free of lost time injuries. Financially, the quarter delivered record results across our key metrics. Sales reached a record $342 million, reflecting higher realized gold and silver prices. Adjusted net income was $111 million or $0.36 per share, a quarterly record for the company. Adjusted EBITDA totaled $219 million also a record. And free cash flow from ongoing operations reached $174 million, representing our strongest quarterly cash generation to date. These results underscore the quality of our asset base, disciplined operational execution and strong leverage to the gold price environment. Operationally, this financial performance was supported by solid execution across our portfolio. We produced 72,900 gold equivalent ounces in the quarter -- and based on performance year-to-date and current operating conditions, we remain well positioned to meet our full year 2026 guidance. With that as context, let me step back and focus on the bigger story for Fortuna. We're working to deliver approximately 60% growth in annual gold production over the next 24 months, taking us to approximately 0.5 million ounces of annual gold production by expanding our Seguela mine in Cote d'Ivoire and by bringing our Dambasut project in Senegal into production. The key message I want to emphasize is that we control this growth. This growth is driven by 2 projects already within our portfolio, not dependent on acquisitions or exploration success. Both Seguela and Dambasut are technically straightforward benefit from strong social acceptance and are financially derisked. These are executable growth projects supported by our strong balance sheet and our operating track record in West Africa and both demonstrate robust economics at long-term gold prices below $3,000 per ounce. As these projects advance over the next 24 months, we expect this growth to translate into meaningful increases in production and free cash flow per share while maintaining discipline in execution, cost and capital allocation. Our growth plans are also underpinned by the recently published update to mineral reserves and mineral resources on April 23, which shows growth across all categories of resources and reserves. Proven and pro mineral reserves increased by 15% year-over-year after depletion to 3 million gold ounces. Indicated mineral resources increased by 56% to 2.1 million gold ounces and inferred mineral resources increased by 4% to 2.2 million gold ounces. This growth speaks to the mineral potential of our assets and our potential not only to expand production, but also to support decade-plus mine lives across our operations. Looking ahead, there are several near-term milestones that we believe are important for investors to watch. Both the [ Bambas ] feasibility study and CEE expansion study are expected to be completed in this month of May. Providing greater technical and economic visibility on our growth plans. In parallel, we're expecting environmental approval for the Amba suit imminently, followed by the final mining permit shortly thereafter. All this, while we continue to advance the Amba early works with a 2026 budget of $100 million. Our strong cash generation continues to strengthen the balance sheet. At quarter end, we had approximately $816 million of total liquidity, including $493 million in net cash positioning Fortuna among the stronger balance sheets in our peer group. This financial strength allows us to comfortably fund approximately $330 million of total exploration, sustaining and nonsustaining capital in 2026, entirely from internal cash flow. Of this $330 million figure, 56% is allocated to growth and exploration. At the same time, we are returning capital to shareholders year-to-date, we returned $40 million via the repurchase of 4.2 million shares. For the quarter, we repurchased $20 million which represents 11% of our free cash flow from operations. Before handing over for more detailed operational commentary, I want to briefly address costs. All-in sustaining cost in the first quarter were $2,107 per gold equivalent ounce. Of that amount, approximately $122 per ounce is attributable to external factors, primarily the impact of higher gold prices on royalties and higher share-based compensation associated with our share price performance during the period during. These factors factors are not reflected of underlying operating expense operating which ratio remains solid across the portfolio. With that, I will now turn the call over to the operating quarter in more detail. David? Unknown Executive: Can you maybe give us your review Thanks, Jorge. Segala, delivered a successful first quarter with strong production results and importantly, 0 LTIs recorded. During the quarter, Segala produced 42,016 ounces of gold, representing a 14% improvement over the previous quarter and finishing ahead of the mine plan. A total of 393,000 tonnes of ore were mined at an average gold grade of 3.69 grams per tonne, together with 5.46 million tonnes of additional material resulting in a strip ratio of 13.9:1. The processing plant treated 430,000 tonnes of ore at an average gold grade of $3.21 per ton with throughput averaging 212 tons per hour. Production was sourced primarily from the antenna [ as and ] cooler pits, while waste mining progressed well at the Sunbird pit, positioning the operation for future or contribution from that area. Segala's strong operating performance resulted in a cash cost of $679 per ounce and an all-in sustaining cost of $1,760 per ounce of gold. In terms of projects underway at Segala, substantial progress was achieved in the first quarter. The 6-megawatt solar power plant project is nearing completion and is expected to be commissioned this quarter with power source from the solar power plant, providing approximately a 35% per unit cost savings on power provide from the grid. In April, we announced a 34% increase in mineral reserves and a 55% increase in resources from the Sunbird deposit. Based on drilling completed through to the end of the first quarter. This further enhances the Sunbird underground project and reinforces its importance as a future source of Board for Segala. Joint permitting committee has been established with what he was Ministry of Mines with the goal of permit in the underground mine by the end of 2026. Initial development is then targeted for the first half of 2027. We have also decided to develop and operate this on the funded ground mine on an operated owner-operator basis with an incremental increase in budgeted CapEx of $25 million to undertake this project. Orders for primary mining equipment are expected to be placed during the second quarter. Access to the underground mine be established from the southern section of the Sunbird pit, rather than through the originally contemplated dedicated open excavation. This section of the Sundbird bit was not scheduled to be mined until 2027, whilst accelerating this mining has the effect of increasing Seguela's forecast as towards the upper end of guidance. This decision provides a cost improvement of more than $7 million on the project by reducing underground development requirements and avoiding additional waste volumes associated with the box of option. Mining of the Sunbird Pit commenced studies for the proposed processing plant expansion continued throughout the first quarter. Lycopodium, which design and construct of the current prices plan presented several expansion options and is now progressing detailed studies on the selection -- selected option, which includes the addition of the ball mill as well as increased thickening reaching a revenue circuit capacity. The current primary crushing capacity is expected to be sufficient to support the planned out increase. Exploration drilling, it's again ongoing with additional doings being mobilized to site, bringing the exploration rural fleet will inflate to 7 weeks. The drilling program is focused on further conversion and expansion of the Sunbird and Kingfisher resources as well as testing below the southern extent of the antenna fit and the newly discovered a Service portal opportunity at Sunbird. At BMS, early works programs and exploration activities continued to advance successfully during the quarter. Approval of the ESIA is expected imminently, and the feasibility study remains on track for completion, including the first time reporting in mineral reserves in support of the construction decision by mid this year. Thank you and back to you over. Jorge Durant: Thank you. David, now will move on to LatAm. Cesar, please? Cesar Velasco: Thank you, Jorge, and good morning, everyone. In the first quarter, our Latin American operations delivered a strong and stable performance, underpinned by disciplined execution, solid safety performance and clear progress on key operational priorities. As been there in Argentina, the quarter was defined by strong operating delivery and its successful execution of a critical maintenance milestone, which positions the operation well for the rest of the year. We mined 1.7 million tons of ore at a favorable strip ratio of 1.35:1 and placed 1.5 million tons on the leach pad at an average head grade of 0.62 grams per ton of gold containing an estimated 30,538 ounces of gold, in line with our mine plan. As a result, Gold production reached 21,545 ounces, representing a 12% increase compared to the fourth quarter of 2025. So overall, from an operational standpoint, the mine performed as expected with improving momentum. But the most important development in the quarter was the completion of the primary crusher foundation replacement. I want to highlight 3 things. We delivered it on time, we stayed within budget, and we executed it with strong safety performance. Crucially, crushing operations resumed on May 1 as planned, and the planned return immediately to stable operating conditions, supporting throughput going forward. Now turning to financial performance. Lindero delivered a very strong quarter financially, generating $101.5 million in sales with a strong EBITDA margin of 69% of sales increasing by 28.5% and 9.5%, respectively, when compared to the fourth quarter of 2025, reflecting higher gold prices strong cost discipline and solid operational execution. On costs, we reported cash cost of $1,208 per ounce and an ASIC of $1,783 per ounce. As expected, these costs were slightly affected primarily due to temporary and nonrecurring factors, such as equipment rentals and temporary crushing solutions associated with the primary crusher project maintenance interations, and macroeconomic pressures in Argentina, particularly high inflation and a stronger-than-expected peso, which increases dollar-denominated costs. However, these pressures were partially offset by higher production volumes, a lower stripping ratio and ongoing operational efficiencies. Looking ahead, we expect a clear and steady cost reduction throughout the year. As the temporary measures are removed, capital work is completed and efficiency gains are fully realized. And as a result, we continue to expect ASIC to move toward the $1,300 per ounce by the fourth quarter. Finally, on growth, we continue to advance both near mine and regional exploration. As Lindero, as previously indicated, we have initiated drilling below the current pit limits, targeting conversion of 400,000 ounces of inferred resources to higher confidence categories. These resources are located beyond the limits of the current final pit design. In parallel, we have multiple regional exploration programs underway, including Serino where activities started in March with construction completed and drilling now underway. During the second half of April, we also began our first phase of our 2026 drilling program at Arizaro. This 11,400 meter program is designed to test for deeper fertile intrusions and proximal magnetic anomalies, followed by resource expansion. And finally, as of today, exploration work has started at the Rio Negro properties in Southern Argentina, where surface mapping and sampling is underway. Drilling is planned for September after the winter break. Let me now turn to Caylloma in Peru. Caylloma continued to stand out as a very consistent and reliable operation, delivering predictable performance quarter after quarter. In the first quarter, mining and processing volumes were fully in line with plan, and we benefited from higher head grades, particularly in silver and base metals. This translated into higher silver production of 258,000 ounces, up 3.5% quarter-over-quarter and strong and stable base metals output of 11.5 million pounds and 8.2 million pounds of zinc and lead, respectively. Mine production totaled 136,700 tonnes of ore in the first quarter which continues to come from well-established mining zones from the Animas Vein, Simo Dean and Ramal Carolina vein, which supports operational stability and predictability. From a financial perspective, IONA also delivered a strong quarter, generating sales of $34.6 million and maintaining a solid EBITDA margin of 62% of sales. This reflected the combination of higher realized metal prices and disciplined cost management. Now on costs, we reported cash costs of $30.26 per ounce and ASIC of $44.36 per ounce of silver equivalent similar to the fourth quarter of 2025. This was mainly explained by the increased impact of higher prices on the silver and swivel conversion, while production costs remained in line with plan for the quarter. So the underlying operating cost base remains stable and well controlled. Finally, on exploration. The 2026 campaign commenced in February, targeting extensions to our shot 3 and 4 at the animal zone where mineralization remains open at depth. Thank you, and back to you, Jorge. Jorge Durant: Thank you. We'll now go over the financial highlights with our CFO. Luis? Luis Durant: Yes. Thanks. We'll provide a brief review of our consolidated financials. -- attributable net income. As highlighted by Jorge for the quarter was $111 million or $0.36 per share. That's up 64% versus the prior quarter and up 200% versus the prior year. Our strong performance was driven by record metal prices with cost per ounce, in line with our full year guidance. Our average realized gold price was $4,884 per ounce compared with $4,166 per ounce in Q4 of 2025 and 2,884 per ounce in Q1 of 2025. We Cash costs per gold equivalent ounce was $951 broadly consistent with the prior quarter and slightly above Q1 of 2025. A brief comment on inflationary trends and indicators. We have not seen any material impact on our cost structure to date. In Q1, we saw higher input costs for certain materials, though not consistently across all regions. For fuel, specifically, we have seen rising prices at our Peruvian operations, while in Argentina and at Ivory Coast, we have not yet seen any meaningful pass-through from higher oil prices. We will continue to monitor the situation. A few comments on the -- on the financial statements, General and administration expenses were $27.8 million up $3.9 million year-over-year, primarily due to higher year-end bonuses and the timing of corporate and subsidiary expenses, we recorded a foreign exchange loss of $2.1 million, driven primarily by modest depreciation of the euro and the West African franc against the U.S. dollar from January through March together with our net monetary asset position, including cash balances and VAT receivables. Our effective tax rate was 33% for the quarter compared with 28% in Q1 of 2025. The increase reflects an inflection point in our deferred tax position at Lindero in Argentina. In the current metal price environment, we are utilizing existing tax shields at a faster pace and transitioning from a deferred tax asset to a deferred tax liability position. As a result, we expect to begin recording deferred income tax expense for Lindero in 2026. This is an accounting charge only as we do not expect to incur current income taxes in Argentina until 2027 with first cash tax payments likely in 2028. At the consolidated level, we expect the effective tax rate to step up in the remaining quarters of 2026, such that the full year rate ends up in the high 30% range. This compares with a roughly 28% to 30% level we reported over the past few quarters. Moving to our cash flow statement. We generated $174 million of free cash flow from ongoing operations, which excludes new development projects and growth initiatives. We also expect to pay approximately $140 million of taxes in 2026 with the majority paid in Q2 and Q3, about 50% in Q2 and 35% in Q3 as a result of this timing and all else being equal, we should expect somewhat lower free cash flow over the next 2 quarters. In the investing section, additions to property, plant and equipment were $45.3 million, including approximately $28 million of sustaining capital and $17 million of nonsustaining spend. The nonsustaining total included $8.8 million Jamba sad project and $8.6 million in brownfields and greenfields exploration. Turning to the balance sheet. We ended the quarter with $665.9 million of cash and net cash of $493 million after financial debt. Net cash increased by $111 million versus year-end, reflecting strong free cash flow from operations, partially offset by $17.4 million of growth capital and $24.5 million of share buybacks. Total liquidity was $816 million including the full $150 million undrawn amount under our revolving credit facility. Thank you, and back to you, Jorge. Jorge Durant: Thank you Carlos. Carlos Baca: We would now like to open the call to questions. Adi, please go ahead. . Operator: [Operator Instructions] Your first question for today is from Mohamed Sidibe with National Bank. Mohamed Sidibe: Maybe if I can start with a -- during the quarter, you reported a cash cost around $678, which is below the guidance of $735 million and $815 million -- would you be able to give us a little bit of color on what's leading to that cost outlook like understanding that you produce 42,000 ounces, but -- is there any improvement in the unit mining costs or unit processing costs that you're seeing with -- and any commentary as well as impact on fuel in country would be very useful. Jorge Durant: David, do you want to answer Mohamed question? Unknown Executive: I Touch on a couple of the factors there. There's probably 3 main drivers of the cash cost for the first quarter. The first one, obviously, which you already mentioned is that we increased our gold output compared to previous quarters, moving to 42,000 ounces, so probably about a 14%, 15% higher than previous quarters. . The other drivers would be an accounting aspect depending on the schedule. Stripping the falls into the OpEx component? Or is part of the sustaining CapEx, which obviously is important part of the cash cost per ounce. The other component was just with regard to the scheduling within the mine plan. Our stripping ratio within the quarter was $13.9 million which was probably a little bit lower than our forecast over the year stripping ratio, which at the moment is scheduled to be around a little bit over 16% for the year. So those are the 3 components or simple accounting 1 in terms of which can you pause into a lower strip ratio for that particular quarter and then the additional ounces produced. Mohamed Sidibe: That's very helpful. And maybe on the unit cost, the unit cost pressure in country, are you seeing anything on a fuel diesel side or anything impacting your mind on our processing costs? Jorge Durant: Not materially at this stage. We're starting to see some increases in grinding media, but nothing that's material. -- in terms of power costs, power costs are controlled by the [ Cedar ] government. And as at this point in time, we haven't been informed of any significant increases in at our costs. Mohamed Sidibe: Great. And maybe a second question on the [indiscernible] as I know that the technical report for that is -- like did you -- or an update you by the end of the value -- what's the status of the permit with the syngas government? And do you have any updated outcome? Jorge Durant: Well, with regard to the permitting of the undercut. So the ESIA, it is was submitted towards the end of last year. As we said in the commentary, we are expecting to receive the approval on that potentially within the next week or so. Certainly very imminently. The rotation permit, we would expect to be sort of in the middle of this year. So everything seems to be progressing pretty much in line with. Operator: Your next question is from Sidney Beckman with Sterne. Unknown Analyst: ' I had a question around the cash and acquisition mandate. Specifically, when you're evaluating a West Africa acquisition, particularly in asset with existing processing infrastructure that you might to mill or integrate with Savella? How deep does your operational technology due diligence go on the target control systems, specifically under the SEC 2023 cyber disclosure rules, any material incident an acquisition asset becomes your disclosure obligation under Form 8-K within 4 business days as a terming materiality. So here's the question. if you're buying someone else's mill, their SCADA system, their plant control and their operational network come with it. Have you built a formal cyber due diligence framework into your M&A process that specifically assesses whether a target has undisclosed incidence or legacy vulnerabilities in their operational technology stack. That could become your problem and your disclosure obligation the moment the deal closes. Thank you. Jorge Durant: The short answer, I think, is no. We have not been looking at targets that are at that level of development, our latest acquisitions have focused more on predevelopment stage type opportunities like we have done with Chesser with the acquisition of Chesser Resources which brought the Amba project to our portfolio back in 2023. That was a predevelopment stage opportunity. We have made other investments. For example, we expanded our presence to Ulyana that was announced a few weeks ago through an option agreement to form a joint venture -- but that's pre-research type opportunities. So our acquisition M&A mandate right now is focused more on predevelopment stage opportunities. And I would have to refer to my lawyer to answer your question in more detail. Operator: Your next question for today is from Eric Winmill with Scotia Bank. Eric Winmill: And congrats on a good quarter. Just maybe on Guyana, if you don't mind, just walking through a bit about what attracted you to the region. Obviously, his perspective, do you see an opportunity potentially to accelerate your investments there or maybe do more in a country and together? Jorge Durant: Yes, Eric. Absolutely. We've been monitoring the Guiana Shield in general, for some time for over a year. It's been in our watch list -- as you well know, the geologic setting is very familiar to what we have in West Africa. So we've been monitoring and searching for opportunity and this recently announced cartstone auction agreement I believe, is a very exciting entry point into the Guiana Shield. I was in Guyana only a few weeks ago, had the opportunity to meet with the Director of Mines, the Director of the Secretary or Minister of Natural Resources and environment in the president of the country. There was a very consistent probusiness message from state authorities. So under Quartstone and Quartstone is on its own, a very exciting opportunity. If we want to look at it from the proximology lens, it's some 30, 35 kilometers away from where G stone G2 sit with their exciting discovery. And we are in a very similar geologic setting metasediments, metavolcanics ramp gains an intrusive through a big structure that hosts gold or a 26-kilometer stretch within the property. So lots of exciting geology there, lots of gold, and we have an exciting program there for us. And right now, we're very much focused not only on Corston, but expanding our presence in Guyana. We're looking at opportunities in Surinam as well. So I would say that those 2 places are where we find a bit more of opportunity and areas of focus for us right now. Unknown Analyst: Okay. Fantastic. Maybe just 1 more, if you don't mind. So you're now planning to access Sunbird underground from the open head right instead of the box cut. That's going to start probably next year. And is it fair to say you'll be drilling from underground there starting next year? Or what are some of the critical to are you looking for the development path in summary underground? Jorge Durant: There was a bit of interfere here on the line that I understand. You're referring to drilling exploration drilling or you're referring to the start of development underground development. Unknown Analyst: Yes. Just wondering about sequencing there, some of the critical path items and whether we should expect drilling from underground there as well. Jorge Durant: Drilling will continue to take place from surface all through 2026 and very likely well into 2027. We're drilling deep holes right now. It would certainly be more efficient to drill from underground, but it will be some time until we can develop that infrastructure probably late into 2027 is when we will be in a position like that -- for now, we are enjoying a lot of success with our drilling at Samberg deep, where we're planning the underground mining. And we'll continue to pursue that over the next at least 18 months, perhaps 24 from surface. Operator: Your next question for today is from Adrian Day with Adrian Day Asset Management. . Adrian Day: Couple of questions -- general questions if I may, and I'll ask them together because they're kind of a connected -- so first of all, I don't know if you could give us a sort of overview of current exploration activities, particularly greenfield exploration, not to stop a Segala you've already talked about, but mostly greenfields. And how do you view greenfield's exploration versus taking equity stakes in existing companies because you've got a couple of those that you've done recently? And then that brings us to Guyana in your minds, how do you view taking on an additional -- if you were to take on a mine in additional country, would you look at that as an opportunity to diversify your risk -- or would you be more cautious on just adding 1 more country with its own needs and requirements et cetera. I'm just trying to see how you view all these different activities. Jorge Durant: Yes, and good questions, and I will start from the end replying, Adrian from your last -- the last question, diversifying risk. We are quite clear that Fortuna has a business model where we play in -- sometimes in the frontier. For us, mining has always been a frontier business, and we're happy to play in the frontier. We're designed for that. Everybody here is experienced with that. And what do we ask in exchange for taking the higher perceived geopolitical risk. We must be asking for something in exchange when we take on that higher geopolitical risk. And what we're asking is exchange, for example, is what we are enjoying right now in Senegal or time to cash flow is very short. As David pointed out during his intervention, David Whittle, we submitted our environmental impact and social assessment to the government in the month of September. And we are expecting the approval of the environmental study imminently. So that's going to be 7, 8 months to get full environmental and social approval from authorities to move ahead into construction, right? So -- those are the type of things we ask in exchange for that higher perceived in my mind, geopolitical risk. But we are not blind to the fact that there is geopolitical risk, right? So -- we have -- if you see our NAV, the NAV of the company does not sit in 1 large asset. Our mines are not concentrated in 1 country. So I believe we have a good diversification of our mines, our projects and therefore, our NAV is not if you will, at risk in just in any 1 jurisdiction, right? So -- that also brings the -- I believe, what was your point, managing that geographic dispersion. As you know, we are centered in West Africa and in Latin America. And we manage the business from hubs. West Africa is managed from a where David Will, is our Chief Operating Officer, looking after the business there. And then on LatAm, from the Lima office where [ Severelasco ] looks after the business. So we believe we can provide efficient cover to the regions from these management hubs and manage the complexities and demands of the different jurisdictions. With respect to Guyana, just some facts about doing business there. In Guyana, for example, once you are granted an exploration permit, the drilling permits once you are granted an exploration license, the drilling permits come already granted with that. There is no additional permitting required to carry on with exploration. So again, once again, it's a new jurisdiction. It's not necessarily a proven mining jurisdiction. But again, it offers tremendous opportunities not only on the geologic endowment, but also on the east to do business. We will likely be reducing dramatically our presence in Mexico. We are not seeing a significant change in business climate in Mexico and our work to date has not yield anything that meets our investment criteria. So you will likely see us transferring resources from what we have been doing in Mexico into the Guyana Shield basically Guyana Surinam right now. Corston is a good anchor project, and we would certainly look to expand our presence to new opportunities in those 2 countries for now, right? And then you asked about greenfields versus equity stakes. We do not have a set budget or to make equity investments or assessment of equity investments is more like, I would say, by appointment. If there is something a geology we like and a team we like, that's very important. We spend a lot of time not only knowing the geology, but also the people behind the programs. We would be willing to make an equity investment, just like we did with Ajuale in Cote d'Ivoire, we are the largest shareholder of hale Resources. We own 15% of the company. And [ aware ] has a very exciting discovery and continuous expanding in geology that is of a lot of interest to us, right? We continue to have a success -- so our greenfields are focused within the regions. No, we are active in [ Cadia ], we're active in Guinea. We're active in Senegal. -- we are retreating from Mexico, moving resources into Guyana and we're active in Argentina. We're always looking for opportunities in Peru -- so those are the areas where we're playing, and we'll make investments more by appointment rather as a specific strategy and budget to make capital or equity investments. That was a long-winded answer. I don't know, if I had addressed your... Operator: [Operator Instructions]. We have reached the end of the question-and-answer session, and I will now turn the call over to Carlos for closing remarks. Carlos Baca: Thank you, Holly. If there are no further questions, I'd like to thank everyone for joining us today. We appreciate your continued support and interest in Fortuna Mining. Have a great day. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, everyone. My name is Sofia, and I will be your conference operator. Welcome to BBB Foods Inc. First Quarter 2026 Conference Call. All lines have been placed on mute to prevent any background noise. There will be a question and answer session after the speakers' remarks and instructions will be given at that time. Please ensure that your full name is displayed correctly on Zoom. If not, please take a moment to edit your display name. Also, please note that this call is for investors and analysts only. Questions from the media will not be taken, nor should the call be reported on. Any forward-looking statements made during this conference call are based on information that is currently available to us. Today, we are joined by BBB Foods Inc. chairman and chief executive officer, Anthony Hatoum, and chief financial officer, Eduardo Pizzuto. I will now turn the call over to Anthony. Please go ahead. Anthony Hatoum: Good morning, and thank you for joining us today. I will begin with a review of our operating results for the quarter and will be followed by our CFO, Eduardo Pizzuto, who will provide an overview of our financial performance. We will conclude with a Q&A session to answer the questions you may have. We delivered another quarter of excellent performance and started the year with strong momentum. Let me briefly highlight a few key results from the quarter. We opened 123 net new stores in the quarter for a total of 3,469 stores, bringing LTM net store openings to 580. As of the end of the quarter, we had 20 distribution centers up and running. Our same-store sales grew 16% versus 2025. Revenues in 2026 increased by 33% year over year to $23 billion pesos. Reported EBITDA in the first quarter was $554 million pesos. If we exclude non-cash share-based compensation, EBITDA increased by 39% to reach $1.3 billion pesos. Finally, for the first three months of 2026, cash flow generated from operating activities reached $2 billion pesos, a 64% increase year over year. When we look at store openings, we opened 123 net new stores in the first quarter. For the last twelve months, we opened 580 net new stores, a 20% growth compared to the number of stores reported in March 2025. Our expansion strategy remains consistent. We continue to densify existing regions while gradually expanding into new ones. Revenue growth remained strong. We continue to be one of the fastest-growing retailers globally. Total revenue in the first quarter reached $23 billion pesos, an increase of 33% year over year. We have seen very strong same-store sales growth of 16%. This growth is driven in large part by the ongoing improvement in our value proposition to customers and also by stronger brand recognition of BBB Foods Inc. that we see every day getting stronger. When we compare our same-store sales performance with Antad, the gap remains notable at more than 14 percentage points, and that is despite operating with very low internal inflation. I will now turn it over to Eduardo. Eduardo Pizzuto: Thank you, Anthony. Good morning, everyone. Selling expenses as a percentage of revenue increased by 5 basis points to 10.3% year over year in the first quarter of 2026. Most expense lines showed operating leverage, with a slight increase mainly driven by utilities, permitting, and higher D&A. Admin expenses excluding share-based payment remained unchanged. In 2026, we continued our investments in new regions and additional talent to support our growth. Separately, 2025 included a one-time expense of $54 million pesos related to the secondary follow-on. With respect to share-based payment expense, these charges are non-cash and already reflected in our fully diluted share cap. Additional details are available in the appendix of this earnings release where we also provide projections for this non-cash expense. EBITDA for 2026, excluding non-cash share-based payment expense, increased 39% to $1.3 billion pesos, primarily driven by strong sales growth. The adjusted EBITDA margin increased by 22 basis points year over year. As you know, we do not drive to an EBITDA target; it will continue to increase over time driven by the work we continue to do. Our business model generates significant negative working capital, which in turn supports strong operating cash flow. In 2026, adjusted negative working capital reached $9.4 billion, compared to $6.5 billion COP in 2025, excluding IPO proceeds. This represents approximately 11.3% of total LTM revenue, also excluding IPO proceeds. Our accelerated growth continues to be self-funded. I will now turn the call back over to Anthony for some final remarks. Anthony Hatoum: This is a very strong start to a 2026 that looks very promising. We operate a high-growth business model that is resilient and that performs well across economic cycles. It is a business that offers very attractive unit economics, generates cash, and becomes more competitive as it scales. The market potential is enormous, and the runway for opening stores is very long. I am excited and remain confident about the future of BBB Foods Inc. Thank you for joining us today. We will now open the call for questions. Operator: We will now conduct a Q&A session with Anthony Hatoum and Eduardo Pizzuto. If you would like to ask a question, please press the raise your hand button located at the bottom of the screen. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be given permission to speak. You will then be able to unmute yourself and ask your question. Our first question comes from the line of Héctor Maya. Please state your company name and ask your question. Héctor Maya: Hi, Anthony, Eduardo. Thank you very much and congratulations on the results. We saw a key competitor implementing some adjustments, which they said led to better results in March. Have you seen anything different in the competitive dynamics? Particularly, could you comment if you have seen any change or impact on your sales in March and April? And also a quick clarification from your press release and different filings: we have seen that the expiration of the lockup period is coming on August 6 of this year, but in your 20-F we saw that it expires on July 8. So just to double-check, when exactly does the lockup expire and how should investors think about it in terms of stock overhang? Thank you very much. Anthony Hatoum: Hi, Héctor. Good to hear from you. To be super clear, the expiration of the lockup is August 6. In terms of competition, as you know, this is a very competitive market and always has been. Specifically, if we have seen anything different this quarter, the answer is no. Eduardo Pizzuto: Héctor, we will amend the 20-F to be specific on the August 6 date, just so you know. Operator: Our next question comes from the line of Andrew Rubin. Please state your company name and ask your question. Andrew Rubin: Hi. Andrew Rubin from Morgan Stanley. One of the items you mentioned as a same-store sales driver was brand recognition that continues to improve. I am curious first how you measure and identify this. And second, we know it is a minimal marketing approach, so if you can talk about brand building as you move into newer regions and how you compare that brand recognition in your newer versus more dense markets, that would be interesting. Thank you. Anthony Hatoum: Hi, Andrew. Let me start with the latter part. Brand recognition is an interesting topic. To be very concrete, we conduct large-scale surveys every year. Roughly 15,000 customers and non-customers across a wide geographical area are polled, which gives us a good sense of what the BBB Foods Inc. brand means to most people that are relevant to us. Because of our expansion strategy, which is stretching, by the time we get to a new region, people already know us because we are not jumping to a completely new region. It has been a gradual stretching of the areas in which we operate. That helps a lot when entering something new, as people already know you and might have already shopped at an existing store. In terms of what we spend, you are absolutely right—we have minimal spend on advertising, and it is mostly word-of-mouth and social media. If you search for BBB Foods Inc. on the Internet, you will see a slew of materials talking about BBB Foods Inc. and its products. A large part of it is not us; it is our customers posting about us, and that helps a lot. Operator: Our next question comes from the line of Bob Ford. Please state your company name and ask your question. Bob Ford: Hey. Good morning, everybody. This is Bob at Bank of America. Anthony, how advanced are you in the process of building out the skill sets and the redundancy in your central administrative staff? Could you also provide us a short update on the progress of the new ERP and the window for your expected deployment? Lastly, I am really excited about your “Irrepetibles.” How are they evolving, and how are you thinking about merchandising in the second quarter, particularly for things like Mother’s Day and the World Cup? Anthony Hatoum: Great. Let me start with “Irrepetibles” as it is fresh in my mind. “Irrepetibles” are very important and add a lot of excitement to the shopping experience in our stores because, as most of you know, these are products that change roughly every two weeks. There is always a treasure-hunt and wow effect in these baskets. We have sold a lot of things in these “Irrepetibles” baskets—bicycles, white and brown goods, clothing—and we continue to do so. It is a very exciting category for us, with tremendous potential and growth. Do not be surprised if you see this continuing to evolve and take more participation within BBB Foods Inc. sales. In terms of hiring and what is happening in central offices, we are very focused on increasing the density of talent as we firmly believe that is what drives everything at the end of the day. If you are going to punch above your weight and move at the speeds at which we move, the key ingredient is talent. We will continue to invest in talent this year and probably through 2027. At some point it tapers off in relation to the total size of the company, but at this stage consider that we are in growth mode, and we think it is an excellent investment for the future. The deployment of the ERP is well underway, and I am very happy with the progress we are seeing. As mentioned in previous calls, it is a three-year project, and we are about halfway through now. Bob Ford: Will you deploy in modules? Will there be functionality introduced to the stores before final completion? And when it comes to changing functional POS systems or the hardware at the point of sale, how should we think about that time period? Anthony Hatoum: Yes, deployment is gradual and modular. That is the low-risk way to do it: you deploy, you test, then you expand it. Regarding POS systems and hardware, the deployment is planned to be gradual to minimize risks. You will see it appear in one region, then it will be fine-tuned and refined, and once it is bulletproof, it will be deployed to the rest of the company. Operator: Our next question comes from the line of Alejandro Fuchs. Please state your company name and ask your question. Alejandro Fuchs: Alejandro Fuchs from Itaú. Thank you for the space for questions, and congratulations on a very strong start to the year. Two brief ones: First, for Eduardo, could you break down the same-store sales growth between traffic and ticket so we can get a bit more color? Second, for Anthony, could you provide more details on how you are seeing new stores perform outside of central Mexico? How has the relative performance been this quarter between regions, and any differences across parts of Mexico? Eduardo Pizzuto: Hi, Alejandro. Two-thirds is coming from volume—which is transactions and number of SKUs per ticket—and one-third from average price per SKU. To be clear, the latter is largely driven by a better mix because our internal inflation remains very low. So again, it is two-thirds from volume and one-third from average price per SKU. Anthony Hatoum: Hi, Alejandro. We have seen very consistent performance across the board in new stores, irrespective of geography. We believe the reason is that we are selling basic goods, and consumption behavior for basic goods tends to be quite similar across the board. We all consume roughly the same amount of toilet paper irrespective of where we live. It has been fairly consistent with no notable changes by region. Operator: Our next question comes from the line of Lorena Romanato. Please state your company name and ask your question. Gabriela Lamy: Hi, everyone. This is Gabriela Lamy from Goldman Sachs. I would like to explore SG&A dynamics in the context of the minimum wage increase and the reduction in the workweek in Mexico. Are there measures you have implemented to address the continued increase in labor costs? Also, G&A came broadly stable year over year with revenues. We know there is a variable component as you accelerate expansion. How should we think about that trajectory during the course of the year? Thank you. Eduardo Pizzuto: Hi, Gabriela. Multiple questions here. On labor, yes, it is a component, and as you saw in my remarks, for selling expenses we saw leverage in most line items, including labor. Looking at expenses as a percentage of revenue, this continues to decrease. Comparing last year versus this year, labor decreased as a percentage of revenue. The reason is twofold: our sales continue to increase, and we run a number of initiatives in stores and distribution centers. As we have mentioned before, we measure everything in hours worked, so we are always implementing initiatives to reduce hours worked at the store level. Even with the increase in minimum wage, we saw leverage on that line item. Regarding the reduction of hours worked, yes, we have been testing and considering it, and when it happens next year, it is not a big concern for us. We will continue to drive efficiencies at the store level to cope with that eventuality. In terms of overall SG&A for the year, we do not provide guidance. In the long run, SG&A should continue to decrease as a percentage of revenue. For this year, G&A should be fairly stable versus last year. As you heard from Anthony, we will continue to increase our talent pool at headquarters, and as we add more distribution centers this year, that also contributes to admin expenses. Operator: Our next question comes from the line of Froylan Mendez. Please state your company name and ask your question. Froylan Mendez: Hello, Eduardo, Anthony. Froylan Mendez from J.P. Morgan. Eduardo, could you give a little more granularity on the sources of gross margin expansion during the quarter? You mentioned this was mainly coming from commercial margin, but was it improved terms, product mix, or operational efficiencies? And secondly, you mentioned those big surveys you do every year. What have been the key findings from this year’s survey compared to last year regarding changes in consumer habits and preferences, and how is this influencing your strategic decisions at the store? Anthony Hatoum: Let me take the survey question, Froylan. The surveys ask where you shop, how you shop, why you shop, how you make decisions, where you spend your money, and what you think of the brand—what it means, etc. Over time we see increasing brand recognition of BBB Foods Inc. and what it stands for. We also see shifts in decision making—where do you shop first versus second—and the tendencies favor BBB Foods Inc., with a very strong favorable trend over the last five years. In terms of influencing decisions, yes. There are shifts in consumption patterns—some categories gain strength and some lose strength. For example, post-COVID and during COVID, anything related to pets strengthened, and anything related to alcohol consumption decreased. We see those trends and adapt, focusing more on categories with more promise. We do that continuously. Eduardo Pizzuto: On gross margin, yes, we mentioned commercial margin increases. It is both mix and efficiencies with our suppliers, but it continues to be volatile. This specific quarter, it is both—mix and supplier-driven efficiencies. Anthony Hatoum: I will add that as you scale, you improve purchasing power across the board. Not only ours, but our suppliers’ purchasing power and efficiencies improve, and those translate partially into margin and partially into price, driving a virtuous circle. Operator: Our next question comes from the line of Antonio Hernandez. Please state your company name and ask your question. Antonio Hernandez: Hi. Good morning. Congrats on your results. This is Antonio Hernandez. Just a quick one regarding which categories were best performing during the quarter, and regarding your recent pilots, any findings you can share? Anthony Hatoum: Across the board, all categories performed extremely well this quarter. Looking at some subcategories, we have seen a decrease in sweets and beverages driven by a new tax on sweeteners that took effect in January, but it was more than compensated for by the non-sweetened beverage subcategory. Net-net, an increase across the board in all categories. Regarding pilots like fridges, frozen, and other new product categories in the store, they are doing extremely well. We do not launch a new category unless it has been extensively—maybe obsessively—tested. By the time we launch, we are fairly certain it will do extremely well, and these categories are extremely promising. Joe Thomas: Good morning, Anthony and Eduardo. It is Joe Thomas here from HSBC. Could you talk about the FRESH trial specifically, any sales uplift associated with it, and the opportunity to extend or retrofit existing stores? And on a related topic, CapEx for the year—could you give an update on that and how you expect it to be phased over the quarters? Thank you. Anthony Hatoum: It is worth stepping back and saying that at any point in time there are about 60 different products or new lines being tested in our stores in parallel. Some make the final cut and are then deployed across the company. In fruits and vegetables specifically, results are promising. The test has been running, fine-tuned, and refined, and we remain optimistic that it is a worthwhile category to have. In test stores, when you add fruits and vegetables, you do see an uplift in ticket—it is normal. We remain excited about this category. Eduardo Pizzuto: On CapEx, as we disclosed in our 20-F, it is about $5.2 billion pesos. That includes the number of stores we guided, additional distribution centers, and all related equipment, including trucks and cars. We are comfortable with that number and executing on it for the balance of the year. Operator: Our next question comes from the line of Alberto Rodriguez. Please state your company name and ask your question. Please unmute yourself to ask your question. Alberto Rodriguez: No question here. Operator: Thank you. We have a follow-up question for Héctor Maya. Please ask your question. Héctor Maya: Hi again. Héctor from Scotiabank. Thank you for the chance for another question. I recall that the penetration of private label last quarter was 58% of sales. Could you give us an update on the level this quarter? Also, is there a threshold at which the business starts structurally changing with higher penetration? Would everything remain the same if you operate at 60% private label compared to 70% or 80%? Beyond margin, how would things change with suppliers and their scale? How do you think about development of new SKUs and how you arrange them in the store with higher penetration? Thank you. Anthony Hatoum: Hi, Héctor. We update this number once a year, but you can imagine the trend continues upwards. Do we see a change in how we operate with more private label? No, not really. Look at BIM, which has been in this market longer than we have; it is like a time machine that gives you a good answer as to what things might look like a few years down the road. For us, there is no structural change if you go from 50% to 60% to 70%. Regarding suppliers, things change naturally as you get bigger. If you are selling 30% more, you are buying 30% more. Everyone has to march in lockstep to sustain that growth, and that has been the case for the last ten years. It will continue in terms of planning ahead, projecting growth and procurement needs, etc. We plan well ahead of time, which has allowed us to sustain growth rates above 30% for over twelve years without hiccups. To do that, you need to be very strong in execution and planning, and I expect that to continue. Operator: Our next question comes from the line of Guli Arshad. Please state your company name and ask your question. Please unmute yourself to ask your question. Guli Arshad: Can you hear me now? Anthony, congratulations on your usual strong results. I know that a strong IT department is one of the pillars of the BBB Foods Inc. growth story. How are you incorporating AI mentality and processes inside the company? Is it relevant? Anthony Hatoum: Great to hear from you, Guli. Earlier there was a question about SG&A and expenses, and I mentioned our investment in talent. A big chunk of that is in IT, with the firm belief that a lot of our future growth is driven by executing across the board on an IT strategy. Sometimes I joke internally that we are an IT company selling groceries. There is a strong component of artificial intelligence starting to take root in the company, similar to many companies. You can already see effects in improved efficiency and time savings across the board. This tendency will continue and get stronger as companies provide better and better tools. The speed of improvement has been staggering, so expect this to become part of normal life at BBB Foods Inc. Operator: Our next question comes from the line of Federico Galasi. Please state your company name and ask your question. Federico Galasi: Hi, guys. Federico Galasi here, Recruiting Group. In the last year to year and a half, the corporate business—for more information to the ADR, the new console, etc.—was one of the teams that dragged margins, taking out the operational side. Do you believe that you have the structure necessary to grow in the next eight years? Anthony Hatoum: Sorry, Federico, let me confirm I understood your question. You are asking whether we have built the right central structure to sustain our growth rates going forward beyond the operational side. The answer is yes. We will continue to grow new stores, and our philosophy of planning ahead has served us extremely well and explains how we can sustain such rapid growth over time without hiccups. That applies to everything, including the corporate structure—what talent we need, how many people, and in which areas—so we can execute on our plans and raise performance across the team. We have planned for this, we are executing on it, and we are in very good shape to sustain future growth. We have a strong belief that the team makes the difference. Everyone knows how to sell groceries; it is a question of how well and how fast you execute. Operator: We have run out of time for further questions. I would now like to hand the call back over to Anthony Hatoum for his closing remarks. Anthony Hatoum: Thank you, everybody, for participating and joining us today. I would like to thank all our investors, current and future, for believing in us, and I would like to thank all the analysts who joined us today for their continued coverage and excellent questions. Thank you again, and we look forward to talking to you on the next earnings call. Operator: Thank you. You may now disconnect.
Operator: Hello everyone. Thank you for joining us, and welcome to the SandRidge Energy, Inc. first quarter 2026 conference call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Scott Prestridge, Senior Vice President of Finance and Strategy. Scott, please go ahead. Scott Prestridge: Thank you, and welcome everyone. With me today are Grayson R. Pranin, our CEO; Jonathan Frates, our CFO; Brandon L. Brown, our CAO; as well as Dean Parrish, our COO. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risk and uncertainty, and actual results may differ materially from those projected in these forward-looking statements. These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties, as discussed in greater detail in our earnings release and our SEC filings. You may also hear references to adjusted EBITDA, adjusted G&A, and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I will turn the call over to Grayson. Grayson R. Pranin: Thank you, and good afternoon. I am pleased to report on a strong quarter for the company. Production averaged 18.6 MBOE per day during the first quarter, an increase of 4% on a BOE basis versus the same period in 2025. Oil production increased 31%, and total revenues increased 17% during the quarter versus the same period in 2025, driven primarily by new production from our operated development program. Before getting into this and other highlights, I will turn things over to Jonathan for details on financial results. Jonathan Frates: Compared to 2025, the company saw increases in the market price of both oil and natural gas. We grew production by 4% year-over-year and generated revenues of approximately $50 million, which represents an increase of 26% compared to last quarter and 17% compared to the same period last year. Adjusted EBITDA was $33.7 million in the quarter compared to $25.5 million in 2025. We continue to manage the business with a focus on maximizing long-term cash flow while growing production and utilizing our NOLs to shield us from federal income taxes. At the end of the quarter, cash, including restricted cash, was approximately $104 million, which represents over $2.80 per common share outstanding. Cash was down compared to the prior quarter due to an increase in noncash working capital, primarily related to the timing of payables versus receivables from our one-rig drilling program. Working capital, as represented by current assets less current liabilities, was up by $3.7 million compared to the prior quarter. The company paid $4.4 million in dividends during the quarter, which includes $600 thousand of dividends to be paid in shares under our dividend reinvestment plan. On May 5, 2026, the Board of Directors increased the regular-way dividend by 8%, declaring a $0.13 dividend as well as a one-time special dividend of $0.20 per share, both of which are payable on June 1 to shareholders of record on May 20, 2026. Shareholders may elect to receive cash or additional shares of common stock through the company's dividend reinvestment plan. Following these dividends, SandRidge Energy, Inc. will have paid $5.05 per share in regular and special dividends since the beginning of 2023. Commodity price realizations for the quarter before considering the impact of hedges were $71.11 per barrel of oil, $3.13 per Mcf of gas, and $18.64 per barrel of NGLs. This compares to fourth quarter 2025 realizations of $57.56 per barrel of oil, $2.20 per Mcf of gas, and $14.92 per barrel of NGLs. Our commitment to cost discipline continues to yield results, with adjusted G&A for the quarter of approximately $2.4 million or $1.42 per BOE compared to $2.9 million or $1.83 per BOE in 2025. Net income was $18.7 million for the quarter, or $0.50 per diluted share. Adjusted net income was $21.6 million, or $0.58 per diluted share. This compares to $13 million, or $0.35 per diluted share, and $14.5 million, or $0.39 per diluted share, respectively, during the same period last year. The company generated cash flow from operations of $19.8 million during the quarter compared to $20.3 million during the same period last year. Adjusted operating cash flow was $34.4 million during the quarter compared to $26.3 million in the same period of 2025. Lastly, production is hedged with a combination of swaps and collars representing just under 30% of the midpoint of our 2026 guidance. This includes approximately 37% of natural gas production and 43% of oil. These hedges will help secure a portion of our cash flows and support our drilling program through the year. We continue to monitor prices and take advantage of favorable opportunities, but plan to maintain meaningful upside throughout the remainder of the year. Before shifting to our outlook, you should note that our earnings release and 10-Q will provide further details on our financial and operational performance during the quarter. Now I will turn it over to Dean for an update on operations. Dean Parrish: Thank you, Jonathan. Let us start with a review of the first quarter and discuss recent drilling and completion results. Total capital spend for the quarter, excluding A&D, was $19.9 million, which is better than expectations for the quarter, mostly due to drill schedule adjustments. A rigorous bidding process focused on driving drilling and completion costs down in the Cherokee play and longer artificial lift run times from previous years of improvements kept us on budget. Additionally, we have been securing critical well components needed for the remainder of the year to minimize any supply or inflationary pressures that may affect our capital program. Lease operating expenses for the quarter were $10.8 million, or $6.45 per BOE, which falls right in line with expectations. We are also securing the needed equipment and services that will be critical for production operations in 2026, similar to the capital program. We expect to continue to see pressure on diesel fuel through fuel surcharges passed on through service providers that have strict internal protocol to reduce surcharges when diesel prices begin to decrease. During the quarter, the company successfully completed three wells and brought two wells online from our operated one-rig Parakeet drilling program. We recently brought online the ninth well in our program and are drilling the eleventh, while the tenth well awaits final completion. Our operations team continues to execute, with the tenth well that was just drilled being the fastest, lowest cost to date, driven by the team's focus and ingenuity to reduce costs. It is early, but we are seeing some incremental efficiencies on our eleventh well drilling now, and we will have more to share next quarter. Moving to our 2026 capital program, we plan to drill 10 operated Cherokee wells with one rig this year and complete eight wells. The remaining two completions are anticipated to carry over to next year. A majority of the remaining wells in our development program this year directly offset proven or in-progress wells in the area, and we continue to monitor offsetting results. Gross well costs vary by depth but are estimated to be between approximately $9 million and $11 million. We intend to spend between $76 million and $97 million in our 2026 capital program, which is made up of $62 million to $80 million in drilling and completions activity, and between $14 million and $17 million in capital workovers, production optimization, and selective leasing in the Cherokee play. Our high-graded leasing is focused on further bolstering our interest, consolidating our position, and extending development into future years. With that, I will turn things back over to Grayson. Grayson R. Pranin: Thank you, Dean. Let us start with commodity prices. We started the year with strong natural gas prices, which benefited January and February revenues. During this period, our largest natural gas purchaser elected to move to ethane rejection. This means that more ethane is sold as natural gas and less is separated as NGLs. This typically results in fewer barrels of equivalent in volume, which impacted both our NGL and overall BOE volumes for the quarter, but it benefited natural gas volumes and revenue as the gas was sold at relatively higher prices with an increased BTU factor. This had a positive effect on revenue due to the dynamics of high natural gas and lower relative ethane prices during the period. However, natural gas prices have since declined and, with it, the spread between natural gas prices and ethane. Our largest natural gas purchaser returned to ethane recovery in March and plans to maintain recovery until there is further benefit otherwise. Also, while natural gas prices increased during January, we did experience increased production deferment during Winter Storm Fern, which negatively impacted volumes. Despite this challenge, our team did an amazing job operating through the extreme cold weather and minimizing downtime as much as possible—and, most importantly, doing so safely. Now shifting to oil, the year began with oil prices in the mid- to upper-$50 range, which changed dramatically over the quarter. Despite seeing spot rates reach up to triple-digit levels recently, WTI averaged $72.74 per barrel in Q1 because the shift occurred in late February and early March. For the same reason, the increase in WTI prices only partially benefited our revenues during the quarter, as the entire oil price increase occurred in the back half of the quarter. Thus far, oil prices have remained high in the second quarter and could benefit revenues further. Our commodity prices are driven by market dynamics outside of our control. We have used our favorable position and came into the year with minimal hedges to take advantage of the increases year-to-date, the details of which can be found in our earnings release and 10-Q to be filed later today. Combined with our prior hedges, we have hedged a meaningful portion of our PDP volumes for the remainder of the year, which allows us to secure a portion of our cash flows at prices that are materially above where we started the year and where we budget. The remainder of our PDP oil volumes and all of the volumes from our current drilling program will participate at the market with exposure to current high prices. We have endeavored to balance securing cash flows while maintaining an appropriate level of exposure to commodity upside. That said, there has been a lot of volatility in WTI pricing over the last few weeks and much speculation over futures, with the forward curve remaining in steep backwardation. We are content with the current level of hedging this year. We will continue to monitor geopolitical events and future pricing for further adjustment, with specific focus on longer-term periods. Now let us pivot over to our development program. As Dean discussed, we had first production on two wells this past quarter. One well targeted the Cherokee shale in our core area, consistent with wells last year. These wells had an average peak 30-day of approximately 2 thousand BOE per day, made up of 45% oil, including the newest seventh well. The other well turned in line this quarter and tested the Red Fork formation, a sandstone in the Lower Cherokee group. This was an initial well in a new area for us that offset and delineated a very productive well drilled by a reputable operator. This well allows us to better establish performance expectations in a new target in a new area. The leasing costs have been very attractive. Currently, we do not have any Red Fork wells planned for the rest of the year. However, we plan to monitor the performance of this well, industry and offsetting activity—which has increased over the past year—as well as commodity prices and other factors while evaluating the go-forward plan in the new area. Given the tailwind of WTI prices and the enhancement to returns, we plan to continue our Cherokee development with one rig and further grow oily production. While the program is attractive in a range of commodity environments, our team will continue to be diligent by prioritizing full-cycle returns, monitoring reasonable reinvestment rates, and, when needed, exercising drill schedule flexibility to make prudent adjustments to our development plans in different economic environments. Also, we do not have any significant near-term leasehold expirations and have the flexibility to defer these projects if needed for a period of time. I am very pleased with our team for their continued focus on safety, execution, and cost focus in development and production optimization programs. They have truly championed safety, resulting in the continuation of a record of more than four years without a recordable safety incident. In addition, they continue to operate at a high level with a lean, but very engaged and experienced staff with peer-leading operating and administrative cost efficiencies. I would like to pause here to highlight the optionality we have across our asset base. Coupled with the strength of our balance sheet, it sets us up to leverage commodity price cycles. The combination of our oil-weighted Cherokee and gas-weighted legacy assets, as well as a robust net cash position, gives us multifaceted options to maneuver and take advantage of different commodity cycles. Put simply, we have a strong balance sheet and a versatile kit bag, which makes the company more resilient and better poised to maneuver and adjust, no matter the commodity environment. I will now revisit the company's advantages. Our asset base is focused in the Mid-Continent region with a PDP well set that provides meaningful cash flow, which does not require any routine flaring of produced gas. These well-understood assets are almost fully held by production, have a long history, a shallowing and diversified production profile, and double-digit reserve life. Our incumbent assets include more than a thousand miles each of owned and operated SWD and electric infrastructure over our footprint. This substantial owned and integrated infrastructure helps de-risk individual well profitability for the majority of our legacy producing wells under roughly $40 WTI and $2 Henry Hub. Our assets continue to yield free cash flow. This cash generation potential provides several paths to increase shareholder value realization and is benefited by a low G&A burden. SandRidge Energy, Inc.'s value proposition is materially de-risked from a financial perspective by our strengthened balance sheet, including negative net leverage, financial flexibility, and advantaged tax position. Further, the company is not subject to MVCs or other off-balance-sheet financial commitments. We have bolstered our inventory to provide further organic growth opportunities and incremental oil diversification, with low breakevens in high-graded areas. Finally, it is worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around them. Not only do we continue to operate our existing assets extremely efficiently and execute on our Cherokee development in an effective manner, but we do so safely. Shifting to strategy, we remain committed to growing the value of our business in a safe, responsible, efficient manner while prudently allocating capital to high-return growth projects. We will also evaluate merger and acquisition opportunities while maintaining financial discipline, consideration of our balance sheet, and commitment to our capital return program. This strategy has five points. One, maximize the value of our incumbent Mid-Con PDP assets by extending and flattening our production profile with high rate-of-return production optimization projects, as well as continuously pressing on operating and administrative costs. Two, exercise capital stewardship and invest in projects and opportunities that have high risk-adjusted, fully burdened rates of return while prudently targeting reasonable reinvestment rates that sustain our cash flows and prioritize a regular-way dividend. Three, maintain optionality to execute on value-accretive merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complement its portfolio of assets, whether it utilizes approximately $1.5 billion of federal net operating losses or otherwise yields attractive returns to its shareholders. Four, as we generate cash, we will continue to work with our board to assess paths to maximize shareholder value to include investment and strategic opportunities, advancement of our return-of-capital program, and other uses. To this end, the board continues to focus on the company's return of capital to stockholders as a priority in capital allocation, and as a result, expanded its ongoing dividend program by 8% and declared a one-time dividend. The final staple is to uphold our ESG responsibility. Now, shifting to administrative expenses, I will turn things over to Brandon. Brandon L. Brown: Thank you, Grayson. As we close out our prepared remarks, I will point out our first quarter adjusted G&A of $2.4 million, or $1.42 per BOE, continues to lead among our peers. The consistent efficiency of our organization reflects our core values to remain cost disciplined and to be fit for purpose. We will maintain our efficient and low-cost operation mindset and continue to balance the weighting of field versus corporate personnel to reflect where we create the most value. The outsourcing of necessary but more perfunctory functions such as operations accounting, land administration, IT, tax, and HR has allowed us to operate with total personnel of just over 100 people for the past several years while retaining key technical skill sets that have both the experience and institutional knowledge for our business. In summary, at the end of the first quarter, the company had approximately $104 million in cash and cash equivalents, which represents over $2.80 per share of our common stock outstanding; an inventory of high rate-of-return, low breakeven projects; low overhead; top-tier adjusted G&A; no debt; negative leverage; a flattening production profile; double-digit reserve life; and approximately $1.5 billion of federal NOLs. This concludes our prepared remarks. Thank you for joining us today. We will now open the call for questions. Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: 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: Greetings. Welcome to the Gladstone Capital Corporation's Second Quarter Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Erich Hellmold, General Counsel. Thank you. You may begin. Erich Hellmold: Good morning, and thank you for that nice introduction. This is the earnings conference call for Gladstone Capital for the quarter ended March 31, 2026. Thank you all for calling in. We're always happy to talk to our shareholders and analysts and welcome the opportunity to provide updates on our company. Now I'll have Catherine Gerkis, our Director of Investor Relations and ESG provide a brief disclosure regarding certain regulatory matters regarding this call. Catherine Gerkis: Thank you, Erich, and good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecapital.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. Now I will turn the call over to Gladstone Capital's CEO and President, Bob Marcotte. Robert Marcotte: Thank you, Catherine. Good morning, all. I'll cover the highlights for the quarter and conclude with some comments on our near-term outlook for the company. Beginning with our last quarter's results. Fundings last quarter totaled $44 million and included 3 new private equity sponsored investments totaling $34 million and $10 million of additional advances to existing portfolio companies. Exits and prepayments declined relative to what we experienced in 2025 and came in at $46 million, so assets were largely unchanged for the quarter. Interest income for the period declined slightly to $23.2 million, with a 30 basis point decline in the average SOFR rates compared to last quarter as our weighted average debt yield was 11.8% for the period. Other income for the period came in at $2.8 million, which was up $2.2 million from the -- on prepayment fees and dividends. Interest and financing costs declined with lower SOFR rates and reduced unused commitment fees. Net management fees rose $875,000, with the lower origination fee credits. However, net interest -- net investment income rose $574,000 to $11.8 million for the period. Net portfolio appreciation came in at $4.2 million, largely driven by the unrealized appreciation of 3 of the larger companies in our portfolio, which continued to scale. With respect to the portfolio, the portfolio growth for the period did not have a material impact on our investment mix or spread profile as first lien debt and total debt investments came in at 70% and 90% of the portfolio cost, respectively. Our healthcare-related industry concentration declined and is expected to fall further in the short term with a pending exits as we do not -- and we do not have any existing software-related exposures. As of the end of the quarter, our 3 nonearning debt investments were unchanged with a cost basis of $28.8 million or $13 million or 1.6% of debt investments at fair value. In addition, our PIK income for the quarter declined to $1.7 million or 7.4% of interest income. Since the end of the quarter, we funded 2 new portfolio companies representing a total of $44 million of senior secured debt. And while earning assets have increased since the end of last quarter, we are expecting a couple of exits in the near term and are actively managing a healthy pipeline of investment opportunities, which should more than cover any repayments and support our continued modest asset growth. The strength of our investment outlook represents a combination of the resilience of the growth opportunities within the lower middle market and add-on financing opportunities within our existing portfolio. In particular, we're seeing strong demand for precision manufacturing businesses where customers are looking to move sourcing back to the U.S. or scale in support of building defense-related backlogs. We ended the quarter with a conservative leverage position and net debt at a modest 92% of NAV and expect to continue to leverage our floating rate bank facility to support our floating rate assets thereby mitigating the impact of short-term rate decline. Our current line of credit facility totals $365 million. And as of the end of the quarter, borrowing availability is more than $150 million which is ample to support our near-term investment activities. And now I'll turn the call over to Nicole Schaltenbrand, Gladstone Capital's CFO, to provide some details on the fund's financial results for the quarter. Nicole? Nicole Schaltenbrand: Thanks, Bob. Good morning all. During the March quarter, total interest income declined $700,000 or 2.9% to $23.2 million as the average earning assets rose $21.7 million or 2.8% while the weighted average yield on our interest-bearing portfolio declined 40 basis points to 11.8% for the period. Total investment income was $26 million as dividends and fee income rose $2.2 million from the prior quarter. Total expenses rose $900,000 or 6.8%, driven primarily by $900,000 of higher net management fees due to higher average assets and lower closing fee credits versus the prior quarter. Net investment income for the quarter rose $11.8 million or $0.52 per share or 116% of cash distributions per common share. The net increase in net assets resulting from operations was $15.5 million, or $0.68 per share for the quarter ended March 31 as impacted by the valuation appreciation mentioned by Bob. Moving over to the balance sheet. As of March 31, total assets rose to $925 million, consisting of $907 million in investments at fair value and $18 million in cash and other assets. Liabilities declined $3 million quarter-over-quarter to $442 million as of March 31, with the decrease in LOC borrowings. The remaining balance of our liabilities consist primarily of $149.5 million of [indiscernible] convertible debt due 2030, $50 million of 3.75% notes due May 2027 and $35 million of 6.25% of perpetual preferred stock. As of March 31, net assets rose $5.3 million to $483 million, and NAV per share rose from $21.13 to $21.36. Our gross leverage as of March 31 rose to 91.8% of net assets. Monthly distributions for May and June will be $0.15 per common share, which is an annual run rate of $1.80 per share. The Board will meet in July to determine the monthly distributions to common stockholders for the following quarter. At the current distribution rate for our common stock and with a common stock price at about $19.21 per share yesterday, the distribution run rate is now producing a yield of about 9.4%. And now I'll turn it back to Bob to conclude. Robert Marcotte: Thank you, Nicole. In sum, it was another solid quarter for Gladstone Capital. The team continued to deliver strong earnings performance bolstered by prepayment fees and portfolio distributions which more than cover the current shareholder dividends. The team is doing a good job managing the portfolio, sourcing attractive private equity-backed lower middle market investment opportunities. The company is also in a very strong balance sheet position with ample borrowing capacity to prudently grow our investment portfolio and deliver the earnings to support our shareholder dividends and now we will -- operator tell our callers how to submit their questions. . Operator: [Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start with a question, just thinking a little bit about the future path of the portfolio yield. If the Fed funds futures curve is right, there shouldn't be -- market is not expecting any changes. So base rate should be more stable. But wondering if you could talk a little bit about the spreads that you saw for your April activity as well as what's in the pipeline and how those compare to the weighted average spread for the existing portfolio? Robert Marcotte: Thank you, Erik. Good question. The activity on the quarter, we really didn't see any compression in spreads what we were closing essentially is on par with our prior quarters. So we really don't see any degradation, and that's really coming from a couple of things. One, it's a disciplined approach and an added value approach in the lower middle market. We've never seen quite the same competition as upmarket transactions. Obviously, in the last quarter, there's also been a bit of a selloff with spreads backing up upmarket from us. And so we've seen less competitive pressure from larger transactions, which are probably backed up 50 to 75 basis points. So we really don't see, at the moment, much in the way of degradation on the outlook. So with closing spreads in the range of roughly 7% on average last quarter, I wouldn't expect much to impact there. We do have some impact as companies get larger, there is some trade-off, but for the most part, it's pretty stable. The other thing is I do expect that we will be funding add-ons to existing portfolio companies in the next quarter, which tend to be consistent with the existing spreads on those transactions. So I think you're correct that in the near term, the pressure on margins are going to be fairly limited. When we originally reset the dividend, we were anticipating a curve where we might have 2 or 3 rate reductions over the course of 2026. Obviously, that's not happening. And the combination of lower upmarket pressure is part of that process, which is one of the reasons why we feel pretty confident in where we stand today with respect to dividend coverage. Erik Zwick: That's great. And good to hear. Looking at just the dividend income in the most recent quarter, it was up quarter-over-quarter. I'm curious if that was driven by kind of one large dividend or if there were multiple companies that contributed to it, whether you view those more as kind of onetime or if they'll be recurring? Robert Marcotte: There are really 2 components of the income. One was the prepayment fee which we broadcast at the end of last call, last quarter. The second one was a fairly large dividend, a single transaction of a company that had been scaling and we owned a slug of the business. I would expect that there may be some additional distributions coming, but they do tend to be onetime events. So I think we do have some companies that are deleveraging that are performing well. And if the private equity sponsor feels so compelled and there aren't good acquisition opportunities, distributions is something that they will look to do. We should expect that we'll see more of those in the future, but I would not -- I would continue to characterize them as onetime events, but we are monitoring that and expect some of that to be realized over the course of 2026. Erik Zwick: And last one for me. I know you addressed this a little bit last quarter, but just your thoughts on kind of repurchasing shares at this point, whether you view that as a good use of capital, certainly, the stock has come back a little bit from the lows a couple of months ago, but trading at a 10% discount to NAV today, curious how you view that opportunity. Robert Marcotte: Erik, we are seeing tremendous opportunities to continue to execute our plan and strategy. And based upon where that returns are being generated, scale is important. So I don't think you'll likely see us buying shares in. I think we are going to be looking to scale the capital base to capitalize on our market position in the lower middle market. The long-term returns on our portfolio have been pretty good. We think it's best interest of the shareholders to continue to scale that opportunity and this is, frankly, a good time. Turmoil, the uncertainty and the issues in the marketplace provide a nice window for us to continue to execute against our long-term strategy. We've been doing this for 25 years. I think the idea is we can continue to grow it and produce good returns for our shareholders. Operator: Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: Bob, congratulations on the promotion. And please pass our best wishes to David Gladstone. On the nonaccruals, it stepped up a little bit and your asset quality is good. Can you share with us some observations you're seeing in the market? I mean is higher fuel prices just generally creating increased stress in lower middle market, middle markets? Is it less sponsor support? Because I'm seeing increased nonaccruals across multiple BDCs, incrementally, nothing huge yet, but I'd like to get a little broader perspective, if possible. Robert Marcotte: Sure. The only reason that our nonaccruals went up in fair value is because one of them, in particular, is performing very well. And so we're optimistic that it will be turned to a cash paying and go off nonaccrual. It's been a while for that Xcel situation to turn around, but we're feeling very good about it, given where it's executed. So it's not bad that it went up. It's actually good in a weird way. In terms of your specific question around energy, we don't tend to have a lot of energy-related businesses or energy-impacted businesses. I will say that we do have businesses that might provide services and there are energy costs in delivering their products. And certainly, the delivery companies, the FedExs of the world, were very quick in adjusting their rates. And so passing through surcharges has been something that I think we've encouraged and our portfolio companies have been pretty adamant on and that's really been kind of a neutral event. It's not necessarily negatively affected their business, and it's well understood cost of doing business. In terms of other energy-related matters, I would say we're seeing a little bit of slowing or uncertainty as we've said in the past we do have 1 or 2 investments that are related to the auto market. And energy and auto is a little bit up in the air right now. Certainly, whether it's electric vehicles or whether it's transitioning model years or general auto sales, they're soft. So we are closely monitoring some of those. We feel the business is on the right programs, but the volume in that market is relatively soft. Beyond that, obviously, one of the benefits is we have zero software. So some of I think what you're seeing is just momentum and decision-making in the software side of things. I don't think anybody is making any fast moves to grow the revenue or to expand their software investments at the moment. I think we're all pretty impressed at the relatively low cost and incredibly efficient AI-related tools that we're all toying with. So I think that's affecting a significant number of others, and we really don't have that exposure. So right now, I would generally say we don't see a ton of slowing. We don't see much in the way of direct impact of energy. I would almost argue it's the other way around because we do have some precision manufacturing businesses. They are seeing huge inbound order requests and frankly, we're being asked to fund capital expenditures to grow those businesses. So we kind of feeling like it's a decent opportunity for us if we're close to our businesses to take share and scale some of our opportunities. Christopher Nolan: And just as a follow-up, in general, are you seeing private equity sponsors being a little bit more hesitant in general or any equity providers or is it just sort of pretty stable? Robert Marcotte: I definitely think that private equity sponsors are being very diligent. Deals are not closing at the same pace. I think there's a lot of making sure the numbers are real, and there's no ambiguities. I think there's a fair bit of being cautious. But most of the businesses that we see, it's really about the long-term growth, not the financial structure, not the financial timing. Most of the lower middle market businesses on average are trading plus or minus 7x on EBITDA. That is a business that you can buy and grow and absorb some variability and headwinds and still make good money. If you're trading a large-scale business at 9.5, 10, 12x, you don't have the cushion to be able to absorb that. So I suspect you're seeing much more caution upmarket because the window of growth and equity appreciation is far narrower and the exit multiple that you can get to is going to be harder to achieve. For us. the idea of trading at that lower multiple in the lower middle market, you've already got 2 to 2.5 turns of potential appreciation just from scaling the business. And that drove one of -- a couple of our marks on the quarter. When we go into a business and trades at a lower multiple, and next thing you know it's $25 million or $30 million of EBITDA and the multiple for those businesses is 2 to 3 turns higher that's a natural appreciation that we as well as the private equity sponsors are able to achieve. So I guess it's just a much more forgiving entry point that is part of the process as long as the numbers are solid. Sorry to take so much on it, but that's a fundamental value to the lower middle market. Operator: Our next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Yes, congratulations, Bob. Just kind of sticking with that point, I mean, the color on strong demand from precision manufacturing, I mean, it sounds for me saying that's primarily for add-ons to those already in your portfolio. And then if we step back, I mean, to your point, the upper market valuations are tighter, spreads seem to be showing maybe -- not just precision manufacturing maybe widening, certainly widening in software, but you don't have any of that. . But to your point, is -- are you starting to see any spread expansion in your end of the market, I mean I would think if something like precision manufacturing, where the demand dynamics, like you say, onshore defense et cetera, are so good. But might be increasingly crowded from a competitive perspective for new deals, right? Obviously, the ones you already have. I mean, so do you think those markets that you're in are going to be more resistant spread expansion even if it moves in the upper market? Or any thought on how the pricing for those kind of -- the kind of businesses you do might evolve even if the upper market moves on a pricing front. Robert Marcotte: I would not expect spread to be widening in our market. Just for broad strokes, the upper markets were dipping down sub-5 over LIBOR and that ROE at the leverage point was starting to get tight. The fact that the funding costs have backed up has probably pushed those spreads up to 5.5% or 5.75% or something like that. We've always been, let's say, mid-6s and I don't think that I would expect that to expand much. It's more of a relative play at 150 basis point spread to a upper market deal, the sponsor is going to say you're way too expensive. I'd rather continue to shop it at a 50 to 75 basis point spread, they're not going to say it's not worth my time given the size of the transaction. So I think we will see less competitive spread pressure because the sponsors understand smaller deals are going to be more expensive and on a relative basis. I think the other point that I would make is, once these large platforms are as large as they are, it's very hard to go back down market, right? Once you're as big as you are, and there's not a ton of capital coming into the lower middle market. I mean, look at where the BDC equities are trending, look at who the brand names are that are raising the new funds. The only people that are actually accessing the capital markets or accessing funding sources that might compete with us would be the SBICs. And they are, by definition, somewhat constrained in their overall size. And government SBA financing is not exactly cheap these days either. So we find ourselves particularly well positioned to compete with those folks, and we obviously have a scale advantage over them. So I don't think it goes down, but I think the pressure is less and the opportunities are going to be as -- continue to be relatively positive for us to see modest asset growth within our desired balance sheet leverage constraints. Operator: Our next question comes from the line of Sean-Paul Adams with B. Riley. Sean-Paul Adams: It looks like the quarter was quite solid. Nonaccruals kind of went up in fair value, but it looks like they could be on the decline. So those legacy 3 positions might go down to 2. You guys experienced NAV accretion in a quarter where there's just been a wave of NAV losses. And the zero software exposure usually means materially less impact to this widespread market repricing. You talked a little bit about spreads. And besides potentially that auto exposure, is there just any concern about just future declines in net origination volume potentially from any other partners trying to come downstream and operate in this lower middle market segment. Robert Marcotte: Sean-Paul, it's hard. I think I would make 2 observations. One, we spend a lot of time focusing on the underlying businesses. What's the long-term growth story? What's the market position. We don't look at these as financial transactions, we look at these as businesses, what is the organic growth of this company and what's the ability of the sponsor and our ability to support and be a partner in growth of the business. . It's a very different view in looking at the business than a financial transaction that somebody is looking to invest their capital and it's a spread and a leverage decision that they make when they buy that paper. That's a different mindset, and we've always had that business orientation and focus and that's where we align ourselves with the underlying sponsor. I think that's relatively unique. And the larger transactions, the larger funds, it's about putting money out and scaling and taking advantage of the opportunity, not necessarily as focused on the underlying business. So you add the fact that it's a lot more efficient to raise capital in $1 billion increments, I mean what's the math? Last year, in 2025, more than 90% of the private capital raised were in funds bigger than $1 billion. $1 billion fund is not going to come down market to compete with us. It just -- it doesn't make economic sense. They can't put out the money fast enough to be able to achieve their investment opportunities. We may see -- we have -- there are plenty of guys out there that are in our ZIP code. It's 4 or 5 folks, but we're also talking about a market that's broad and deep. And if we're looking at [indiscernible] deals a year and all we need to do is 20, that's a good flow of opportunities that we can cherry-pick to make our investments. I don't think the big guys think that way. They think about they need to get a certain percentage share, they need to get a certain investment, they need to make a certain investment scale and they're going to continue to stay up market. I think it's going to be very difficult for them to come down market and think and focus on the lower middle market the way we are. Thank you, all. I appreciate the time. Do you want to wrap it? David Gladstone: We're going to take a minute. This is David Gladstone. [indiscernible] maybe poor. Accident in our area, so it kind of clogged up everything. There is no accident at this company. It's very straightforward. We've watched all the private lending companies go over to the high technology area and God bless them. I hope they make it. We're just going to continue to do what we've done for the last 20 years, and that is look at solid small businesses and midsized businesses and finance them where they need it. So since there are no other questions, we'll see you next quarter. That's the end of this call. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Fluence Energy, Inc. Q2 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Shelton, Vice President of Investor Relations. Please go ahead. Unknown Executive: Good morning, and welcome to Fluence Energy's Second Quarter Earnings Call. Joining me on this morning's call are Julian Nabrita, our President and Chief Executive Officer; and Ahmed Pasha, our Chief Financial Officer. A copy of our earnings presentation, press release and supplementary metric sheet covering financial results, along with supporting statements, schedules, including reconciliations and disclosures regarding non-GAAP financial measures are posted on the Investor Relations section of our website at fluenceenergy.com. During the course of this call, Fluence's management may make certain forward-looking statements regarding various matters related to our business, including, but not limited to, statements related to our future financial and operational performance, future market growth and related opportunities, anticipated growth and business strategy, liquidity and access to capital, expectations related to pipeline, order intake and contracted backlog future results of operations, the impact of the -- on e Big Beautiful Bill Act, projected costs, beliefs, assumptions, prospects, plans and objectives of management and the timing of any of the foregoing. Such statements are based upon current expectations and certain assumptions and are, therefore, subject to certain risks, uncertainties and other important factors, which could cause actual results to differ materially. Please refer to our SEC filings for more information regarding these risks, uncertainties and important factors. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. Also, please note that the company undertakes no duty to update or revise forward-looking statements for new information. This call will also reference non-GAAP measures that we view as important in assessing the performance of our business, including adjusted EBITDA, adjusted gross profit and adjusted gross profit margin. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is available in our earnings materials on the Investor Relations website. Following our prepared remarks, we will conduct a question-and-answer session with our team. Thank you very much. I'll now turn the call over to Julian. Julian Jose Marquez: Thank you, Chris, and welcome to everyone joining us today. Turning to Slide 4. Since our February call, we made meaningful progress on order intake, our U.S. domestic supply chains and our product road map as we position Fluence to capture expanding global demand for energy storage. Our business model keeps us close to customers so we can anticipate their needs early and respond quickly with the right products, applications and commercial structures. This morning, I'll highlight our momentum across the business, and then Ahmed will review our financial results for the quarter and our current fiscal '26 outlook. Here are the key highlights for the quarter. First, order activity is accelerating versus fiscal '25. As of today, we signed approximately $2 billion of orders this year, which is double the amount signed through the same period last year. Our record backlog was $5.6 billion at the end of the second quarter, and we expect it to grow further based on execution so far this year. Second, second quarter adjusted gross margin was 11.1% which is within our full year expectation of 11% to 13%, a meaningful improvement versus Q1 and more reflective of the disciplined execution we delivered historically. Third, based on our first half performance and visibility into the remainder of the year, we are reaffirming our fiscal '26 guidance for revenue, ARR and adjusted EBITDA. And fourth, we ended the quarter on March 31 with approximately $900 million of total liquidity, reinforcing our strong financial position. Please turn to Slide 5 for more details on order intake. Our expanded commercial effort is translating to stronger conversion into signed orders. During the quarter, higher lithium prices temporarily slowed some customer decisions, but momentum reaccelerated as prices stabilized. For third quarter to date, we have signed over $600 million of additional orders. For the first 7 months of this fiscal... Year order intake totals approximately $2 billion, and we expect the total for all of fiscal '26 to significantly exceed the level from fiscal '25. Most of the orders this year have come from our core customer segment, developers and utility. It is important to note that 50% of our orders this year come from new customers, a signal of the early results from our expanding commercial app. Please turn to Slide 6, as I detail our progress with new customer segment. Since our February call, we executed master supply agreements with 2 major hyperscalers. The selection process for both of these MSAs was subject to multiple rounds of review, and in each case, Fluence was chosen after meeting criteria specific for each customer. In 1 case, the customers process began with 26 different best vendors, -- and Fluence was the first to complete all qualifications to sign a global MSA. In the other case, the customer had requirements which made it hard for many competitors to comply with. In both cases, we believe Fluence understanding of customer requirements, rapid response time and the peretiated products were key in driving this engagement. These MSAs established Fluence as a qualified supplier, positioning us to build on expected near-term data center projects for both hyperscalers with additional progress with 1 of these customers over the past few months, we expect to find the initial order from 1 of the data center projects within the third quarter. In addition, since our prior call, we have successfully developed a proprietary solution to handle the extreme power usage fluctuations experienced in data centers. Fluence excels at this based on our deep experience with advanced controls and track record managing fast response systems. Based on our discussion, we believe these capabilities will be an important differentiator for data center customers concerned with quality of power. Finally, we're seeing increase in interest in Smartstack for applications requiring longer duration energy storage. Smartstack density provides a competitive advantage for these applications because of its smaller footprint. Please turn to Slide 7, as I discuss our growing pipeline. A key piece of our commercial strategy have been the growth of our pipeline, which has increased by 35% in so far this fiscal year. We are seeing opportunities in the U.S. market beginning to outpace our other market with projects concentrated in California and Arizona, as well as the MISO market in the mid 1. Most of the growth is from our core customer base, as I mentioned earlier, but also in part by new customer segments, including data centers and other large energy users increasingly adopt historic solutions. Since our last call, our data center pipeline has increased by over 30%, including projects from both major hyperscalers, I just discussed. We expect data center projects to make an increasing contribution to order intake during the fourth quarter of this year, building on the initial order we expect in the next few weeks. Fluence business model is intended to keep us close to customer, which we believe puts us in a previous position to stop evolving needs early and to respond quickly. That insight informs our product design, the applications we support and the technical operational and commercial terms our customers require back by a sales organization with deep long-standing relationships. In short, we have positioned Fluence to be on the leading edge of best. We view the components with use as commodities, which we integrate into finished products to meet customer needs. Combined with our long-standing technical expertise, and hands-on experience and our deep understand of different markets around the world, we believe Fluence is uniquely positioned to deliver and help our customers maximize the benefit of invested in battery projects. We have evolved our product to accommodate a growing number of customer demand, including market-leading density, digital solutions, optimizing operations and profitability, reduce total cost of owners, large-scale fire testing and industry-leading reliability. Fluence was also the first to offer a complete U.S. domestic supply chain and important advantage for our U.S. customers. We offer a one-stop solution primarily project development through delivery and installation and continuing over the full operating life of each project. We combine in-house EPC expertise with a dedicated service organization that optimizes performance and extend asset life resulting in industry-leading operational net. Please turn to Slide 9 for an update on Smartstack. Product innovation remains another key differentiator for Fluence. Smartstack set the industry standard for energy density, enabling customers to feed more than 500-megawatt hours of storage per acre with additional improvement plan. With a science Smartstack to lower total cost of owners through modular architecture, easier maintenance accidents and more than 98% reliability delivering more electricity and more value to our customers. And a flexible design supports a broad range of cell types across multiple manufacturers, including pouch cells, commonly used in electric vehicles. Importantly, smart packaging and modular architecture addresses the density challenges. Typically associated with pouch form in stationary stores. I'm pleased to report that our first Smartstack has reached substantial completion and commence commercial operations. Our growing Smartstack backlog reflects this market's strong interest in our product. Please turn to Slide 10 for an update on our domestic supply strategy. As I just mentioned, we recognize the importance of a U.S. domestic supply chain early. Today, we have U.S. production for all major components, including battery cells from our supplier in Smyrna, Tennessee, which has been operating since '25. Building on our existing U.S. supply, as we announced in February, we signed an agreement with another source of domestically produced battery health beginning in fiscal '27. We believe this incremental capacity strengthened our supply position and supports delivery against our growing order book. We're also evaluating additional supply options to help support Fluence growth beyond '27. Our current position gives us flexibility as additional proposed U.S. supply comes online. Based on our experience, converted EV battery production to best cells can take a year or more. When exploring additional proposed supply lines, we plan to evaluate each facility stand line to first production, is run speed. It's technical characteristics and how its location could strengthen and optimize our core in U.S. domestic supply network. Let me also update you on PFE compliance for our cell supply in Smyrna, Tennessee. ASC closed a deal to sell a majority interest of its facility to fixed energy, a subsidiary of Lombard Capital. Ownership changed on March 31, 26 and the facility continues to produce sales that qualify for tax credits under the 1 Big Beautiful Bill act. We moved quickly to establish a relationship with a new owner and have signed a new supply agreement covering the next few years. We are confident in their plan to sustain the strong production level we see this year. Looking ahead, we believe we are well positioned to benefit from growing diversity in U.S. sales supply and the impact additional capacity may have on battery price internationally, we competed in markets that have seen meaningful declines in average sales prices for several years. And those lower prices expanded demand by enabling new applications. It's reasonable to expect similar dynamics in the U.S. Importantly, we have executed successfully through the inflationary pricing cycles before. With an approximate 50% decline in ASPs over the past 2 years we more than doubled adjusted gross margin. Although we expect ASPs to continue to decline for the balance of fiscal '26. We are forecasting approximately 50% revenue growth with adjusted gross margins in the range of 11% to 13%, reflecting the strength of our execution and operating mode. To conclude, we are seeing accelerating demand improving execution and expanding opportunity across both our core and emerging customer segments with a record backlog, a strengthening U.S. domestic supply position. and a differentiated product platform, we are committed to delivering for customers and creating long-term value for shareholders. With that, I'll turn the call over to Ahmed to discuss our financial results. Ahmed Pasha: Good morning, everyone. Since our previous earnings call, we have continued to capitalize on strong demand trends in our industry while maintaining our disciplined focus on delivering on our fiscal year 2026 commitments. We also maintained a strong liquidity that provides us flexibility to execute on our growth petitions. More specifically, starting with Slide 12. We generated Q2 2026 revenue of $465 million, up 8% year-over-year. Approximately $80 million of revenue was pushed into Q3 due to 2 issues. Specifically, roughly half was attributable to a customs issue in Vietnam, with the remainder due to shortage of loading equipment in Spain, both issues have self been resolved. The delayed shipments have been received, and we are current on the quarter's deliveries with no further delays. Also to confirm, we do not have any material exposures to the Middle East conflict as none of our shipments utilize the Strait of Hormuz. Our adjusted gross profit for the quarter was $51 million, representing an adjusted gross margin of 11.1%, this result is within our full year expectations of 11% to 13% and reflects a meaningful improvement from the first quarter level as well as comparable quarter for fiscal 2025. The primary driver of the improvement was consistent execution and operational discipline across our portfolio. Adjusted EBITDA for the second quarter was negative $9 million an improvement of $21 million compared to the second quarter of last year. The improvement reflects higher gross margin, lower operating costs and $6 million gain from unwinding and FX derivative. This offset a $6 million loss on the same FX derivatives recorded in the first quarter of 2026, with no net year-to-date impact. Turning to Slide 13 for an update on our adjusted gross margin progression and how disciplined execution translates to returns for our stakeholders. As you can see, our rolling 12 months adjusted gross margin is 12.4%, marking 2 full years of consistent double-digit returns. We believe this progression underscores the durability of our margin profile. -- even in the dynamic pricing environment. Importantly, it reflects the product, commercial and supply chain actions we have taken across the portfolio. These actions position us for continued margin improvement beyond this year. Turning to Slide 14 for an update on our liquidity position. We ended the second quarter with total liquidity of approximately $900 million, which includes approximately $430 million in total cash. During the quarter, we invested $220 million in inventory to support deliveries that underpin our second half fiscal 2026 revenue. In addition, we will invest approximately $100 million in inventory during Q3 to support second half deliveries. Liquidity is expected to return to $900 million levels by the fiscal year-end, driven by execution on our backlog and new orders. Bottom line, our lability position fully supports delivery of our fiscal 2026 commitments. Turning to Slide 15 for our fiscal year 2026 guidance. We are reaffirming our guidance ranges for revenue, ARR and adjusted EBITDA reflecting our strong visibility into the year and continued momentum we see across our business. More specifically, we expect revenue in the range of $3.2 billion to $3.6 billion, with a midpoint of $3.4 billion. We expect approximately 70% in the second half, consistent with the rating of revenue last year. We expect roughly 30% of second half revenue in Q3 and the remainder in Q4, again, consistent with last year. With all equipment ordered and production tracking as planned, we are confident in delivering on our customer commitments and our full year revenue goals. We expect annual recurring revenue, or ARR, to reach approximately $180 million by the end of fiscal 2026, up from $148 million in fiscal 2025. And we continue to expect adjusted EBITDA in the range of $40 million to $60 million for the full year. In summary, we are submitted to achieving core revenue and profitability outlook for fiscal 2026. We remain rather focused on ensuring disciplined execution for our customers and delivering value to our shareholders. With that, I will now turn the call back to Julian for his closing remarks. Julian Jose Marquez: Thanks, Ahmed. Let me close with a few key takeaways. First, strong execution. Our second quarter performance, record 5.6 billion backlog and on track production levels support our content in our fiscal '26 guide. We ended the quarter with approximately $900 million of liquidity, which we believe provides always the flexibility to fund growth. Second, all the momentum accelerated. Order intake has doubled year-to-date, led by orders from both new and existing customers, an indication of strong demand in the U.S. and the positioning of our business. And third, expanding customer base. We are in an excellent position to capture a portion of the rapidly expanding data center demand with the signing of MSC with 2 major hyperscalers after meeting all of their commercial and technical requirements. We expect to execute the first purchase order with 1 of these customers within the third quarter. In conclusion, we are positioning our company to continue profitable growth and to deliver value to our customers and shareholders. With that, we are now prepared to take your questions. Operator: [Operator Instructions] Our first question comes from George Gianarikas from CG. George Gianarikas: My first 1 is on the competitive landscape. How are you viewing the recent trend of some cell manufacturers vertically integrating? And specifically, how are you looking at their push for market share and any impact on pricing? . Julian Jose Marquez: We have seen both CATL and BYD become common and integrate particularly we have not worked in the past would be way, but we have worked with the CAPL. It hasn't really changed the intensity of the market, if you talk the truth. The value the ability to meet customer needs at a reasonable price that hasn't changed effectively. So we continue -- we're growing our backlog. We're growing our winning projects the same as we are. And so we feel confident we haven't really made a big difference in the competitive American. So we attracted 50% of our new sales are new customers. So we are -- I don't see it as a challenge. It's not new, by the way. I mean, it has happened in the past. The change of CTL was they bought, but not a major change in the competitive landscape from our point of view. George Gianarikas: And maybe as a follow-up, first, congrats on the 2 hyperscaler MSAs. If you could -- you did this a little bit, but if you could pull back the curtain a bit on the mechanics of those wins? What did specifically what did the validation process look like? And what do you think was the primary differentiator for you that larger win theres? Julian Jose Marquez: Yes, two things. We went through a very strict commercial and operational and technical evaluation. In 1 of the cases, there were 26 players, I would say the majority would not make it -- so there's a limited number of people or companies that could meet this very stringent requirements. Our ability -- our deep knowledge, our deep experience managing fast response systems in Europe as special. And having the infrastructure and the technology capability to prove their case to them very, very quickly is a negative. We have the lab, we have the termination we do this every day. We know how the applications work. We understand how the critical work globally. And that made a big difference as we were the first one. So I think that we believe that will continue to be what will keep us ahead of the market because we are now -- some of our competitors are still trying to figure out how to meet the criteria. We're thinking how to exceed their what they need and trying to offer them more value and more capabilities, and that's what we bring to the table. Operator: Our next question comes from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: I got to hand it to you guys really kudos here, I'm seeing it through. In particular, look, I wanted to ask you, in particular here, as it pertains the hyperscale orders, what specific product are they following up with you guys with? I know there's been some ambiguity in the marketplace as to whether or not you have the right product and the product positioning for the hyperscalers to get this kind of confirmation with 2 as you guys have flagged, in particular, is quite notable. Can you speak to the specific deployment permutation that they're using you guys with. Is it a BTM FTM, -- is it a capacity support load shifting? And then also, how do they think about the domestic content or fiat compliance. Is that another nuance that we should consider? Just can you speak to the product and more broadly in these wins? And whether this is a leading indicator for further orders like this in coming quarters? Julian Jose Marquez: Yes. So in terms of what they're asking for different what I said in the last call, when we had, we're looking at a portfolio that was a little bit more mixed. Now that we concentrated in the hyperscalers, their main need is quality of power, helping them manage the fluctuation of the data centers and happen so quickly and effectively. So -- and that's what they need, and that's what we proved with our advanced controls and our products, we can prove very, very quickly to them that we can do it. I will say, if I can brought better than anyone else. And that's what is driving this. If you go beyond the hyperscalers into kind of the developers of the world, it seems to be that -- or seems to be what we have experienced more of speed to power and meeting great calls and and is a little bit more mixed, but when it's too hyperscale, it has been quality of power they may ask. In terms of domestic content, it wasn't a requirement from them or something that we're specifically looking at we clearly are selling it. And I think that as we have explained to them the competitive position of domestic content, the value it can create. And the tremendous branding opportunity of having a product that is built here by American for America here especially as this to hyperscalers most of the businesses in the U.S. I think they have -- they are seriously considering as -- but their objectives were meeting the quality of power, meeting their technical commercial objective, and that's where they concentrated on, and that's how we move it. In terms of these 2 MSAs, they have behind a significant pipeline, that we expect that within the next year, will convert into the orders. We won't necessarily win them all, but it will be a significant amount of demand that we see behind this that we will convert having these MSAs gives us puts us in a very, very good position to capture. This is the hard in order to compete. Now many people can do it. And I think this was a stop of approval that when we make an offer, they know that we will deliver what we are promising. Julien Dumoulin-Smith: Awesome guy. And quickly, Ahmed, can you speak to this slide has this interesting commentary that says you're going to invest additional inventory during the third quarter. but you're going to rebuild liquidity towards $900 million by fiscal year-end. When you say rebuilding liquidity, is that going to capitalize in some ways? Or is that just kind of cash flow? Ahmed Pasha: I would not. Julien, I would not read too much in between the lines there. I think it was more as we invest because we have roughly $2.5 billion of revenue in the second half. So we will be delivering that. We're building up the inventory. But as we deliver the inventory, we will be collecting -- so at the end of the day, our liquidity will be back at $900 million levels by the end of the year, consistent with what we told you when we gave our guidance for the year. So that was the intent there. Julien Dumoulin-Smith: Awesome. And just to clarify from earlier, how many other supplied MSAs with you guys? Julian Jose Marquez: I mean, very, very selective, Julien, they all fit in my hand, I think, and have fingers left. We don't know we have the significant information, but we understand they are very, very selective, very few people. I've been able to go to it, they might -- they're probably working on it, but let's see if they get it. Operator: Our next question comes from Brian Lee from Goldman Sachs. Brian Lee: Congrats on the strong backlog here in the hyperscaler updates. I had a couple of questions, I guess, on the hyperscaler MSAs. I'm not sure how much you can provide, but would love to maybe get some detail around quantification of the size of the deals, how many megawatts over what years -- and is it over multiple sites that are already identified? Maybe just if you could elaborate a bit more on kind of the scope of these 2 MSA deals and how meaningful they are in terms of quantitative impact? Julian Jose Marquez: SP1 Yes. So I'll tell you, the majority -- or the great majority of our pipeline is supported by deals that are behind these two MSAs, and these deals will -- and those -- that pipeline is several different data centers around that they have around the U.S. mostly. So that's what it is. In terms of financial -- and our current paper is 12 giga, so that'll give you a sense. We're not providing the financial numbers around it. As it's too early, and we are competing, as you know. So we are not providing those numbers today, but -- my expectation is that as we end the fourth quarter and bring hopefully, a good number of these projects, and I can offer numbers in included in everything and do not necessarily be providing commercial, I will provide you more financial metrics of this. Brian Lee: Okay. Fair enough. Yes, we'll look forward to that. And then maybe just zooming out a little bit because this is a new business for you, and obviously, very, very high growth potential. What's sort of the deployment schedule, I guess, can you help us kind of visualize as you go into some of these, whether they're RFPs or bake-offs -- what's the time line for submitting your design and your proposal to when 1 is finalized? And then when you get a PO to when you're going to deliver to sit kind of what are the the sequence of events and how long is that. Julian Jose Marquez: They are in a hurry, generally. Most of these projects, as I said, that -- I don't know if I mentioned about the pipeline we have, we believe will convert into orders during the year, evening a year, so quicker than generally, we're in a pipeline that comes into our things. And very, very tight schedules for delivery that we commit because we've been working on our speed for some time. So I cannot give you today a specific rule. This is the one. But generally, I will say a lot faster than the conversion rate we have for our order from pipeline to orders and a lot faster on the conversion rate for orders to revenue, than what we do in our normal utility developer to, especially with these 2 hyperscalers. The case of the developers, and it's a little bit different as those are more project tied they are looking for pyramids and stuff. So those will probably take a little . Brian Lee: Okay. Understood. Maybe last one, if I could squeeze in just on the gross margin bounce back. I know that's been a focus for you guys for a little while. So nice to see it back to the range, even on the lower volume here in 2Q, that was a pretty impressive gross margin rebound. What does that maybe entail for the back half of the year? Is there volume leverage and some of the efficiencies from this quarter that can spill over? And is there any potential upward bias to margins as you kind of move through the rest of the year? Ahmed Pasha: So in terms of the gross margin, you're right, an 11% gross margin we earned, which is higher than what we had in Q1. In year to go, we just reaffirmed our guidance where we said 11% to 13%. So we will be somewhere in the middle of that range a year to go. I think at least that is our goal is about 12%. So we will definitely be better than what we earned in Q2. Operator: Our next question comes from Dylan Nassano from Wolfe Research. Dylan Nassano: Just wanted to check on the broader data center pipeline. Any updated thinking there in terms of how much of that kind of fits your previous criteria of pipeline versus leads? And then I noticed there's this 6 gigawatt hour kind of target for what gets included -- just how did you come up with that number? Any thinking around there would be helpful. Julian Jose Marquez: I'll tell you that there a number for our pipeline it. Our pipelines went up like 30% from last quarter. we concentrated a lot on the hyperscalers. And so a good driver of that has been the hyperscalers who are roughly at 12 gig. And our leads are 3x generally the same as close to where essentially the same as we had last quarter, we come to some into pipeline and we were able to replenish as a rule. The 6 gig, I don't know what the you're referring to Dylan, sorry,. Dylan Nassano: It's on Slide 6 at the bottom, and just classified the system 6 gigawatts hours or more. Julian Jose Marquez: Let me check. But in any event, strong growth great opportunity here. And I think that by concentrating on hyperscale extra, we get the point on this. we are in a market segment that we expect will test faster and that we will convert into execution quick. Unknown Executive: Yes. Dylan, that's 6 gigawatt hours. That's -- it's not a pipeline, how we classify an LDS project. So anything over 6 gigawatt hour. Sorry. . Julian Jose Marquez: Yes, for long duration storage, yes, those are loan duration stores, so they need to be more than 6 hours, in order to be long duration as a definition of loan duration for 6 and more. Dylan Nassano: Yes, my mistake. And then just a follow up on the quarter. I mean, it looks like revenue was kind of lower than analyst expectations even kind of including this $80 million. So I just wanted to check, was there any other seasonality in the quarter beyond or other disruptions beyond the shipping stuff some guys noted. Ahmed Pasha: No, there was none. I think if you recall, when we gave our guidance in Q4, we did see about 1/3 of our revenue in the first half and the rest given fact that we don't give quarterly guidance, I think that was the only reason what is the difference. But overall, from an internal perspective, as I mentioned, the $80 million of this shipping delay was the only reason why we were lower on the revenue for Q2, but that we have the shipment we have already received. So we feel pretty good on year to go. . Julian Jose Marquez: And if I can add 1 point, our indication of where we see revenue divided among quarters more indicative, so you can model it and so, but we don't run the company on a quarterly basis to be very clearly. We'll run it on a yearly basis. That's why we intend to meet our yearly numbers. We try clearly to what we indicated to me about is not -- we do not provide quarterly guidance. I know it creates some confusion, but -- it's a way of try to help you model and at the same time, keep the flexibility to manage things effectively and efficient within the company. . Operator: Next question comes from Joseph Osha from Guggenheim Partners. Joseph Osha: I wanted to drill down a little bit on 2 product details. Julian, you said that hyperscalers and data center more broadly, tends to be more about product quality or power quality. So is the implication then that we're seeing shorter duration configurations, say, an hour or 2 as opposed to 4? That's my first question. And the second question, just to confirm, thinking about the inverters, are you generally being asked to deliver a response time of 10 milliseconds or less. Those are my 2 questions. Julian Jose Marquez: Yes. On the first one, they tend to be shorter duration, you're right. So they are -- I'll say, we don't provide anything smaller than 2 hours or 2 hours is what we and general that's where the market is trading, but they tend to be shorter than even though our main point to the data centers as we engage with them and the developer have test the great beauty of that our technology compared to other technologies that are trying to resolve is that we can stack business models on top. And we can do quality of power, help them with to some of the work of resolving some of the efficiencies of interconnection or backup. We can help them on solve them voltage. We can help them on many, many fronts. So -- that's -- I think that as we're looking at the assets, they are expanding also their view of what is on that was on that point. On the second one, generally, I will say that -- sorry, the second 1 can. We need to -- we're not providing the actual number, but it's very short, not the way over it. So we're not providing the actual number because it is proprietary to the solution and to the people we're working with, but it is very, very short, significantly shorter than 100 milliseconds, we tend to do for transmission systems and European Valifications. Joseph Osha: And just to follow up on that very quickly. That would probably assume create the need for inverters with wideband gap MOSFET you've got it off SP-5. Julian Jose Marquez: Yes. You need inverters. I can provide that. That capability is very much dependent on the inverter you use. We work with inverter companies that -- we have done this in Europe for many years, so we're not exactly who leave, how they do it and their strategy very well. So we have that. And our advanced controls work very well with these Abertis and have the processing time to ensure the whole system, response on that, not behind the inverter as healthy suppose. Operator: Our next question comes from Jon Windham from UBS. Jonathan Windham: Nice result. I was wondering if you could talk about the U.S. storage market continues to grow at a rapid pace. Where are you -- are you able to provide us sort of where you are on being able and sort of capacity in gigawatt hours to provide over the next 12 months? And then just sort of thoughts on the road map to keeping up with the market growth over the next 2 or 3 years. Julian Jose Marquez: Yes. Yes, we see the U.S. market growing expanding significantly. So that's right. What we have, we have, as you know, our domestic products, our flagship solution in the U.S. We have the ASE capacity, we enter with another supplier for additional capacity, and we are looking at additional capacity for the '28 going forward. So we have enough capacity to forward the pipeline we see and the conversion rate we affected we don't provide specifically the numbers, but we -- it's multigigacapacity, and we have seen no problems getting the -- and we are putting the whole infrastructure that delivers that multidealer the U.S. with our domestic content offer. We can also import equipment if we need to, but our preference is to do the domestic content solution. Jonathan Windham: Perfect. And maybe just a quick follow-up. There's been a lot of commentary on the gross margin. But historically, some of the issue has been that operating OpEx as a percentage of revenue has basically been offsetting the positive gross margin. So just your thoughts on internal initiatives to get the OpEx number down to drive bottom line profitability and free cash flow. Julian Jose Marquez: Yes. The operating costs are percentage of revenue is essentially a function of growth or growth of the top line. So if you follow it carefully, you'll see that our operated revenue goals it's very much vital. Our costs are very, very stable and how much of our cost represents that of our revenue depends on how much we can grow revenue. So we have seen -- and we have an operating leverage that we believe that we can grow this company that we can keep our costs down and half the rate of growth of our top line, which will be -- which adds tremendous value. And you'll see when you look at the numbers, it's very, very clear. It's an operating leverage formula. Unfortunately, as you know, last year, we didn't grow. So that's where the operating revenue -- the percentage of revenue of cost of revenue was a little higher than what we had parted. Ahmed Pasha: Our goal is that we basically create the operating leverage and we do have that as the revenue grows, our costs, we will maintain that cost discipline and cost will be reduced -- increasing less than half of the growth in our revenue as Julian just mentioned. So I think that's our key focus from my perspective. Operator: Our next question comes from Ameet Thakkar from BMO Capital Markets. Ameet Thakkar: It looked like ASPs, if we'll get revenue and kind of your revenue recognition megawatts for the quarter were up nicely quarter-over-quarter. And I was just wondering, was there a lot more EPC work this quarter? Or is this kind of maybe the level we should be thinking about for the balance of the year for modeling purposes? Julian Jose Marquez: This number, as you said, it moves up and down quarter after quarter based on the mix of the cells. So I wouldn't read too much on it. We are designed to meet our financial objectives independent of where the ASPs go up or down. And our planning assumptions that they will continue coming down. And we are deciding to make money and make it successful. And I'll say even more every time we have seen ASPs come down, what happens that demand is plans at a rate that is much bigger. -- the reduction in revenue at on the lower ASP. So we -- I wouldn't read too much on it. I know that something that you care about a lot, I mean, the analysts care a lot about, but -- it is not a big driver of our business financial results. . Ameet Thakkar: Great. And then I know you had mentioned earlier in answering 1 of the kind of questions before about kind of your long -- and I think you said that the vast majority of that is data center related. Is that right? Is it a little bit over half? Or is it substantially all of that 1 gigawatt pipeline is data center related. Julian Jose Marquez: Yes. Now we have a 12 gigawatt pipeline of data -- all of its data center related. What I said that a great majority was connected to the 2 MSAs that we just signed. So the 12 gigawatt hours are -- all of it is data center related, of which the great majority of more than 1 or been a good portion of it. I want to give a number come from the -- supports these 2 MSAs, which is high. Operator: Our next question comes from David Arcaro from Morgan Stanley. David Arcaro: I was wondering, are there other MSA opportunities that you're currently working on? Is that something that you would expect most hyperscalers to be pursuing on the storage front. Julian Jose Marquez: Yes. We're looking at it. These are the 2 that we have more urgent needs. And so -- but we're looking to work with all of them. So we believe the problems are similar and that we can meet their needs with our capacity. So we hope to work with all of them. David Arcaro: Yes, makes sense. Any -- are there any active now or any sense of timing as to when those opportunities might pop up? It seems like they're all very active on the data center side of things, and I imagine looking at storage. So is that also a near-term opportunity? . Julian Jose Marquez: I think that -- well, I cannot give you a real sense of time when it will happen as it would depend on where they are and what they do. I mean, -- the tool that we have signed are people are very clear what they need. They are in a hurry to win, and they seem to be ahead of the market if you ask -- so -- but we're working with everybody. We are contacting all of them, working with them, and the chassis to are ahead. David Arcaro: Got it. Okay. Great. And then the 50% proportion of new customers, I thought was notable. I was just wondering, could you give any characteristics of kind of who those customers are? What type of customers they are? Is it the traditional profile of developers and utilities that you would see or any specific locations? Curious if it's a new profile. Julian Jose Marquez: This is a result of the great work that Jeff Monde, who joined us as our VP of Growth has done since he arrived. It really had invested significant business development identify all these customers, which are -- I would say, we're not a typical we used to work before, for our deal developers or utilities, that we have not contacted in the past and now we have made significant progress. And this is a global effort that we're doing, not only in the U.S. but outside of the U.S. So -- but I would say that, as we said during the call, these are customers that are within our normal or core customer segments, utilities and developers growth. But great calls to our sales organization that has really invested into developing and bringing these new customers and into the mix. . Operator: Our next question comes from Ben Kallo from Baird. Ben Kallo: Could you just talk a little bit because of the specific product they're looking for in the size. If you could talk about just pricing and margin, how we should think about that all these better deals? And then also my second question just outside the U.S. where you see pockets of demand and then just remind us how margin compares internationally versus the U.S. Julian Jose Marquez: In terms of data center, I will say, as we said, duration shorter term. And I'll say the margin is in line with our guidance of 10% to 15%. That's what we'll say. So generally, that's what it is. And both of their needs are quality of power, which we do this for grades globally, we're doing for them here, and I think it worked well and versus -- so in terms of margins, margins changed market for market depends on the competitive environment. As we go in our 10% to 15% range, but there are markets that are a little bit more -- they go through more competition than us. I will say that markets like the U.S. and the U.S. is probably a little bit on the high side, the U.K. on the lower side. And so it changes a little bit on changes market per market. But our 10 to 15 range works for all these markets. . Operator: Our question comes from Maheep Mandloi from Mizuho. Maheep Mandloi: A question on the MSAs with the hyperscalers. Do they have any special requirements on the battery types is like the general batteries you have for the best industry? Or is it high searate? Just curious if -- on the supply side, if you need to make any changes on the sales sourcing of that. Julian Jose Marquez: We make any battery grade. We make any battery grade. So the battery is a commodity whatever they need. I think the main driver is Nitsure, and that comes our packaging, our capabilities. So no real need on -- clearly, the LFP to nobody as to the M&C for many reasons, but a brand or supplier is not relevant for them. Whatever battery we put in our systems, we can make it to [ Gen 6 ]. Maheep Mandloi: And then separately, like we saw some battery deployers proposing high ceded batteries, which go inside the data center for 800 volt TCs? Is that something of interest are you exploring? Or your're looking at outside that did so. Julian Jose Marquez: Yes, yes. We're looking at our product road map includes not only these many other elements that we're looking at to continue improving our offering to data centers and to our solutions, 1 option is this high seed rates batteries that will go into that. And they don't have some limitations, but it's part of our program that we have for the will happen or not, we'll see, but it's not any time soon. . Operator: Our next question comes from Moses Sutton from BNP Paribas. Moses Sutton: Congrats on the great update. Have these data center opportunities convert into reality, how do we think about the ratio at for what, meaning the loss of load to the watts of storage. We've seen examples out there of gig data center might need 800 megawatts of batteries and examples that could be of that, right, depending on their need. So what do these projects start to look like right now as we're connecting sort of a data center TAM in gigawatt terms do the storage opportunity that you're converting against? Julian Jose Marquez: Too early to give you a rule of thumb that we can calculate clearly have some views, but it's too early to give you -- too premature to give you a rule of thumb. How do you think a gigawatt would take this amount of battery. So we we will -- over time, I think that we'll be able to develop that as it becomes more clear, but today, we -- that we cannot do. What we have, as I said, 12 giga pipeline ahead of us, which we want to convert into orders a good portion of it within the next 12 months. So -- that's what we're concentrated on. And as we learn more about this and we see how the industry develops, we'll provide you a rule of thumb that will give you a better sense of the whole market. Moses Sutton: Got it. Got it. That's helpful. We'll look forward to that. And then on the MSAs, what's the nature of the exclusivity from what you've won? Are there multiple vendors? I couldn't tell if you were answering that in some of the earlier questions. So for those hyperscalers, are you 1 of the few players? Are you exclusive? Is that a geographic exclusivity... Julian Jose Marquez: One of a few players, 1 of a very, very limited number of players. But this is a competitive process. These are not directed at least not yet. I may be able to take them there and so forth very limited players and a competitive process as we moveforward. Well, thank you, everybody, for participating today, and we'll be available. Chris will be available, I also will be available to answer any questions you may have. Bye-bye. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Evaxion Business Update and First Quarter 2026 Financial Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO, Helen Tayton-Martin. Please go ahead. Helen Tayton-Martin: Thank you, and welcome, everyone, to Evaxion's Q1 2026 Business Update Call. I'm very pleased to be joined today by our CSO, Birgitte Rono and COO, recently promoted, we will talk more about that; and Thomas Schmidt, our CFO; and our Head of Investor Relations and Communications, Mads Kronborg. So if we move to the first slide, just to provide some orientation as to what we will cover today. We will spend a little bit of time on our achievements in the first quarter of this year and some notable changes that we have made in order to address and focus on our strategy. I will then hand over to Birgitte, who will talk through some of the recent highlights from our R&D portfolio and AI-Immunology platform. Birgitte will then hand over to Thomas, who will walk you through our Q1 financial results. And then we will have some concluding remarks before opening up the call for Q&A. So if I move to the next slide, just to reiterate, we may make some forward-looking statements on the call today, and investors and all listening are guided towards our SEC filed documents. So if I go past our introduction to Slide 5. I just wanted to, as before, emphasize our 4 key focus areas within the organization and give you a sense of the momentum as we perform an update in each of those areas. First of all, our core focus around business development and partnering is very much underway and strengthened. By the way, we have reorganized the organization somewhat, and I'll come on to that to focus on the external outreach and positioning of the company to a broader audience and also to raise the awareness of exactly what it is that Evaxion can deliver in terms of products and the platform. And I'm pleased to say that we have many discussions ongoing there, and we hope to report more on that later as the year progresses. Secondly, in our R&D focus areas, we are delighted to talk about our recent data from our EVX-01 lead program Phase II study in which we were able to update some of the translational data recently at AACR, and Birgitte will talk in more detail about the performance of the cells that we produce in relation to the vaccines given to the patients and the 86% immunogenicity conversion rate we have there. We also were able to present at AACR, a new set of data preclinically in collaboration with our collaborators at Duke University on the scope to use the AI-Immunology platform in glioblastoma. We have always felt that the approach could be applied to other high mutational burden tumors, but also to others where high mutational burden was not a feature, and that is very much part of how we were able to demonstrate the broader applicability of the platform in glioblastoma. And again, Birgitte will speak more to that. Finally, we were able to confirm the completion of the last patient, last visit in the extension phase of our EVX-01 program and our Phase II trial, and more to come on that later in the year. More broadly on the AI-Immunology platform, we continued to optimize and strengthen that around its ability to deliver products across our infectious diseases as well as oncology portfolio and again, also in autoimmune disease, again, where we'll update later in the year. But in this first quarter, I'm delighted to say that we were able to show some initial data on a new polio vaccine concept presented in collaboration with The Gates Foundation. And finally, as Thomas will come on to, we have maintained our disciplined allocation of resources aligned to our stated aims with the portfolio and the platform, and our cash runway remains unchanged into the second half of 2027. Moving to Slide 6. As mentioned, we have reorganized slightly inside the organization. I'm delighted to announce the promotion of Birgitte to the combined role of CSO and COO, which really reflects on how we organize the company and how well it's been run in recent times, but also to enable me, in particular, to have a greater focus externally on behalf of the company in terms of our business development and our investor interactions. Separately, and in parallel, we were able to welcome Jens Bitsch-Norhave to our Board of Directors. And Jens comes to us with a huge amount of experience in BD and corporate strategy and outreach in general, both from a biotech perspective but more recently from J&J and Hengrui, where he is currently Corporate VP and Global Head of Corporate Development. So we're delighted with the way that we've been able to strengthen the organization to focus on our stated strategy, to build and maintain what we have and build greater partnerships. So on Slide 7, just to summarize, we remain a lean and capable and focused team in terms of the management organization. Two of the members are here on the call with me today, and Andreas continues to support and drive the organization's innovation strategy around AI-Immunology. And our Board remains the same but with the addition of Jens, as I mentioned. Finally, moving to Slide 8 to set up our objectives and key milestones for this year. Just a reminder that Evaxion over many years now has the privilege of having a pipeline in Phase II in oncology with our EVX-01 asset in advanced melanoma, our personalized neoantigen-directed peptide-based vaccine, where we've got great data, which Birgitte will touch on in terms of now and what's to come. We have our EVX-03 program, which is a combination of personalized and IRF-based antigens on our DNA platform. And then we also have coming along in preclinical development, aiming for clinical readiness by the end of this year, our off-the-shelf vaccine program, EVX-04 targeted to AML, which will be a single vaccine approach for multiple AML patients. More to come on that. Infectious diseases, we remain focused on driving forward our preclinical assets, EVX-B1 against pathogen staph aureus, our B2 program against Neisseria gonorrhea and also in collaboration in -- with Afrigen on an RNA platform. EVX-B3, our options partner program continues to move forward with MSD. And before our more recent newer program on Group A Streptococcus is making great strides in initial early discovery component design. And our first viral program is continuing to make progress in terms of confirming the candidate components. So a lot going on in the organization. In Slide 9, I just wanted to remind the audience of our 2026 milestones and the fact that we have achieved the first one of those in our EVX-01 additional biomarker and immunogenicity data, and we remain on track in terms of updating on the approach of AI-Immunology in autoimmune disease, our 3-year data for the EVX-01 melanoma program, our planned strategy with the EVX-04 AML program and the early work maturing in our preclinical EVX-B4 program against Group A Streptococcus. And fundamentally, we are driving the partnership strategy to focus on the platform and the assets so that we can continue to build value in the company and focus on delivering those into early development where we believe we can add value. So at this point, I'd like to hand over to Birgitte, who will talk you through our R&D and AI-Immunology update. Birgitte Rono: Thank you, Helen. So today, I'll be focusing on our lead candidate, EVX-01. And as mentioned, this is our personalized neoantigen cancer vaccine currently in Phase II in advanced melanoma. And then I will present the exciting new data demonstrating the scalability of our AI-Immunology platform into the hard-to-treat deadly brain cancer glioblastoma. And lastly, I will showcase how we have applied AI-Immunology to design optimized vaccine antigens for an improved polio vaccine. So if you take the next slide. So as Helen mentioned, we presented EVX-01 Phase II biomarker and T-cell immune data at the AACR Annual Meeting here in April. And we reported that 86% of the EVX-01 vaccine target triggered a specific immune response, and this is substantially higher than what has been reported for other similar vaccine candidates. Furthermore, we also reported that 86% of the immunogenic vaccine target induced a de novo T-cell response, meaning that the EVX-01 vaccine specifically triggers novel T-cell responses and not just amplifying existing responses. And this is of great importance as induction of these novel responses have been linked to clinical benefit. Furthermore, we demonstrated a positive correlation between the predicted quality of the EVX-01 vaccine targets and the magnitude of the T-cell response induced by the vaccine targets. And this high vaccine target success rate, together with this positive correlation demonstrates the strong predictive power of our AI-Immunology platform. If you take the next slide. So EVX-01 continues to deliver strong data, adding to the already existing and promising clinical and immunological data package. So at ESMO last year, we reported a 75% overall response rate, including 25 complete responders and 92 sustained responses, indicating a durable benefit. So importantly, more than half of the patients converted into an improved clinical response upon EVX-01 treatment. And with the newly presented Phase II immune data, this further strengthens the picture with the 86% immunogenicity and the 86% de novo immune responses, demonstrating broad and consistent immune activation. So looking ahead, we have a clear development trajectory. We will announce 3-year data, including clinical outcome in the second half of this year. Further, we are evaluating and discussing additional relevant cancer indications and with further trials expected to be conducted in partnerships. And importantly, EVX-01 has already received FDA Fast Track designation, validating both the unmet need and then also the development potential. So overall, this positions EVX-01 very strongly as we move forward into the next phases of value creation. If you take the next slide. So let's turn our focus to the other promising data set presented at AACR. So in collaboration with Duke University, we demonstrated that our AI-Immunology platform scales beyond melanoma. And here, it's exemplified with glioblastoma or GBM. So GBM is the most common and the most aggressive primary malignant brain tumor. And despite surgery followed by chemoradiation, outcome remains very poor for these patients with a median overall survival of approximately 15 months and a 5-year survival below 10%. So using our AI-Immunology platform, we have evaluated tumor omics data from 24 GBM patients and demonstrated that a fully personalized vaccine design was feasible for all these cases. And importantly, these designs were based on 2 classes of antigens or classical neoantigens and also antigens derived from the dark genome so-called endogenous retroviruses or ERs. So in 21 out of the 24 designs, they included both types of antigens, 2 vaccine designs included only neoantigens and 1 design relied solely on the ER antigens. This analysis showcases the flexibility and the scalability of the platform to integrate antigen from different sources, fitting the patient tumor biology. So overall, the data demonstrate that AI-Immunology can address hard-to-treat low mutational burden tumors like GBM and it also supports broader applicability of the platform across different cancers. If you move on to the next slide. So another example of how AI-Immunology can be used to design improved vaccine was showcased at the World Vaccine Congress. And together with The Gates Foundation, we presented a new polio vaccine concept using AI-Immunology, we designed a novel hybrid capsid antigen and a novel de novo B-cell antigen with the aim of eliciting a strong and broad tumor response against all serotypes. And overall, this highlights the potential of AI-Immunology to reinvent classical vaccines with improved simplicity and also improved breadth. Take the next slide. So having highlighted progress across the key R&D program, let's step back for a moment and focus on AI-Immunology and the data validating its ability to generate high-quality product candidates. So AI-Immunology is clinically validated with positive outcomes in 3 out of 3 oncology trials. And preclinically, we have demonstrated proof of concept across multiple disease areas, including cancer with our IRF targeting off-the-shelf vaccine concept as well as in infectious diseases with several vaccine candidates targeting multiple bacterial and viral pathogens. And importantly, the EVX-01 concept is highly scalable with potential in other solid tumors beyond melanoma. Additionally, the platform's applicability in challenging cancer indications was further validated in GBM. So finally, AI-Immunology supports multiple modalities, including peptides, proteins and DNA and RNA, enabling both pipeline and also partnership potential. So in conclusion, we have demonstrated strong progress across our platform and our R&D pipeline, and we are looking forward to keeping you updated as we advance our programs further. So with that, I will now hand over to Thomas, who will present our quarterly financial results. Thomas Schmidt: Yes. Thank you, Birgitte. And as mentioned, I will now then present and take you through our Q1 '26 results. The highlights of the first quarter of the year really is a continued discipline that we have applied in our resource allocation, of course, aligned with our strategy and certainly investing into our value drivers. So really according to plan. And that also means that we are on track to deliver what we expect of an operational cash burn of roughly USD 14 million for 2026. That also underlines and reconfirms that our cash runway is into the second half of 2027 and remains as such. Also, as earlier communicated, not assuming any partnerships or deals that we will hopefully be making and communicating within that time frame. Looking at the P&L, we have operating expenses overall more or less in line with last year, but slightly reduced. It comes from our R&D with a minor increase as we continue, as mentioned before, to progress and advance our pipeline and programs according to plan. On the other side, our G&A expenses are slightly lower versus last year, also mainly driven by the fact that we have lower capital market costs in Q1 '26 versus the same period in '25. The first quarter resulted in a net loss of USD 3.6 million, again, according to our plan. On the balance sheet side of things on the next slide, reconfirming once again, our cash position and equivalent end of the quarter stands at $18.4 million, which confirms runway until the second half of '27. And the total equity has been reduced since year-end, really as a result of the net result of the first quarter, meaning that we have USD 13.2 million as equity at the end of the quarter. So all in all, financials according to plan, allocation into our main priorities and cash runway confirmed until the second half of 2027. With that, I hand it back to Helen for some concluding remarks. Helen Tayton-Martin: Thanks, Thomas, and thanks, Birgitte. And so I would just like to emphasize that we believe we've made a great start to 2026, achieving the first of our milestones with a really encouraging translational data from EVX-01. We've got various presentations that have been made that validate the capabilities and scalability of the platform, as Birgitte has explained. Business development remains a key priority in terms of engaging with organizations on the value of the assets that we have and the capability to develop those assets as we've talked a bit about. And the cash runway is maintained through to the second half of 2027. So we are rigorously following execution of our strategy and engagement externally and making great progress. So with that, I would like to hand back over to take some questions by the operator. Operator: Our first question comes from the line of Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Two for me. With respect to the 3-year EVX-01 data, ASCO is obviously too soon. But should we anticipate something like an ESMO readout? Or will you do it independent of a broader scientific meeting? Helen Tayton-Martin: So we will be updating in the context of a scientific meeting. We will not be sort of outside of that, that's not our intention. And we'll confirm which of the 4 conferences it will be once we're able to -- once abstracts are released. Thomas Flaten: I think the GBM data that you put out, albeit early, was very exciting, and obviously, a disease state and great need. Is it your strategic intent to take that into humans? Or would you seek a partnership based on the data you have now and perhaps some additional preclinical data? Helen Tayton-Martin: So we are very excited about the data. We agree it's really interesting and it's really exciting in a very difficult-to-treat disease. We would anticipate that that will be something that we will be partnering. It sort of strengthens the overall personalized approach that we have developed with EVX-01, but probably more to come on that as more data and discussions mature, but it would be a partnering approach for that one, too. Operator: Our next question comes from the line of Michael Okunewitch from Maxim Group. Michael Okunewitch: Congrats on all the great progress. I guess to kick things off, I'd like to ask just a little bit about expansion and I guess, your design philosophy and strategy around that. So first off, when thinking about targets for expanded indications in cancer, in particular, is the plan to go after other diseases where PD-1s have historically been ineffective due to that synergistic activity of directing the antitumor immune response? Helen Tayton-Martin: So I think we've taken a lot of parameters into account. But Birgitte, do you want to comment on how we have been marshaling the approach internally to focus on the rare diseases? Birgitte Rono: Yes. So as mentioned, we are looking at multiple different antigen sources currently, and there's further development in this area in the company. So we would like to be able to provide a cancer vaccine for all patients independently of their antigen profiles or landscapes. So we have so far looked at more than 30 different indications, mapping out their seasonal burden, their ERV burden, et cetera, and can see that for many of these indications, we're able to -- with the capabilities we have currently to design a high-quality vaccine. And of course, one would need to further dive into medical need and current treatment landscapes to find the optimal subpopulations where our therapies would fit, but not necessarily in PD-1 low patient, it could also be in high. So it's mostly -- we are mostly focusing on understanding the antigenic landscape and fitting our therapies towards these profiles. Michael Okunewitch: When thinking about designing new vaccines, do you find that it makes more sense to use one personal vaccine and then see if you could expand that to multiple tumor types with the same vaccine for more universal coverage? Or does it make more sense to go tumor by tumor and create a new back of targets that are directed specifically at the common target for that given tumor type like melanoma or like glioblastoma and have an individual vaccine candidate for each of those different cancers? Birgitte Rono: So the way that we are approaching this is to look into a lot of data from certain indication and understanding, as mentioned, the landscape. If we do see that there are these conserved antigens, so antigens that are shared across patients, we would definitely develop an off-the-shelf vaccine just due to the fact that the statistics are more simple and also the cost for the manufacturing would be way lower than for a personalized approach. Further on, you can -- if there's an off-the-shelf therapy, you can immediately treat the patients and not have to wait for that personalized batch to be ready. So that's -- everything comes back to the patient omics data and the profiles that we are seeing in our analysis. For some indications, we know that developing an off-the-shelf cancer vaccine would be very challenging. So it clearly depends on these different biological profiles. Helen Tayton-Martin: I think the EVX-04 illustrates just where in that setting, I think, the high level of conserved has enabled us to produce a single vaccine for those patients. Michael Okunewitch: I appreciate the additional color and looking forward to the 3-year data coming up later this year. Operator: We will now take our next question. And this question comes from the line of Danya Ben-Hail from Jones. Danya Ben-Hail: Congratulations on the update. You mentioned that there are several parallel partnerships and discussions. Can you provide more detail on whether these discussions lean toward broad platform licensing or specific asset-based collaboration in future? Helen Tayton-Martin: So we obviously can't say much at this point. I think we have stated the priority around partnership on EVX-01. But as you've heard, that has broader applicability than melanoma in our minds. And that has obviously also gathered interest externally with partnering conversations also. Across our infectious diseases portfolio there are a number of assets there, which are of interest to a number of companies. So we can't really provide any more details than that. Suffice to say that we are trying to be strategic around the way we have the partnering discussions in terms of maximizing the value, whether it's from an asset group in infectious diseases or the approach with something like the personalized EVX-01, EVX-03 cancer vaccines. So obviously, we will -- as soon as we can tell you more, we'll be delighted to do so, but we're pushing forward on a more strategic basis, if you will, around how to get the most value out of the assets that we can produce from AI-Immunology. Danya Ben-Hail: Just one more question on the autoimmune platform part. So we should expect more details in the second half? Helen Tayton-Martin: Yes, that's our current plan and aligns to -- as is always generally with Evaxion, generally aligns to scientific relevant conferences to report on data. Operator: There are no further questions for today. I will now hand the call back to Helen Tayton-Martin for closing remarks. Helen Tayton-Martin: Thank you. Thank you very much. And thank you to all those who listened into the call, and thank you very much for the questions that we received. I think in summarizing, we are very enthusiastic and excited about the performance so far in Q1 2026. We are really just getting started and we are achieving our milestones as we have stated them to be. So very excited about the initial data, very excited about the additional updates to come later this year. With that, I'd like to thank you very much, and I think we'll be closing the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Hertz Global Holdings First Quarter 2026 Earnings Call. Currently, [Operator Instructions] I would like to remind you that this morning's call is being recorded by the company. I would now like to turn the call over to Bill Cook. Senior Vice President, Finance. Please go ahead. Unknown Executive: Good morning, everyone, and thank you for joining us. By now, you should have our earnings press release and associated financial information. We've also provided slides to accompany our conference call, and these can be accessed through the Investor Relations section of our website. I want to remind you that certain statements made on this call contain forward-looking information. Forward-looking statements are not a guarantee of performance and by their nature, are subject to inherent risks and uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of today's date, and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements include factors that could cause our actual results to differ. This is contained in our earnings press release and in the Risk Factors and Forward-Looking Statements section in the SEC filings. We make with the Securities and Exchange Commission. Our filings are available on the SEC's website and the Investor Relations section of the Hertz website. Today, we'll use certain non-GAAP financial measures, which are reconciled with GAAP numbers in our earnings press release and earnings presentation available on our website. We believe that these non-GAAP measures provide additional useful information about our operations allowing better evaluation of our profitability and performance. Unless otherwise noted, our discussion today focuses on our global business. On the call this morning, we have Gil West, our Chief Executive Officer, who will discuss strategy, operational highlights and our fleet. Our Chief Commercial Officer, Sandeep Dube, will share insights into our commercial strategy. followed by Scott Haralson, our Chief Financial Officer, who will discuss our financial performance. I'll now turn the call over to Gil. Wayne West: Good morning, everyone, and thank you for joining us. I want to start by recognizing the Hertz team. The hard work, discipline and resilience they bring quarter after quarter is what makes results like Q1 possible. When we laid out our transformation strategy, we framed it around three financial North Star metrics. Fleet Management measured by DPU below $300 a revenue optimization measured by RPU over $1,500 and rigorous cost control measured by DOE per day in the low $30. These are our guidepost on a path to $1 billion EBITDA in 2027. Over the last 2 years, we fundamentally turned fleet from a headwind to a tailwind through our Buy right, hold right sell right strategy with tangible sequential improvements that have compounded over time. We hit our DPU North Star target last year and are tracking to hit it again this year. Over the last few quarters, we have also been building steady momentum on revenue. and we're tracking to hit our North Star RPU target for full year 2026. This quarter, the results show that our strategy is working we set aggressive targets and we hit them. Adjusted corporate EBITDA was up $141 million year-over-year, a nearly 50% improvement. Revenue was up 11% year-over-year and both beat consensus. It was, in fact, our strongest year-over-year revenue growth in 3 years. We delivered our strongest year-over-year Q1 RPD improvement since the travel recovery in Microchip driven spike in 2022, we saw sequential improvements in both RPU and RPD throughout the quarter. A clear sign that the Hertz unique commercial strategies are paying off, along with broader market stream. These results are especially meaningful given the environment we were operating in. The quarter brought headwinds, including elevated recalls, a partial government shutdown, higher TSA wait times and storm disruptions across key markets. Amidst this environment, our performance underscores that this transformation is driving structural improvements. On fleet, while DPU is an annual North Star target, this quarter's gross DPU beat that metric while net DPU, which fluctuates based on net car sales gains and losses was in line with our expectations. And supported by continued disciplined fleet rotation. With our youngest fleet in nearly a decade, we are seeing our strategy translate directly into better economics. After a slow start to the year, the residual values improved significantly through the quarter. With all this, we expect full year net DPU to remain below our North Star target of $300 per month, even with an enriched fleet mix. Adjusted DOE per transaction day increased approximately 2% year-over-year, driven primarily by revenue-related costs, which are EBITDA accretive and real estate sale-leaseback transactions executed last year. Normalizing for these impacts, core DOE per day continued to improve year-over-year. We still have work to do, and we need to continue to build scale to achieve our North Star target in the low 30s. The progress is there, and we have a variety of initiatives in flight. This quarter, recalls we're up nearly 300% temporarily shrinking our rentable fleet, that required us to carry more fleet than planned, impacting utilization by about 200 basis points year-over-year. Our team is strategically managing through this, making progress by working proactively upstream we're undertaking numerous initiatives to mitigate the impact, including working with OEMs and government officials for both tactical and structural improvements. While normalizing for the higher recalls, utilization was 140 basis points higher for the same period, showcasing our team's achievements and asset efficiency. Even with hiring calls, reported utilization was 90 basis points above where we were in Q1 of '23 and 2024. On the customer front, we're raising the bar to build on last year's 50% improvement in Net Promoter Score to deliver a truly gold standard. That work recently earned us a spot as the only rental car company on USA today's list of most trusted brands of 2026. We also saw the highest year-over-year improvement of any a car rental company on Business Travel News satisfaction survey. As we discussed last quarter, [ rent-a-car ] remains the foundation of our business today. But our transformation is about building more than 1 single value stream. We're running today's business with discipline while deliberately investing in the capabilities that will define Hertz future. That work is creating a more diversified platform, spanning rent-a-car, service, fleet and mobility. I'm pleased to share that we made progress across our highest priority areas this quarter. In rent-a-car, we launched an advanced fleet planning engine, which leverages Navidea's decision optimization engine in Palantir's foundry data operating system. This system will enable us to deliver the right car to the right place at the right time more efficiently than ever before, delivering positive impacts across the business from utilization to customer experience. By continuing to improve our operations and strengthen our customer trust and loyalty in our brands, we're delivering greater value to our franchise partners. At the same time, we're sharpening our focus on franchise with new leadership and a fresh look at how to unlock additional value by expanding and optimizing our franchise footprint. In fleet, Hertz car sales continues its evolution into a truly omnichannel business, building on our strengthened physical and digital channels, we're establishing a scalable sales model that expands the top of the funnel and drives volume through partnerships like Amazon Autos. This week, we also announced the new partnership with eBay, putting our near new certified inventory in front of more customers than ever before. And as more leads come down the funnel, our partnerships with Cox Automotive is helping drive conversion through AI-generated pricing, revamp digital tools and better upstream lead generation tools like Autotrader. In addition, we've continued to make great progress on finance and insurance. As car sales volumes grow, F&I scales efficiently and enhances overall unit economics. This was our best quarter in 3.5 years for F&I revenue, and we're building on this progress with more favorable financing partner arrangements. And finally, the breakthrough this quarter was in mobility, where our platform really came to life. We said that for some time that Hertz has a role in the future of mobility. And over the last few quarters, we've been building the skills and capabilities to make it real. Now we're coming out of stealth mode. Last week, we announced Oro, our mobility business with an expanded Uber partnership. But here is the bigger picture. AV technology has the potential to unlock a multitrillion dollar market. But as the industry transitions from personally owned vehicles to commercially operated fleet whether driver-led or autonomous, a critical layer has been missing. Tech providers are focused on autonomous software and hardware. OEMs are focused on vehicles. App-based platforms are focused on aggregating demand. What is missing is the operations and orchestration layer. That's where Oro comes in. Oro is purpose-built to fill the gap between autonomous technology, vehicles and demand platforms, managing and servicing fleets reliably, efficiently, safely and at scale. Backed by Hertz century of expertise and complex fleet management, Oro brings a distinct advantage to the market. Hertz operates one of the world's largest rideshare rental fleets with over 40,000 vehicles and has deep experience with EVs and a management team with the direct AV operational experience. Once more, the company has a network of over 2,700 chargers over 11,000 service locations in car washes and thousands of maintenance technicians. Oro harnesses that scale with agility of an independent entity to deliver flexible, vertically integrated rideshare solutions for fleets of all sizes. Oro is partnering with Uber to provide rideshare fleet services across both driver and AV fleet delivering capabilities directly relevant for the transition to scaled autonomy. Today, Oro owns, maintains and operates a fleet of vehicles, employing and managing over 1,000 drivers under a high-quality turnkey operating structure. Oro creates value by optimizing preplanned supply to meet growing rider demand on Uber's platform with an elevated customer experience and additional safety protocols. Oro is currently active on the Uber platform in Atlanta, Los Angeles and San Francisco and Northern New Jersey just launched this week. Our drivers have logged over 4 million miles to date. And with Uber's nearly 200 million monthly active platform consumers, there's plenty of room to scale. Oro has joined -- Oro has also joined Uber's autonomous robo taxi program. supporting lucid vehicles equipped with neuro AV technology. Starting later this year, Oro will provide the program's orchestration and operation by leading charging maintenance, repairs, cleaning and depot staffing. By managing both driver led and driverless vehicles we're widening our scope and deepening our experience with more complex and dynamic fleets. Testing and refining economics, asset utilization and workforce models, so we'll be ready for the transition to scale autonomy at whatever pace that occurs. While it's still early innings, Oro represents or presents meaningful upside and reinforces the progress we've made thus far on our transformation. Marking the beginning of a new chapter for Hertz. We're strengthening our core business and innovating for the future, all while furthering our mission to advance the way the world moves. With that, I'll turn it over to Sandeep. Sandeep Dube: Thanks, Gil, and good morning, everyone. Last quarter, we saw tangible progress that underscore the positive momentum our commercial strategy was driving. And in our last earnings call, we said that revenue was off to a positive start in 2026. Q1 2026 full quarter results tell an even better story. We achieved Hertz's strongest year-over-year revenue growth in 3 years with revenue totaling $2 billion, an 11% increase from the year before. This was primarily driven by the structural improvements we have made to our commercial strategies, which resulted in meaningful gains in year-over-year RPU, RBD and days. Our view was up 4.5%. We hit our North Star ARPU target in March, and we have line of sight to achieving our North Star RPU metric for full year 2026. Our Q1 RPU results showed positive momentum despite headwinds from elevated recalls and were primarily driven by our focus on delivering positive year-over-year RPD which was up 5%. This RPD performance marked our most significant year-over-year improvement since Q2 2022. U.S. Airport showed particular strong improvement with RPD up about 8%. These revenue headlines are the product of strength across the entire quarter. During this typical seasonal trough period for the industry and amidst headwinds, we delivered sequential improvement in year-over-year revenue and RPD through our January February and March. This steady progress reflects Hertz's increasing commercial maturity as our playbook continues to yield results, we are executing with creative sophistication, leveraging the same drivers outlined in our Q3 and Q4 2025 earnings calls. Let me dive into the details. First, enhancing our customer experience. We are making systemic improvements across every customer touch point, leveraging deep research and insights to create a more consistent convenient and caring experience. We have redesigned our customer service training framework, and the results from our pilot were immediate. NPS scores grows. We have now rolled this out across our top 50 U.S. airports. Importantly, the changes we are making are being delivered consistently across the business, with our European team achieving a record Net Promoter Score for the quarter. Second, generating greater durable demand from higher-margin channels. Direct website demand is showing strong growth. Our corporate business is gaining ground. We are continuing to strengthen our partnership segment with last week's launch of a new Hertz iStar status benefit for American Express Gold Card members, and yesterday's launch of a new strategic partnership with Air Canada's leading travel loyalty program, Aeroplan. We are now driving consistent growth in our off-airport business, and our rideshare rental business is growing strong. Third, improving our pricing tactics and strategies, our multiphase approach continues to bring more precision to the way we price demand. And we remain focused on continuing to drive positive RPD for comparable asset classes. The new pricing metrics we spoke about in Q4 continues to contribute to RPD gains. We are seeing exciting results from an even newer version of our pricing metrics. Which we executed towards the end of Q1. Early signs indicate its ability to deliver improved revenue production. The positive effects of which will show up in revenue results for mid-Q2 and beyond. Fourth, improved monetization of our higher RPU assets. Our new fleet management tools are helping advance our ability to get the right vehicle in the right location at the right time, enabling a more precise pricing approach. Fifth, better value-added product sales. We continue to drive sales of our value-added products with higher conversion and improved pricing sophistication. Q1 showed particular strength in year-over-year gains in RPD due to value-added product strategies. Finally, local level profitability and optimization. We continue to improve our ability to manage our business at a more granular level of profitability. Quarter-by-quarter, these initiatives are demonstrating their improved capability to enhance our revenue engine. Throughout April, our playbook drove strong performance for the month. particularly in total fleet utilization gains and mid-single-digit RPD gains. In particular, Easter we can provide provided a clear example of our engine in action. Utilization reached its highest level for any Easter since 2017. And RPD increased 10% compared to last Easter, which occurred later in the month. Together these results drove a 16% year-over-year increase in RPU on our rentable fleet. Importantly, we generated more revenue over Easter weekend than we did last year with approximately 20,000 fewer rental bull vehicles. This marks the seventh consecutive major holiday where we have grown both utilization and RPD year-over-year, highlighting the consistency of our execution. In summary, the revenue momentum, which has been building for the past few quarters through build-to-last structural improvements has now improved to a level where it is translating to positive year-over-year revenue RPD and days. Fleet mix, which was a headwind for RPD in 2025 will be a tailwind through the remainder of the year. Demand from our customers continues to look strong for the rest of Q2 and beyond. And we have line of sight to achieve our North Star RPU target in 2026. Primarily through a plan that delivers positive RPD. This quarter reinforces our commercial strategy is delivering. With that, I'll hand it over to Scott to walk through our financial performance. Scott Haralson: Thanks, Sandeep. Good morning, everyone, and thanks for joining. The first quarter demonstrated continued progress across the business. Revenue momentum continues to build. Our unit economics are improving. And we are managing the business with discipline. While Q1 is seasonally our most challenging quarter, the better-than-expected results reinforced that the structural improvements we continue to make are translating into tangible financial outcomes. Before I get into the quarter, I want to briefly touch on the platform. You heard Gil talk about Oro, which we are excited to unveil, we obviously view this business as an important piece of the platform has the potential for high growth and good margins, and therefore, could have a sizable value accretion to the enterprise. As we have said before, Oro has the potential to be the most valuable asset in our platform, especially when we unlock additional value streams within Oro that are not being discussed today. Plus there's more to the platform than Oro. We are diligently working on similar strategic unlocks for both the fleet and services side of the business that will be rolled out over time. In short, there is a lot more this business is capable of than just renting cars. Now let me walk you through the quarter in more detail. I'll also cover liquidity and our updated views on Q2 and the full year. For Q1, we generated revenue of $2.0 billion, up 11% year-over-year, driven by continued strength in pricing with RPD up approximately 5.5% and transaction days up around 3%. GAAP net loss for the quarter was negative $333 million with an adjusted net loss of negative $224 million, an improvement of approximately $105 million year-over-year. GAAP diluted EPS was negative $1.06 and adjusted EPS was negative $0.72, which was an adjusted EPS improvement of $0.35 versus the first quarter of last year. Adjusted EBITDA was negative $161 million, representing a $141 million year-over-year improvement. EBITDA margin improved by 860 basis points to negative 8% from negative 17% in the first quarter of last year and coming in better than our guidance expectations. Recall activity was a headwind in Q1, up almost 300% higher than a year ago, taking an average of over 16,000 vehicles out of service each month. While we expected an elevated number of recalls, the lack of fixes to prior recalled vehicles and additional new recalled models, drove a larger-than-expected number of sideline vehicles in the quarter. Partially offset to the impact, we carried more fleet than originally planned. This drove higher depreciation expense and pressured utilization and transaction days. In total, elevated recalls reduced utilization by roughly 200 basis points, impacted transaction days by approximately $930,000 and resulted in a revenue impact of about $50 million. The total impact to adjusted EBITDA was more than $25 million. Despite that, we still produced EBITDA results that meet our expectations. Turning to cost. Adjusted DOE per transaction day was $38.43, representing a 1.7% increase year-over-year. DOE per day was impacted by higher RPD related variable costs that are EBITDA accretive and EBITDA-neutral damages costs that are recovered through revenue. The reported increase was also partially driven by higher real estate expense tied to sale-leaseback transactions executed after Q1 of last year. When normalizing for these costs, DOE per day improved approximately 1.6% year-over-year, in line with what we would expect with an almost 3% increase in days. More importantly, our RPD to DOE per day spread an important indicator of profitability improved by approximately 12% year-over-year. SG&A increased modestly year-over-year, primarily driven by higher advertising spend as part of our strategy to invest during seasonal trough periods. Importantly, as a percentage of revenue, SG&A declined from 12% to 11.6%, reflecting improved operating leverage. Gross depreciation per unit per month for the quarter was $296. Losses on the sale of vehicles drove an additional DPU per month amount of $16, resulting in net DPU of $312. We typically experience losses on sale of vehicles in Q1 with expected gains on sale in the second and third quarters. This puts our expectations for net DPU for the full year below our North Star target of $300 per unit per month. Turning to liquidity. We ended the quarter with $837 million, which includes cash and cash equivalents and the available capacity under our revolving credit facility. In April, we completed an additional ABS financing that added $200 million of liquidity in the second quarter. With other liquidity enhancements planned, we expect to end the second quarter with just under $1 billion and look to end the year at north of $1.5 billion. Now before I talk about guidance for Q2 and the full year, let me talk about how our views on capacity growth for Q2 and the full year have migrated, particularly in relation to what our expectations were as we entered the year. We exited Q4 with positive pricing momentum and a desire to grow the different parts of our business. And new liquidity was going to be necessary to grow given the normal -- abnormal drains on liquidity that are occurring this year. Like the Wells Fargo litigation settlement and the reduction in our revolver size that occurs in June. Early in the year, the plan was to add liquidity to fuel our growth for the year. We have since decided to limit capacity growth in the first half of the year and reevaluate it later for the second half of the year. One of the benefits of this business is that we can be nimble with supply. Unlike in other businesses that can't efficiently pivot capacity that quickly. While we believe the majority of the RPD improvements Hertz has seen to date are from our commercial strategies and tactics we do know that industry supply has been limited, and that obviously has played a role in pushing RPD to healthier levels across the industry. As with other businesses that have significant fixed costs like ours, there is constant tension between pricing, supply and unit cost. We appreciate that there is a balance between limiting supply for pricing power and the pressure that it puts on unit cost. And we are constantly assessing the impact of all of these on profitability and the return on invested capital. We have North Star metrics that help guide broader, longer-term company initiatives that are particularly helpful in the transformation. But these are many times moving numerical targets, but they are grounded in the solid tactical strategies around revenue optimization, fleet efficiency and disciplined cost management. Those don't change, but as we have mentioned before, there are many ways to win in this business. We still have our eyes set on growth in the right places at the right time, but also look to optimize the balance between capital deployment supply, unit revenues and unit costs that produce the desired EBITDA and return on invested capital outcomes in the short run. So with that preamble, let's talk guidance. For capacity, given the backdrop I just discussed, we're going to slightly reduce our outlook on days and fleet for the full year versus our original guidance expectations. Days are now likely up in the mid-single-digit range versus the mid- to high single-digit range we originally expected. Fleet is expected to be up low single digits year-over-year versus our original expectations of up mid-single digits. Obviously, this puts some pressure on DOE per day, but we hope to keep that roughly flat year-over-year even with sizable pressure on revenue and related expenses. RPD showed, however, continue to improve for the year to the point that we think we can produce a level of total revenue for this year that gives us a similar expected EBITDA outcome. Just with higher RPD and lower days than originally expected. So in total, we are maintaining our EBITDA margin guidance in the 3% to 6% range for the full year. As for Q2, we expect days to be down 2 to 3 percentage points year-over-year and fleet down about 1 to 2 percentage points as recalls continue to weigh on days production. With April RPD production strong, we expect the Q2 year-over-year improvement in RPD to be higher than Q1. We also expect net DPU will be well below $300 per month as we expect to take sizable gains on the sale of vehicles in the quarter. Altogether, we expect an EBITDA margin in the low to mid-single-digit range for the quarter. As for 2027, we still continue to target $1 billion of EBITDA for the year. With that, I'll turn it back to Gil for closing remarks. Wayne West: Thank you, Scott. A big story this quarter, of course, is our progress on the commercial side, especially in our revenue growth. But the even bigger story is cementing our position in the future of mobility with Oro. We haven't just been executing a turnaround, though make no mistake, that alone has taken a tremendous effort. We've been building quietly deliberately and with real conviction about where this industry is going. Driving innovation at a century old company isn't easy, but we're proving it can be done. Oro is not a bad. It's the result of doing the hard work, finding the gap, selecting the right partners and putting our capabilities to work in new ways. We're strengthening our core and building what comes next. That's the Hertz story right now, and I couldn't be more confident in where it's heading. With that, let's open it up for questions. Back to you, operator. Operator: [Operator Instructions] Your first question comes from the line of Chris Woronka of Deutsche Bank. Please go ahead. Chris Woronka: So thinking through all this news Oro and some of your platform in and I guess just trying to kind of assess how much hurt is really worth today? I mean, it seems like given all the changes, maybe some of the traditional valuation framework or metrics that we typically look at are potentially becoming a little bit less relevant and maybe you can lead to a different approach in how we look at your company. I mean, how are you guys kind of internally thinking about valuation in light of some of these transformations and other business changes that you're making? Wayne West: Yes. Thanks, Chris. Great question. I'll start, and then I imagine Scott, want to chime in, too. So it kind of sounds like you've been sitting in our meeting rooms and boardrooms. But I think, candidly, the valuation of our business today is tough. The problem with our current valuation is that it's almost entirely based on traditional rental car business, which is understandable. So that's a paradigm that's hard to overcome. It's hard for us just to say, hey, we are and we will be more than a traditional rental car business and expect people to immediately assign different valuations to our business. And then I'd just point out, historically, the company's subordinated all parts of the Hertz platform to optimize the rental car business, which ironically might be the least valuable part of our platform. So we're shifting that paradigm to really look at all parts of our platform as interrelated stand-alone business is to manage and create value around. So to change the way Hertz is valued, I know we're going to have to provide evidence. And this we unveiled Oro in that business, if valued as a stand-alone could have a sizable valuation. And then our fleet business as it continues to develop, should also have a sizable valuation. So as we think about it after the rental car transformation is largely complete. All these businesses together could have a real sum of the parts impact that could be material to the overall valuation of the company. In fact, I think one of the issues we got to deal with will be each of the pieces of the platform, as we talked about it, have different growth rates, right? So also different margin profiles, different capital requirements, and we'll probably attract different investor types and different valuation methodologies and probably even different multiples to the business. So that's how we're starting to look at. Scott Haralson: Yes. Chris, this is Scott. Thanks for the question. I think Gil's last point. I think that's likely part of the disconnect between how the equity markets are beginning to view our stock versus maybe some of the price targets that the analysts on the call set that traditional view of rental car company valuations and multiples, we'll probably need to be reevaluated to take into account the different aspects of the platform Gill is talking about and the sum of the parts attributes. . I might even urge each of you to potentially even take a different approach to how you think about it, appreciating the nuances between the transformational rental car and valuing what is really a top five used car dealership and really that has a competitive supply advantage. And then you have the mobility platform that provides what will be critical nuts and bolts infrastructure to ride share delivery, autonomous transportation. So I would just be curious how you guys view it after you take that sum of the parts of you. But I will say in fairness, Chris, that I'll have to acknowledge that haven't made it easy for you guys to really value us correctly yet given the limited information we give you. So that's on us, we'll figure that out. Along with figuring out the strategy around how to create the value, we also got to figure out the best way to report it, honestly. I think in the end, we'll need to figure out things like how to structure the company, the businesses that unlocks the greatest shareholder value and even out of structure of the P&L and to report the businesses differently. We'll have to adapt the messaging into this changing landscape. But I think more of these alterations over time, different viewpoints, I think, will definitely help people correctly value the business as we go forward. Chris Woronka: Yes. Super helpful. I really appreciate the thoughts, guys. If I could get a quick follow-up. You kind of hit on this in the prepared remarks. the DPU -- or sorry, the DOE per day, understanding your North Star targets and I think DPU is pretty well understood at this point. But , do you envision a situation beyond '26, maybe it's '27 where you're not quite in that low 30s on BOE per transaction per day, but you're maybe higher RPE or RPU, whichever you like to look at. Is that -- could that be kind of a as you mentioned, the same way to get to a different way to get to the same outcome of $1 billion next year. I wasn't sure if your comments about the being higher on RPD or RPU and higher on DOE exclusive to '26? Or could that be kind of a go-forward thing, too? Scott Haralson: Yes. Yes, certainly, Chris, this is Scott. I'll start. I think you kind of hit on it. Obviously, the spread between RPD and DOE per day is the sort of critical one. There's different ways to move the business that would change RPD and DOE per day. And that spread is critical. Obviously, we have targets around unit cost and everything. And so there's components of this that will have a bit of a longer tail I would argue our cost management discipline is as much around long-term cost efficiency as it is just short-term cost cutting which is complex in a transformational rental car business setup. And look, we got to return some scale back to the business that's been reduced over the last years. And we'll also look to grow other parts of the platform. I'll argue a bit that today, our DOE expenses are 70% driven by labor, facilities and maintenance and repair. We've done a good job on labor, workforce planning, collision repair has seen some increased volume, but we've done a good job with reducing rates the way we pay for repairs. But facilities is a sticker cost we probably have more footprint than we need, given the current size of the fleet, and these costs are not the easiest to reduce given the lease terms. But over time, we'll continue to manage that. But -- but at the end of the day, we're going to need some scale. We've talked about this. But the good news is we don't need a ton of scale, right? There's a lot of leverage here. And in fact, I'd argue probably 10% to 15% more scale we'd have a sub-35 DOE per day number. So it's in front of us. I think it's just going to take a little time, but it's just something we're going to have to deal with as we think through all the parts. Operator: Your next question comes from Chris Details of SIG. . Christopher Stathoulopoulos: Scott or on the inflection here in RPU, if you could -- you called out a few things on the quarter, the partial shutdown storms recall. If you could perhaps break those out, just wanted to get a sense of how core is looking. And then your confidence around maintaining that positive growth through the year. I know you're pulling in your fleet guide to low single digits. Just wanted to understand if there's other areas that give you confidence around that? I typically think about your booking window as the shortest within my coverage to $0.30, $0.40 just want to understand your confidence around maintaining that growth through the balance of the year. Sandeep Dube: 3 Yes, Chris, thanks for the question. This is Sandeep here. I'll talk about basically RPD and how we think about that, right? So the RPD improvement that we saw in Q1 and was primarily driven by Hertz's unique commercial strategies and supported by broader market strength. I'll touch upon both of those. First, let me briefly cover the broader market strength reference. You've seen more pricing discipline in the market, I'd say starting late Q4 and certainly more so all through Q1 and into Q2 so far, right? So the industry pricing has been positive, I'd say, and especially since mid-Feb and consistently so. So from an industry discipline context, it feels like we are now swimming downstream. And it's a contrast from what we felt before. So that's definitely encouraging and that provides a good platform. But here's the main kicker, right? It basically Hertz's unique commercial strategies, which we detailed a bit in the script. And I would characterize those strategies as the follows. First, unique in terms of the positive impact it creates for us. second, largely durable and persistent in their accretive impact to our business. And this is largely irrespective of broader market conditions. And third, I'd say, growing and strength quarter-over-quarter. We first articulated these commercial strategies in Q1 2025. And you can see the sequential improvement in year-over-year revenue in RPD since then. So 4 to 5 quarters of consistent year-over-year improvement -- and the positive impact of these has now cumulatively led to positive revenue RPD and days in Q1 2026. I think what excites us is the journey ahead. We have a clear commercial strategy an execution plan of initiatives over the next few quarters that will keep building momentum and a more motivated team. Chris, we are on a different and a more exciting trajectory commercially than what we have had in multiple years prior to that. So yes, this is fun now. Wayne West: Yes, I would just add too, I think a big part of it is it all starts with demand, right? I mean when we talk about the sustainability of this, sustainable demand underpins everything on the pricing side. So I think the team has done a really good job structurally over the last couple of years building that demand. So whether it's direct demand through our dot-com type Hertz.com loyalty channels, that's been big through partnerships, through commercial agreements, corporates, all of that really has helped us develop the demand side of the equation that then the RM type strategies and initiatives can really resonate on. So I think Sandeep said it well. I think if anything, we feel confident those -- all of that is going to help us sustain improvements and where we're at and build off that as we go forward in addition to whatever the broader market does on top of that as more of an amplifier. Christopher Stathoulopoulos: Okay. And then it sounds like at some point, you're going to give us a little bit more disclosure on oral and our sales. But in the meanwhile, as we look at your North Star RPU above or more than 1,500 and the DOE low 30s. As we think about I guess, the back half in '27 and these segments start to grow. Any color you can kind of give us as we think about things like revenue and margin contribution until these segments are ultimately broken out. Wayne West: Yes. I think a little bit on maybe Oro to talk about that 1 first. The -- I guess maybe in the materials you've seen it. But I'd just point out that we have -- within that construct, we have three different businesses there. all of them kind of a different maturity levels, different growth rates, et cetera. So we're not just starting from scratch. We have kind of a platform we're building on. So we should see growth really across all three of these, but at different rates. So the first 1 I would describe is what would be the more traditional rideshare rental car business where we're renting cars to ride share drivers through the partnerships we've got with Uber and Lyft. We've been at that a couple of years, and now we're among the largest in the world. As I mentioned, I think, in the script, we've got over 40,000 vehicles combination EV and ICE vehicles, right? So that's kind of the existing platform. We continue to lean in and build off that. But then the other two businesses, that really are new in a sense, at least to the broader market. We've been working both of these for at least the last couple of years. But the first one is where we've got Oro driven fleet where we've got this high-quality turnkey capacity we're providing to Uber. We've leaned in. We've leveraged technology to better manage the kind of driver life cycle productivity. We're also leveraging it to scale and then in our safety performance. So as we think about that, we're in a -- we're ramping through a measured market-by-market expansion, and we're scaling kind of proven programs now there's a clear line of sight to demand. This is a large addressable market. But as we move forward, we got to make sure the economics work at a market level. We've got to make sure we got the operational controls in place and ultimately, we're scaling with discipline. So -- and we're gated by things like operational readiness, safety thresholds, the economic returns. We're just not after top line here. I want to emphasize that. So -- but we do think this is going to be more and more a meaningful contributor to the overall company's results. And then the third piece of this is AV operations, right? And there, of course, with the partnerships that we've announced over the last week, -- we know we're -- we've got the ability to be a major player in this space. We've got unique capabilities that only a handful of companies can bring -- the pace of AV growth, I think, is going to be probably maybe a little longer tail, but potentially much higher ultimately. So we've got kind of a whole spectrum here of three businesses within mobility with different growth rates, all with good margins, it should be accretive to the company. But that windage, we'll have to give you more color as we move forward. Scott Haralson: Yes. Chris, this is Scott. I'll add a little bit to that. Oro is obviously an important piece of it. But as you think about the near-term P&L '27, '28 in I mentioned the spread. So RPD definitely moving in the right direction. I mean you heard Sandeep's commentary mean U.S. airports were up 9% alone on RPD. So definitely positive RPD stuff. Oro is going to be great Also, too, I mean, we have grown our fleet car sales F&I income, which sits in the revenue line. It's been the largest line we've had since in recent history, and there's a ton of room to grow that without corresponding DOE and expenses associated, plus the other piece is we've talked about growing franchise which has a direct revenue benefit with very little corresponding costs associated. So as we talk about growing revenue without cost, -- those are the things that are going to create that big spread going forward. So it's not just about rental car RPD and the costs associated. Those other pieces that will create that GAAP. Operator: Your next question comes from the line of John Healy of Northcoast Research. Please go ahead. John Healy: We'd love to spend a little bit more time on the Oro opportunity. I love how you name it Oro. I think that means gold in a different language or a couple of different language -- Very cool move. But I would just love to get your thoughts about -- and I think, Scott, you mentioned we need to figure out how to monetize or get value for some of these pieces of the development that we haven't gone to market with. Can you get more granular with us on that I think with Oro, you guys are actually hiring drivers in certain markets to kind of go with the fleet you're providing. So we just love to get your thoughts on just how some of these aspects of the operation might evolve from here? Wayne West: Yes. Maybe around kind of the oral driven fleet piece. I'll talk just a little bit more about that. Scott, you may want to add some additional broader color on the valuation side. But I guess the first point I'd make here is that oral is not entering into just a generic human capital business. I'll just say that upfront. But really, what we're trying to do here is provide Think of it as turnkey rideshare capacity to Uber, okay, turnkey. And we're really just -- we're putting the pieces we already have out there in place here. None of this is really new. So what we're doing really is operating fleets end-to-end under a contracted capacity supply. And we're employing drivers as part of that equation. Keep in mind, we've got thousands of people already driving our cars that are employees. And so we're well positioned. We have all the pieces. We're just putting together to fill a gap here And we already manage a really large distributed workforces across the operations. We own the fleet, we have the maintenance and logistics. And I'd just point out, I think the model is superior to the traditional gig structure since it provides really a more predictability and control along with higher quality in terms of the customer experience as well as safety performance. So there's value created around that. And again, we're really deliberately scaling this and we're gated as I mentioned -- just mentioned about kind of the operational performance, safety thresholds, the economics, all those things. So the real focus is getting it right. And the other thing I've got to point out here is that this is a real stepping stone to running AVs that at scale, right? This is an operational cadence that's not normal for a rental car company, even though we have all the pieces. So as we're kind of building that rhythm, it's directly applicable to the AVs, it's just without the drivers at that point. So kind of we're bridging really all the aspects of ride share, but it's got application and other businesses like delivery, other potential partners. So this is -- these are big markets. We've got all the pieces that we can play in it. Sandeep Dube: Yes. No, I think that's right on. John. Look, I think we're not going to be able to talk a lot about the economics of the deal here. But I think what Gil pointed out is exactly right, which is the -- this plays into the strengths of what hurts does well. We're a big human capital provider. We employ thousands even those that drive cars today for us. And this is an extension of that plays into the real estate footprint that we have today, the maintenance capabilities, the fleet management control. All of these things are most of things that we do today with a slight twist. But as Gil said, it's a massive bridge to tomorrow's AV world. So this is a very nice extension of what we do today that will provide near-term benefit to the P&L while also setting us up for longer-term AV infrastructure capabilities. John Healy: That's great. And Scott, just 1 follow-up question on the expectations for -- did I hear you right, you said that you're expecting global days to be down, but for the year, we're going to be up mid-single digits. I was just hoping you could just run that ask this again. Yes, that is right, John. We'll be down in Q2, which would imply up in Q3 and Q4. And obviously, there's some year-over-year nuances as days were probably a little smaller in Q4 last year. So there will be some year-over-year nuance of the math. But yes, we won't be as big in Q2 as we would have liked. -- given the macro demand economics, but that will recover a bit in Q3 and Q4. Operator: We have reached the end of the Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Inspired Entertainment First Quarter 2026 Conference Call.[Operator Instructions] Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the first quarter 2026 earnings press release and in the accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. This also applies to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead. A. Weil: Thank you, operator. Good morning, everyone, and thanks for joining our first quarter conference call. Once again, we've prepared a slide deck to help focus the conversation, and Brooks and I will be using that for the balance of the program. So beginning with Slide 3. We continued in the first quarter to see the benefits of steps taken in 2025. As been reported previously, we took 2 important actions in 2025 to alter the balance of our portfolio. We sold the holiday park business, which we've discussed a number of times, and we restructured the pubs business to significantly reduce both capital and labor requirements. Overall, we've reduced company headcount by about 1/3 from over 1,500 to around 950 and cut our annualized capital spending from the mid-$40 million to the low $30 million. Adjusting for the onetime impact of the holiday park and pub restructuring, which I'll discuss a little bit more in a moment, our continuing revenue grew by 15% year-to-year, driven in large part by 38% revenue growth in Interactive. Our Q1 reported EBITDA grew by 29%. Our EBITDA margin expanded by 1,100 basis points. We paid down $13 million in debt, and we bought back close to 400,000 shares. So it was a very busy quarter. Slide 4 illustrates a little more clearly what's going on with revenue. The actions taken in holiday parks and pub together had the effect of reducing revenue in the first quarter of 2025 by about $10 million from $60 million to $50 million, as illustrated in the slide. And then driven importantly, but by no means exclusively by Interactive growth, discontinuing revenue of $50 million grew by 15% to a little more than $57 million in the first quarter of 2026. Interactive is certainly the primary growth driver, but as Brooks will discuss in more detail in a minute, our retail business has been performing very well in all its worldwide markets. The sustained interactive growth illustrated in Slide 5 has in turn been driven importantly by superior content development as has the retail business, though obviously to a lesser extent. In the retail business, the markets themselves are growing less quickly and particularly in the U.K. and Greece, our market share is much higher. In just a moment, Brooks will elaborate on our content strategy, including the bringing on stream of the new studio. But along with the focus on content development, we've been entering new markets, winning new customers, strengthening our accounts management team in order to maximize the benefit of our content. And with that, I'll hand it over to Brooks. Brooks Pierce: Okay. Great. Thanks, Lorne. And moving to Slide 6 and to build on the points you made. Our core strength and focus is on developing the best content and delivering it wherever it's consumed, including retail, online or in any number of geographies worldwide. One of our key markets is North America, which is now over 30% of our interactive GGR overall and continuing to grow. And as you can see on Slide 6, we continue to climb the ladder in the Eilers U.S. online report, moving up to fourth in the April report from #8 just a year ago. We're continuing to increase our share in both North America and the U.K. This is not-- is driven not just by content alone, but by a consistent road map of high-performing new game releases -- we've also enhanced our account management teams to work more closely with our operator partners on securing prime placements and supporting promotional activity for exclusives as a key part of our offering. On Slide 7, you can clearly see that we've built a portfolio of high-performing content across the last few years with growth accelerating since January of 2025. We've seen these trends continue into April, where we ended the month on a high note with our highest ever single day total value played. These continuing results validate our strategy, and we're excited to bring an additional studio online in the second half of the year to continue to feed our operator partners with more great content that they've come to count on. Turning to the U.K. As of April 1, the increased tax rate from 21% to 40% came into effect in our Interactive business. With just over a month of data, the impact we are seeing tracks exactly with what we had forecast. Importantly, despite the step-up, we saw our U.K. Interactive revenue grow in April, driven by our continuing share gains. Our U.K. GGR in April was more than 40% higher than a year ago, offsetting the tax increase and net-net resulting in our revenue growing by more than 10%. Where we see others retrenching in the U.K. market, we see opportunity to continue to grow our share, and we're committed to the resources to leverage this opportunity. Even with the tax headwind, the U.K. continues to demonstrate strength and resilience of this segment. Moving to Slide 8. We're seeing the benefits of both strong content and the rollout of new machines across several key customers and geographies in our Retail Solutions business, proving that this phenomenon exists beyond Interactive. In the U.K., William Hill, in particular, but frankly, our entire U.K. LBO business showed positive momentum in the first quarter, and we expect that to continue. We also added 2 new customers, Jenningsbet and Corbett's and signed a multiyear contract extension with Paddy Power early in the second quarter. In Greece, our win per unit per day increased 11%, led by our recently introduced Valor Slant top machine, and we will continue upgrading over the rest of 2026 and into 2027. We believe that this machine refresh will continue to drive growth in the Retail Solutions segment. In North America, we're cautiously optimistic about the expansion into Chicago and see the broader Illinois market as a good opportunity for us over the next 12 to 18 months. And combined with our growing footprint across several Canadian provinces, we're starting to see the beginning to -- of the--providing the scale that we really need in North America. So moving to Slide 9. As we've talked about over the last year, we've seen stabilization in Virtual Sports despite the ongoing headwinds in Brazil, which remains a key market for us. Unfortunately, growth we are seeing in other regions is currently being offset by performance in Brazil. However, we see a clear path to growth supported by additional key customers and upcoming product releases as well as the tailwind from the World Cup. Moving to Slide 10, which I think really validates what we've been talking about for some time, optimizing our portfolio is delivering the outcome we expected, divesting the lower margin, more capital-incentive -- Lorne keep your phone off -- Divesting the lower margin, more capital-intensive and less strategic holiday parts business, along with the restructuring of our pubs estate to be less capital and labor-intensive which had the exact impact we are expecting. As a result, the shift to higher-margin digital businesses, combined with improved retail performance is leading to overall growth in EBITDA, margin expansion and significant improvement in cash flow. And all of this is underpinned by our continued focus on delivering the best content to support this strategy. So I'll turn it back over to Lorne. A. Weil: Thanks, Brooks. Just to refocus a little on the numbers, Slide 11 is once again a snapshot of where we were at the end of the first quarter. Year-to-year growth in EBITDA was 29%. Digital accounted for about 60% of our EBITDA and our leverage had declined to 3x. More importantly, Slide 12 analyzes what happened with cash. We generated about $16 million in free cash flow, which we used to both repurchase stock and repay debt. Obviously, this won't occur every quarter because every other quarter, we have a semiannual cash interest payment to make. But over the course of the year, with cash generation being fairly steady and annual cash interest in the mid-30s and declining as we deleverage, our leverage free cash flow conversion as a percent of EBITDA is comfortably in the 20s and hopefully growing. Cash flow conversion and other key metrics are summarized in the targets on Slide 13. As we move through this year, we're projecting the underlying trends we've been seeing will continue. We expect to see steady sequential growth in EBITDA from Q1 onward now that most of the seasonality has been removed with the holiday park sale. And in parallel, we're targeting strong cash flow conversion and declining leverage driven by both the paydown of debt and growing EBITDA. In terms of asset allocation, we will look to continue to both debt repayment and share repurchase. And with that, we'll open the program up to questions. Operator: Your first question is coming from the line of Barry Jonas of Truist Securities. Barry Jonas: Thank you for all the helpful color so far. Just a couple for me. I think we've heard from some competitors about macro and geopolitical issues impacting the top line and perhaps the cost environment. But just -- I think I asked this last quarter, but I wanted to see if you had any updated thoughts there you could share. Brooks Pierce: No. I think we're probably aligned with pretty much everyone else, and it's something that we're watching very closely. We're not seeing the impact of it thus far, but we're obviously mindful of it. And I think the first quarter is kind of positively reinforcing that. But as we all know, you kind of have to keep your head on a swivel about this stuff. Barry Jonas: Got it. Okay. And then I think the ramp of Interactive has been fairly impressive over the past few years. But the Virtual business is one where I think years ago, we maybe had higher expectations. And maybe just wanted to kind of get your thoughts. I think before we saw some of the near-term challenges, we were thinking kind of like a mid-teens percentage of OSB handle was a decent long-term target for Virtuals. But curious if you have any updated thoughts about the longer-term opportunity here. Brooks Pierce: Yes. I think it's an interesting question. I think I would say that we're probably a little frustrated in the growth that we would have expected from Virtual Sports. Just to put it in a little bit of context, at least as it relates to North America, obviously, online sports betting is in 39 states. And right now, we're technically only allowed to go in a couple of states. So obviously, one of the things that we would hope is to add both additional states, but also additional operators. I think we have some product initiatives that are coming out that will help. We obviously expect to get some tailwind from the World Cup. That might have been aggressive to think that it was going to be a mid-teens percentage as a part of online sports betting. It's probably more like maybe mid- to high single digits is probably the right number to think about. A. Weil: I think there's another issue that I think is very important, Barry, too, which is that the opportunity for virtual sports is certainly in North America is not limited to basically a companionship with online sports betting. And that is in the lottery space. Without going into a lot of detail right now, I can tell you that we're seeing some very interesting developments with some of the most important lotteries in North America regarding the opportunity for virtual sports there. And I think definitely, as we move through this year, we'll see a couple of very meaningful developments that I think will be a tipping point for the virtual sports. Operator: Your next question is coming from the line of Ryan Sigdahl from Craig-Hallum Capital. Will Yager: This is Will on for Ryan. First wanted to ask on the guide. You reiterated adjusted EBITDA but increased the margin. So it implies that revenue a little bit lower than you expected. Curious what's the main factor going into that? Is it mostly U.K. iGaming taxes, Virtuals? Or is it something else entirely? Brooks Pierce: I think it's -- I guess, how I would characterize it is just a slight tweak. We're seeing the margins continue to increase. And obviously, you've done the math on the revenue, but I think that's it's just a guide. But we certainly feel very confident, and that's why we've upped the EBITDA margin targets. But I don't see this as a big fundamental shift of it by any stretch of the imagination. Will Yager: That's fair. And then just a quick follow-up. I wanted to ask sort of on the Interactive expansion you ended up launching in South Africa, Fanatics and West Virginia. Curious what the future expansion opportunities look like and how much more you think you have to run? Brooks Pierce: Yes. Sure. I think we've talked about this a number of times, and Lorne may want to add to my commentary because I know he talks about it a lot is look, we're going into the regulated markets where we think it makes sense, expanding in markets like West Virginia and South Africa. But I think what we feel over the longer term is there's going to be a large opportunity for expansion of iGaming in North America. Particularly with everything that's happening in terms of the states not getting the kind of support from the federal government that they've gotten in the past, and we think that there's going to be an opportunity for more and more states. Obviously, there was a whole big thing about this in D.C. recently. Virginia has talked about it. So I think it's an underappreciated -- no one knows what the timing of that is going to be, but we feel like there's going to be more states that will come on board. And frankly, if that were the case, that really takes no more for us from an infrastructure or cost standpoint to deliver these additional states other than a little bit of bandwidth cost. So we see that -- we don't know when, but we see that as a huge opportunity to be transformative for us. Operator: Your next question is coming from the line of Chad Beynon of Macquarie. Chad Beynon: Brooks and Lorne, I wanted to stick on Interactive, just given the -- how important this is and the growth that you highlighted here in the first quarter. Just thinking about the new studio, new game launches and how AI can build upon that. Could you help us think about maybe some of the tried and true games that have done well? And then with this new studio, will that all be incremental and how we use AI to just get games quicker to market for your partners? Brooks Pierce: Yes. No, thanks, Chad. That's a great question. And I think the reality is, yes, I think the single biggest thing from the Interactive side that we've been talking about for a while, and I think we've talked about this. We've looked long and hard for potential acquisitions in the space as a tuck-in to add more capacity and didn't find anything that made sense for us and finally decided that we were going to build the studio ourselves, and that's well down the path, and we'll start producing games in the second half of the year. And on your comment on AI, yes, I mean, for sure, the utilization of AI across the business, but certainly in the game development side of things accelerates the ability for us to deliver games faster, which is something that I think is going to be important for us as we go forward. So adding capacity, adding kind of different types and styles of games to broaden our portfolio and getting more games out faster through utilizing AI is clearly a big strategy of ours. Chad Beynon: Okay. Great. And then on the Retail business, focusing on units in North America. I know there were a few bills to grow the distributed gaming markets in a few states that didn't get across the end line, but you mentioned Chicago, which I think is coming in the fourth quarter. Where else can you go in the U.S.? Are you looking to get licensed in other markets? I know Louisiana, Georgia, Nebraska, et cetera, have similar types of markets that are growing on a same-store basis. But just wanted to know if you could help us on the TAM in that market. Brooks Pierce: Yes. I think what we've consciously tried to do here is to build at the right pace for us. We obviously mentioned in the release, we've got multiple Canadian provinces that are now kind of ordering machines on a yearly basis, and that's very important for us. Illinois and in particular, Chicago, assuming everything goes as expected, we will start in the fourth quarter and then will be a bigger part of next year. And I think we mentioned on a prior call that we had done or at least in a press release that we've developed in concert with Gaming Arts, a game that will go on their Class III cabinet. So we think that should be a proof point for us that our content will work in Class III. And then obviously, that opens up a number of opportunities across Class III and Class II. And then specifically, on the distributed question that you had, we kind of have to take it on a market-by-market basis. So each one has its own nuances. Montana, Nevada, Louisiana, each have their own kind of unique attributes. So we went with what we thought was the best and most likely place for success first, but we certainly are looking at not only the North American market for distributed gaming, but frankly, distributed gaming on a worldwide basis. At this time, there are no further questions. Operator? Operator: Your next question is coming from -- it's coming from the line of B. Riley Securities. Matthew Maus: This is Matthew on for Josh Nichols from B. Riley. I guess just on the Virtual Sports side, I was wondering, how should we think about the Playtech deal alongside the World Cup? Is the timing going to allow you guys to have content live on Playtech's network ahead of the tournament or maybe during it? Or is that more of like a second half and 2027 revenue driver? Brooks Pierce: Yes. I'd say it's more of a second half. We look -- we think this is a great opportunity for us to get our product into the Playtech network. I think our first customer should go live here shortly. But I would say it's much more of a second half and going into 2027 opportunity for us. Matthew Maus: Got it. And then also, I guess, in terms of like BetMGM Sportsbook tab integration in New Jersey, I mean pretty sure it's been live for a couple of months now. I'm wondering like is there any early reads that you see there on player engagement and how that can possibly lead to future operator signing with you guys? Brooks Pierce: Yes. I mean I think it's probably a mixed bag. I think the results from BetMGM in Ontario have been very good, probably not quite as good as we had hoped so far in New Jersey, but we're working with BetMGM in particular, about where we're positioned on the site and some promotional stuff. So I think it's a little early. I think maybe it's 4 to 6 weeks that we've been out with them. So it doesn't happen overnight, but we certainly feel very bullish, and we're having some conversations some of the other big sports betting operators, I think, that are looking to broaden their portfolio. And to just add on to Lorne's comment, we do think both on an online basis and importantly, in a retail basis that virtual sports or monitor gaming, as they call it, in the lottery industry is a very big opportunity for us that's underappreciated. So we would expect over the next kind of 6 to 12 to 18 months, having some pretty meaningful contribution coming from that as well. So even though the Virtual Sports business is relatively flat, there's a number of opportunities that we see that we think can get that business back to growing. Matthew Maus: Last question for me, just on the Interactive side. Maybe on the hybrid dealer pipeline, -- if I remember correctly, I think DraftKings and Betfred were expected soon to be signed. I'm wondering like where that stands and how the rest of the funnel is shaping up. Brooks Pierce: Yes, you're right about both of those. I would have expected that we would have them live at this point, but it's probably going to be June for that. So we'll start. And as we talked about before, this is the games that have the combination with our slot content that has done very well. The Wolf it Up game is the first one that will go out. And we'll be rolling it out to a number of customers starting in June. So when we have our next call in August, I guess, we'll be able to talk about that in a little bit more detail. Operator: There's no other questions in queue at this time, and that concludes our Q&A session. I will now turn the conference back over to Lorne Weil for closing remarks. Please go ahead. A. Weil: Thank you very much, operator. And again, thanks, everyone, for joining the call this morning. I think you can tell we're feeling very positive about where the business is. The one issue that had been a concern had been this issue of the U.K. tax, but at least so far in the second quarter, we've been able to more than offset the impact of the tax by our growth in gaming revenue in the U.K. So the business is really in very good shape. We're buying back stock. The leverage is coming down. The margins are going up, all the things that have been our objectives for a while. So hopefully, this will continue through the second quarter. And we'll look forward to reporting in 3 months. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver First Quarter 2026 financial results conference call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Allison Pettit, Vice President, Investor Relations. Please go ahead. Allison Pettit: Thank you, operator, and good morning, everyone. Before we get started, I ask that you view our MD&A for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A and financial statements are available on our website at edrsilver.com. On today's call, we have Dan Dickson, Endeavour Silver's CEO; Elizabeth Senez, our CFO; and Luis Castro, Endeavor's COO. Following Dan's formal remarks, we will open the call for questions. And now over to Dan. Dan Dickson: Thank you, Allison, and welcome, everyone. Endeavour Silver delivered excellent results in the first quarter of 2026, setting new records in both production and revenue. The strong performance generated significant cash flow, underscoring the company's remarkable growth trajectory. With the [ Cubo ] plant expansion substantially complete and Terronera's operations performing near design expectations, we are entering an exciting phase for the company, and we look forward to building on this momentum as we progress throughout the year. In Q1, Endeavour produced nearly 2 million ounces of silver and 12,000 ounces of gold with base metals, totaling 3 million silver equivalent ounces. This represents a 78% increase compared to Q1 2025 with the additions of [ Copa ] and Terronera. We reported revenue of $210 million, an increase of 23% compared to prior year with cost of sales of $160 million, mine operating earnings of $94 million and mine operating cash flow of $115 million before taxes, a 400% increase from Q1 2025. Our all-in sustaining costs net of byproduct credits were $37 this quarter. This represents a 51% increase compared to Q1 2025 when [ Copa ] and Terronera had not yet joined Endeavour's production portfolio. It's also worth noting that these costs were 9% lower than Q4 2025 primarily due to the ramp-up of operations at Terronera with gained efficiencies throughout the quarter, and we anticipate further reductions in these costs as we continue to optimize operations throughout the year and capital expenditures become normalized. In Q1, Endeavor recognized adjusted net earnings of $59 million or an adjusted earnings per share of $0.21. Both direct operating cost per tonne and direct costs per tonne were elevated this quarter. To clarify how we define these costs, our direct operating cost per tonne include direct input costs associated with mining, milling and site level G&A. Our depiction of direct costs per tonne includes royalties, mining duties and purchase of third-party material. Changes in the metal prices have a meaningful impact on our direct cost per ton. For an example, a $1 increase in silver, cost per tonne rise by about $0.90 at Terronera, Guanacevi is $3.80 and $0.50 at [ Copa. ] Obviously, due to the higher royalties the mining duties, third purchase costs and federally required profit sharing. Our direct operating cost per tonne rose by 30% in Q1 compared to Q1 last year as a result of the inclusion of [ Copa ] and Terronera into our portfolio. Both assets carried higher operating costs in Q1 than what is expected going forward. During the first quarter, [ Copa ] installed and commissioned a new three-stage crusher in ball mill, increasing plant capacity to above 2,500 tonnes per day. It remains additional plant expansion expenditures. However, these will dissipate as we move through 2026, and we expect to see benefits on cost metrics starting this quarter. In Peru, we've experienced pressures on attracting and retaining skilled labor impacting labor costs, training costs and overall efficiencies. We expect this to continue, but the additional costs will be offset by the efficiencies of an updated and expanded operation. At Terronera, we're in the infancy of operations. In Q1, we made a significant transition from a construction and start-up team to an operations team, adjusting and reducing personnel. Mine and plant metrics have steadily improved through continuous measurement, review and adjustments. As the operation settles into consistent day-to-day rhythm, cost efficiencies are expected. As onetime capital investments are completed in the first half of the year, we expect operating cost metrics to decrease with higher ore grades expected in the second half. We also expect significant improvements on a cost per ounce basis. Exploration drilling has restarted at Terronera, and we expect to provide an update later this quarter. I should note, we have not transitioned our power generation to the LNG plant, but expect to before the end of this quarter. We have the necessary authorizations and plan to commission the LNG vaporization plant this month. At Guanacevi, cash flows were north of $20 million this quarter. The mine incurred higher operating cost per tonne, largely due to lower throughput with minor increases in our absolute costs. As an operation, the royalties, purchased ore mining duties and profit share is a significant part of that cost structure, and thus, we saw increases. Step-out drilling has commenced and also, we expect to provide results later this quarter. As of March 31, our cash position was over $232 million. Working capital was north of $173 million, which gives us a strong and stable foundation to drive our ongoing initiatives. We remain committed to advancing progress at Pitarrilla, where studies -- where steady investment in exploration, studies and economic evaluation continues to move forward with the expectation to provide economic evaluation in the third quarter. In closing, our strong financial footing and successful expansion of the Pulpa plant and the steady improvements at Terronera put Endeavour in an excellent position to meet our production targets this year. These achievements reflect our unwavering focus on operational excellence and our ongoing dedication to delivering long-term value for our shareholders. I would like to thank everyone for their continued support and engagement. And with that, I'm happy to open up to questions. Operator, let's proceed to the Q&A session. Operator: [Operator Instructions] The first question comes from Heiko Ihle with H.C. Wainwright. Unknown Analyst: This is [indiscernible] filing in for Heiko. He's on a [indiscernible] right now. First question, the great step up at Terronera. Next week, we'll be halfway through the second quarter. Any views of what you've seen with grades at site during this period so far? Dan Dickson: Yes. We have Q1 and Q2 grades a little bit similar. Q2, we expect to be slightly higher than Q1. Ultimately, the real step-up in grade in the back half of Q3 and into Q4. Unknown Analyst: Okay. Great. And second question, maybe a bit of a philosophical one. The Terronera approaches name plate capacity. Could you maybe talk about what you saw and learned during the ramp-up phase that maybe will be useful as you move other assets into production? And I guess, as a sweetener to that anything you expect to add to the Pitarrilla feasibility study that you may not have expected a year ago? Dan Dickson: Yes. I mean, how much time do you have on things that we learn during the Terronera build-out phase. I mean I think as an organization, it's our first build from scratch and there's a lot of learning. And I think we can apply a lot of that. And in fact, in Q4 and into Q1, we did a post mortem or post review of construction of things that we can improve. So we can take that over to Pitarrilla. Obviously, continuity is a very important part. And this year, Don Gray retired and we replaced Don with Luis Castro, who's been with the company for 21 years. But there are a lot of people that remain in the company that were involved with the construction in Terronera. If we can move Pitarrilla along in accordance with what we think is our time line sometime in 2027, starting that construction, we can benefit from it. From processes and protocols and procedures that would be put in place at Terronera, I think those will be stronger going forward. And a lot better positioned as a company to take on a second build, so to speak. And so we're well positioned. The biggest part of that is really understanding all the permits and permits that are required. I mean as we went through, we originally got our EMEA at Terronera about 2015, 2016, Pitarrilla already has MEA. There are some other permits that are required around MEA specifically around the tailings storage facility, and we're going through that process to try to obtain that by Q1 of next year. But behind all that, there's about 100 other 30-some-odd permit that you learn to go through and how to navigate that through the government. And I think we have the ability to do that a lot quicker than what we did at Terronera. So we're excited about what we gained from a knowledge standpoint at Terronera, and we think we can apply it up to Pitarrilla. And then for your second part of that question. At this point, there's nothing new that's surprising at Pitarrilla. There's a lot of work that was done. SSR and invested $145 million. They've done a pre-feasibility study on underground operation O9. They did a lot of work on an open pit operation in the feasibility study that was 2012. I mean we've been looking at this now for 3 years. And so there hasn't been anything, I'd say, in the last 6 months to 8 months have jumped out that's been surprising to us. We have a good indication of what the plant is going to look like, and what the capacity of the mine is, and that will come out in due course when we put out effectively the feasibility study or 43-101 feasibility study later this year. Operator: The next question comes from John Tumazos with John Tumazos Very Independent Research. John Tumazos: Congratulations on all the increased production and raining cash and all those good sense. Some other companies in Mexico have had bumps in the road, one company had their plane shot down a month ago. Another company has a very tragic incident in January. You've got at least four locations where you're operating, is there any particular secret to your operational success and good security results. I get to some parts in Mexico are so much better than others. Dan Dickson: Yes. But I think that's the specifics to it all is there are parts in Mexico that are more secure than others. And I mean it's hard to say that we haven't had our issues. In February, there was a code red in the State of Lisco, when one of the captains of the cartel was killed. And that on the Sunday following, they put blockades into 22 different states. And part of the State of Lisco and around Portovarta was significantly impacted with blockades of the highways. Now I don't think there is a lot of there is some unfortunate incidents with citizens. But generally, citizens weren't targeted. It was just the target to the government to show power, I guess, of that cartel. And for us, it impacted our supply chains, and we shut down operations for three days to make sure that if we had any safety incidents, so we could get to a hospital. So like I say, it's not to say that we have not been impacted. But I'd say, generally, our areas that we operate haven't had significant violence, but we're -- we've got a team in place, a security team in place provides us intelligence, and we make various decisions based on what's happening in Mexico and what's happening in various states. So again, we've been at Guanacevi for 20 years and very low impact to all that. We actually sold our Bolanitos operation in January. So we're no longer in Guanajuato. And then in Helisco, like I say, we're an hour in Porte Varta, which is considered a very safe area in that 2-day event. And there's about 3 million Americans and Canadians that visit that area on an annualized basis, and we're very happy to operate there, but we keep our eyes open and ears to the ground and just trying to understand what's all happening. John Tumazos: Are there any variations in cost between your locations due to logistical costs where you maybe avoid a bad neighborhood or anything like that? Dan Dickson: Yes. Nothing that would be significant I can recall back in '08 or '09, we made sure we didn't drive by a certain town, which added about 35, 45 minutes of driving time up to Guanacevi, which was about 4 hours away. But ultimately, the costs associated with our security between Terronera and between Guanacevi and ultimately also now at [ Copa, ] are very similar. I mean a lot of the same procedures and protocols are in place. So from a significant standpoint, I would say no. John Tumazos: And I apologize for even asking these questions, but... Dan Dickson: No, those were fair questions. John Tumazos: Investors' minds. Dan Dickson: Yes. No, it's a very fair question. We get them often in our meetings with investors. So happy to answer them. Operator: The next question comes from Soundarya Iyer with B. Riley. Soundarya Iyer: Congratulations on the quarter. Was with another call, so I don't know if this question has been answered. But so on Guanacevi, I mean the grades have come pretty low year-over-year. So -- and like third-party material purchase have also increased and its almost 1/3. At what point does this or economics change and start to dilute margins there to purchase in third-party or we continue doing that? Dan Dickson: Yes. I mean, with the higher prices, obviously, allows us to go after lower grade material. And the great thing is we mined Guanacevi now for 20 years, and there's areas of the old parts in the mines, North Provenir, and what we call Santacruz, South central propane that would have material left behind that would have been running 225-, maybe even 250-gram silver equivalent material that you can go back and and mine. And as prices go up, your cutoff grades come down. Some of the grades that we're pulling right now, where we had 275 grams more from the depth depth of El Curso, which is on Frisco ground. We pay significant royalty there, too. As we move through the year, we're going to be going into an area called Malache, which is 100% controlled by us. We've got an area near propane dose, which we mined up in 2015. We've been working in there. Some of that's on is ground, some of it's on ours. Obviously, as a management team, we continually look at grades and cut off grades and ultimately, margins. And has provided that Guanacevi is going to still continue to be profitable. And as I say, we did north of $20 million of free cash flow there this quarter. We're going to continue to operate it. So right now, we don't have a huge reserve base. We know we can get into and maybe into 2027 and maybe into '28, probably extend that. We're going through that work. We started some drilling and various areas. We start to go back into other areas and build out our resources, and we'll have a plan in place for the end of the year of how long -- much longer will be at Guanacevi. And I suspect we can get there for quite a while, especially at these prices. Soundarya Iyer: Got it. That's really clear. And just 1 more on Pitarrilla FS. So is it still on -- I mean, is it still targeted before 3Q 2026, I mean given that the spend -- $1.8 million spend in 1Q was pretty low. So how do we... Dan Dickson: Yes. We've made a lot of commitments. Our spend is a little lower in Q1 than we expected, but we've started to push that work. we would be probably a handful of weeks behind, not a significant amount. We're still hoping Q3 of 2026. Maybe it ends up being more of the back half of Q3 rather than the front half of Q3, but we'll see how all that progresses over the next couple of months. Operator: The next question comes from Craig Stanley with Raymond James. Craig Stanley: I think you indicated you expect grades to pick up a bit at Terronera in the second half of this year. Is that -- are you going to be mining a little lose? Dan Dickson: Yes, Craig, good question. We're actually drilling La Luz right now. As you probably know, it's about 150,000 to 250,000 tonnes in our mine plan -- in our feasibility mine plan. So right now, we're actually drilling a little bit to depth, so we can come up with a more efficient mine plan just because of the scale and trying to figure that out. So we took the rigs out. We were drilling Terronera this past quarter, and those rigs are going back to La Luz now that we have assays, and that will drill a loose probably until midyear and then start building a mine plan for that. So I suspect because of how things are going in Terronera that La Luz will get pushed to Q1 or Q2 of next year. But again, we'll have drill results out before this quarter is out at Terronera and maybe some La Luz as well. Craig Stanley: Okay. And then were you saying on Pitarrilla, you're sort of hoping to get the final permits in the first half of next year and then start construction later in 2027? Dan Dickson: Yes. Ultimately, we have a very good idea because of what Pitarrilla is and the resources that there in the underground sulfide resources that we'd be mining it from an underground standpoint, I don't necessarily think the economic evaluation is going to be that far off than what we've historically known. But really, the gating item is the permit to build the tailings storage facility, which is going to be a dry stack facility. We've been going back and forth with the authorities on that, hoping we can get through it relatively quickly. Now at the beginning of the year, we thought maybe Q1 2027, we could get that permit. Things have seemed to be still sticky when it comes to permits in Mexico. We've heard a lot of our peers expecting permits in Q1, and that never came to fruition, then it was going to be early Q2, and we're almost halfway through Q2. So I'm getting a bit nervous on time lines when it comes to permits, just because it still have -- we haven't seen a real floodgates open, so to speak. But that's what we were targeting. And then if we could start building in next year, that would be great. Now we are still continuing forward with our construction cap this year. So we have ultimately a plan of 800 beds. I don't -- I think we're putting in maybe a little bit less than that to start with 250 to 300 beds, and we're still making our movements to purchase mobile equipment and plant equipment, so we can do the basic and detailed engineering properly when it comes to the plant. So we're still pushing ahead, but the real kicker for a construction decision is that tailings and permit. Craig Stanley: Okay. And then just the last thing for me. When you're out talking to institutional investors, does M&A come up more in regards to Endeavour Silver being a potential target? And because when you look at the silver space, you have a lot of these companies with much larger market caps like Pan American core HACA First Majestic and then it sort of drops off and you're sort of in this sort of middle stage before you get that into sort of the real smaller producers. Just curious like Terronera has now ramped up. Is that something that's in discussion. Again, more with clients. Dan Dickson: Yes. I mean, with the investors, people always ask, like how do we want to grow? And we say we want to be a senior silver producer and Terronera has ramped up hitting criteria through the plant. I think once those grades really start coming through, and we get our costs down to expectations, I think there's a lot more value in our shares there. We want to build that value in our shares. Ultimately, we're a pretty young management team. I think we're pretty still hungry to grow and find things, never say never. But it's such a small space. There's only a handful of people that can actually look at us, and there's only a handful of things that we can look at. So we have a pretty good corporate development guy. Some days, he works hard. He's sitting right in front of me. So we are always looking at things and trying to figure out the right combination for Endeavour. Operator: We have a follow-up question from Soundarya Iyer with B. Riley. Soundarya Iyer: Sorry for just about getting another question. Just curious on the capital... Dan Dickson: No problems at all. Soundarya Iyer: Curious on the capital allocation part. You had $200 million -- $250 million in cash. And then this has been a record operating cash flow. Is it -- how are you thinking about like some dividend buybacks, not this year, maybe, but in the future... Dan Dickson: Yes, I think it's very clear -- yes, that's a fair question. I mean, for us, we're still on a growth trajectory. We're really excited about what we have at Pitarrilla. I think the market is going to understand that when a feasibility study comes out in Q3. The expectations, the cost to build is going to be somewhere between $500 million and $600 million. If we keep generating cash at this rate, we'll have a good chunk of that built into our balance sheet by the end of the year and then obviously, cash flows into 2027. Until Pitarrilla is built and operating and providing its cash flow is probably the time we'd start looking at dividends or share buybacks. But at this point in time, our -- we feel like the rate of return that we can get out of Pitarrilla will be very valuable for our shareholders, and that's what the cash that we're generating is going to be used for. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Dan Dickson for any closing remarks. Please go ahead. Dan Dickson: Well, thank you, operator, and thanks for all our listeners today. I think Q1 was a good quarter for Endeavor, but we still have more expectations going back to the year. As you say, Terronera's grade should pick up in the second half of the year, [ Copa ] will be operating close to 2,500 tonnes per day. And we'll get more rhythm at Guanacevi, Terronera and [ Copa ] that ultimately, we expect a very strong next 3 quarters and specifically the second half of the year. So we're excited with what we have. We're excited where we're going, and I look forward to getting the feasibility to say out of it in the second half of the year as well. So thanks for joining today. Operator: This brings to end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Hello, and welcome to Vir Biotechnology First Quarter 2026 Financial Results and Corporate Update Conference Call. As a reminder, this call is being recorded. [Operator Instructions] I will now turn the call over to Kiki Patel, Head of Investor Relations. You may begin, Kiki. Kiki Patel: Thank you, operator, and welcome, everyone. Earlier today, we issued a press release reporting our first quarter 2026 financial results and corporate update. Before we begin, I would like to remind everyone that some of the statements we are making today are forward-looking statements under applicable securities laws. These forward-looking statements involve substantial risks and uncertainties that could cause our clinical development programs, collaboration outcomes, future results, performance or achievements to differ significantly from those expressed or implied by such forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the potential benefits of our collaboration with Astellas, the therapeutic potential of VIR-5500 and our PRO XM platform, our development plans and time lines, financial terms and milestone payments and our cash runway and capital allocation priorities. These risks and uncertainties and risks associated with our business are described in the company's reports filed with the Securities and Exchange Commission, including Forms 10-K, 10-Q and 8-K. Joining me on today's call from Vir Biotechnology are Dr. Marianne De Backer, our Chief Executive Officer; and Jason O’Byrne, our Chief Financial Officer. During the first quarter of 2026, the Vir Bio team delivered meaningful advances across our T-cell engager and Hepatitis Delta programs, underscoring our ability to execute towards key clinical and corporate priorities. The agenda for our call today is as follows: First, Marianne will share an update on our recent landmark global strategic collaboration with Astellas and our prostate cancer program. Next, she will provide an update on our Hepatitis Delta program evaluating tobevibart, an investigational neutralizing monoclonal antibody and elebsirin, an investigational small interfering RNA. Then Jason will provide an overview of our first quarter 2026 financial results. And finally, Marianne will close the call, and we'll open the line for Q&A. With that, I'll now turn the call over to Mary Anne. Marianne De Backer: Thank you, Kiki. Good afternoon, everyone, and thank you for joining us for Vir Biotechnology First Quarter 2026 Earnings Call. Since our last earnings call in February, we have remained highly focused on execution as we advance both our oncology and hepatitis delta programs with speed and focus. I will begin by providing a brief update on the current status of our recent collaboration with Astellas, a deal valued at up to $1.7 billion. In addition, in the U.S., commercial profits will be split 50-50 between the parties with Vir Bio having the option to co-promote alongside Astellas. As a reminder, on February 23, we announced that we entered into a collaboration with Astellas to co-develop and co-commercialize VIR-5500, our PRO-XTEN dual-masked PSMA-targeted T-cell engager. Since then, the transaction successfully closed on April 15, marking an important transition from deal announcement to deal execution. With the deal closed, our joint teams are operational and partnering closely on a shared clinical development plan to enable rapid expansion and accelerate delivery to patients. This collaboration brings together Astellas' global leadership in prostate cancer with our differentiated PRO-XTEN -enabled T-cell engager. We chose to partner with Astellas because of their decade-long track record of successfully co-developing category-defining therapies, including XTANDI, the world's #1 prostate cancer drug. Metastatic castration-resistant prostate cancer, or MCRPC, remains a significant unmet need with a 5-year survival rate of only 30%, underscoring the urgency for new treatment options that can deliver even deeper, more durable disease control and improved quality of life. VIR-5500 is the most advanced dual mask T-cell engager currently under evaluation in prostate cancer. The foundational driver of the Astellas collaboration shaping our development strategy going forward is our Phase I data for VIR-5500. Dr. Johan De Bono shared an update from this study evaluating patients with advanced MCRPC as an oral presentation at ASCO GU in February. Today, I'll highlight key takeaways from the data. For a more comprehensive update from the trial, please refer to our fourth quarter earnings call from February 23. Overall, the VIR-5500 data showed a favorable safety and tolerability profile with no observed dose-limiting toxicities. At the dose levels of 3,000 micrograms per kilogram and above, we saw mostly Grade 1 cytokine release syndrome or CRS, defined as fever only. We did not observe any Grade 3 CRS at this dose, reinforcing the potential of the PRO-XTEN dual masking platform to widen the therapeutic index of our T-cell engagers. We view the absence of high-grade CRS at our go-forward monotherapy dose, together with a lack of mandatory steroid premedication in our protocol as a meaningful differentiator for VIR-5500. We believe that sparing steroids may help preserve T-cell function and reduce treatment complexity for both patients and physicians. Collectively, these attributes support the potential for outpatient administration and could translate into significant clinical and commercial advantages over time. Importantly, this profile may support positioning VIR-5500 in both the pre- as well as post-radioligand therapy or RLT settings, offering flexibility across the treatment continuum and potential use in routine care settings relative to the specialized infrastructure required for RLT administration. Furthermore, the depth of PFA and RECIST responses we observed were particularly encouraging with several patients sustaining responses for up to 27 weeks. Additionally, we saw emerging signs of durability up to 8 and 12 months, respectively, in patient cases with extended follow-up. One of the most compelling aspects of our data is that these deep responses were observed in heavily pretreated patients with advanced poor prognosis disease, including liver metastasis. This is historically the most difficult population to treat and resistant to immunotherapies, underscoring the clinical significance of the activity we are seeing. Additionally, we observed a complete response for a patient who previously relapsed on an actinium-based PSMA directed radioligand. We view these findings as especially meaningful given the historically poor outcomes and limited responsiveness of this patient population to subsequent therapies. Building on these encouraging Phase I dose escalation monotherapy results, we have dosed the first patient in our Phase I dose expansion cohort for VIR-5500 in late-line patients. This milestone represents an important step in further evaluating VIR-5500's best-in-class potential for people living with prostate cancer. In the monotherapy expansion cohorts, we are evaluating Q3 week 800, 2,000, and 3,500 microgram per kilogram step-up dosing. This study will measure safety and efficacy, including PSA responses and objective response rate or ORR of VIR-5500 in patients with MCRPC who are refractory following treatment. These patients will have had exposure to multiple prior lines of therapy, including at least one second-generation androgen receptor pathway inhibitor and taxane regimen. The expansion includes 2 distinct cohorts: patients who are naive to prior RLT and patients who have previously received RLT in any treatment setting. Dose escalation of VIR-5500 in combination with enzalutamide continues in early-line MCRPC patients. We anticipate dosing the first patient in the combination dose expansion cohorts in both early-line MCRPC and metastatic hormone-sensitive prostate cancer over the coming months. Together, these cohorts highlight the potential of VIR-5500 across the prostate cancer continuum, including in the frontline setting. Without the challenges associated with RLTs, such as radioactivity and restricted settings of care, we believe masked T-cell engagers represent the long-term future in this space and that VIR-5500 has the potential to be a best-in-class T-cell engager. We anticipate initiating our registrational Phase III program for VIR-5500 in 2027. These results provide validation of our broader PRO-XTEN platform, unlocking significant opportunities to develop next-generation masked T-cell engagers in other solid tumor types. Turning now to the rest of our clinical stage T-cell engager programs. VIR-5818 is our PRO-XTEN masked HER2-targeted T-cell engager. We view this as a signal finding study given the early stage of development and the basket design where multiple tumor types are evaluated in parallel. We expect to report preliminary response data evaluating VIR-5818 monotherapy and combination therapy with pembrolizumab in the second half of 2026. This update is intended to inform our understanding of dose and help identify which HER2-expressing populations may warrant further study, particularly in areas of high unmet medical need. For VIR-5525, our PRO-XTEN dual-masked EGFR targeted T-cell engager, Phase I study enrollment is progressing as expected. The study design incorporates learnings from VIR-5818 and VIR-5500 to enable efficient dose escalation. We are evaluating both monotherapy and combination with pembrolizumab across multiple EGFR-expressing tumor types, including non-small cell lung cancer, colorectal cancer, head and neck squamous cell carcinoma, and cutaneous squamous cell carcinoma. We believe this program has the potential to address significant unmet medical needs in these indications where existing EGFR-targeted approaches have limitations. Turning now to our Hepatitis Delta program. The hepatitis delta community is severely underserved, with approximately 180,000 actively viremic patients across the United States, the U.K., and the EU, based on a composite of high-quality epidemiology sources. In the U.S., the patient population is highly concentrated in major urban centers and can be supported by an efficient commercial approach with a targeted specialty sales organization focused on hepatologists, gastroenterologists and infectious disease specialists. Overall, we expect our tobevibart plus elebsiran combination to have 2 clear advantages in chronic hepatitis delta versus our competitors. The first is that we are seeing potential best-in-class efficacy with a strong safety profile. The second that our regimen is designed with once monthly subcutaneous dosing and the potential for both at-home and in-office administration. For viral infectious diseases, clearing the virus is the key to improving long-term outcomes. KOLs in the chronic hepatitis delta space highlight undetectable virus as measured by target not detected or TND, as the gold standard measure of viral clearance. Achieving undetectable HDV by this measure is the most stringent threshold available and means that the delta virus is completely cleared from the bloodstream. As the delta virus replicates so aggressively, patients need HDV to be completely undetectable for positive clinical outcomes and to avoid rebounds. Peer-reviewed evidence suggests that patients with hepatitis delta who achieve undetectable virus have significantly improved long-term clinical outcomes, including reduced progression to cirrhosis, hepatocellular carcinoma, liver transplantation, and death compared with patients in whom the virus remains detectable. These data support an undetectable virus as a key clinically meaningful goal of antiviral therapy for patients with hepatitis delta. In January, we reported potential best-in-class efficacy in our Phase II SOLSTICE trial in patients with chronic hepatitis delta for a subset of patients at 96 weeks. Evaluated participants receiving the combination therapy of tobevibart and elebsiran showed increased and sustained viral suppression of HDV RNA versus treatment with the antibody alone. The data showed 88% of evaluable participants achieved undetectable virus compared to 46% on tobevibart monotherapy alone. Additionally, we saw a rapid onset of viral suppression, achieving already 41% undetectable virus within 24 weeks. These results underscore the limited efficacy of hepatitis delta treatment with antibody monotherapy alone. In contrast, combining complementary mechanisms of action with tobevibart plus elebsiran raises the rate of undetectable virus to approximately 90%. Importantly, we see similar efficacy in cirrhotic patients, which will be a significant patient cohort at launch due to the delayed diagnosis of most hepatitis delta patients to date. The combination was well tolerated with no grade 3 or higher treatment-related adverse events and discontinuations. The second key differentiator is that tobevibart plus elebsiran will only be administered monthly, consisting of 2 subcutaneous injections to be administered at the same time. As a reminder, competitors' sleep regimens require either daily or weekly injections. For the hepatitis delta patient population, this frequency will be a significant challenge. So, we see monthly dosing as an additional meaningful differentiator for our regimen. Additionally, due to the need for a higher dosing frequency of competitive regimens, tobevibart plus elebsiran may have the potential to be the only product conveniently enabling both self-administration at home and physician administration in the office. This is important because physicians have indicated that up to 20% of hepatitis delta patients might not be able to self-administer. So tobevibart plus elebsiran may be the only treatment available for this group of patients. Our hepatitis delta regimen has already been recognized by multiple global regulators with FDA breakthrough therapy and Fast Track designations as well as EMA Prime and orphan drug designation, underscoring both the unmet need and the strength of the data package. These designations provide ongoing engagement with both agencies and support a high level of confidence in our ability to achieve broad labels for our regimen. We are pleased to share that we will be presenting the complete 96-week SOLSTICE Phase II data in an oral presentation at the upcoming EASL 2026 Annual Meeting in Barcelona on May 29th. We will also be presenting a poster of a 48-week subgroup analysis evaluating the impact of VMI on ALT normalization after successful viral control. As we look ahead to our ongoing registrational program, all 3 of our ECLIPSE studies are on track. ECLIPSE-1 enrollment is complete with approximately 120 participants randomized 2:1 to our combination therapy versus deferred treatment. The primary endpoint is a composite of undetectable virus as measured by HDV RNA target not detected plus ALT normalization at week 48. We expect to report top line data from ECLIPSE-1 in the fourth quarter of this year. ECLIPSE-2 enrollment continues on track across multiple European sites. This study will enroll approximately 150 patients who are being randomized 2:1, evaluating the switch to our combination therapy in patients who have not adequately responded to bulevirtide. The primary endpoint for the trial is undetectable virus as measured by HDV RNA target not detected at week 24. The strong enrollment momentum we are seeing in Europe reflects an important unmet need in patients previously treated with bulevirtide. For ECLIPSE-3, our Phase IIb head-to-head comparison, enrollment is complete with approximately 100 patients randomized 2:1 to our combination therapy versus bulevirtide. The primary endpoint for the trial is undetectable virus as measured by HDV RNA target not detected at week 48. In general, we view Gilead's expected U.S. launch of bulevirtide as a positive for the hepatitis delta market overall and one that helps pave the way for next-generation therapies like ours. Hepatitis delta remains significantly underdiagnosed and undertreated and the introduction of the first approved therapy in the U.S. should meaningfully raise disease awareness, expand screening and establish treatment properties among treating physicians. Complementing this, we have an experienced commercialization partner through our collaboration with Norgine, who holds an exclusive license across Europe, Australia and New Zealand. Norgine's established infrastructure and expertise in specialty pharma and hepatology positions us to maximize the commercial opportunity of our HDV regimen across these geographies. In summary, we have made exceptional progress across our entire clinical portfolio, and we believe these advancements leave us well positioned to deliver on our clinical and corporate objectives. With that, I'll now hand the call over to Jason for our financial update. Jason O’Byrne: Thank you, Marianne. Before discussing the first quarter financials, I will share the latest news about our Astellas collaboration. We are pleased to report that the VIR-5500 global collaboration and licensing agreement closed on April 15, 2026, following expiration of the HSR waiting period. Upon closing, Vir Biotechnology received a $75 million cash payment, representing Astellas' equity investment. And within 30 days of closing, we will receive a $240 million upfront payment. As a reminder, we are eligible to receive a $20 million manufacturing tech transfer milestone payment in 2027. We will share global development costs, 40% by Vir Bio and 60% by Astellas. We will split U.S. commercial profit loss equally with Astellas, and we are eligible to receive up to an additional $1.37 billion in development, regulatory and ex-U.S. sales milestones, along with tiered double-digit royalties on ex-U.S. net sales. A portion of certain collaboration proceeds will be shared with Sanofi according to the terms of that licensing agreement. Overall, this deal provides immediate capital and significantly reduces our near-term development spend while preserving substantial long-term economic upside. The collaboration with Astellas can maximize the value of VIR-5500 through accelerated clinical development and global reach, potentially benefiting more patients and creating greater value for our shareholders. Shortly after announcing our global collaboration with Astellas and sharing updated Phase I data from the VIR-5500 program, we completed a follow-on equity offering. On February 27, 2026, the offering closed, and we received gross proceeds of approximately $172.5 million before deducting underwriting discounts and commissions and estimated offering expenses. We intend to use the proceeds from the offering to fund our share of the development costs for VIR-5500 to advance the broader T cell engager platform and for working capital and other corporate purposes. Turning now to our balance sheet. We ended the first quarter with approximately $809.3 million in cash, cash equivalents and investments, which includes the aforementioned proceeds from the follow-on offering. Subsequent to quarter end, we closed the Astellas collaboration, and therefore, the $315 million in proceeds from that transaction are not reflected in our March 31, 2026 cash position. Based on our current operating plan and including the net effects of the recent Astellas agreement and capital raise, we expect our cash runway to extend into the second half of 2028, enabling multiple value-creating milestones across our pipeline. Now I will review our first quarter 2026 financial performance and overall financial position. R&D expense for the first quarter of 2026 was $108.9 million, which included $6 million of stock-based compensation expense. This compares to $118.6 million for the same period in 2025, which included $7 million of stock-based compensation expense. The year-over-year decrease was primarily driven by a $30 million payment to Alnylam in the first quarter of 2025, partially offset by hepatitis delta qualification batch manufacturing costs and to a lesser extent, higher clinical expenses in the first quarter of 2026. SG&A expense for the first quarter of 2026 was $23.3 million, which included $6.1 million of stock-based compensation expense compared to $23.9 million for the same period in 2025, which included $7.1 million of stock-based compensation expense. Our first quarter 2026 operating expenses totaled $132.3 million, representing a $10.3 million decrease compared to the same period in 2025. Net loss for the first quarter of 2026 was $125.7 million compared to a net loss of $121 million for the same period last year. Looking ahead, we will continue disciplined allocation of capital, prioritizing investments in those programs with the greatest potential for meaningful patient benefit and value creation. With that, I will now turn it back over to Marianne to close the call. Marianne De Backer: To close, we are exceptionally well positioned for long-term value creation at this inflection point. Since December 2025, the combination of our collaborations with Norgine and Astellas, together with a successful financing has generated over $0.5 billion in capital, significantly strengthening our balance sheet. With the closing of our global collaboration with Astellas this quarter, we now have an established partner to advance VIR-5500 aggressively across the prostate cancer landscape while maintaining disciplined capital allocation. Overall, the combination of potent antitumor activity and a favorable safety profile underscores VIR-5500's potential as the best-in-class T cells engager for the treatment of prostate cancer. Beyond our clinical programs, we are steadily advancing 7 preclinical T-cell engager assets that utilize the PRO-XTEN platform and broaden our pipeline's optionality, positioning us well to generate the next wave of value creation. At the same time, our hepatitis delta program continues to generate compelling and increasingly differentiated clinical data with multiple near- and mid-term catalysts ahead across our ECLIPSE studies. Taking together with our progress in oncology, this momentum underscores the breadth of our scientific platforms and our ability to execute with focus, urgency and discipline. Looking ahead, our priorities are clear: to deliver rapid, high-quality clinical execution, advance multiple expansion and registrational-enabling studies and deploy capital thoughtfully in ways that maximize long-term value while keeping patients at the center of everything we do. With that, I'll turn the call over to Kiki to begin the Q&A session. Kiki Patel: Thank you, Marianne. This concludes our prepared remarks, and we will now start the Q&A session. Joining me for the Q&A are Marianne and Jason. Please limit questions to two per person so that we can get to all of our covering analysts. I'll turn it over to you, operator. Operator: [Operator Instructions] Our first question comes from Paul Choi with Goldman Sachs. Kyuwon Choi: My first question is on 5818 in the HER2 setting. Can you comment on your level of interest in future development, particularly in HER2-positive breast cancer. It's not listed among the tumor types in your quarterly deck here. And so, I'm just curious, given the number of available therapies for that particular tumor type, sort of what is the criteria from your upcoming data set for potential development in that tumor type? And then I had a follow-up question. Marianne De Backer: Thank you, Paul, for that question. Yes. So, we will be sharing data on our 5818 programs in the second half of this year, and this will be both for our monotherapy dose escalation and the dose escalation in combination with pembrolizumab. As to future development, we will, at that time, be able to provide a better picture as to what future expansion cohorts could be. Specifically, to your question on breast, I would say that, obviously, the bar is high, but do keep in mind that this drug, for example, like in HER2 has a 1% mortality rate. So, there's certainly still a prospect to come up with better treatments. But again, we will be sharing data second half of the year, and we'll then give further guidance. Kyuwon Choi: Okay. Great. And with regard to 5500 and your comment on potential development earlier treatment settings, I guess, what would sort of, I guess, the framework for that be and potential timelines? Would you file an IND for that particular population this year or possibly in 2027? Marianne De Backer: Yes. So just to recall that we already have a dose escalation ongoing for early line 5500 combined with an ARPI. What we are planning to do now together with Astellas, our collaboration partner, is start expansion cohort in the same setting, combination of VIR-5500 with enzalutamide. So that is something that is coming in expected coming months. Operator: Your next question comes from Roanna Ruiz with Leerink Partners. Unknown Analyst: This is Michael on for Roanna Ruiz at Leerink Partners. Regarding 5500 late-line MCRPC monotherapy expansion cohort, what would constitute a clear signal as a green light to initiate Phase III in 2027? Are you anchoring on like, PSA50, 90 or RECIST or PFS, something like that? Marianne De Backer: Yes. So, we started first -- we dosed the first patient in the late-line expansion cohort for VIR-5500 monotherapy. We are going to, in that expansion cohort, explore a little bit more in-depth both pre- and post-radioligand therapy. So that will be additional data that we will be gathering. We only have a limited set of such patients in our initial cohort on which we reported data on February 23. And I would say it's going to really be the totality of the data. Obviously, PSA, RECIST, RPFS, we will have a more full data set to then decide on the next steps. But our goal is pending data, obviously, to start pivotal trials in 2027. Unknown Analyst: Great. Just one more question. I also had a question about the underlying biology for PRO-XTEN cleavage. How tumor-specific is the protease activation profile across different tumor types? For example, are you seeing differential cleavage kinetic in like prostate versus colorectal or CLC that might affect that therapeutic index? Marianne De Backer: Yes. One of the founders of the company that was acquired by Sanofi and from which we licensed the technology has been working in this field for over 20 years. And it's fair to say that the protease cleavable linker is really promiscuous linker. There's different families of proteases there to really ensure that you are going to be successful across a broad set of tumor types. Operator: Your next question comes from Cory Kasimov with Evercore. Mario Joshua Chazaro Cortes: This is Josh Chazaro on for Cory. Maybe one on hep B. As you approach the pivotal hep B data, wonder what your latest thoughts are on pricing there. Marianne De Backer: Sure. Thank you, Josh. So, if you look -- first of all, hepatitis delta is an orphan disease. There's a number of anchor points for price that we can point to. The first one, I would say, is to look at the price of bulevirtide in Europe, which varies somewhere between $60,000 and 165,000 gross price. You can also look at the price of bulevirtide in Canada, which was set at, I believe, USD 115,000. And then if you look across your fellow analysts, I see that estimated prices vary somewhere between $150,000 and $250,000. We think that is very adequate for, again, a disease that is very severe, an orphan disease where we would be delivering substantial benefit for patients. Mario Joshua Chazaro Cortes: And then just one -- another quick one on 5500 here, maybe following up on one of the previous questions, especially in the late-line castrate-resistant setting, is there a minimum durability you're looking for with you and Astellas before you move into a Phase III? Is there a number you guys have in mind or a certain competitive threshold you're looking at? Marianne De Backer: Yes, not specifically. Again, we will be looking at, obviously, the totality of the data. I didn't hear it very well, but what your question on durability? Mario Joshua Chazaro Cortes: Correct. Marianne De Backer: Yes. Yes, I can only point to -- so what we know thus far is that several T-cell engagers have been showing durable responses. Our data set was still a little bit early, but also in our data set, you could already see that we had a number of resisted patients with data post 27 weeks confirmed partial responses. And also, we had a couple of patient cases, one patient that had been on treatment for 8 months. We had another patient that had been on treatment for a year and continuing. So we have sort of case examples of durability. And obviously, we will be looking in our broader data set for durability more consistently across the entire expansion cohort. Operator: Your next question comes from Alec Stranahan with Bank of America. Unknown Analyst: This is Matthew on for Alec. Congrats on the progress. I guess 2 for us on competitive landscapes. First for HDV. Just curious your thoughts on this year data that came out recently and whether that sort of changes your thoughts on commercial opportunity or competitive landscape? And then secondly, for EGFR T-cell engagers, competitor of yours recently discontinued development of theirs dual mask. I guess just what gives you confidence that your strategy will pan out where others have failed? Marianne De Backer: Thanks, Matthew. Yes, on your first question, so as I laid out in the introduction, we -- and generally the key opinion leaders in the field very strongly believe that what really matters in a viral disease is to get rid of the virus. And the way that we measure that is through HDV RNA target multi-tectin. So, if you look at our levels of TMD for our monthly regimen of tobevibart and elebsiran, also 48 weeks, which is our primary endpoint, we achieved about 66%. And we have also shown that it really increases. It's actually increasing from 41% at 24 weeks to 66% at 48 weeks and then to 88% at 96 weeks. So, we saw that significant increase in target multitasking over time for our dual mechanism regimen. We did not see that actually for our monotherapy antibody. We saw it at about 30% TMD at 24 weeks and then sort of plateaued around 50%. It seems that what Mirum is sharing for their monthly therapy, which would be most comparable to our monthly therapy is only 5% target not detected. So that might not be very viable. And then for their weekly regimen, at 300 milligrams, they are showing at 24 weeks, 30% target not detected. So, we believe that from an efficacy perspective, we have a potential superior drug here and potential best-in-class regimen. Also from an ALT perspective, you can now see sort of across the different regimens that are in development that everyone is sort of landing around the 50%. We had 47% at 24 weeks. I think Mirum reported between 40% and 45%. So, ALT normalization seems to be sort of evening out across different regimens. But again, we do believe that it's really the viral efficacy measured by viral elimination and getting to undetectable that really matters. And there, we clearly have superior data. As to your question on EGFR, yes, Janux discontinued their EGFR T-cell engager. I would say the only sort of surprising thing there from our perspective is that they saw muscular skeletal issues that were mentioned as dose-limiting toxicity. That was unexpected and something, of course, that we will watch. But the reason why we strongly believe in the differentiation of our mask T-cell engagers is first, the masking technology is fundamentally different. So, we use steric hindrance. It's the same mask across all of our clinical programs. So, we don't need to redesign a new mask every time for every program. So, we really take learnings from one program to the next. And what we have seen with VIR-5500 is that, that masking technology allows you to dose much higher. And if you can dose higher, obviously, you can get potentially to a better therapeutic index. So, I would say that our masking technology is fundamentally different. Operator: Your next question comes from the line of Phil Nadeau with TD Cowen. Philip Nadeau: Two from us. First on 5818, you referenced the dose escalation data in the second half of the year. Can you give us some sense of what will be disclosed at that time, things like number of patients, duration of follow-up measures that you'll talk about, what tumor types will be in the update? That's the first question. And then second, on HDV, your presentation cites about 174,000 patients with HDV in the U.S. and Europe. We're curious how many of those you estimate are diagnosed and under the care of a physician, so could be amenable for therapy shortly after launch. Marianne De Backer: Thank you, Phil. Yes, on 5818, so we will be sharing data both from our monotherapy dose escalation and also from the dose escalation in combination with pembrolizumab. A number of patients, we will share at a later date. I want to maybe point out that the 5818 trial is very different actually from our 5500 trial in the sense that it's a basket trial. So, we actually have a wide variety of tumor types in that trial. And we have already shown you some initial results, for example, in metastatic colorectal cancer, where we had a 33% confirmed partial response. So, we will be where possible and where we have enough patients in one given tumor type, be sharing you, of course, information on where we use CA to look at responses, tumor shrinkage, et cetera. So, we see it importantly as a signal-seeking trial that will give us information around what indications to potentially go into expansion cohort. And then your question on hepatitis delta. So, from those patients, we estimate that there are about 61,000 actively viremic patients here in the United States. And it's a hugely underdiagnosed disease, as I mentioned earlier. We believe that actually only about 10% to 15% of those patients are diagnosed at this moment in time. We do believe that once a regimen can become available that, that could really change. And the diagnostic testing is also getting better. For example, diagnostic tests for Delta are also relatively affordable. The Medicare reimbursement rate for an antibody test is $17 and for a quantitative RNA test about $43. The only difficulty at this moment in time is that patients often need to go 2 or 3 times to see their physician before all testing is done. The first time for hepatitis B test, the next time for the antibody test and the next time for the RNA test. So, there's a lot of streamlining that can happen. And in Europe, they have already shown that if you do reflex testing, so really when a patient tests positive for hepatitis B immediately proceed to testing for hepatitis delta on the same sample that, that could really increase diagnosis rates substantially. So that is something that if the guidelines get adopted here in the United States, that could drive a lot of difference. Operator: Your next question comes from Etzer Darout with Barclays. Unknown Analyst: This is Luke on for Etzer. For HCV, with the ECLIPSE-1 trial reading out in 4Q and then you have ECLIPSE 2 and 3 reading out in 1Q next year, how are you guys thinking about assuming a positive ECLIPSE-1 trial, is that going to be enough to support a BLA filing? Or do you need to wait for 2 and 3 to do that? And then on 5500 with the partnership with Astellas, and the announcement said that they will be responsible for all development activities after Phase I. Just wondering what kind of visibility you'll have into those trials as they enroll. Marianne De Backer: Sure. I'll start with your last question on collaboration with Astellas. So, it is a global co-development and co-commercialization agreement, and we have quite significant joint governance in the deal. So, we have a joint development committee, of course, the joint steering committee, joint manufacturing committee, joint IP committee, joint finance committee and so on, with equal representation and joint decision-making with some level of escalation to executives, et cetera, pretty standard, I would say, for a 50-50 type of partnership. So, we will remain very intricately involved. We are, of course, running the Phase I trials now. And of course, Astellas are very involved in that as well. So, it doesn't really matter who operationally runs the trial. It's really important that we have pre-aligned on the clinical development plan and the associated budget, and we try to make decision-making, of course, jointly, but also very swiftly. And then your first question on what is required for filing. So, our guidance is that we would need a combination of ECLIPSE and ECLIPSE for filing. So we will have the ECLIPSE -1 data, as you mentioned, the fourth quarter of this year and then the ECLIPSE -2 is coming in the first quarter of next year. Operator: Your next question comes from Sean McCutcheon with Raymond James. Sean McCutcheon: Just one quick question from us. So, you've talked a bit to the competitor data in HDV. But maybe could you speak to the specific component of the competitor running an all-comer study with a meaningful proportion of patients with elevated ALT above the 5x the upper limit of normal? And any potential read-through to kind of how you guys are seeing the patient population here? Marianne De Backer: Yes. So, the estimation is that maybe about 5% of delta patients have an ALT that is above 5x the upper limit of normal. And these kind of very high levels of ALT can have a lot of different reasons. We and KOL strongly believe that the real measure of looking at whether there is damage to the liver is looking at cirrhosis. And that's why we have enrolled more than 50% of patients in our trial that are CPTA-cirrhotic and have shown actually really good results, similar to slightly better in those type of patients. Operator: Your next question comes from Joseph Stringer with Needham. Joseph Stringer: For the Phase III ECLIPSE-1 trial in HDV, what's your current thinking on the bar for success, on the response rates on the 48-week primary composite endpoint? Would replicating the 38% or so response rates that you saw in Phase II set you up for success here? Marianne De Backer: Yes. Thank you for that question. So, ECLIPSE-1, just to remind everyone, is a trial where we compare treatments with our regimen of tobevibart and elebsiran within the first treatment. So, it is almost like placebo-controlled trial, which makes it, of course, very, very likely that we will be successful in that trial. The bar for success is really low. I mean, again, target not effective, for example, for tobevibart, which is in Phase III development, 10 milligram is about 20%. So irrespective of the ALT levels with an endpoint of TND plus ALT, you cannot get more than 20%. And it was 12% for the 2-milligram tobevibart dose. So, the bar for success is not that high. But again, I think we have a combination of best-in-class variable efficacy and then again, ALT normalization that seems to be pretty similar across all regimens. Operator: Your next question comes from Patrick Trucchio with H.C. Wainwright. Luis Santos: This is Luis Santos in for Patrick. A follow-up question on the strategy for hep B has to do with where does the at-home self-administration strategy stand from a regulatory and device standpoint. Would you expect to launch to begin with the clinical administration before transitioning to that self-administration? And how -- and the follow-up question would be, by then, bulevirtide is expected to already be accepted in the U.S. How much do you think the at-home administration benefits versus hepcludex or bulevirtide? Marianne De Backer: Yes. Thank you, Luis. So maybe answering your second question first. So, patients who will be on bulevirtide will have to inject themselves daily, and it's a chronic treatment, right? So really chronically every single day, they will need to inject themselves. And as I just mentioned, for bulevirtide 10 milligrams, the expected level of target effect that you can reach is about 20%. In contrast, what we have is a regimen of a combination of tobevibart and elebsiran, which is a monthly administration also subcutaneously, but with a level of targeted at 48 weeks of 66%. So, the chances of success for patients are much higher and the convenience is also much better. So, I think there will be a real potential desire for patients and physicians to look at such a regimen. In addition, we are running ECLIPSE-2 and ECLIPSE -2 is really looking at bulevirtide failures. So, patients that haven't been achieving adequate control of their virus on bulevirtide and then can switch to our regimen. So, we will also have data to show that, obviously, that makes sense for patients to do. As to your question for at home and at clinic, so the good news is that with our monthly administration subcutaneously, we have a very convenient offering, both for patients who want to do the administration at home. And of course, there's a lot of different ways we can achieve that and also actually for patients who might not be capable to inject themselves at home and where physicians and patients might think they prefer administration in office by physician, this level of once-month administration is really convenient to allow that to happen. So, we will be preparing at launch to have both available, both options at home and in office. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Ibotta's Q1 2026 Earnings Conference Call. With us today are Bryan Leach, Founder and CEO; and Matt Puckett, CFO. Today's press release and this call may contain forward-looking statements. Forward-looking statements include statements about our future operating results, our guidance for Q2 2026, our ability to grow our revenue, factors contributing to our potential revenue growth, our key initiatives, our partnerships and the capabilities of our offerings and technology, all of which are subject to inherent risks, uncertainties and changes. These statements reflect our current expectations and are based on the information currently available to us, and our actual results could differ materially. For more information, please refer to the risk factors in our recent SEC filings. In addition, our discussion today will include references to certain supplemental non-GAAP financial measures and should be considered in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are available in today's earnings press release, our 10-Q and our Q1 2026 earnings presentation, which are all available on our Investor Relations website at investors.ibotta.com. Unless otherwise noted, revenue and adjusted EBITDA comparisons to prior periods are provided on a year-over-year basis. With that, I'll turn it over to Bryan. Bryan Leach: Good afternoon, everyone. Thank you for joining our discussion of first quarter results. We're pleased to report first quarter revenue and adjusted EBITDA that are both above the top end of the guidance range we provided on our fourth quarter earnings call. We continue to anticipate that our year-over-year revenue trends will improve sequentially, returning us to overall revenue growth in the third quarter of 2026, which is consistent with the outlook we provided in February. The improved trajectory of our business is mostly the result of our sales team's success in deepening and broadening the supply of offers available to us. Our core promotions product is demonstrating strong market fit, while our more recent offering, LiveLift, continues to receive positive early feedback. On the publisher front, we've added 2 new partners in quick succession, both of which have entered into multiyear exclusive partnerships with us. In late March, we announced the addition of Uber, meaning that later this year, Ibotta's digital promotions will appear within the Uber, Uber Eats and Postmates apps. And today, we announced that Giant Eagle is also joining the Ibotta Performance Network. I'll say more about the significance of these new publisher wins later on. But first, I'd like to provide a bit more context on our recent financial performance and share additional details about the from-to pathway we see ourselves on. On a year-over-year basis, our redemption revenue performance has almost fully recovered. In the first quarter, it was down 1% year-over-year compared to being down 15% in the third quarter of last year and down 5% in the fourth quarter. This gradual recovery has been partly driven by redeemer growth with 15% more redeemers in Q1 than in the same quarter last year. That said, increased demand for offers alone doesn't move the needle unless we also source enough offers to take advantage of it. This is all about having the right team in place, spending more time in market, multi-threading our outreach to stakeholders at different levels within an organization and being more immediately responsive to our clients' needs. Building trust in these ways, is allowing our team to continue moving forward further upstream in our client strategic planning processes. We're also doing a better job of supporting our sellers and account managers with B2B marketing, training and enablement and client-specific insights. Our product team is working hard to deliver new tools that make each step in the quote-to-cash process easier, faster and more efficient. Encouragingly, our success has been broad-based, which continues to increase our conviction in the path we're on. Our sales team is adding new clients, securing new, often larger commitments from existing clients and retaining the overwhelming majority of our clients. Our strategic partnership with measurement leader Circana continues to generate sales and marketing momentum. We recently published a case study available on our website that independently validates Ibotta's ability to deliver successful results for our clients. Chomps, the fastest-growing meat snack brand in the United States, ran a campaign earlier this year to drive trial and household penetration. The results were outstanding and were independently verified through a sales Llift study conducted by Circana. Households exposed to the Ibotta campaign spent an average of 15% more on Chomps than their unexposed counterparts. Even more impressively, the campaign outperformed Circana's snack category benchmarks for sales lift by more than 4.5x and surpassed household penetration benchmarks by a staggering 9x. Stacey Hartnett, the SVP of Marketing at Chomps, summarized the impact well. She noted that achieving strong on-shelf presence was only their first milestone. The strategy has now shifted toward winning new buyers through smarter promotional strategies. She stated that our partnership has become a key lever in that effort and that the study reinforces that the IPN delivers impact well beyond a discount, helping them reach the incremental shoppers critical to their long-term growth. Turning to LiveLift. We continue to see positive signs of product market fit, even though it's still early days. We continue to limit access to those clients willing to spend a certain amount and run their campaigns for a certain duration. For this reason, the revenue contribution from LiveLift remains modest for now, and we aren't forecasting a significant ramp in revenue until we loosen those eligibility requirements. I'll have more to say on what that will require in a moment. Actual re-up rates among clients that have completed a LiveLift campaign remain consistent with the approximately 80% level we've discussed in prior quarters. Those clients who have not yet re-upped are primarily smaller CPGs, which we believe reflects our eligibility criteria rather than any dissatisfaction with the product, consistent with what we've said previously. Repeat users represented approximately 60% of LiveLift campaigns in the quarter, with the remainder being first-time users running pilots. The average campaign size for LiveLift campaigns remains meaningfully larger than for our core product. The most common question I received after our last earnings call was, 'can you help me better understand what the pathway to greater adoption of LiveLift will look like? So let me try to shed some light on what that entails and why I believe we're making solid progress. Of course, as with any innovative product development process, it's impossible to know in advance everything we will learn along the way or exactly how long that will take. Our goal is to make it as easy as possible for our CPG clients to buy campaigns on the Ibotta Performance Network. Some will prefer to stick with managed service, while others may take advantage of our self-service tools, which we will continue to refine and improve. In the future, our clients may also rely on agents to make more autonomous media buying decisions. Whichever interface they choose, clients will start by identifying the goals of their campaign. Our LiveLift platform then takes this information and evaluates a wide range of possible campaigns and chooses the best fit for their goals, projects the amount of redemptions, incremental sales and cost per incremental dollar we think they will achieve, tracks these metrics on an ongoing basis, providing profitability readouts at various points during the campaign and optimizes the campaign as necessary along the way. Scaling LiveLift to our wider client base will require greater automation of these processes. With that in mind, we are focused on a few key initiatives. First, we're building a more sophisticated programmatic API layer so that our software as well as any agents we create, can interface with the various models and systems that power LiveLift, allowing our system to fully harness the power of AI and programmatically design, build, launch, optimize and report on a campaign. This includes considering different scenarios and making the best possible projections and recommendations more quickly and at lower cost. Second, we are refining the underlying models that power LiveLift. These models become more robust as we train them on the data generated by running these early LiveLift campaigns as we receive additional data from existing publishers and as we expand the publisher network, gaining access to new sources of data. Widening the availability of LiveLift requires continued model training through repeated experiments and those take time. We are building a novel capability in this industry, and that necessitates a disciplined phased approach to scaling. Third, we are working on what I would broadly call AI enablement. That means documenting processes to create additional context for AI, defining standard operating procedures and simplifying our product catalog to reduce complexity. Creating this scaffolding takes time. But once we have a simpler set of products with the appropriate context, more reliable agentic AI flows become possible.?We believe that the progress we are making along all these fronts will ultimately allow us to more meaningfully inflect the level of CPG offer supply. Switching to the demand side of the equation. We continue to see strong results this quarter with healthy redeemer growth driven by organic growth at our existing publishers and the 2025 launch of DoorDash. One of our top priorities has been diversifying our publisher base, and we have begun doing that with the recent additions of Uber and Giant Eagle, both of which entered into multiyear exclusive partnerships with Ibotta. Adding Uber to the IPN allows us to intercept consumers in high-intent commerce moments and solidifies our leadership position in the fast-growing and important e-commerce delivery space. Our partnership with Giant Eagle further validates the strength of our model and enhances our presence in the traditional grocery channel. As one of the nation's largest multi-format food and pharmacy retailers and a recognized industry thought leader, Giant Eagle chose to transition to Ibotta in order to access a more robust and relevant offer gallery that moves the needle for their customers. We're pleased with the terms and the economic profile of both of these new partnerships. These partnerships demonstrate the extensive work of our business development and technology teams behind the scenes to enable these milestones. I'll now turn the floor over to our Chief Financial Officer, Matthew Puckett, to walk through our financial results and guidance in more detail. Matthew Puckett: Thank you, Bryan, and good afternoon, everyone. Right off the top, I'll repeat Bryan's comments. We're pleased to have delivered another quarter that was ahead of our initial outlook, further validating that we are very much on the right track. With that, let me jump into the Q1 results. We delivered revenue and adjusted EBITDA that were respectively, 3% and 25% above the midpoint of the guidance range that we provided on our fourth quarter earnings call. Now to unpack our top line results for the quarter. Revenue was $82.5 million, a decline of 2% versus last year. Within that, redemption revenue was $73 million, down approximately $400,000 or 1% year-over-year. Both redemption revenue and ad and other revenue trends improved on a year-over-year basis as compared to the fourth quarter. We continue to be pleased with the results our sales organization is driving and how both our core product offerings and LiveLift are resonating with our clients.?As Bryan noted, the LiveLift re-up rate remains healthy, underscoring that clients are realizing the measurable benefits that these next-generation capabilities deliver. Third-party publisher redemption revenue was $54 million, up 12% versus last year and accelerating sequentially versus the prior quarter's increase of 8%. Direct-to-consumer redemption revenue was $19 million, down 25% year-over-year and similar to Q4's result, where, as anticipated, we've continued to see redemption activity shift to our third-party publishers. Ad and other revenues, which represented 11% of our revenue in the quarter, were $9.5 million, down 15% versus last year due primarily to continued pressure on ad revenue as a result of lower direct-to-consumer redeemers.?This reduction was partially offset by growth in data revenue. Turning now to the key performance metrics supporting redemption revenue. Total redeemers were $19.7 million in the quarter, up 15% year-over-year. We saw another quarter of significant growth in third-party redeemers across the IPN, including strong growth with our largest publisher partner, highlighting the continued health of the demand side of our network. In addition to organic growth with existing publishers, the quarter also benefited from the launch of DoorDash in the second quarter of 2025. Redemptions per redeemer were 4.5, down 6% versus last year, a meaningful improvement in trend versus the second half of last year when redemptions per redeemer were down 22%, but where the decline continues to be driven by both the quantity and quality of offers available to each redeemer as well as the growth in third-party redeemers, which have a lower redemption frequency as compared to our direct-to-consumer redeemers. Redemption revenue per redemption was $0.83, which was flat versus Q4 and down 7% versus last year, driven primarily by the mix of redemption activity. Summing it all up, total redemptions were $88 million, up 6% versus last year, driven by 15% redemption growth on our third-party publishers. This represents a more measurable return to year-over-year growth in redemptions for the first time since the first quarter of 2025 after being flattish in the fourth quarter. Now switching to the cost side of our business. As anticipated, non-GAAP cost of revenue was up $2 million versus a year ago, largely driven by an increase in technology-related costs, along with a more modest increase in publisher costs. This resulted in a Q1 non-GAAP gross margin of 78%, down approximately 300 basis points versus last year. As we discussed last quarter, much of the increase in technology-related costs is a function of increased investment in product development, as well as a higher allocation of certain costs from R&D expense to cost of revenue. Before I review non-GAAP operating expenses, let me point out that we've made a change in how non-GAAP operating expenses are defined and shown on Page 12 of the presentation that accompanies our earnings materials. You'll notice we are now including depreciation and amortization in non-GAAP operating expenses. Now turning back to the results. Non-GAAP operating expenses were up 5% versus last year and were 71% of revenue, an increase of approximately 470 basis points year-over-year. Within that, non-GAAP sales and marketing expenses were up 17%, driven by higher sales labor, the cost of third-party Lift studies and B2B marketing expenses. Non-GAAP Research & Development expenses decreased by 21%, primarily a result of higher capitalization of software development costs and a higher allocation of labor expense to cost of revenue. This is due to more of our investment in R&D being directly focused on product development. Lastly, non-GAAP General & Administrative expenses increased by 5%, while depreciation and amortization increased by approximately $600,000 or 60%. Similar to the last couple of quarters, while overall non-GAAP operating expenses grew modestly year-over-year, our investments in areas related to our transformation, inclusive of both the P&L and what is being capitalized to the balance sheet increased at a faster pace. This increase was approximately 12% and again was highlighted by higher labor costs in the sales organization and other technology-related costs. We delivered Q1 adjusted EBITDA of $8.7 million, representing an adjusted EBITDA margin of 11%, non-GAAP net income of $6 million and non-GAAP diluted net income per share of $0.24. Our non-GAAP net income excludes $16.7 million in stock-based compensation, and it includes a $0.3 million adjustment for income taxes. We ended the quarter with $164.6 million of cash and cash equivalents. And in Q1, we spent approximately $45 million repurchasing approximately 1.9 million shares of our stock at an average price of $22.92. We had 25.6 million fully diluted shares outstanding as of 3/31. And as of the end of the quarter, we had $90.3 million remaining under our current share repurchase authorization, which, as previously disclosed, was increased by $100 million upon authorization from the Board of Directors on March 11. And finally, we generated $23.3 million in free cash flow, an increase of 56% versus last year, largely driven by higher cash flow from operations as a result of decreases in working capital compared to the first quarter of 2025. Now shifting to Q2 guidance. We currently expect revenue in the range of $82 million to $86 million, representing a 2% year-over-year decline at the midpoint and at the same time, a 2% sequential increase versus Q1 at the midpoint. And we expect Q2 adjusted EBITDA in the range of $9 million to $12 million, representing about a 12.5% adjusted EBITDA margin at the midpoint. With that, let me provide a little more color on our outlook. First off, as both Bryan and I have mentioned, we continue to be pleased with the consistency of our execution with our clients and publisher partners, both with core product offerings and with LiveLift pilots. This has been the driver of improving revenue trends during the last couple of quarters, and we expect that to continue. One other point to make on Q2 revenue. At the midpoint of our revenue outlook, we would expect redemption revenue to return to growth for the first time since Q1 of 2025. Beyond our specific Q2 revenue guidance, we are confirming our expectation of a return to year-over-year growth in total revenue in Q3 in the low single-digit range. It's probably on your mind, so let me highlight the assumptions implied in our outlook specific to the 2 new publishers we are adding to the network. We've assumed an immaterial impact on Q2 during the testing and piloting phase and expect a small benefit to revenue in the second half of the year as we ramp up with these partners. I'll note that offer supply will be the governor on the near-term revenue impact of this expansion on the demand side of our network. As it relates to costs, our expectations are broadly unchanged from last quarter. We continue to expect to see a modest sequential increase in quarterly non-GAAP cost of revenue and operating expenses throughout the balance of the year. That continues to be a function of investing in areas that are critical to our transformation. Specifically within cost of revenue, as we said last quarter, we expect to have substantially less growth in publisher-related costs as compared to what we saw in 2025. And we do expect similar to the first quarter that the biggest factor driving an increase in cost of revenue will be higher technology costs, which is partially a function of where these costs are allocated in the P&L relative to last year. Lastly, with a healthy balance sheet and positive free cash flow, we'll continue to prioritize investing in organic growth and the strategic priorities of the business while also returning cash to shareholders. We remain excited and energized by the opportunities ahead and look forward to returning to year-over-year revenue growth in the second half of this year. With that, operator, let's please open up the line for Q&A. Operator: [Operator Instructions]. Our first question will come from Ken Gawrelski with Wells Fargo. Kenneth Gawrelski: Can you hear me okay? Bryan Leach: Yes. Kenneth Gawrelski: Could you maybe, Bryan, could you talk about how you, as move more to LiveLift over time and you get the sales process really humming, when you look into '27 and '28, how do you think the financial picture may change? Like what does it mean for the margin structure of the business relative to kind of post IPO? What fundamental differences do you see there? Maybe the first one. Bryan Leach: Sure. And then go ahead, please. I'll follow up. Kenneth Gawrelski: The second one is this is like if, as you think about the progress you can make in the back half of this year and into early next year, how much of it is like a change in the calendar year provides another opportunity to kind of another bite at the apple with some of those big CPG brands versus just getting your go-to-market strategy and process working? Bryan Leach: Thanks, Ken. So, I'll take those in turn. So, the first one, I'll answer at a high level and then let Matt provide additional detail, and then I'll have him pass it back to me for the second question. So, for the first one, I would say, broadly speaking, we feel like we're in a good place with our expenses to be able to build the products we need to drive the increase in office supply over the next few years, you asked about '26, '27, '28. And so that should, in other words, we don't expect to have to continue to ramp expenses at the same rate that we're ramping revenue. And so that should be positive in terms of the margins and the contribution to adjusted EBITDA over the next 3 years. We have ongoing innovation that's baked into the R&D that's part of our current effort. I think more time will allow us to get in front of our customers with the Liveliest message. It is an evolution in the industry that is moving from annual planning and annual allocation and annual measurement to more ongoing measurement and optimization using rule-based or outcome-based systems. And that go-to-market takes some time to build the necessary trust and conviction and then have the cultural changes that need to happen on the client side. But I feel like the developments that I described in my remarks will put us in a position where there'll be, more a variety of different ways that people can buy on our network. And those ways will be much more sophisticated and allow us to meet the needs of our clients more often and allow us to earn the way into larger and larger budgets, which is what's really going to move the needle and drive revenue in this business. I'll let Matt add any additional thoughts on that before turning to your second question. Matthew Puckett: Yes, Ken, just a couple of things I would add. Without being precise, which obviously we're not going to do about regarding our financial algorithm, a couple of things I'll say. One is kind of more medium term and then longer term, which is really kind of reiterating Bryan's points. We've been talking for a couple of quarters now about the investments that we were making, right, in first in the sales organization, which is restructuring, reorganizing and really just leveling up the capabilities in the sales organization as well as the investments we've been making in our technology as it relates to the transformation of the business and the capabilities that we've been building. We're kind of nearing lapping most of those investments. We're not fully there. But over the course of this year, we will lap all of those investments. That's factored into everything we've said about what the forward picture looks like. Once we've done that, then as we sit here today with what we see that needs to get done, we don't expect to have to add. There's not another step change in the investment profile from here. So, as we see the top line stabilize and then we start to drive consistent, sustainable growth, we're going to see the opportunity to expand both gross margins and EBITDA margins over time. So hopefully, that helps answer. Bryan Leach: The second question, Ken, about the back half and the change in the calendar year. I would say that different clients have different fiscal years. Some of our clients reset in July, some of them reset in the fall, some of them reset on the calendar year. And while that is definitely a factor in situations where we have kind of gotten through the budget that was allocated to us in the previous cycle, we get a chance to kind of demonstrate the effectiveness of that, the level of performance earns us into a larger budget. That's true. However, I think it is more a function just of being able to get in front of clients with our core product, demonstrate the scale that we have that we are along the breadth of purchase in all these different places now, the addition of these new publishers that allows us even in between even intra-year to go back and make the case that this is where they should be spending more money at a time when they're aware that this is how they gain market shares by intelligently thinking about where they're pricing their products and how they're promoting their products. So I don't want to lean too much on that as sort of some major driver. We are always selling both in the annual planning process and then within that year. And then I would say also our whole goal here is to move the industry away from that mentality of annual planning into a mindset of 'I always want to buy this as long as these rules and constraints are being met. So I want every dollar of top and bottom line revenue and profit that I can get through this platform, and I'll spend until I'm no longer seeing that level of efficiency. And so that's ongoing. But I think it's safe to say that for now, we are still living in a world where we do participate in those annual re-up conversations. There are just thousands of brands happening all the time at different parts of the year. And Matt was going to add one more thing. Matthew Puckett: Yes, Ken, just one more thing to make sure we got to the essence of part of your question there on the kind of the margin profile. As we grow LiveLift over time as a bigger penetration of the business, that doesn't materially change the margin profile, whether it's the core product offering or LiveLift, you wouldn't see a really different outcome. It's really about the investments we've made to enable the growth that will flow through our business model. Operator: Our next question will come from Tim Mitchell with Raymond James. Unknown Analyst: So first, a couple. So first, if you can just kind of talk about some of the early progress with the Uber partnership and how that is tracking. And then within that commentary, you gave on some of the initiatives surrounding LiveLift in terms of what it's going to take to ramp that a little further. Just any thoughts on like, what inning you're in, any progress made on those initiatives so far? And then secondly, just on the macro, curious if you're seeing any impacts from energy prices, whether it be on CPG spend or on the health of the lower end consumer. Bryan Leach: Great. Thanks, Tim. So first, on the Uber partnership, pleased to have announced that a little while ago. That's, like all of our publishers, they don't just turn that on overnight to 100% of all of their customers across thousands of stores that they support. They do that in a stepwise function, and we are in, the early part of the process of that rollout. And we will then begin working with them on other aspects of that partnership to make sure that we're able to do the most sophisticated forms of measurement and personalization, et cetera, marketing, reactivation, activation, those best practices. I would say we're, but we are in a position where the technology to support this, has been built. And we're, like I said, in the early days in the process of introducing that to different customers at Uber. And we're excited about that. As you know, we have a strong presence in that area, and that's something where we hope that it will also have the same level of uptake and high redemption rates that we've seen in that category more broadly. Second question, or I guess the second part of your first question, was to do with the progress we've made on the ramp of LiveLift. I think we've made significant progress from the last time we had a conversation in late February. That is along all the different dimensions that I mentioned. AI itself is evolving very rapidly. And so, we are investing heavily in AI enablement to take advantage of the efficiencies that are available to us through using things like Claude Code, but also our ability to create this programmatic API layer. We're absolutely working on that around the clock, getting that to a place where we'll be able to automate more of these processes, which will benefit our entire business, not just LiveLift but also LiveRamp, but also all of our core offers, and benefit from having it be easier to design, set up, revise, and so forth from beginning to end a campaign. And then the models underlying, I think I mentioned that those get better with the more data, with the more refinement of the model, and the more publishers you add. The addition of Uber and Giant Eagle will help us refine those models. That itself represents progress. But we are also seeing that as we get a second and a third LiveLift campaign from some of these repeat customers. I mentioned 60% of LiveLift is from a repeat customer. They're able to test out different strategies, and we're able to learn something about the way the consumer responds to different structured promotions based on their goals. That then helps project the next campaign that much better. So those clients that are participating or gaining an advantage, they are all aware that doing that in this environment is important, which is a good segue to your last question about the macro. The news you're reading is the same thing we're hearing from our clients. The American consumer is looking for value. We're excited that we're an integral part of that. Whether that is driven by the war in Iran, gas prices, tariffs, or some other exogenous factor, there's a lot of focus on this topic. Even earlier today, the CEO of Kraft Heinz put out a message, Steve Cahillane, saying the new mantra is value. Consumers are literally running out of money. Those are the kinds of things that cause people to take a closer look at the product that we sell. And I think that we're making the case that there are smarter and less smart ways to do that to deliver that value, and we think the Ibotta Performance Network is a really good way to do that in a way that's also capitalizing on the latest technologies that are available. So I think that will continue to be true. But I also want to stress that this is nondiscretionary spending. So no matter what the macro environment is, people are looking for value in the things they have to buy week in, week out. If you look at the press release we put out today from Giant Eagle, they commented on why they switched to Ibotta. They switched to Ibotta because they wanted to see an 8x increase in value delivery for their customers. And they're hearing consistently that that is what makes the difference in why people shop at Giant Eagle versus somewhere else. And so both on the CPG side, for example, Kraft, or on the publisher side, for example, Giant Eagle, being in this field right now is particularly important. Operator: Our next question will come from Stefanos Crist with Needham & Company. Unknown Analyst: Can you hear me? Bryan Leach: Yes, we got you. Unknown Analyst: I just wanted to ask about the third quarter revenue inflecting positively. What are the assumptions in there? Are you baking in a certain ramp in LiveLift? Are you including Uber and Giant Eagle? I would just love to go through the assumptions there and where there could be upside. Bryan Leach: Great. I'm going to hand that one to Matt. Matthew Puckett: Yes. So it's really kind of what we're doing today, continuing, right? We've seen sequentially improving results in our business, particularly driven by redemption revenue, and that's really the driver. We expect to see that get better in Q2 versus Q1, and the same to be true for Q3 versus Q2, and that's all going to translate into growth. There's no step change assumed in terms of LiveLift adoption or us further opening the aperture to that. It's kind of where we are today, the expectation. We've assumed a very modest impact from the 2 new publishers in the back half of the year. That'd be a little bit less in Q3 and a little bit more in Q4. That's probably the way to think about that. But it's really an ongoing kind of performance that we've seen to date, driven by consistent execution and the fact that our products, both core products and obviously, LiveLift as well, are resonating with our clients. Unknown Analyst: Got it. If I could squeeze one more. Just on the monetization of Uber and Giant Eagle. I assume Uber is similar to DoorDash, but how about Giant Eagle? Is that similar to Dollar General, or are there any differences between these 2 partnerships? Bryan Leach: Yes. I think without going into the specifics of the economics of individual partnerships, broadly speaking, those are similar to how we've approached these in the past, and we're happy with the economics of those partnerships. And I think, as we get greater scale and more momentum, greater access to supply, we continue to see publishers that much more interested and motivated to deliver the best possible value for their customers, and that we think will continue to contribute to favorable economics going forward. Operator: Our next question will come from Nitin Bansal with Bank of America. Nitin Bansal: Bryan, can you provide some more details on your progress with the go-to-market transformation, specifically, like how the new sales motion impacted your 1Q results? And what additional changes are you making to the sales team that could impact your performance for the rest of the year? Bryan Leach: Thanks, Nitin. Absolutely. There are a number of different things that have been going on since the arrival of Chris Reidy on our team. And that started with taking a look at the team itself and making sure we have the right people in the right roles to help ourselves with the kind of sales that we're going to need to do, which is much more of a kind of consultative sale where we have to be fluent in the businesses of our clients. We reorganized the sales organization to be no longer geographic but focused on the actual industry-based approach. So, we have experts in beverages, for example, or in household products or what you have. We separated into enterprise clients versus emerging clients with each having its own industry subvertical. We focused on a variety of support structures that weren't in place that needed to be such as bringing in an SVP of Enterprise Sales, SVP of Business Marketing to help us with sort of the B2B marketing expertise, beef up the sales finance, sales operations, training and enablement of our sellers. And I think that was very important. We filled all those senior leadership roles by early October of 2025, as I've said on previous calls. And we brought in the right people. We have brought in excellent talent, and that has helped us in a lot of different fronts. So, we mentioned on the last call, the thought leadership, the ability to be proactive, get in front of our clients. I think the example I gave was the SNAP program. We had a kind of a playbook that was designed. We reached out that led to incremental dollars being committed to Ibotta that weren't in their previous annual plan that were kind of opportunistic, which is really valuable. We've talked a little bit about other things that we've done like multi-threading is a term we've used, meaning teaching our sellers to go in at multiple different levels of an organization at the same time to speak to different needs and pain points of the people in those organizations using the language of their business. The simple fact of being on the ground more often, being in the room more often, the hustle factor, continuity, so not handing people over between rep to rep. That is really about trust. Most of the structural changes were made last year, but we're continuing to build that trust. And as we're doing that, we're getting invited into more and more important strategic conversations. We're getting clients that are wanting to say, 'let's come out and spend a day with you', and we're going to bring significant senior members of our team to discuss where you think this industry is heading and how it's impacted by things like technology, AI, et cetera. So I think we're being embraced more as a thought leader and invited more into upstream strategic planning conversations. I think the introduction of Circana and ABCS has allowed our sales team to provide this third-party independent analysis. That's given them another important platform. We've done a better job with event marketing. So Chris Reidy has been on stage all over the place. He's on the stage at ADWEEK in places like this is possible, NACDS, lots of different conferences where we're getting in front of all different parts of the CPG organization. So I think it's not one thing, Nitin. It's a variety of different upgrades to how our team sells. And I think that, of course, having something like LiveLift to discuss, having the ability to focus on incremental sales and really lead the conversation around rigorous measurement, that's given them a lot to talk about, and I'm really proud of the work they're doing. Operator: Our next question will come from Tim Huang with Citizens JMP. Unknown Analyst: I wanted to follow up about the pricing changes that were talked about in last quarter's call with regard to pricing being more linked to AOV. Just like could you give any color on how that's been received or just like further progress during the quarter on pricing and what's been flowing through? Bryan Leach: Thanks, Tim. Sure. You're right. And your memory is spot on. It's a question of moving from a flat fee that is applied based on the price band that a product falls within. So, the old system is if your product was $3 to $4, you paid this cost per unit sold or per redemption rather. If your product was $4 to $5, $5 to $6, $10-plus, you might pay a different cost per redemption under the old model. And of course, the problem with that is that as you get to either side of that range, you get kind of discontinuities. So, you get the ratio that your fee represents as a percentage of the overall product price, and that's the kind of total economics available to the brand varies. And that can create inadvertent inefficiencies. So, it might make it unnecessarily expensive, for example, to use Ibotta with lower-cost products where our fee per redemption constitutes a high enough percentage that it's hard to deliver a cost per incremental dollar that's attractive, meaning lower than the contribution margin of that product, consistent with a goal of profitability. So, the solve for that is to shift toward a system where it's continuous. So, it is a fixed percentage of the price itself. And that way, whether you're at $1.01 or $1.99, you're equally able to take advantage of that structure. What we've been doing is introducing this transition in our pricing as part of a broader reset of some terms that we have in our preferred partnerships and our agreements. That was very well received. I think people view that as simplifying the system, dispensing with discrete fees for things like setup costs and things, makes it simpler. Everything is wrapped into this one percentage of the price fee. As I said, it's encouraging clients to promote lower-priced items. We're still very much in the middle of that transition because we didn't want to just mandate that. Everybody turn on a dime. You have to now institute this new pricing. But as we come back through these conversations on our annual preferred partnerships, for example, that, along with other conversations around things like payment terms are a natural part of our conversation. And that's been, broadly speaking, I think, going well. We're seeing success in that transition, although we're still very much in the midst of it. And Matt is going to add one more thing. Matthew Puckett: Yes. I would just say, and you'll see this, obviously, in our results, our redemption fee, those numbers are going down a little bit, right, in terms of kind of the way to think about price. We pay attention to that. We understand it, but it honestly doesn't scare us. In order to maximize revenue, in many cases, it makes sense to lower fees. It allows our clients to hit profitability objectives. And think about our business model, our financial model as it sits here today, incremental revenue flows to the bottom line at a really high rate. So it's actually not a bad thing. We do understand it and pay attention to it. But seeing revenue coming down as a result of fees but then offset by higher volume is actually a good answer for us in most cases. Bryan Leach: Yes. I think broadly speaking, Tim, it's fair to say we've been, we've had a greater level of analytical rigor. And I think looking at that has caused us to, is one of the reasons why we arrived at this transition in our pricing. And I think we did a lot of, had a lot of conversations with our clients before we settled on this. And so fortunately, I think we had properly prepared for the transition, and I'm happy with how it's going. Operator: [Operator Instructions] This now concludes the Q&A section. I would now like to turn the call back to management for closing remarks. Bryan Leach: Thanks very much, everyone, for your time today. We are pleased with the results that we reported and the momentum in our business, and we look forward to speaking with you again soon. Operator: Thank you for joining today's session. This call has concluded. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's Results Conference Call for the First Quarter of 2026. [Operator Instructions] With us today are Francis Dufay, CEO of Jumia; and Antoine Maillet-Mezeray, Executive Vice President, Finance and Operations. We'll start by covering the safe harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our annual report on Form 20-F as published on February 24, 2026, as well as our other submissions with the SEC. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I will hand the call over to Francis. Francis Dufay: Good morning, everyone, and thank you for joining Jumia's first quarter 2026 earnings call. 2025 was the year we demonstrated the resilience and scalability of our model and '26 is the year we plan to demonstrate our path to profitability. Q1 '26 showed that our momentum towards profitability is continuing and in several important ways, accelerating. Over the past few years, Jumia has been building an e-commerce model designed specifically for Africa, adapted to the unique structural supply, logistical and consumer realities of our markets. In 2025, we proved that this model delivers scale with improving economics and Q1 '26 confirms that the flywheel is turning. This foundation drove our strong operating momentum in the first quarter. GMV grew 32% year-over-year adjusted for perimeter effects. Growth was broad-based across our core markets, reflecting the continued strengthening of our marketplace fundamentals and efficient execution. Profitability metrics continue to move in the right direction. Adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. The business absorbed higher volumes with increasing efficiency while maintaining a disciplined approach on costs. Excluding the onetime costs related to our Algeria exit in February '26, adjusted EBITDA loss would have been $9.7 million, reflecting an underlying improvement of 38% year-over-year in our core business. Based on the progress we made in '25 and the momentum continuing into Q1 '26, we remain focused on achieving our target of adjusted EBITDA breakeven and positive cash flow in the fourth quarter of '26 and delivering full year profitability and positive cash flow in '27. I should also note that we are monitoring the broader macro environment, including cost increases in memory chips and the ongoing geopolitical tensions in the Middle East as well as the potential effects on global supply chain, shipping costs and commodity prices. While we have observed limited impact on our business to date, we remain attentive to downstream risks, including potential pressure on smartphone components availability and transport costs. We believe the resilience of our model and the diversity of our supplier base positions us well to navigate this uncertain environment. Notwithstanding these external matters, we reiterate our guidance for 2026. Let me walk you through the key highlights of the quarter. Usage trends remain strong across our platform. Adjusted for perimeter effects, physical goods orders grew 31% year-over-year, driven by expanding in-country geographic coverage, improved assortment and sustained consumer demand. Our focus remains clearly on physical goods, which accounted for nearly all orders and GMV this quarter. Digital transactions through the JumiaPay app now represent a residual share of our orders as we continue to prioritize transactions with stronger economics. Relatedly, TPV and Jumia Payments gateway transactions have become less meaningful as indicators of our operating performance and effective as of the first quarter of '26, we will discontinue the quarterly disclosure of these KPIs. Adjusting for perimeter effects, quarterly active customers increased 25% year-over-year, reflecting continued traction in both acquisition and retention. Repeat behavior continued to improve with 47% of new customers from Q4 '25 making a repeat purchase within 90 days, up from 45% in Q4 '24. Demand was broad-based across electronics, home & living, fashion and beauty and consistent across most countries, reflecting a similar quality of execution and inputs across our markets. Adjusted for perimeter effects, GMV grew 32% year-over-year in reported currency. Average order value for physical goods increased to $36 from $35 in Q1 '25. Revenue totaled $50.6 million, up 39% year-over-year, driven by higher usage and improved monetization. First-party sales represented 46% of total revenue, supported by continued strength from international partnerships, including Starlink in Nigeria and Kenya. Now turning to profitability. The progress made over the past 3 years continues to translate into measurable operating leverage. Cost improvements across general and administrative, technology and fulfillment are structural. In addition, we renegotiated third-party logistics contracts in February and March and implemented increases in commissions and take rates across most countries in mid-January '26. This reflects the scale of our platform and improved service levels delivered to sellers. Importantly, these commission increases had limited impact on growth, validating our strategy of progressive monetization increases on the back of greater volumes and better seller experience. We also drove meaningful growth in higher-margin revenue streams with marketing and advertising revenue up 44% year-over-year and value-added services revenue nearly tripling, which both reflect improved platform monetization. These changes are consistent across markets and reflect stronger marketplace fundamentals. Fulfillment cost per order was $2.06, flat year-over-year on a reported basis or down 10% year-over-year on a constant currency basis. This reflects productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Most fulfillment operating expenses are incurred in local markets and denominated in local currencies. Technology and content expenses declined 8% year-over-year, reflecting ongoing headcount optimization, automation, platform simplification and the benefit of renegotiated seller agreements, including cloud infrastructure. As a result, adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Quarterly cash burn increased to $15.3 million in Q1 '26 compared to $4.7 million in Q4 '25. The shift from the previous quarter is consistent with typical seasonal dynamics. This compares favorably to the $23.2 million decrease in liquidity in Q1 '25, demonstrating the improvement in our financial trajectory. Now turning to operational highlights and execution at the country level. Q1 '26 demonstrated continued execution strength across our markets. Supply fundamentals remain solid with improvements in both local and international sourcing. Growth was supported by strong performance across multiple categories with fashion and beauty among the top contributors to items sold growth year-over-year and with international items continuing to gain share. Efficient marketing deployment, including CRM, paid online, SEO channels, supported customer acquisition at attractive unit economics. In the first quarter, we sold 4.9 million gross items internationally, up 87% year-over-year adjusted for perimeter effects. This reflects the continued scaling of our Chinese seller base as well as growing volumes from our supply base from affordable fashion in Turkey. Operationally, we continue to extend our reach beyond major urban centers. Orders from upcountry regions accounted for 62% of total volumes, up from 58% in the prior year quarter, both adjusted for perimeter effects. These regions are delivering strong growth while benefiting from a cost structure that scales efficiently with volume. In secondary cities, we are addressing clear customer pain points, including limited product availability and elevated prices from local traders. As a result, our value proposition continues to resonate strongly, driving both adoption and repeat purchase. Now at the country level. Nigeria delivered a strong quarter. Physical goods GMV increased 42% year-over-year. Sustained growth was driven by a broad range of categories with home & living performing particularly strongly alongside continued traction from a country expansion, where a large part of the addressable market remains untapped. We opened over 80 additional pickup stations during the quarter, further extending our delivery network. I should note that Nigeria experienced a significant increase in local fuel prices during March, which created headwinds in our 3PL cost negotiations. However, consumer demand remains sustained and strong. Kenya performed strongly with physical goods GMV up just below 50% year-over-year. Performance was driven by continued strong supply fundamentals and efficient marketing despite similar headwinds to other countries in the phones category. Strong performance in home & living driven by local suppliers and in fashion, driven by international suppliers more than offset the tighter supply in phones. Kenya remains a relatively underpenetrated market for Jumia with vast opportunities up country and we continue to invest in expanding our reach. Ivory Coast growth gradually moderated over the course of the quarter. Physical goods GMV was up 16% year-over-year. Growth was affected by 2 converging headwinds. First, supply disruption in appliances, which is market specific and in smartphones, which is a global dynamic, both felt directly in the market where we have our highest penetration levels. And second, a sharp decline in regulated cocoa farm gate prices down nearly 60% effective in March '26, which reduced the purchasing power of a large share of the upcountry population. Cocoa is the primary export of Ivory Coast and approximately 6 million people depend on it for their livelihoods. This is a meaningful demand side headwind that we expect to persist in the second quarter. However, we remain confident in the fundamentals of our business in Ivory Coast, where we hold a very strong position with a trusted brand and healthy monetization. Egypt's performance this quarter confirmed sustained recovery. Physical goods GMV grew 3% year-over-year, excluding corporate sales, which were still material in Q1 '25, but has since been deprioritized. Physical goods GMV grew 56% year-over-year, confirming genuine market level recovery. Very strong dynamics on the supply side of our marketplace are driving top line acceleration, supported by improved assortment and seller engagement. Our buy now, pay later offering continued to gain traction with strong penetration in high-value categories. Egypt experienced a fuel price increase in March as well, which we are monitoring. However, core marketplace dynamics remain positive. We are also expanding our delivery network through pickup stations in more remote regions, which are poorly served by physical retail. Ghana delivered an exceptional first quarter with physical goods GMV increasing 142%, driven by a country expansion, the scaling of local marketplace and strong supply from international sellers. Ghana was largely unaffected by the disruption in the electronics segment. Our current focus is to continue building logistics capacity to sustain this rapid expansion with stronger customer experience and cost efficiency. Our other markets portfolio also performed well, collectively delivering 10% physical goods GMV growth. Uganda experienced a nearly 1-week internet blackout during the quarter, temporarily impacting volumes, though the market still delivered growth for the period. In February '26, we completed our exit from Algeria, which represented approximately 2% of GMV in '25. The winddown resulted in total onetime exit costs of approximately $1 million, reflecting employee termination benefits and asset impairment, which were all recognized in our Q1 '26 results. Over the medium to long term, this decision simplifies our footprint and improves operational focus, allowing us to allocate resources more efficiently towards markets with stronger growth and profitability profiles. We have not seen significant changes in our competitive environment in Q1 '26. The softening of competitive intensity trends observed in the second half of '25 has continued with competitive intensity remaining subdued across our core markets. The recent disruption of air freight going through the Middle East is expected to create headwinds for non-resident platforms that rely on direct international shipping, contributing to a more level playing field for locally embedded operators like Jumia. Most of our supply comes via sea freight, which was not impacted. We are also seeing increased regulatory scrutiny on cross-border platforms across several of our markets, further reinforcing this dynamic. We are navigating an international environment that is evolving quickly with 2 main developments having the potential to impact our business. First, the memory chips and CPU price increases. We saw a delayed impact on entry-level phone prices and the availability of components for products like smart TVs taking place gradually over Q1. Phone prices increased by approximately 20% between late '25 and early April. We do not see this as a fundamental long-term shift, but it is impacting our business in the near term as supply chains reorganize. Distributors remain temporarily reluctant to release fresh inventory, while prices may increase further and older, cheaper inventory in some markets is still temporarily competing with our more recent supply. We are mitigating this by diversifying our supplier base for smartphones and scaling our marketplace across both local and international sellers. Second, the war in the Middle East. The most immediate impact was the disruption of air freight through the UAE from Asia, which affected some smartphone distributors. Supply routes have since reorganized through other hubs. There are also delayed effects. Disruption to helium supplies creates additional uncertainty for chip production and the majority of our markets have seen fuel prices begin to rise from March, which is expected to weigh on local logistics costs, particularly for middle-mile trucking operations run by our local partners. The impact on our Q1 P&L has been limited with extra costs primarily in Nigeria. If high fuel prices persist, we should expect greater pressure in Q2, potentially partially offsetting the savings from our 3PL rates renegotiations. That said, our strategy of building pickup stations throughout countries is very helpful in this regard as it means that we have already decorrelated a significant share of our delivery costs from fuel prices. In particular, 74% of our ship packages are fulfilled through pickup stations rather than door delivery in Q1 '26, up from 67% in Q1 '25, both adjusted for perimeter effects. We have also taken steps to electrify our last-mile delivery fleet in Uganda and we are looking to replicate this successful pilot in more countries as we continue to reduce our dependence on fuel in logistics operations. '25 was the year when we showed that our business model is on the right track. It delivered growth and improved economics at the same time. '26 is the year when we intend to show that this model will take us to profitability. In this regard, Q1 is a strong data point that is consistent with Q4 '25 trends. We see sustained growth despite an uncertain environment, continued operational leverage and improved unit economics across the whole P&L, resulting in significantly reduced losses. We are committed to delivering trajectory to breakeven by chasing more scale in a disciplined way, improving operational execution and further streamlining our fixed cost base. While we are currently navigating an uncertain international environment, we believe that our business fundamentals, which were rebuilt from '22 to '25, mostly in much tougher times than this are strong. We do expect some temporary disruption, but it does not change our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. With that, I will now turn the call over to Antoine to walk you through the financials in more details. Antoine Maillet-Mezeray: Thank you, Francis, and thank you, everyone, for joining us today. I will now walk you through our financial performance for the first quarter. Starting with revenue. First quarter revenue reached $50.6 million, up 39% year-over-year or up 28% on a constant currency basis. Results reflect sustained customer demand and consistent execution across our platform. Marketplace revenue for the first quarter totaled USD 27 million, up 50% year-over-year and up 35% on a constant currency basis. Third-party sales were USD 23.2 million, up 45% year-over-year or up 31% on a constant currency basis. Growth was driven by solid performance in the marketplace, including healthy usage trends and higher effective take rates. Marketing and advertising revenue was USD 2.2 million, up 44% year-over-year or up 31% on a constant currency basis. The improvement was driven by continued growth in sponsored products, supported by strong tools rolled out in mid-2025 that increased seller adoption, improved return on ad spend and drove greater density and competition on our marketplace. With advertising revenue currently representing roughly 1% of GMV as we are improving this figure, we see meaningful opportunity to scale this profitable source of revenue. Value-added services revenue was USD 1.7 million in the first quarter of 2026, compared to USD 0.6 million in the first quarter of 2025, driven by strong growth in warehousing fees, reflecting higher volumes flowing through our storage infrastructure, largely driven by demand from Chinese sellers and improved monetization of our warehousing services. Revenue from first-party sales was USD 23.1 million, up 30% year-over-year or up 21% year-over-year on a constant currency basis, driven by strong momentum with key international brands. Turning to gross profit. First quarter gross profit was USD 29.4 million, up 48% year-over-year or up 33% year-over-year on a constant currency basis. Gross profit margin as a percentage of GMV increased by 160 bps to 13.9% for the quarter compared to 12.3% in the first quarter of 2025, reflecting continued progress in marketplace monetization. As we enter 2026, we implemented broad-based increases in commissions across most countries, leveraging the scale and improved service levels we have built with sellers. Q1 2026 was already tracking the expected impact with gross profit margin expanding by 160 bps year-over-year, marketing and advertising revenue up 24% and value-added services revenue nearly tripling. We expect these trends to continue supporting gross profit growth going forward. Now moving to expenses. We continue to see the benefits of our cost initiatives in the first quarter with additional improvements expected to materialize over the coming quarters. Fulfillment expense for the first quarter was USD 12.2 million, up 29% year-over-year and up 17% in constant currency, primarily due to higher volumes. Fulfillment expense per order, excluding JumiaPay app orders, was $2.06, flat year-over-year or down 10% year-over-year on a constant currency basis, reflecting productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Sales and advertising expense was USD 5.1 million for the first quarter, up 64% year-over-year and up 54% in constant currency. We view this increase positively. We are scaling high ROI marketing investment on the back of stronger product fundamentals, improved quality of service and higher platform reliability, driving not only top line growth, but also better unit economics as higher volumes and improved customer retention contribute directly to operating leverage and margin improvement. Technology and content expense was $8.9 million for the first quarter, representing a decrease of 8% year-over-year or a decrease of 10% on a constant currency basis, driven primarily by continued headcount optimization and ongoing renegotiated seller contracts. First quarter G&A expense, excluding share-based compensation expense, was $16.8 million, up 4% year-over-year and down 3% on a constant currency basis. The year-over-year increase was primarily driven by staff costs with general and administrative expense, excluding share-based compensation expense, which increased by 16% to USD 9.1 million, driven by approximately USD 0.8 million in onetime termination benefits related to our Algeria exit and the appreciation of local currencies against the U.S. dollar compared to the first quarter of 2025. We continue to streamline the organization. The total headcount has declined by 8% since December 31, 2024, with just over 1,980 employees on payroll as of March 31, 2026. At the end of the fourth quarter of 2022, when current leadership was installed, we had 4,318 employees. We are actively working to further reduce headcount, continue process automation and leverage AI tools. We expect to reduce our headcount by at least an additional 200 full-time employees over the next 2 quarters. More broadly, AI and automation are becoming meaningful drivers of efficiency across Jumia. We are deploying AI tools across our operations, finance processes, headcount efficiency programs in our technology organization, encompassing cybersecurity monitoring and software development, which supported the net FTE reduction and drove efficiency gains year-over-year. Importantly, AI is also helping us solve problems on the ground. In logistics, it improves routing and reduces failed deliveries. In customer services, it enables faster resolution with fewer agents and in sellers operation, it streamlines onboarding and compliance monitoring. This is not only reducing cost but also improving the quality of service we deliver to customers and sellers, reflecting our ongoing commitment to structural cost efficiency. Turning to profitability, adjusted EBITDA for the quarter was negative $10.7 million or negative $10.9 million on a constant currency basis. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Turning to the balance sheet and cash flow. We ended the first quarter with a liquidity position of $62.6 million, including USD 61.5 million in cash and cash equivalents and $1.1 million in term deposits and other financial assets. Our liquidity position decreased by $15.3 million in Q1 2026 compared to a decrease of $23.2 million in Q1 2025. Net cash flow used in operating activities was $12.5 million in the quarter, including a broadly neutral working capital contribution. The improvement reflects the continued strengthening of our marketplace flywheel driven by higher volumes, improved payment flows and stronger bargaining power with large third-party accounts. In summary, we delivered another quarter of solid execution and strong top line growth while continuing to improve cost efficiency. Progress on structural cost reductions, automation and cash discipline reinforces our confidence in meeting our near-term objectives and moving closer to profitability. Looking ahead, we remain focused on operational discipline, margin expansion and prudent and informed capital allocation, positioning Jumia for sustainable growth and long-term value creation. I now turn the call back over to Francis for a discussion of our updated guidance. Francis Dufay: Thank you, Antoine. Let me now turn to our expectations for 2026. Our focus for '26 remains on accelerating growth, driving further operating efficiency and continuing our progress towards profitability. We are seeing continued strong momentum validated by our Q1 results, which give us confidence in reaffirming our full year '26 outlook. We are navigating an evolving international environment. While we expect some temporary disruption from memory chips and CPU price pressures and the ongoing conflict in the Middle East, our business fundamentals are strong. Our Q1 '26 results demonstrate continued execution and we have not changed our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. For the full year '26, we anticipate GMV to grow between 27% and 32% year-over-year adjusted for perimeter effects. On profitability, we expect adjusted EBITDA to be in the range of negative $25 million to negative $30 million. We confirm our strategic goal to achieve breakeven on an adjusted EBITDA basis and positive cash flow in the fourth quarter of '26 and to deliver full year profitability and positive cash flow in '27. Looking specifically at the second quarter, GMV is projected to grow between 27% and 32% year-over-year adjusted for perimeter effects. Thank you for your attention. We will now be happy to take your questions. Operator: [Operator Instructions] Your first question for today is from Jack Halpert with Cantor Fitzgerald. John Halpert: I just have 2, please. So on the memory chip inflation, are you maybe able to quantify this at all in terms of the impact in the quarter? And maybe how much of this has been resolved already versus expected to continue in 2Q and beyond? And just is it more about consumers like deferring purchases trading down? Or is it more of a supply availability issue? That's the first question. And then the second question, just on the AI efficiency you guys mentioned and I think the planned 200 reduction in headcount. First, just how much of this headcount reduction is tied to the Algeria exit, if at all? And then maybe on the AI side, what are a few examples of areas you're seeing the most efficiency in the business from AI currently? Francis Dufay: Let me take the 2 questions and Antoine will also comment on the AI impact across our business. Starting with memory chips, CPU prices inflation. So to quantify the impact, you can look at our presentation where we show the share of smartphones category in our mix. You'll see that the whole smartphones category, I mean, is directionally roughly 10% of our sales in GMV. This is usually a category with lower unique contribution. It's lower margins than, let's say, fashion, for example. So it definitely has -- I mean, it's not 10% of our gross profit, as you can imagine. It's not the whole category that's in danger. Obviously, it can impact the growth of the category and it has in the first quarter. It's likely to continue in the second quarter. But we're not talking of a major impact over the whole top line of Jumia, okay? It's something that we have to flag because it's global trends and it's relevant for our business, but we're talking impact on a fraction of our total business and it will not wipe out like half of the sales, obviously. It's limited. And most importantly, we see it as temporary. The timing here is that we had delayed impact really. A lot of people asked us questions, sorry, late 2025 and in the first month of '26 and really not much was changing on the market at this time. And then prices -- the price increase of directionally 20% that we've mentioned on entry-level smartphones was mostly felt in the month of March across key countries. So that's directionally what happened. We believe it's a matter of timing. I mean we're used to those kind of supply disruptions and market reorganizations. So it doesn't last forever, but we know that for a couple of months, supply may be disrupted. Some brands may be doing better and some brands may be more disrupted, which we've seen in the market. Some brands will be running out of stocks. Some brands will still be available with sometimes lower price increases. For example, we see that Samsung has had lower price increases because they have much better integration of the whole supply chain. But basically, we see it as temporary disruption as the supply chain reorganizes. And when it comes to consumer impact that you were asking, we see a mix of both, right? We see a mix of, of course, prices increasing, so consumers are trading down. When people are still buying smartphones, that will never change, but they are buying lower specs with the same amount of money in their pocket. And on the other hand, we also see supply -- I mean, pure supply availability issues on very specific brands in very specific markets. So as we mentioned in the -- earlier in the call, we've been more impacted in the Ivory Coast, for example, than in Kenya in terms of pure supply availability. So all of that is having an impact, some level of impact, but we see it as clearly temporary. It's not -- I mean, it's not a long-term challenge. We will keep on selling smartphones and the market will reorganize. And what matters is that we have access to the best supply, the best prices and our distribution is a huge advantage when it comes to selling smartphones across Africa. And then to your second question about headcount, the 200 target is not tied to Algeria. So most of the impact on Algeria is already behind us. So the 200 headcount reduction that we mentioned has nothing to do with the exit from Algeria. Antoine, do you want to comment on the use of AI across our team? Antoine Maillet-Mezeray: Yes, I can take this one. Thank you. Obviously, we're using AI in tech, be it in cybersecurity or coding. We are able to be much, much more productive thanks to the different tools that we are using. We pay a lot of attention to be agnostic in terms of tools so that we don't end up with 1 or 2 suppliers that will change pricing policy overnight. But we are going much further than pure tech. We're using AI in accounting, for instance, to automate bank reconciliations. If you want a very pragmatic example, we're also using AI in HR. Basically, we have a lot of database, which are very structured and ready to be used consumed by AI, allowing us to produce smarter reporting in a much faster way and being able to share the information across our very large footprint, resulting in better efficiency. Operator: Your next question is from Brad Erickson with RBC Capital Markets. Bradley Erickson: Just a couple of follow-ups on that first question. I guess with maintaining the full year guide, it looks like maybe a little bit of deceleration built in there through the year. I guess would you say that outlook kind of reflects this idea that some of these headwinds you're talking about are sort of dynamic and adjusting and reflected in Q2, but then sort of stabilize through the year? Or is there any contemplation in the range that maybe things get worse? Francis Dufay: Well, in the current international environment, if you -- Brad, if you know for sure what's going to happen, please tell me. We could make a lot of money. Well, more seriously, we acknowledged some level of uncertainty in the international environment with very specific aspects that can have a negative impact on our P&L. We mentioned chip prices and fuel prices. We remain confident in the range that we have given as guidance for the full year and for the second quarter. It accounts -- I mean, it covers, it includes some level of uncertainty. But I think it reflects -- I mean, the fact that we stabilized that range reflects our opinion that most of the disruption we're seeing is temporary. So we're seeing real headwinds like the demand side headwinds in the Ivory Coast due to cocoa prices is real and can be felt on the ground. Smartphone price increases and supply disruption is real and can be felt on the markets. But we all see that as quite temporary and really not disrupting the fundamentals of our business, neither the midterm or long-term opportunity. So we -- and we're also seeing continued strength in the trends in several countries, especially Nigeria, which is still growing over 40%; Ghana, which is growing over 100%. So in short, those headwinds and that level of uncertainty is not structurally challenging our business and it's not something we expect for the long run. So this range of 27% to 32% top line growth that we're giving for the second quarter as well is our best assessment in the current environment based on the early results of the quarter that we're already seeing and reflects the level of confidence in our business model. Bradley Erickson: Got it. And then you called out marketing and being a strong point in your prepared remarks. I guess just within your outlook, how much kind of flexibility do you think you have on marketing given some of these other headwinds you're talking about? And I guess how much kind of like offense do you feel like you can play here in 2026 in terms of putting your foot down on marketing? Or is it still fairly measured given how some of the macro factors you're talking about? Just kind of the upside, downside considerations there with marketing spend. Francis Dufay: Yes. I think 3 things on the marketing side. So first of all, I think we remain at spend ratios that are very reasonable for an e-commerce company of our size, right? Our ratio of spend is slightly lower than much, much bigger peers in emerging markets, which shows frugality and efficiency in that field. So we were very -- I mean we're confident in our ability to spend very efficiently our marketing budget and driving strong returns. Second, we still have major improvements coming over the year in terms of efficiency and the better use of our marketing channels, especially online. And third, we are very reactive as well. A large part of those budgets are spent on online channels where it's very easy to pilot on a monthly, weekly, daily basis. So we are able to make decisions if needed, if we see lower traction in a given market. We're very dynamic in reallocating budgets when we need to on a daily or weekly basis. At this stage, we believe we still have -- I mean we do have sufficient traction and that justifies the amount that we're spending. But we are very flexible and we can be extremely reactive if we see different trends. Bradley Erickson: Got it. And then one last one. Just when you think about the journey to cash flow positive in the next year, you talked about the headcount reduction here in the next few quarters. Besides that, just what are kind of some of the major pain points on reaching that goal that you still -- you feel like you still have to get through? Francis Dufay: You mean the goal of cash flow positive? Bradley Erickson: Correct. Francis Dufay: I would not talk about pain points. I mean I'll let Antoine comment as well, but I think the path is pretty clear, right? I mean if you look at our numbers, now it's just -- it's not just us talking. You have very clear verifiable numbers showing that we're able to scale, we're able to improve the unit economics, get operating leverage and further reduce the fixed costs. So that's a very clear trajectory that takes us to breakeven. It's mostly an execution game. It's mostly an execution game. I would not say we have blockers or pain points. We know very much what we're working on. We need to keep on scaling the top line and keep on delivering those improvements in the unit economics and further reducing in absolute terms of fixed costs. I think you can see a clear trajectory in the last 2 quarters. It's extremely consistent. It's all about execution unless there would be a major macro disruption that we're not seeing at this stage, it's really about execution. Operator: Your next question for today is from Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Very nice quarter and execution. Laundry list of, let's call them, crosswinds, some headwinds in Q1 into Q2. Outside of those, it feels like the business is actually outperforming because you reiterated the guide, you outperformed in Q1. Q2 guide is in line despite kind of all of those challenges. So I guess trying to take a step back and maybe normalizing for a lot of those outside factors, how you feel about the progress thus far in the year internally? Francis Dufay: Yes. Thanks, Ryan, for putting it this way. I mean we -- Antoine and I are very deeply in the business and we -- it's sometimes good to step back and realize the progress. I mean we have a tendency to look more at the problems than the successes, but it's how we managed to push it forward. But yes, I think there are very clear bright side this quarter. It's very clear and that's what you see in our presentation on the operating leverage. And we see that we, again, this quarter, just like in the fourth quarter of '25, we're able to show significant GMV growth. So the business model is working while clearly improving all the unit economics. So 31% GMV growth that translates into a significant improvement of 64% of all gross profit after fulfillment and marketing costs. So that's real operating leverage and we're able to further reduce our fixed cost, thanks to pretty hard work on tech specifically this quarter, but also a lot happening in G&A that will pay off in the coming quarters. You see the 1/3 32% improvement in adjusted EBITDA. So I think the bright -- I mean, the key message of this quarter is we're able to show very consistent improvement after Q4 with significant growth that's sustained in spite of the environment and continued progress on the unit economics and fixed costs. And we expect that to continue. There's no reason why the trend should change in the coming quarters. Ryan Sigdahl: Very good. We've noticed -- you mentioned Nigeria strength. We've noticed an expanded pickup station footprint there, particularly in secondary cities. Can you talk about Nigeria, but also you mentioned it in Kenya and others, but kind of the upcountry expansion, how you think about that strategy with pickup stations? And then if maybe that strategy has evolved or changed in recent kind of months as you guys have rightsized the cost structure, infrastructure and overall company? Francis Dufay: So I'll talk about Nigeria right afterwards. But overall, across countries, we keep on expanding our reach. So basically opening new pickup stations in new cities that we're not covering or densifying the network in existing bigger cities. This is a very important component of our growth plan because it basically increases the addressable market, right? We are building our distribution network and partnering with local entrepreneurs. And if we don't have -- I mean, if we do not build the distribution network in a given city, it means that city is outside of our addressable market. So by expanding this network of pickup stations, we are increasing our addressable market, which is arguably one of the easiest and cheapest ways to grow our top line. This is happening across all countries, but Nigeria is the most striking example. A few months back, Nigeria, we are still covering about 1/3 of the addressable market of the population. If we look at the cities where we had established distribution, the total population was about 1/3 of total population, which is massive room for improvement. In our more mature markets, we're close to 60% in Ivory Coast, for example. So it gives you an idea of the potential that's still untapped in a country like Nigeria. So we're very -- I mean, we're happy about the growth in Nigeria. We believe we can still get more than that. The growth in Nigeria is largely driven by up country. So distribution expansion, that's a big driver. But we're also seeing very favorable trends across categories and supplies. We mentioned home & living as a strong category this quarter in Nigeria. We're seeing strong engagement on our local marketplace. We're seeing increased supply from international vendors, mostly from China, but also from Turkey in Nigeria. So I think we have lots of tailwinds in Nigeria and the hard work of the past couple of years is really paying off, which is critically important in a market where, first of all, there's so much potential to address. Second, the competitive intensity has reduced around us. And third and quite importantly, it's a market where we have good unit economics after -- especially after the devaluations over the past few years, local unit costs are fairly low and while it's quite profitable to scale in Nigeria to put it this way. Operator: Your next question is from Fawne Jiang with Benchmark Company. Yanfang Jiang: First of all, your international seller growth appeared very strong. Just wonder how should we think about the merchant ramp-up and the typical lead time from onboarding to more meaningful GMV contribution, particularly considering you are opening a new sorting center [indiscernible] and how would that potentially impact your take rate going forward? Francis Dufay: Yes. So that's an important question, guess -- so how can I put it? So the growth we're seeing today in volumes items sold and the whole business from international sellers is actually the result of the last 3 to 4 years of work. Typically, the timelines when a supply -- when a new Chinese vendor is onboarded, we expect meaningful contribution after more than a year, sometimes 2 years or more to deliver volumes and margins. It's because we onboard vendors who don't always -- I mean, don't know very well our markets. They need to test the waters first, they send small supply to the countries. And then gradually, they will scale their inventory in our most important countries. So this process does take time. So they learn the market and they commit more and more working cap and inventory to our countries. And so what you see today is really the result of like 3 to 4 years of real hard work. What we see on the ground in China, I mean, since the whole tariff thing last year, we've seen that strong -- I mean, much stronger enthusiasm and strong engagement with Chinese vendors. We've seen more and more vendors willing to join our platform and sell on Jumia. The trend has been very well maintained over the past quarters and consistent now. And this increased -- this increased volumes of onboarding of vendors is going to reflect over time, but it's not yet fully felt in the numbers. So the good news here is that we really have a pipeline of vendors and the pipeline of supply coming to Africa that will get -- should get stronger over time due to the medium- to long-term structural nature of the work we're doing with our Chinese vendors. And in terms of margins, as we mentioned in the past, the rise of international supply is accretive to our margins. These vendors typically operate in categories that have higher -- sorry, gross profit ratios such as fashion, accessories, home & living and so on. They are also much better contributors to our margins when it comes to purchasing advertising services and using our storage services. So at the end of the day, it enables us to get higher monetization from those sellers and from the local marketplace. Yanfang Jiang: Understood. Another, I guess, topic I want to touch upon is actually your fulfillment leverage. You guys continue to show the leverage there. Just given you are going to very high growth momentum, especially in some of the countries, how sustainable is, I think, the fulfillment leverage? Are any logistic capacity constraints or upcoming investment we should be mindful? Francis Dufay: I'll spend some time on fulfillment. It's an important one because it's our biggest cost bucket. So first of all, I mean, we're still seeing some leverage on costs this quarter with the fulfillment cost per order that's declining 10% in local currency and it's almost all local OpEx. So the local currency view is relevant. But we're not happy with the progress, right? In dollars, we're flat year-over-year at $2.1 per gross order. We want to do better than that. So just to set the stage, we're not happy with the progress here, although there is some leverage that visible in local currency. We believe those cost per order should keep on going down going forward. And scale should play in our favor. There can be very specific temporary cases where like very high volumes lead to some level of inefficiency, but that's really not what should happen across countries and over the long run. So looking specifically at the improvements and the leverage we have on that fulfillment cost per order, we have a lot of work that has -- well, that has been ongoing over the past 2 quarters already. On the fulfillment -- so on fulfillment staff cost, which is about 1/3 of the cost here, we have a big push for higher productivity and more automation. We're rolling out at the moment, for example, new tools at the warehouse to increase productivity and tracking of the workforce. So we believe we have some potential to improve there. And on the transport side, which is around 2/3 of the fulfillment staff cost, about 60%. So on transport, which is basically all the money we're paying to our local logistics partners. We have recently implemented a renegotiation of all the fees, I mean, a reduction of all the fees. Some of that will be partly offset by the fuel price increases, which will lead to surcharges in some countries. But over the long run, as prices will normalize, we expect the surcharges to go away. And we are working to improve also the efficiency of our local partners for logistics, so we can renegotiate their fees. So we're working on new tools to make middle-mile trucking more efficient for our partners so we're able to split the savings with them. And this will be operational later this year. So we still have a lot to do and we still have a lot of efficiencies to capture there. It's a lot of hard work, right? We're using more and more AI to make it more efficient in supply chain as well. Part of it depends on tech progress, which we're seeing on the ground and scale should be a tailwind in this regard. Yes, I hope that answers the question. Yanfang Jiang: Yes, that's very helpful. Lastly, more on housekeeping. Can you provide some color on the FX -- latest FX trends for your key countries? Francis Dufay: Yes, Antoine, do you want to take FX? Antoine Maillet-Mezeray: Yes. So you can see that we've had a disconnect between the progress we made on the adjusted EBITDA basis and the net loss before tax. And this was driven by Forex exchange, which was noncash. If you compare to Q1 '25 last year, we had a net FX gain of USD 2.1 million. And this year, we have recorded a loss of $3.5 million. Again, that swing is not cash-based. There is no cash impact. And this reflects the impact of FX swing on intercompany balances that we have between the total holding and the operations. We are working actively on this one to reduce the impact of the Forex by accelerating repatriating cash and other restructuring operations. This was for the finance and accounting part. On the business side, before Francis comments, if you want, we see some impact, but what is important for us is that the movements are not too violent so that our vendors do not hesitate to import in the countries, which has been the case this year. So so far, we are able to handle properly the FX swing that we are seeing. Francis Dufay: Yes. I'll just add briefly on that. We've seen huge swings in FX over the past 4 years across our key countries like Nigeria and Egypt. There's no such thing happening right now. Local currencies have been behaving much more strongly even over the past few months. And as Antoine mentioned, the most important part here is that it's not impacting suppliers' confidence. It's not impacting customers' purchasing power in any significant way and we're not seeing any disruption in the business because of this. Operator: We have reached the end of the question-and-answer session and conference call. You may disconnect your phone lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to the Vontier First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. Replay will be made available shortly after. I'd like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Thanks. Good morning, everyone, and thank you for joining us on the call this morning to discuss our first quarter results. With me on the call today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Executive Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call, we will present certain non-GAAP financial measures. We'll also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to Slide 3, and I'll turn the call over to Mark. Mark Morelli: Thanks, Ryan. Good morning, everyone, and thank you for joining us on the call this morning. Let's get started with a few high-level takeaways from the quarter. Vontier delivered solid sales and orders growth to start the year as we continue to gain traction on our connected mobility strategy. We're expanding our integrated offerings to capitalize on strong secular tailwinds across our end markets. Core sales grew nearly 2%, slightly ahead of our expectations, driven by strong performance in our Environmental & Fueling Solutions segment. Orders were up approximately 5% on a core basis, including strong demand for fueling equipment and key wins in retail solutions. Adjusted operating margin declined 70 basis points below our expectations, reflecting unfavorable mix and timing of R&D expenses. Importantly, the underlying fundamentals of the business are intact, and we are confident in our full year outlook as well as our ability to achieve the $15 million in savings related to ongoing simplification and 80/20 efforts. We're seeing meaningful momentum in our convenience retail end market, which strengthens our visibility and reinforces our confidence in the growth opportunity ahead. We have market-leading technologies that optimize our customers' operations, unmatched domain expertise to solve high-value problems and best-in-class channels to market. Growth within this end market was led by Environmental & Fueling Solutions with double-digit growth in both dispensers and aftermarket parts. Dispenser demand is strong, supported by the ongoing build-out and modernization of retail fueling infrastructure. The pull-through from advanced payment technology is helping to drive replacement and upgrade demand. As an example of this, we launched the next-generation FlexPay6 outdoor payment terminal in the first quarter. While bolstering our cloud-connected industry-leading payment security, it features a larger flush-mounted touchscreen along with an integrated card reader and PIN pad. It also enhances our unified payment solution by offering a more interactive consumer interface that helps reduce transaction times and improves engagement at the pump. We're also seeing strong momentum for our innovative technologies inside the store. Retail solutions, part of Invenco brand delivered strong growth in payment, media and point-of-sale systems. The convenience retail end market is resilient even in uncertain economic backdrops. Over the last 25 years, this end market has consistently demonstrated durability through periods of volatility. Higher oil prices have historically been a net positive as higher fuel margins drive improved profitability for C-store operators, enabling them to prioritize modernization, food and beverage offerings and invest in the consumer experience. Industry data suggests high retail fuel prices typically result in more frequent visits, which creates an opportunity for greater conversion for in-store sales as consumers place more emphasis on value. In prior cycles, higher fuel margins, combined with the trade-down effect as consumers shift toward lower-cost C-store options have created tailwinds to generate more cash flow for C-store operators. In turn, we see robust capital expenditures for multiyear storefront build-outs and retrofits. This is particularly true of larger regional and national C-store chains where we have higher share and they focus on delivering an elevated consumer experience. We're seeing this play out today. A good example is 7-Eleven's recently announced intention to remodel 7,000 stores across North America through 2030, standardizing around their more modern food and beverage focused format. This is in addition to the 1,300 new sites they expect to build over that same time horizon. This kind of long-term investment reinforces the strength of the category and the opportunity for Vontier. This morning, we also announced an important step in our portfolio simplification strategy. We've announced an agreement to sell our global fleet telematics business, Teletrac, for a total purchase price that values the business at $220 million. The purchase price consists of $80 million in cash proceeds and a $100 million seller's note, and Vontier will retain an approximate 30% equity stake in the business. We've outlined those details for you on Slide 4. The sale marks the completion of a successful multiyear turnaround of this business. At the time of our spin, Teletrac was churning out about 25% of customers with declining profitability and negative free cash flow. Since then, the team has meaningfully improved the business by launching a new platform, significantly reducing churn, accelerating ARR growth to mid-single digits, improving profitability and generating positive free cash flow. This has been a major effort for the Teletrac team, and we're grateful for their contributions. We believe Teletrac is well positioned for its next chapter of growth with better focus and access to capital under its new ownership. We expect this transaction to close in June, and we'll deploy the cash proceeds consistent with our disciplined capital allocation framework with a focus on additional share repurchases and selective bolt-on acquisitions. Before I turn the call over to Anshooman, I want to reiterate our confidence in the full year outlook. While the geopolitical backdrop added some uncertainty, demand trends remain constructive. We're also strengthening the foundation of our business to drive more profitable growth over time through commercial excellence and innovation and a relentless focus on execution. As we finalize the remaining organizational changes and implement our cost actions, we still expect incremental savings to ramp in the second half of this year. Combined with disciplined capital deployment, we are confident in our ability to deliver double-digit EPS growth. With that, I'll turn the call over to Anshooman to walk you through a more detailed review of the quarter's financials and our outlook. Anshooman Aga: Thanks, Mark, and good morning, everyone. Please turn to Slide 5 for a summary of our consolidated results for the quarter. Total sales of $751 million and core sales growth of 1.7% were above our guide, driven by notable strength at Environmental & Fueling Solutions with Mobility Tech and Repair Solutions generally performing in line with our expectations. As Mark mentioned in his remarks, adjusted operating profit margin fell short for the quarter, reflecting unfavorable mix and timing of operating expenses within both Mobility Tech and Repair. We expect full year margins to be consistent with our previous guidance. Adjusted EPS was $0.80, up 4% year-over-year. Adjusted free cash flow was below our normal seasonal pattern and prior year. The timing of our semiannual bond interest payment of approximately $19 million was in Q1 this year versus Q2 last year. Additionally, Q1 had an extra payroll run compared to the previous year, along with higher incentive compensation driven by the strong performance in fiscal 2025. We expect several of these timing differences to level out during the year, and we expect free cash flow conversion of around 95%. Turning to our segment results, beginning on Slide 6. Environmental & Fueling Solutions started the year off strong, benefiting from solid industry demand and an innovative product portfolio, driving higher new equipment and aftermarket activity. Total dispenser sales increased low double digits on a global basis, led by strength in North America. We saw notable bookings and sales strength from large national accounts, evidence of stable CapEx budgets. Segment margin was flat at nearly 30%, with volume leverage and ongoing productivity actions offset by less favorable mix. Moving to Mobility Technologies on Slide 7. Core sales declined by about 1% as strong underlying demand for convenience retail technologies was offset by more than a $25 million headwind associated with higher shipments for our Vehicle Identification Solution, or VIS in the prior year. Our commercial pipeline is robust, and we continue to win new business for integrated solutions, including orders for our unified payment point-of-sale and VIS offerings. The consolidated Mobility Technologies segment margin declined 260 basis points, driven by unfavorable mix and higher operating expense. On the OpEx side, we incurred higher R&D expenses in order to accelerate new product launches. At the same time, our cost-out activities are ramping in Q2, giving us momentum for the back half of the year. On the mix side, product and geographic mix impacted margins in Q1, which we expect to recover in Q2 and the balance of the year. When you combine this with stronger volume growth and incremental benefits from our cost initiatives in the second half, we remain on track for solid margin expansion this year. Additionally, the divestiture of Teletrac will be accretive to margin performance for the segment and Vontier overall. Finally, turning to Repair Solutions on Slide 8. Sales performance was in line with our expectations with progress on our growth initiatives successfully offsetting pressure on technicians' discretionary spending. This was most notable in our Tool Storage, Diagnostics and Power Tools categories. Additionally, we are focused on quicker payback tools that improve technicians' productivity. The lower segment margin can be attributed to unfavorable product mix and a discrete bad debt reserve of about $2 million related to delayed collections caused by the implementation of a new financial system. We're making good progress in collections and would expect to recover a majority of this reserve over the next several months. Turning to the balance sheet on Slide 9. Adjusted free cash flow of $28 million was impacted by the working capital items I highlighted earlier. We accelerated share repurchase in the quarter, buying back $70 million given the market dislocation. While we will maintain some flexibility on cash, given an increasingly actionable deal pipeline at current valuations, buybacks remain a very compelling use of cash. To address the $500 million bond maturity at the end of the quarter, we used about $200 million in cash on hand to repay a portion of the bond and issued a new 364-day term loan for the remaining $300 million at a relatively attractive spread. We ended the quarter with over $200 million in cash on the balance sheet and net leverage at 2.4x. Please turn to Slide 10 to discuss our guidance for 2026 and Q2. Beginning with a look at our full year guidance. What is shown here is what our guide would have been prior to the Teletrac divestiture, the impact that divestiture will have on our P&L, landing on our official guide, which includes the removal of Teletrac's results in the last column of this table. Importantly, there are no changes to the underlying fundamentals of our previous guidance, and we are only adjusting our guide to reflect the removal of Teletrac. We are assuming the transaction closes in early June, which means we remove about 7 months of contribution. Following this adjustment, relative to our previous guide, we lose about $110 million in sales, bringing the midpoint of our new range to just over $3 billion. Teletrac has little to no impact on our organic growth, but will be accretive to our margin rate by about 50 basis points. We now expect operating margin to expand by about 130 basis points to approximately 22.5%, which includes the contribution from the $15 million savings initiatives over the balance of the year. On a gross basis, the transaction will be about $0.05 dilutive to EPS for the full year. However, the interest received from the seller's note and the benefit from share buyback offset that EPS headwind, so we leave our full year range unchanged at $3.35 to $3.50. Our outlook for adjusted free cash flow conversion remains at 95%, representing around 15% of sales. Looking at our guide for Q2 on Slide 11, we follow the same format. We expect sales in the range of $730 million to $740 million, with core sales down about 1% at the midpoint, which implies the first half at roughly flat, in line with the initial outlook we outlined for you on the Q4 call. As you may recall, shipment timing of the vehicle identification system in the prior year drove high teens growth in Mobility Tech, along with 11% core growth for overall Vontier. This compare issue starts easing in the third quarter. Margins will begin to accelerate in the second quarter, expanding approximately 80 basis points, reflecting lower operating expenses. EPS will be in the range of $0.78 to $0.81, including a $0.01 headwind from the divestiture. As we highlighted on our last call, the year-over-year organic growth rates will look better in the second half, accounting for first half compare issues at EFS and Mobility Tech and the timing of shipments on projects in backlog, which favor Q3 and Q4. As always, we've included some other modeling assumptions on the right-hand side of the slide, which have also been updated to reflect the divestiture impact on the top line and adjustments still below-the-line items. With that, I'll pass the call back to Mark for his closing comments. Mark Morelli: Thank you, Anshooman. We're encouraged by the start to the year and by the underlying momentum across our most important end markets. I'd like to thank the entire Vontier team for their hard work and dedication to delivering for our customers and each other. As we look ahead, one of the most important evolutions underway at Vontier is how we operate the business. Historically, we've operated largely through individual lines of business. Over the past 2 quarters, we've reorganized significantly from the customer back, streamlining operations, raising the bar on operational excellence and becoming a more integrated enterprise. Today, our go-to-market strategy is deployed around 3 core end markets: convenience retail, fleet and repair. This shift is simplifying how we operate and setting the foundation for greater scale over time. By aligning around our customers, we bring more depth and expertise to enable integrated solutions. We believe this customer-led model strengthens our competitive advantage, improves how we innovate and sell and positions Vontier to deliver more consistent growth, margin expansion and long-term value creation. We believe our connected mobility strategy is the right long-term strategy for Vontier, and we are focused on executing with discipline to convert that strategy into durable top line growth, stronger profitability and greater value for shareholders. We have strong leadership positions in attractive and resilient end markets that offer significant opportunities. That means we need to continue to drive commercial excellence while also maintaining a relentless focus on execution, simplification and disciplined capital allocation. As we do this, we believe we are well positioned to deliver on our commitments and create meaningful long-term shareholder value. With that, operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from David Raso of Evercore ISI. David Raso: Two questions. One about the mobility mix moving forward and also the use of the proceeds on the divestiture. On the margin mix, can you help us a bit how you're thinking about the various pieces within Mobility, the growth the rest of the year? Just the margin in mobility was a little bit lower than I would have thought. And you mentioned also some costs involved. So maybe if you can help break out that margin decline year-over-year and again, how to think about the mix for the rest of the year? And then lastly, on the repo, the share count for the full year, it looks like maybe you are assuming it depends on the, obviously, share price, but maybe another $75 million, $100 million of repo after the $70 million guide in 2Q. I just want to make sure I'm thinking about that correctly. Anshooman Aga: David, thanks for the question. So for Mobility Tech margins for Q1, there were really 2 items that impacted margins. One was mix and mix really was product, customer and geographic mix played out differently versus our expectations and also historical norms. The second piece is higher R&D expenses in the tune of a couple of million dollars. And this was really accelerated spend on launch of new products. In the prepared remarks, Mark talked about the next-generation FlexPay6 products, which brings a lot of customer benefits that we launched, but also the redesign of some of our printed circuit boards for the memory chip shortage working around that, that drove the higher R&D expense. Coming back to the rest of the year for Mobility Tech, we've already seen in April, the mix normalize back to what we would expect in our historical norms. And also on the OpEx, we're confident that we'll get our $15 million savings. Part of it is obviously in Mobility Tech, and we're seeing traction on some of those saving actions in Q2 as we speak. So we feel pretty comfortable that for the full year, our guide for Vontier is unchanged other than the change for the divestiture of Teletrac. In terms of share buybacks, we've assumed about $150 million of buybacks for the year in the guide. We did $70 million already in Q1. So you can expect majority of the proceeds from the Teletrac divestiture would go towards buybacks at the current share price, buybacks remain extremely attractive from a capital allocation perspective. And additionally, we'll be generating a significant amount of free cash flow for the rest of the year. So that does give us optionality that's not built into the guide. David Raso: Okay. So to be clear, the $150 million, you'll have $140 million done by 2Q. So there isn't much baked into the second half at the moment? Anshooman Aga: Correct. David Raso: I appreciate it. Operator: And your next question comes from Julian Mitchell of Barclays. Julian Mitchell: I just wanted to start with maybe a longer-term question. So if I look at Slide 4, you've done another divestment today alongside a bunch of portfolio changes that you put on Slide 4. But I guess if I look at just the overall kind of history of this since it's spun out, the PE, I think, the first year after the spin was about 13, 14x. Now it's kind of 9 or 10x. Operating margins for the company are about where they were 5 years ago. So just I wondered to what extent the management, the Board are thinking about more radical portfolio options perhaps than shaving off one brand a year, adding another brand? Because certainly, the multiple doesn't seem to be reacting based on the last 5 years to these types of changes. Just wondered, again, the appetite to do something broader. Mark Morelli: Yes. Julian, this is Mark. Thanks for the question. Look, I think the way we've internalized the strategy and the pieces of the portfolio, I think we -- as a good example from the Teletrac one, you get accretive margin, you're left with a growthier space with less spend on R&D and a better drop-through. So I think when you take each piece incrementally, the portfolio is getting stronger. And we constantly look at our strategy. I think it's a step-by-step approach. I think the work we put into Teletrac Navman enabled a good transaction here and a good -- a better positioning for the overall portfolio. And I think we constantly look at the portfolio. We constantly look at what are the next set of actions that we think will drive greater shareholder value. And I think what we've got right now with the connected mobility strategy and a good backdrop with secular tailwinds from the majority of our portfolio here that, that strategy is working, and I think there'll definitely be a payoff as we continue to focus on that and improve the results. Julian Mitchell: Great. And then maybe a short-term one. So I think the operating margins are guided to be up 80 bps or so sequentially, and you have the expansion in Q2 year-on-year as well. Maybe just kind of flesh out how you're thinking about the segment level there, particularly repair, I guess, it looked like some of the headwinds you saw in Q1 in terms of lower price point tools that may be something that persists over the balance of the year just because of consumer wallets and so forth. Anshooman Aga: Thanks, Julian. And that's correct. So when you think of Q2 margins, our overall Vontier margins will be up 80 basis points. 20 basis points of that 80 will be because of the Teletrac divestiture. So core business up 60 basis points. That increase will be driven by Mobility Tech, which will be at somewhere north of 120 basis points in terms of margin expansion. EFS will also have margin expansion, probably 80 basis points or so, maybe a touch higher. And then repair, I expect will be down year-on-year. Just as you mentioned, we're seeing a higher percentage of the portfolio on the lower price point, higher -- quicker payback items being sold. So there will be a little bit of margin pressure that will continue into Q2. That will start easing towards the back half of the year, where some of the mix really coming into Q3, Q4, especially Q4 last year was in line with what we're trending towards. Operator: And your next question comes from Andy Kaplowitz of Citigroup. Andrew Kaplowitz: Mark, just back to Mobility for a minute. I don't think the memory chip shortage under inflation has been getting better, but it sounds like you're comfortable around that issue for Mobility. I just wanted to sort of double-click on that. And then obviously, comps in Mobility get easier. I think last quarter, you mentioned a number of wins though that ramp up in the second half. Is that still the case? So you've got good visibility to ramp up? And maybe do you need DRB to ramp up as well? Mark Morelli: Yes. So Andy, I'll give a little bit of color on the second half ramp. So first of all, the end market mostly tied to convenience retail. And I think our remarks there on the call is pretty resilient, and that certainly helps the Mobility Tech segment as well. And when you look at it, it's not only a good compare or a better compare for second half, our seasonality is definitely the same. Sales at 48% to 52% as that's our historical average. And then good bookings clearly in the quarter were pretty solid. And when we go into April, we're also seeing really good bookings as well. So I think to your point, we're getting better leverage for the second half. And while we over got a little bit better in Q1 on the revenue side, and we've got cost takeout actions in place that will carry through to the second half, we feel pretty good about the setup. Anshooman Aga: Yes. I would just add, as you mentioned, the compare does get easier in the second half. If you go back to the prepared remarks, we had over $25 million headwind in Q1, and it's about the same in Q2 tied to the vehicle identification system, which eases into Q3 and has definitely gone by Q4. Importantly, bookings in Q1 were up 5% on a core basis at a Vontier level. A couple of those were larger projects combined for $15 million and majority of that revenue based on our customer schedule is in the second half. So we are feeling incrementally better for the second half as we continue to book and how our compares also play out. Andrew Kaplowitz: That's helpful color, guys. And then I think you explained the trade-down effect kind of from high oil and gas prices when you were talking about the potential duration of the cycle for C-store CapEx and your EFS growth and your EFS growth in general. But maybe you could give us a bit more color regarding how to think about EFS moving forward. I think growth was even higher than you thought for Q1. Does that higher growth actually continue given C-store behavior such as what you mentioned with 7-Eleven? I think any color would be helpful there. Anshooman Aga: Yes. With EFS, we're very pleased with our team's performance. We remain bullish on a multiyear CapEx cycle that's playing through, and it's really driven by our innovation and our channel strength, which are both reading through. Dispenser shipments were up low double digits in North America, leading the way with especially strong national account bookings that we had in the first quarter. We expect dispensers will continue to play out strong for the year. We also expect strength in the build-out of convenience stores in North America to continue. So overall, we're feeling pretty good about the business in EFS, and we'll continue to see growth in line with what we're projecting for the year. Andrew Kaplowitz: Appreciate the color. Operator: And your next question comes from Joe Ritchie of Goldman Sachs. Luke McCollester: This is Luke McCollester on for Joe. Just curious if you can share any early data points on customer reception from the new outdoor payment terminal. How is this product fit into the broader connected mobility strategy? And is this a replacement cycle product? Or does it expand the addressable market? Mark Morelli: Yes. Luke, this is Mark. So thanks for the questions here. I think one of the things we showed in NACS in October or the fall of last year was unified payment, and this clearly extends our addressable market by providing a payment kit with more capabilities, order at the pump is a great example of that. It is incrementally better than the FlexPay6 that we recently launched and the uptake from our customers has been quite favorable. I think this is an outgrowth of our Invenco acquisition, where we've been able to build off that through integrating that platform. So I think we're seeing this also as an excellent example of the connected mobility strategy at work and differentiation that we can provide through launching new products where we're getting really good uptake from it. Luke McCollester: Got it. Helpful. And then within convenience retail, are you seeing any change in the pace of consolidation activity or capital spending plans there in light of the current geopolitical and macro backdrop? And this consolidation kind of tend to be more of a net positive or net negative? Mark Morelli: Yes. I think consolidation tends to go in our favor. The people that are doing the consolidators is where we have higher share in the marketplace, and they tend to buy up some of the smaller players where we sort of split share in the market. And so we tend to get more out of that as our -- as the folks consolidating in the industry are consolidating off typically our technology platform. There's no real change to that. I think there's been a backdrop of consolidation that's been sort of ongoing, I would say, over the years. and would anticipate -- of course, some of the prices have changed with interest rates and other things are ebbing and flowing. But I think you could just look at it as a long-term trend where there's plenty of opportunity for consolidation over the next 5 years. Anshooman Aga: And on the CapEx trend, keep in mind, while our bookings might be shorter term from a book-to-bill perspective, our customers are really planning out 2 or 3 years in advance. They're going through their site acquisitions, permits, build-outs. So they're really looking out 2 or 3 years from a CapEx plan, and there aren't -- oil price volatility doesn't really change their longer-term CapEx plans. Operator: And your next question comes from Katie Fleischer of Key Capital Markets. Katie Fleischer: Can we talk a little bit about the progress on the internal cost initiatives? I know that R&D is a focus there. So just how to think about incremental savings within that and potential upside kind of balanced against some of those higher R&D costs that you saw in Mobility Tech this quarter? Anshooman Aga: Katie, thanks for the question. We are very confident on the $15 million in-year savings that we guided to last quarter. We're reconfirming that. About $1 million in savings played out in the first quarter. The Q2 number will be $3 million, maybe a little bit higher and then the balance of it coming in the back half of the year. We're already through some of the savings plans, but I think we're progressing really well to our plans. Q1 was a little bit higher in R&D, timing of the launch of some products. We talked about the new FlexPay6 launch, but also the redesign on some of the printed circuit boards related to the memory chip. We're trying to stay ahead of the supply chain issues on memory chips. And as a result, there's some redesign work out there. But again, we're pretty confident in hitting our $15 million in-year savings target for the year. Katie Fleischer: Okay. That's helpful. And then on Matco, when we think about those customers recovering, what's really driving the spend there? Is it just delayed CapEx purchases? Is it more customer activity that's driving higher in days? Just help us think about what it will actually take to see a flow-through of spending from customers in Matco. Mark Morelli: Yes. So Katie, the backdrop on Repair is relatively attractive. The car park continues to age. It's about 12.8 years going to 13 years. So a lot more used cars out there in the market changing hands. That's good for Repair. The complexity for Repair is good. And the demand for tech and the wages are also strong. So we know from last year, actually, shop visits were up. So we -- that's a great underlying backdrop for Repair. I think the issue that has been underfoot is that the consumer has represented the working class for the shop technicians that buy our tools has had a harder time with their pocketbook. But the areas that we're getting traction is in the areas of diagnostics and toolboxes, and we had a good run of that in the quarter, which is indicative there can be strength there. And then also more value-added items where they can get more productivity. The technician gets paid based on a standard hour of work if they can be more productive and we say, well, how does the toolbox help with these are these productivity cards that help them on the job site. And so those type things, there's good payback for them. And as we continue to introduce and be more effective at selling those kind of things, even in a fairly rough backdrop, then we can have decent performance out of Matco. Operator: The next question comes from Andrew Obin of Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. Just sort of thinking about the full year guide here, did your expectations on Mobility Tech, have they shifted a little bit? What are you thinking for organic growth for that segment for the year? Anshooman Aga: Yes. Mobility Tech, their growth for the year will be low to mid-single digits versus the mid-single digits we said, but it's really on lower intercompany sales. If you look last quarter, we guided to north of $90 million of intercompany sales, and we dropped that down to $80 million. Part of it was every year, you update the transfer price, and we did that in Q1, where the transfer price intersegment came down a little bit, and then there's a little bit of mix between FlexPay4 and FlexPay6 products also that we updated for. So the underlying core business, no change to that. David Ridley-Lane: Okay. And I'm surprised I'm going to be the first person asked this, but the changes to Section 232 tariffs, IEEPA tariffs, can you just give us around the world on what the impact of Vontier is going to be inside 2026 as you see it? Anshooman Aga: Yes. The tariff remains a very dynamic environment. And there's -- we're continuously evaluating both where we are the importer of record and where our suppliers are the importer of record. We also are taking into account other dynamics that are playing out, for example, the memory chip pricing, oil and gas price and the impact on transportation costs, transportation routes. So net of all of this, while a lot of pluses and minuses, puts and takes, there's no material change to our view for the year, just playing out on aggregate as we'd expected. David Ridley-Lane: Got it. And just since it's been mentioned a few times on the conference call, can you quantify just in broad brush strokes, sort of memory chips like 1% of your total cost? Or is that -- do you have that number handy by any chance? Anshooman Aga: Yes, I'll give you last year's price or cost on memory chips because I think that's a little bit easier. The market is pretty dynamic. We -- it's in the mid- to high single-digit million dollars. So it's not material from an overall cost perspective, but it's -- every cost we control and manage to the best of our ability. David Ridley-Lane: I know there's -- when you have a small item that's doubling or tripling or quadrupling in price, it sometimes catch you up. Operator: And your next question comes from Rob Mason of Baird. Robert Mason: I wanted to see if you could just relative to the second quarter expectations on core growth in the down 1%. Kind of discuss how you think that may play out across the segments? Anshooman Aga: Yes. The EFS business will continue to grow. We expect that will be up low single digits for the quarter. Mobility Tech will be down low to mid-single digits on the compare issue. Just keep in mind the $25 million in shipments for the vehicle identification system order last year, both in Q1 and Q2. And then on Repair Solutions, we expect there will be also low single-digit growth, maybe low to mid-single-digit growth for the quarter in Repair. Robert Mason: Very good. Just a follow-up. Mark, just any quick thoughts on the decision to retain a minority stake in the telematics business and how we should think about how that plays out in the future as well? Mark Morelli: Yes. Thanks for that question, Rob. Look, we're pleased on the transaction. It's the result of a multiyear turnaround, launching a new product technology into the space. I think we're getting real momentum in that space. I think retaining a minority ownership there also gives us some upside on the trajectory they're on. They ended the year with strong bookings. They got past the 3G to 4G transition in Australia, which was a big headwind for them as well, and that's now in the clear. So we're optimistic also with more focus with the new owner and our partial ownership here and legacy knowledge of that business that we can unlock further value. Operator: Thank you. And there are no further questions at this time. I'd now like to turn the call back over to Mark Morelli, Chief Executive Officer, for closing comments. Mark Morelli: Yes. Thanks again for joining us on the call today. We're off to a solid start in '26. We're confident we can deliver above-market growth and in our ability to drive margin expansion and free cash flow. We're proactively managing the portfolio and staying disciplined on capital allocation, all through the lens of creating shareholder value. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference. We thank you for participating and ask that you please disconnect your lines.
Operator: Good day, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward-looking statements and non-GAAP financial measures contained in the earnings materials or made on this call. John, please go ahead. John Ciroli: Thank you, and good day, everyone. Welcome to Montauk Renewables earnings conference call to review the first quarter 2026 financial and operating results and developments. I'm John Ciroli, Chief Legal Officer and Secretary of Montauk. Joining me today are Sean McClain, Montauk's President and Chief Executive Officer, to discuss business developments; and Kevin Van Asdalan, Chief Financial Officer, to discuss our first quarter 2026 financial and operating results. At this time, I would like to direct your attention to our forward-looking disclosure statement. During this call, certain comments we make constitute forward-looking statements, and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed in or implied by such forward-looking statements. These risk factors and uncertainties are detailed in Montauk Renewables' SEC filings. Our remarks today may also include non-GAAP financial measures. We present EBITDA and adjusted EBITDA metrics because we believe the measures assist investors in analyzing our performance across reporting periods on a consistent basis excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide presentation and our first quarter 2026 earnings press release and Form 10-Q issued and filed on May 6, 2026. These are available on our website at ir.montaukrenewables.com. After our remarks, we will open the call to investor questions. We ask that you please keep the one question to accommodate as many questions as possible. And with that, I will turn the call over to Sean. Sean McClain: Thank you, John. Good day, everyone, and thank you for joining our call. I am pleased to announce that we have commissioned our Montauk Ag renewables project in Turkey, North Carolina and are producing gas. We expect the production and sale of renewable electricity from our syngas to commence in May 2026 with revenue generation triggered upon the calibration of the sales meter from the interconnection utility. We have operated the full production line as part of the commissioning process and expect to be able to produce our targeted first phase of 47,000 megawatts, and 120,000 recs annually with approximately 50% of our installed reactor capacity. Our capital investment expectation for this first phase of the project remains unchanged at $200 million. We expect a ramp up in production volumes throughout 2026 directly related to additional feedstock collection. Our joint venture, GreenWave continues to address the limited capacity of R&G utilization for transportation by offering third-party RNG volumes, access to exclusive, unique and proprietary transportation pathways. During the first quarter of 2026, GreenWave's matched available dispensing capacity with available third-party R&D volumes, separated RINs and distributed RINs to the partners of GreenWave. We received approximately $1.4 million in separated RINs and distributed from GreenWave in the first quarter of 2026. In April 2026 we sent a letter confirming termination of our contract with European Energy North America, EENA, for the delivery of biogenic carbon dioxide. The termination was due to EENA failure to provide certain contractual assurances and notices related to the construction of their Texas-based methanol facility. We are currently exploring alternative offtake arrangements with interested parties at our [indiscernible] location. The timing of capital expenditures will be [indiscernible] with the finalization of replacement offtake agreements. We continue to anticipate a capital investment of between $30 million and $40 million. While we continue to diversify the company, our production of renewable energy from landfill feedstock remains a priority focus. The U.S. EPA issued the final rules for the 2026 and 2027 renewal fuel standard on March 27, 2026. The 2025 cellulosic volume requirement was reduced from $1.376 billion to $1.210 billion D3 rents with cellulosic waiver credits also having been made available for 2025 compliance. Hinocellulosic biofuel volume requirements for 2026 and 2027 were established at $1.360 billion and $1.430 billion D3 RINs, respectively. These volumes also represent an increase of $60 million and $70 million, respectively, from the preliminary RVO previously issued by the EPA. These volumes reflect the EPA's assessment of expected regeneration capacity and the related pathway and strengths of the end-use demand for CNG LNG transportation fuels derived from biogas. The EPA did not provide reallocations of D3 RINs as part of the 2026 and 2027 RVO in the final rule. This is primarily due to the statutory conditions on cellulosic biofuel volume requirements which do not allow the EPA to set the total applicable volume of cellulosic biofuel at a volume that is greater than the projected volume available, which necessarily excludes carryover cellulosic rents. And with that, I will turn the call over to Kevin. Kevin Van Asdalan: Thank you, Sean. I will be discussing our first quarter 2026 financial and operating results. Please refer to our earnings press release Form 10-Q in the supplemental slides that have been posted to our website for additional information. Our profitability is highly dependent on the market price of environmental attributes, including the market price for RINs. As we sell market a significant portion of our RINs, a decision not to commit the transfer of their low RINs during a period will impact our revenue and operating profit. . We sold all of our 3.9 million RINs generated and available for sale from our 2025 RNG production in the first quarter of 2026 at a realized price of approximately $2.42. We will not be impacted by the EPA making available cellulosic waiver credits from 2025 production. We have entered into commitments to sell approximately 60% of our expected RIN volumes in the 2026 second quarter. Total revenues in the first quarter of 2026 were $46.4 million, an increase of $3.8 million or 9% compared to $42.6 million in the first quarter of 2025. The increase is related to environmental attribute revenue of approximately $4.2 million from RINs sold related to RINs distributed from Green Wave and the RINs related to pathway dispensing. We had no such RINs in the first quarter of 2025. Our first quarter of 2026 RNG volumes sold under fixed floor price contracts decreased approximately 82.1% as compared to first quarter of 2025 as a result of the expiration of fixed-price pathway contracts. Our RNG commodity revenue decreased approximately 49.3%, which was offset by an increase in RINs sold of 25.5%. Total general and administrative expenses were $8 million in the first quarter of 2026, a decrease of $0.7 million or 8.4% compared to $8.7 million in the first quarter of 2025. The decrease was primarily driven by vesting of certain restricted share awards in 2025. Turning to our segment operating metrics. I'll begin by reviewing our renewable natural gas segment. We produced MMBtu during the first quarter of 2026, flat compared to 1.4 million MMBtu during the first quarter of 2025. Our Galveston facility produced 41,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of 2025 as a result of the landfill host assuming responsibility of wellfield operations and maintenance beginning in the first quarter of 2026. Our [indiscernible] facility produced 43,000 MMBtu more in the first quarter of 2026 compared to the first quarter of 2025 as a result of landfill host well food operational and collection system enhancements. Our Apex facility produced 37,000 MMBtu more in the first quarter of 2026 as compared to the first quarter of 2025 as a result of the June 2025 commissioning of our second Apex facility and increased feedstock gas from improvements we are making to the landfill collection system. Our McCarty facility produced 88,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of as a result of landfill host well-filled bifurcation and changes to the wellfield collection system. Revenues from the Renewable Natural Gas segment during the first quarter of 2026 were $38.1 million, a decrease of $0.4 million or 1% compared to $38.5 million during the first quarter of 2025. Average commodity pricing for natural gas for the first quarter of 2026 was 38.1% higher than the first quarter of 2025. In the first quarter of 2026, we self marketed 12.4 million RINs, representing a $2.5 million increase or 25.5% compared to 9.9 million RIN self marketed during the first quarter of 2025. Average pricing realized on RIN sales during the first quarter of 2026 was $2.42 compared to $2.46 during the first quarter of 2025, a decrease of 1.6%. This compares to the average D3 RIN index price for the first quarter of 2026 of $2.41 being approximately 0.6% lower than the average D3 RIN index price for the first quarter of 2025 of $2.43. At March 31, 2026, we had approximately $0.4 million MMBtu available for RIN generation, 0.2 million RINs generated but unseparated to 79,000 RINs separated and unsold. At March 31, 2025, we had approximately 0.3 million MMBtu available for RIN generation, 1.5 million RINs generated but unseparated and 3.9 million RINs separated and unsold. Our operating and maintenance expenses for our RNG facilities during the first quarter of 2026 were $14.4 million, an increase of $0.3 million or 1.8% compared to $14.1 million during the first quarter of 2025. Our Rumpke facility operating and maintenance expenses, operating and maintenance expenses increased approximately $0.4 million, primarily related to preventive maintenance media changes. Our Apex facility operating and maintenance expenses increased approximately $0.3 million, primarily related to increased utility expense, which was partially offset by decreased preventative maintenance media changes. Our Itasca site facility operating and maintenance expenses increased approximately $0.2 million, primarily related to wellfield operational enhancements. Our Dowerston facility operating and maintenance expenses decreased approximately $0.6 million, which was primarily related to the timing of maintenance of gas processing equipment and preventative maintenance media changes. We produced approximately 43,000 megawatt hours in renewable electricity during the first quarter of 2026, a decrease of approximately 3,000 megawatt hours or 6.5% compared to 46,000 megawatt hours during the first quarter of 2025. Our PECO facility produced approximately 2,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to the decommissioning of one of our engines in the second quarter of 2025 due to the shift towards boiler heat digestion process. Our Bowerman facility produced approximately 1,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to original equipment manufacturer required life cycle maintenance of 1 hour engines beginning in the first quarter of 2026. Revenues from renewable electricity facilities during the first quarter of 2026 were $4.1 million, a decrease of $0.1 million or 0.8% compared to $4.2 million in the first quarter of 2025. The decrease was primarily driven by the decrease in production volumes. Our renewable electricity generation operating and maintenance expenses during the first quarter of 2026 were $4.5 million, an increase of $1.1 million or 33.8% compared to $3.4 million during the first quarter of 2025. The increase is primarily driven by an increase in noncapitalizable costs of $0.8 million at our Montauk Ag renewables project. Our [indiscernible] facility operating and maintenance expenses increased approximately $0.4 million, which was related to the timing of gas processing preventive maintenance. We recorded approximately $4.2 million in the first quarter of 2026 related to the cost of RINs distributed from GreenWave when sold and the cost related to pathway dispensing associated with the dispensing of R&D. There were no such expenses incurred during the first quarter of 2025. During the first quarter of we recorded impairments of $0.4 million, a decrease of $1.6 million compared to $2.0 million in the first quarter of 2025. The decrease primarily relates to the first quarter of 2025 impairment of an R&D development project for which the local utility no longer accepted RNG into its distribution system. We did not record any impairments related to our assessment of future cash flows. Operating loss for the first quarter of 2026 was $1.6 million compared to operating income of $0.4 million in the first quarter of 2025. R&D operating income for the first quarter of 2026 was $8.7 million, a decrease of $1.7 million or 15.7% compared to $10.4 million for the first quarter of 2025. Renewable electricity generation operating loss for the first quarter of 2026 was $2.2 million, an increase of $1.2 million compared to $1 million for the first quarter of 2025. Other income in the first quarter of 2026 was $1.3 million, an increase of $2.5 million compared to the first -- compared to other expenses of $1.2 million in the first quarter of 2025. In the first quarter of 2026, we recorded approximately $3.3 million in income related to our joint venture investment in GreenWave. There was no such income reported during the first quarter of 2025. We received approximately $1.4 million in RINs distributed from GreenWave in the first quarter of 2026, of which approximately $0.4 million remain unsold. We sold approximately 1 million RINs in recorded revenues from those RINs sold of approximately $2.4 million. Additional information on GreenWave can be found in the supplemental slides that have been posted to our website. On March 9, 2026, we entered into a 5-year new security credit facility with a wholly owned subsidiary, Hannon Armstrong Capital LLC, HASI that consists of up to $200 million in senior indebtedness. These proceeds were used to repay all our outstanding debt. We expect to have an additional $45 million in proceeds drawn upon the conclusion of certain engineering review and operational requirements of our Montauk Ag renewables project in North Carolina. As a result of this refinancing in the first quarter of 2026, we recorded debt extinguishment cost of $1 million. We are only required to make interest payments during the first 2 years of the agreement, which matures in March 2031. We expect to work with has in the future to secure additional project-based financing for our current and future development projects. Turning to the balance sheet. On March 31, 2026, $155 million was outstanding on our new security credit facility with [indiscernible]. For the first 3 months of 2026, our capital expenditures were $38.6 million, of which $33.1 million and $1.8 million, respectively, were related to the ongoing development of Montauk Ag Renewables and our Bauerman-RNG facility. We had approximately $19.6 million in capital expenditures included within our accounts payable at March 31, 2026. As of March 31, 2026, we had cash and cash equivalents net of restricted cash of approximately $25.9 million. Our new senior credit facility with [indiscernible] requires us to meet liquidity and have quarterly minimum cash balances as defined in the agreement. We had accounts and other receivables of approximately $5.2 million. We do not believe we have any collectibility issues within our receivables balance. As of March 31, 2026, we held approximately [indiscernible] distributed from GreenWave in inventory on our balance sheet. Adjusted EBITDA for the first quarter of 2026 was $10.8 million, an increase of $2 million or 22.8% compared to adjusted EBITDA of $8.8 million for the first quarter of 2025. EBITDA for the first quarter of 2026 was $9.4 million, an increase of $2.7 million or 40.3% compared to EBITDA of $6.7 million in the first quarter of 2025. Net income for the first quarter of 2026 was $5,000, an increase of $0.5 million as compared to a net loss of $0.5 million for the first quarter of 2025. The difference in effective tax rates between the first quarter of 2026 and the first quarter of 2025, primarily relate to the change in our pretax book loss for the first 3 months of 2026 as compared to the first 3 months of 2025. I'll now turn the call back over to Sean. Sean McClain: Thank you, Kevin. In closing, and though we don't provide guidance as to our internal expectations in the market price of environmental attributes, including the market price of D3 RINs we would like to provide a full year 2026 outlook. We are reaffirming our RNG production volumes to range between $5.8 and $6 million MMBtu with corresponding R&D revenues to range between $175 million and $190 million. We are reaffirming our renewable electricity production volumes to range between 195,000 and 207,000 megawatt hours, with updated corresponding renewable electricity revenues to range between $33 million and $37 million. that reflects our current expectations of production at our Montauk renewables facility in Turkey, North Carolina. And with that, we will pause for any questions. Operator: [Operator Instructions] Our first question comes from Matthew Blair at TPH. Matthew Blair: I was hoping you could talk a little bit about this fixed price contract that appears to have rolled off. And I think there was a mention of that in the release is there any prospects for renewing that contract? And can you say if that contract was above current market rates? Like should we think of that roll off as being dilutive to your ongoing margins? Kevin Van Asdalan: Thanks, Matthew. In short, if you -- I'm going to point you to our operating highlights table within our 10-Q the rolling off of the fixed price contract is consistent with our moving and our ability to find homes for our RNG volumes in the transportation market. It's in concert with a quarter-over-quarter reduction in RINs that we're sharing with counterparties through our pathway. That has come down in the first quarter of 2026 yielding increases in RINs sold in 2026 over 2025. That's sort of a general understanding of a product mix moving away from fixed pricing into a more commodity and merchant availability of RINs generated from the production that we're getting as we are dispensing volumes in the transportation space and retaining more RINs and able to sell more RINs related to the roll-off of those fixed price contracts. Operator: Our next question comes from Betty Zhang at Scotiabank. Y. Zhang: Can you talk about the Montauk ag renewables? It looks like the revenue generation seems to be pushed out by about a month and that's also factored into your annual guidance. Can you just speak to what may have contributed to that? Sean McClain: Yes. Thanks, Betty. The adjustment to the revenue guidance is solely attributed to the timing of the commissioning that was completed at the end of April as opposed to the end of the first quarter with revenue commencement activity starting in May instead of April. So that's the month shift that's reflected in that updated guidance. Operator: Our next question comes from [indiscernible] at UBS. Unknown Analyst: With the North Carolina project coming online and production expected to begin this month. Can you help us think about the ramp profile from here? I know you mentioned in your opening remarks and in the press release that you expect ramp up in production volumes throughout 2026. But can you give us additional color into that? Kevin Van Asdalan: Thanks, Richard. As we've alluded, we have a certain amount of hog spaces that we're targeting to support our production expectations under a first year. We had announced that there were some weather delays on our call in our first -- at the end of the year in March. Some weather delays have delayed some installation of the own arm collection equipment as well as delaying some of our ability to timely assemble our dewatering equipment related to those sort of weather delays in installment of our feedstock collection and dewatering equipment. Our ramp throughout 2026 is contingent upon us getting caught up and meeting some internal expectations associated with our own farm installation related to feedstock collection and transportation to our production facility. Operator: Okay. I'm showing no further questions at this time. I would now like to turn it back to Sean for closing remarks. Sean McClain: Thank you, and thank you for taking the time to join us on the conference call today. We look forward to speaking with you again when we present our second quarter 2026 results. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to the Matrix Service Company Conference Call to discuss results for 2026. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to John Hewitt, President and CEO for Matrix Service Company. Good morning, everyone. John Hewitt: Before we get started, I want to take the opportunity to introduce two individuals joining our call today for the first time. First is Patrick Roberts, who has added investor relations to his current role, which also includes corporate development and strategic planning. Next is Sean Payne, currently chief operating officer, who, as you know, will take the reins as president and CEO on July 1. Sean is currently at a major project kickoff in Houston and will not be with us for the Q&A portion of this earnings call but will be joining us at upcoming investor conferences and on other scheduled calls. With that, I will turn the call over to Patrick. Thank you, and good morning, everyone. Welcome to Matrix Service Company's third quarter fiscal 2026 earnings call. Patrick Roberts: As John mentioned, participants on today's call include Chief Executive Officer, John Hewitt; Chief Operating Officer, Sean Payne; and Chief Financial Officer, Kevin Cavanah. Following our prepared remarks, we will open the call up for questions. The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany.com. As a reminder, on today's call, we may make various remarks about future expectations, plans, and prospects for Matrix Service Company that constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements because of various factors, including those discussed in our most recent Annual Report on Form 10-K and in subsequent filings made by the company with the SEC. The forward-looking statements made today are effective only as of today. To the extent we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings, and on our website. Related to investor conferences and corporate access opportunities, Matrix will be participating in the Sidoti MicroCap Virtual Conference in May and will also be participating in the Stifel Cross Sector Insights Conference in June in Boston, and the Northland Growth Virtual Conference on June 23. If you would like additional information on these events or would like to have a conversation with management, I invite you to contact me through the Matrix Service Company Investor Relations website. Turning now to safety. As we begin our earnings call, I want to recognize that May is Mental Health Awareness Month. At Matrix, we believe that safety goes beyond physical well-being. Mental health is just as important. In our industry, the pressures of strenuous work and extended periods away from home can take a significant toll. Unfortunately, the construction industry faces some of the highest rates of suicide, making it critical for us to address these challenges directly. But whether you work in the construction industry or elsewhere, each of us faces challenges in life that can put our mental health at risk, and we need to know that resources are available and it is okay to ask for help. Matrix is committed to reducing the stigma surrounding mental health. We strive to foster an environment where everyone feels comfortable seeking support, and we provide resources to help our employees take care of themselves and each other. By prioritizing both physical and mental safety, we reaffirm that every aspect of our team's well-being is paramount. We encourage each of you to do the same. Together, we can make a difference and ensure that no one feels alone. I will now turn the call over to John. John Hewitt: Thank you, and good morning again, everyone, and thank you for joining us. I want to highlight many of the key events that have happened in the quarter that will provide clarity on the progress we are making on our win, execute, and deliver strategy. First, the business returned to profitability in the quarter as we earned $0.13 per fully diluted share on an adjusted basis despite revenue levels being impacted by client-related delays and weather during the quarter. We expect revenues to decline in Q4 and profitable performance to continue. The lower revenues in Q3 principally came in our book work caused by abnormal and unforeseeable weather events and late client deliverables. These delayed revenues are moving into later quarters. This profitable outcome was driven by the quality backlog, good operating performance against that backlog, and organization streamlining that has occurred over the past twelve months. As it relates to our revenue guidance, the revenue movement I mentioned contributes to a 2.2% reduction in the midpoint of our guidance range from what was $900 million to a new midpoint of $880 million. Even with the slight reduction in the midpoint of the guidance range, the revenue in the fourth quarter is expected to turn upwards and supports our continued profitability. During the quarter, we reached positive resolution on two legacy legal issues. The first was a collection issue from an industrial client working toward commercial viability and the other, a contract dispute with a midstream company for whom we built a crude terminal during the COVID outbreak. The collective result was in line with our balance sheet position, will increase our cash balance by nearly $20 million, and will allow us to reduce our legal spend in the future. These two items present final closure to the remaining significant legacy disputes that have distracted the organization these past few years. Our opportunity pipeline remains strong at $6.9 billion, which represents not only our traditional LNG business, but the addition of more opportunities in mining, minerals, power generation, and data center–related activities. The awards in the quarter were below our expectations, affected mostly by timing of client decision-making. Activity in the quarter and the month of April do contain some key strategic wins for the company. First, following the close of the quarter, we received a limited notice to proceed for a major mining construction project for a client in the Western United States. Second, over $30 million of our electrical-related awards received in the quarter are directly related to the build-out of data centers and enhanced power demand. Book-to-bill in our electrical business for the quarter was well over 1.0. We expect to see continued growth in both of these markets. The impact of the Iran conflict on our business has been minimal to date. However, we believe it will only serve to emphasize that as countries around the world look to find secure, reliable oil, gas, LNG, and NGLs, the United States can play a major role in filling that need. This will continue to support the infrastructure designed and constructed by Matrix Service Company. Finally, in the quarter, we continued our organizational realignment that started nearly twelve months ago. As previously disclosed, Sean Payne, our chief operating officer, will succeed me as CEO on July 1. I have had the privilege of working with Sean in various capacities and companies for more than thirty years. He is a seasoned strategic leader with strong values and a deep operations and finance background that position him well to lead the company forward. Last week, we announced that Kevin Cavanah, our chief financial officer, will depart the company in September. Kevin has been with Matrix Service Company for more than 22 years, fifteen of which have been as our CFO. Kevin has built a strong and experienced finance organization with a deep bench of talent and well-established financial and control processes. The company has begun a comprehensive internal and external search for our next CFO, and Kevin will ensure a smooth and seamless transition through the completion of our fiscal year-end reporting. In addition, while not a public-facing role, Nancy Austin, who has served as our chief administrative officer and has been with Matrix Service Company for twenty-six years, will also be departing the company. Nancy has been instrumental in establishing a strong foundation for key support services, most importantly focused on ensuring that we can attract and retain the needed labor resources. Nancy's responsibilities are being redistributed and the position will not be backfilled, reflecting the company's commitment to flattening our organization structure while ensuring we remain efficient and responsive to the needs of our customers and partners. Before moving on, I want to thank them both for their many years of dedication, hard work, and leadership. The transition to Sean's leadership of the business, including these changes, as well as his vision on organizational structure and operational priorities, has already commenced. The core elements of our win, execute, and deliver strategy, of which he is the principal architect, contain guiding principles for the company that are already positively impacting the bottom line and will be the focus moving into 2027. Most of the executive leadership will soon be operating out of our Houston office, which has the added benefit of putting us closer to many of our top energy clients. The organization is now better prepared for growth, has enhanced focus on our priority markets, is more competitive, and will have a more consistent execution approach. I am excited for this new group of leaders to continue our journey and drive continued success and value creation across the business. I want to turn the call over to Sean for a few words on the recent mining award and his focus areas. Sean Payne: Thank you, John. Good morning, everyone. As John mentioned, our profitable third quarter results show the progress we are making with our Win, Execute, Deliver strategy. These results demonstrate that the execution improvement initiatives related to the execute pillar of our strategy are driving clear, measurable gains in profitability. We are bringing the same disciplined approach to the win pillar of our strategy, where we are continuing to strengthen our leading EP position for critical LNG and NGL infrastructure, as well as expanding into new and reemerging markets across North America. This approach is building real momentum in our sales pipeline and has already led to early successes across several areas. One example is a limited notice to proceed that we received for an important mining sector project that we are kicking off today, which John mentioned earlier. The project is expected to start in Q4 and continue throughout fiscal 2027. After nearly a decade of limited capital spending, increases in demand and rising nonferrous metal prices are starting to support new development activity. As a result, our project opportunity pipeline in the sector has grown significantly. We have a strong history in mining, and reestablishing our presence as the market rebounds is a key part of our strategy. Moving forward, as I get ready to assume the CEO role, I have taken several early steps this quarter to continue shaping how the organization operates. These changes are intended to create a more efficient and operationally focused organization that can make decisions faster and respond more quickly to market opportunities and our clients. Examples of recent changes include streamlining, as well as the decision not to add a COO back into the organization once I become CEO. With operations reporting directly to me, we eliminate unnecessary handoffs and sharpen our organizational alignment around what matters most: our clients, our projects, and the safety of our workforce. Over my first hundred days, my focus will be on implementing a clear roadmap for how we drive higher growth and continue improving profitability. I will provide additional insight into those priorities on our fourth quarter earnings call. Before I turn the call over to Kevin to review our third quarter results, I want to say how grateful I am for the opportunity to build on our strong foundation and lead this organization into the future. Kevin? Kevin Cavanah: Thank you, Sean. Revenue increased to $206.7 million in the quarter as compared to $200.2 million in the third quarter last year. The growth was driven by the Storage and Terminal Solutions segment, partially offset by reduced revenue in the Process and Industrial Facilities segment. Gross margin was $17.2 million, or 8.3%, in the quarter compared to $12.9 million, or 6.4%, for 2025. I will discuss specific drivers for that improvement when I get into the segment results, but on an overall basis, gross margin improved from both higher direct project margins and lower under-recovered overhead. Moving on to SG&A, which was $15.2 million in the third quarter, compared to $17.7 million for the prior year. The decrease is due in part to lower compensation-related expenses resulting from continued efforts to improve organizational efficiency. Additionally, stock compensation expense was lower as a result of executive separations during the quarter. For 2026, the company produced net income of $0.8 million, or $0.03 per diluted share, compared to a net loss of $3.4 million, or $0.12 per diluted share, in 2025. The company incurred restructuring charges of $3 million in the quarter. Excluding those restructuring charges, adjusted earnings were a positive $0.13. Adjusted EBITDA improved to $4.9 million in the quarter compared to breakeven performance in the prior year third quarter. Moving to the segments. Storage and Terminal Solutions segment revenue increased 16% to $111.6 million in the third quarter, compared to $96.1 million in 2025. This is the highest quarterly revenue level for the Storage and Terminal Solutions segment in six years. We expect this growth trend to continue, driven specifically by specialty vessel storage projects, including projects for LNG, ethane, and butane. The growth is also reflected in the segment gross margin, which increased to 7% in 2026 compared to 3.9% in 2025. Utility and Power Infrastructure segment third quarter revenue was $60 million, compared to $58.7 million last year. Project execution was strong throughout the segment, including peak shaving and electrical, producing a 13.6% gross margin in the quarter compared to 9.4% in the third quarter last year. Process and Industrial Facilities segment revenue decreased to $35.1 million in the third quarter compared to $45.4 million last year. Gross margin was 2.5% in 2026 compared to 8.3% for 2025, a decrease of 5.8%, primarily due to mix of work and the settlement of a legacy legal matter discussed earlier. We expect revenue and margins in this segment to rebound in fiscal 2027 due in large part to the mining project previously mentioned. Moving to the balance sheet. Our cash balance increased $34 million in the quarter. We ended the quarter with cash of $258 million, which also drove an increase in liquidity, which was $297 million at the end of the quarter. The growth in cash and liquidity was primarily due to the timing of cash flows on projects, as well as positive earnings. While we expect the timing of cash flows on projects will utilize some cash as we complete fiscal 2026 and move into fiscal 2027, the financial position of the company remains strong. I will now turn the call back over to John Hewitt. John Hewitt: Thank you, Kevin. Before taking questions, here are the five critical takeaways from this call. First, the return to profitability in Q3 demonstrates the strength and credibility of our operating model and strategy even on lower revenues. Second, the Q3 revenue shortfall is due to timing issues from customer and weather-related delays that moved book work out of the period. Third, our balance sheet is strong and supports our financial growth and strategic objectives. Fourth, our book-to-bill is driven by timing with a strong backlog at over $1 billion. We expect awards in key sectors like mining, minerals, and LNG infrastructure to drive book-to-bill higher in fiscal 2027 and support continued profitability. And fifth, the leadership and organization transition currently underway is planned, delivered, and controlled, ensuring strong continuity. The CFO search is in motion, and you can expect Sean to share his first hundred-day roadmap as Matrix Service Company's CEO on the next earnings call. That concludes our prepared remarks. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, please press 1-1 and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question comes from John Franzreb from Sidoti. Please go ahead. John Franzreb: Congratulations on the return to profitability. Thank you. I guess I want to start with the just-reported quarter itself. There was a drop sequentially in the revenue in the utilities segment. There is a sizable increase in the gross margin of that business on a sequential basis. Can you walk us through the puts and takes on what is going on there? Kevin Cavanah: Yes. If you look at the profitability, there was really good performance throughout the segment. The power delivery business outperformed what we expected from a margin standpoint, and we also saw the same in the peak shaving work. It was really good performance there. It shows when you have good performance throughout a segment what that can do to gross margin. Now, the revenue level did come down, and we expected that. We have been doing some work on a peak shaver project for well over two years now that still has more work to do, but the manpower required for that project is coming down a bit, and that is driving the revenue down. If you look at the funnel for the company, peak shaving opportunities should continue to provide a lot of revenue into the future. We see a good piece of that in the funnel. It will take us a little bit of time to book the next one, so you will probably see the revenue for the utility segment level out for a while until that next peak shaver project is booked. John Franzreb: Got it. And you mentioned, and I might have missed this, the restructuring charge that you incurred in the quarter—what was that for? Kevin Cavanah: It related to a couple of primary things. One is our CEO transition. We also had a lease—because we have tried to become more efficient in what offices we have—that we are getting out of. We thought we were going to be able to sublease, but the market has not been as strong for a sublease on that facility as we had planned, and so we had to take a charge related to the lease, a lease impairment charge. John Franzreb: Got it, Kevin. And just on the backlog, we had two years of elevated bookings and backlog; in the last four quarters, it has been drifting lower. What is the confidence level that the new projects you have been writing are of sufficient profitability to maintain profitability into fiscal 2027? John Hewitt: I will hit that one. The backlog level is still at a billion dollars and contains solid margin work. Recall we booked two pretty major projects fairly close together that drove backlog up, and then it took a while for those projects to get started to really start burning revenue. We still feel really good about our opportunity pipeline, our expected award cadence over the next couple of quarters, and the award momentum we think will build as we move through fiscal 2027. Our expectation is to maintain a strong revenue level and profit on that revenue. John Franzreb: On that note, I will get back into queue. Thank you. Operator: Thank you. Our next question comes from Ted Jackson from Northland. Your line is open. Ted Jackson: Thank you very much. Excuse me. A couple of questions. Let us start with the restructuring and what is going on. I know there are many moving parts, and you have been working for a long time to make it more efficient and improve its margin. When we think about this company at a steady state, with the management team in place and the restructuring efforts behind you, what is the pro forma business model? Where do you see, with this restructuring, a standard gross margin, operating margin, and net margin for Matrix when you are done and the business is mid-cycle? Kevin Cavanah: I will give you a preliminary answer, and I would expect that as we bring in a new CFO, the new team will take a fresh assessment. John and I have published long-term metrics that we have been striving to achieve, and I would imagine the new team will reevaluate and put their own out there. Carrying on from the current metrics, the changes we are making to streamline the business will allow us to achieve the SG&A target we have out there, but at a much lower revenue level. You will see us around 6.5% SG&A in fiscal 2027, in my expectation. The gross margin target we have out there has proven viable. The direct margins we are seeing in the business are meeting or at times beating 10% or better, and we are seeing improvement in the recovery of overheads, which has been a drag on earnings the past few years. As we take cost out and continue to grow the business, that will continue to get better. We are tracking to achieve those targets, and the organizational changes we have put in place are helping us get there. It lowers the breakeven level and the level of revenue required to get to full recovery. In effect, these changes increase the earnings power of the business. Ted Jackson: My next question is about backlog and the pipeline, which remains robust. Your commentary suggests that you expect to see a turnaround in terms of bookings and backlog growth and a regrowth of backlog as we get into 2027. Previously, you indicated that would start to turn around mid–fiscal year. Does that scenario still hold, and given the size of projects in the funnel, what kind of bookings reacceleration could we anticipate? John Hewitt: Our current backlog and what we see as the award cadence—what we have said in the past is we expect our awards to be wrapped around our normal day-to-day business plus some smaller and midsize projects. That will allow us to continue to burn backlog and maintain a revenue level that, as Kevin said, sustains our profitability as we move into and through fiscal 2027. Our expectation on the big project awards—the big chunk projects—is that they will be entering into our proposal pipeline sometime probably in mid–fiscal 2027 and would be coming to awards later on in 2027. We feel good about where our backlog is and where our opportunities are. The award cadence and momentum, not only for the big projects but also for some of the smaller ones, will help us maintain a good quality backlog with good margins and maintain a revenue level that supports improving profitability. As some of those bigger projects enter our backlog and we start to burn that revenue, that will start to expand our margins. Kevin Cavanah: I would add, peak shaving opportunities and specialty storage really drove the prior backlog growth, and those opportunities are still there. Now we have other emerging markets we can add, including the mining we talked about on the call. There are construction-only opportunities we are pursuing and opportunities related to the continued expansion of electrical infrastructure. There are a number of areas that will add to the markets that drive backlog. We also see a lot of opportunity in the power generation market, even if it is working as a construction partner with some of the bigger EPC firms. We have a deep resume in power generation that has been on the shelf for the last five to seven years. With the return of higher demand across gas power generation—backup, peak shaving, simple cycle, or combined cycle—our resume applies strongly. We expect sometime in fiscal 2027 to be adding those kinds of projects into our backlog to support revenue. Ted Jackson: Switching to the oil and gas market, with the situation in the Middle East and oil around $100 a barrel, and potential for more drilling in the U.S., how do you see that benefiting Matrix? Are you seeing any pickup in dialogue because of the changed global environment? John Hewitt: We have a continuing client dialogue. Our view is that countries around the world are looking to ensure secure and reliable places to get their needed energy supplies—not only given what is going on in the Persian Gulf but also in Ukraine. Whether that is natural gas in the form of LNG or NGLs for chemical production, like ethane or ethylene, we believe this will create more investment in the U.S. for export and for the production of those energy assets. Those fit right within our wheelhouse. Construction of LNG facilities and natural gas liquids facilities are things we do day in and day out. We think these macroeconomic and global issues will drive increased investment in the United States in those energy assets, and Matrix Service Company is well positioned to take advantage of that. Ted Jackson: Final question: in your discussion about legal matters, you said you would see reduced legal spend going forward because of those settlements. Is that material enough to notice within the financial statements? How much were you spending, and what kind of expense is being removed with these resolutions? John Hewitt: Those disputes were contract-related, project-related, so that expense hit in what we call construction overhead, and it was one of the things driving some under-recovery of overhead. It should make us more efficient in fully recovering our overhead. We have not disclosed the dollar amount of legal expenses, but lawyers are not cheap. Operator: Thanks. John Hewitt: Thank you. Operator: As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. Our next question comes from John Franzreb from Sidoti. Your line is open. John Franzreb: Yes. I have a question about the deferred jobs. Do you expect them to fall into Q4, or are they deferred into fiscal 2027? John Hewitt: Both, frankly. When we are waiting for permits or engineering, you are just pushing, for instance on the labor, your hiring and manpower levels down the road. Where we might have had in the quarter on a job—making numbers up—100 craftspeople that would have ramped up to 200 in the fourth quarter, now that 100 is happening in the fourth quarter and the 200 is happening in Q1. I am just giving you a sense that we are not going to make up for all of those delays in one quarter because it pushes the whole job down the path. We certainly expect, as we said and based on our guidance, that revenues will climb in Q4 and the business will stay profitable in Q4 because of the quality of the work, the quality of our execution, and the level of revenues. Part of the message is that Q4 revenues are going to increase, and this pushes more revenue into 2027. John Franzreb: Got it. And, John, how much revenue was actually deferred out of Q3? John Hewitt: I would say it was probably $20 million to $25 million. The biggest piece was the weather, but there were some permitting issues too. John Franzreb: Got it. And if I understood your commentary to one of my questions earlier, Kevin, it sounds like near-term the utility segment will be kind of flattish with potential to recover in 2027, for the reasons John outlined. To hit your midpoint, that might suggest that the storage business will have a strong Q4. Am I interpreting that properly, or are there other puts and takes I am not thinking about? Kevin Cavanah: You are 100% right. I would expect the Process and Industrial Facilities segment and the Utility and Power Infrastructure segment to be relatively flat from Q3 to Q4. The growth is going to come in Storage and Terminal Solutions. John Franzreb: Okay. Thank you for the clarity. I appreciate it. Operator: I am showing no further questions at this time. I would now like to turn it back over for closing remarks. Patrick Roberts: Thank you. As a reminder, we will be participating in the virtual Sidoti MicroCap Virtual Conference in May. We will also be attending the Stifel Cross Sector Insights Conference in June in Boston and the Northland Growth Virtual Conference on June 23. Additionally, if you would like to have a conversation with management, please contact me through the Matrix Service Company Investor Relations website. You may also sign up to receive MTRX news by scanning the QR code on your screen. Thank you for your time. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Greetings, and welcome to the LTC Properties, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. Joining us on today's call are Pamela J. Shelley-Kessler, Co-President and Co-Chief Executive Officer; Clint B. Malin, Co-President and Co-Chief Executive Officer; Caroline L. Chikhale, Executive Vice President, Chief Financial Officer and Treasurer; J. Gibson Satterwhite, Executive Vice President of Asset Management; and David Boitano, Executive Vice President and Chief Investment Officer. Before management begins its presentation, please note that today's comments, including the question and answer session, may include forward-looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in the LTC Properties, Inc. filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K dated 12/31/2025. LTC Properties, Inc. undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. Please note this event is being recorded. I would now like to turn the conference over to LTC Properties, Inc. management. Please go ahead. Pamela J. Shelley-Kessler: Good morning, and thank you for joining us. LTC Properties, Inc. is successfully executing our SHOP strategy. Our capabilities, reputation, and culture are resonating with sellers and operators, and these relationships are driving investment opportunities and record external growth. Clint B. Malin: Allowing us to scale incredibly quickly. We have strong conviction that our strategy is the right one to create a higher growth profile company with better risk-adjusted returns to drive shareholder value. With SHOP currently projected to represent 45% of our total investments and 40% of annualized NOI by year-end, the shift in our portfolio mix is dramatically enhancing LTC Properties, Inc.'s long-term ability to grow FFO and FAD per share above our historical rate. We are on track with our $600 million SHOP acquisition midpoint guidance, and with the expected closing of second quarter transactions, we will be more than halfway to that target. Additionally, to further increase our SHOP mix, we would consider transactions that capitalize on attractive skilled nursing pricing by recycling capital into higher-growth SHOP assets. Our operator partnerships, our relationship-centric culture, and our significant investment in the SHOP platform are driving our transformation and positioning LTC Properties, Inc. as a competitive force. I will now turn it over to Gibson for more insight on the portfolio. J. Gibson Satterwhite: Thank you, Clint. Our focus is on optimizing risk-adjusted returns for our shareholders by investing in our SHOP portfolio and opportunistically recycling capital, positioning LTC Properties, Inc. for higher intrinsic growth. As Clint noted, SHOP is expected to account for 40% of our annualized NOI by year-end, with the potential to expand even further. This target incorporates reinvestment of approximately $265 million in planned dispositions and loan repayments from skilled nursing assets this year. Of that amount, $77 million has closed, and $190 million is expected to close in the third quarter. Our guidance projects a July 1 payoff of the Prestige loan, in line with our notice of intent earlier this year. SHOP performance continues to reinforce conviction in our strategy. First-quarter SHOP NOI was in line with our expectations. For our core SHOP portfolio, which consists of 27 communities at or near stabilization, including those acquired through the first quarter of this year, we are reiterating prior guidance of 14% pro forma growth at the midpoint. You can find more information on this portfolio in our supplemental. To frame the impact of our transformation, the pro forma growth rate for our overall portfolio increases to 5% to 7% at our 40% SHOP NOI target, from the low 2% range embedded in triple-net leases. That change is driven by increasing exposure to SHOP assets with growth prospects in the low to mid-teens over the foreseeable future. We can further increase our intrinsic growth rate should we choose to take advantage of opportunities to recycle more capital into SHOP, given the strong pricing for skilled nursing assets. Our 2026 guidance includes platform investments, adding the people and data capabilities needed to scale and support double-digit SHOP growth. We expect the core infrastructure to be largely in place by year-end, enabling us to continue to scale rapidly and best support our operators. Now I will turn the call over to Dave to discuss investments. David Boitano: Thank you, Gibson. LTC Properties, Inc. has spent 18 months building a platform designed to execute with speed and certainty. We are well on track to achieving our $600 million midpoint investment target and believe, given the volume of opportunities we are evaluating, that a comparable level of annual investment is sustainable in 2027 and beyond. So far this year, we have closed around $120 million in investments, with nearly $250 million on course to close in Q2. Additionally, we have signed LOIs for off-market third-quarter acquisitions totaling $90 million. Our pipeline continues to be robust, with well over $5 billion of opportunities under consideration and visibility for continued investment growth. Our relationship-centric approach is working. By the end of the second quarter, we will have 11 SHOP operators, including nine that are new to LTC Properties, Inc. in the past year, reflecting our success in retaining and growing with existing operators at the communities we have acquired. This strong pool of operating partners has been the source of several follow-on investments and provides great momentum as we continue to build our portfolio. Key to LTC Properties, Inc.'s growth is our legacy of deep industry relationships, which, in combination with our transactional agility, gives us an edge in gaining access and insights to growth opportunities. Several investments have come through partner referrals, underscoring the synergy of our culture and our commitment to relationships. A number also have been off-market, demonstrating again the benefit of our relationship focus. Our rapid SHOP growth has not happened by chance. It is strategic and deliberate, reflecting an investment philosophy focused on assets 10 years of age or younger with operators who have deep local and regional knowledge. We emphasize asset quality, size, mix, and market dynamics that favor our long-term competitive position. These criteria guide us toward the right balance of opportunities and durable returns. Today, we are seeing a high volume of potential transactions. Here again, our operator alignment is central to identifying the right assets and markets to support solid long-term performance. Experienced senior housing investors know that community performance depends on strong operating partners. LTC Properties, Inc. is deeply grateful for our operator colleagues and the excellence and commitment they bring every day to the seniors they serve. I will now pass the call to Cece for a review of our financial results. Caroline L. Chikhale: Thank you, Dave. Including year-to-date ATM sales of $95 million, our current liquidity is $585 million, and with $190 million of proceeds expected from asset sales and loan payoffs, we remain confident in our ability to finance future SHOP acquisitions. Our pro forma liquidity totaled $775 million, providing a long investment runway. At the end of the first quarter, our pro forma debt to annualized adjusted EBITDA for real estate was 4.4x, and our annualized adjusted fixed charge coverage ratio was 4.6x. We remain well within our stated leverage target of 4x to 5x, but believe that we can reduce that further over time as a result of our organic SHOP growth. Compared with last year's first quarter, core FFO per share improved by $0.04 to $0.69, and core FAD per share improved by $0.02 to $0.72, representing 63% growth, respectively. Increases were due to SHOP acquisitions and conversions to SHOP from triple net, increases in interest income from loan originations and additional loan funding, and higher rent from market-based rent resets. The increases were partially offset by an increase in interest and G&A expenses, primarily to support our growing SHOP portfolio, as well as a decrease in rent due to asset sales. We are reiterating our 2026 guidance for core FFO per share projected in the range of $2.75 to $2.79 and core FAD per share in the $2.82 to $2.86 range. As a reminder, our 2026 guidance includes $400 million to $800 million of SHOP acquisitions, with SHOP NOI in the range of $65 million to $77 million, and FAD CapEx of approximately $5 million. It also includes $265 million of proceeds from asset sales and loan payoffs. Other assumptions underpinning our guidance are detailed in yesterday's earnings press release and supplemental, which are posted on our website. Now I will turn the call over to Pam for closing comments. Pamela J. Shelley-Kessler: Thanks, Cece. LTC Properties, Inc.'s transformation continues. What began last year through the combination of acquisition and conversions of seniors housing communities ramps up this year with an additional $600 million of SHOP acquisitions projected at the midpoint of guidance, more than half of which will be completed by the end of the second quarter. We are deliberately curating a SHOP portfolio designed to compete effectively today and in the future when new supply eventually comes online. Although new construction starts remain near historical lows nationally, we are accelerating LTC Properties, Inc.'s organic growth profile and reducing our exposure to lower-growth triple-net lease investments while expanding our roster of strong operators to support our mutual growth. In 2027 and beyond, our strategy will focus on tactical growth in SHOP, adding additional high-quality assets and driving outsized NOI growth. As a premier seniors housing capital partner, LTC Properties, Inc. is well positioned to drive substantial growth through SHOP. Our smaller size creates agility, allowing us to drive accretive change faster than our larger peers and move the needle through single-asset and small-portfolio acquisitions. Our SHOP focus over the past 18 months has enabled a successful transformation and created a clear execution advantage. From our cooperative conversions of $175 million of triple-net leased communities into SHOP a year ago, we will have grown our SHOP portfolio to nearly $1 billion by the end of the second quarter and significantly increased our ability to drive future earnings growth. The consistency of our execution and performance is driving results and reinforces the conviction in our SHOP strategy. Our goals remain clear: support our operators who care for our nation's seniors and deliver superior long-term shareholder returns. With that, we are ready to take your questions. Operator: Thank you. We will now be conducting a question and answer session. We will pause for a moment to poll for questions. Our first question today will come from Austin Todd Wurschmidt with KeyBanc Capital Markets. Austin Todd Wurschmidt: Hey, good morning, everybody. Could you provide some additional details around pro forma NOI growth for the 27 SHOP assets in the first quarter? And then maybe give us a sense of how occupancy trended sequentially and year over year within that NOI figure? Thank you. J. Gibson Satterwhite: Hey, Austin. This is Gibson. First, to give you some context around the disclosure: when we gave the pro forma 2025 for the 27 core SHOP portfolio, it was to help give an indication of the growth characteristics in that portfolio to the market and to our shareholders. But we decided against giving that on a very detailed quarterly basis going forward. What we will do is roll that core SHOP performance forward on a quarterly basis so you can track that with the metrics that we have realized during our ownership. For color behind what is going on in Q1 in that core portfolio, it came in line with our expectations for EBITDAR. Rates were a little higher. When we set guidance, we anticipated a little seasonal softness in Q1, which we realized. Directionally, occupancy turned around mid-quarter. If we look at it year over year, the occupancy troughed at a higher level, meaning the occupancy at the trough in Q1 of this year was higher than occupancy at the trough in Q1 last year. We are seeing some green shoots in terms of occupancy increasing since it troughed in February. Looking at the sales pipeline, our leads and tour volume going into the spring and summer selling season, we feel really confident, given what we know right now, in reiterating our guidance. Austin Todd Wurschmidt: A lot of helpful detail, and appreciate the context. With respect to investments, you had $157 million I think you said last quarter that you had expected to close by April. I am just wondering what drove the delay, and did a subset of that or all of those move within the $250 million? Or were there changes in the investment pool? Any details you can provide on that, as well as expected pricing for those assets? Thank you. Clint B. Malin: Sure. Austin, this is Clint. The delay is primarily related to a single off-market follow-on transaction. The seller was focused on a tax-efficient transaction, and to accommodate that we are working with them on structuring a downREIT. The seller needs some additional time to address some tax questions on their side. In working on this off-market transaction, that aspect is what led to a little bit of delay. We are very excited about this deal and about growing with this existing operator. This deal will add two newer and two larger communities to our portfolio, with a continuum of care spanning IL, AL, and memory care. In the meantime, while that was slightly delayed, as Dave mentioned in his prepared remarks, we have added another $200 million expected to close in Q2 and Q3. Dave can talk about rates. David Boitano: Yeah. So cap rates, going-in yields, have been right around 7%. We have been able to maintain that well. We are very pleased with that. It ebbs and flows a little bit from deal to deal, but generally speaking, that is where we have been coming in, Austin. Clint B. Malin: And, Austin, I would like to add some color. As we have increased the pipeline, we are seeing a lot of opportunities. Right now, at the $460 million mark—which includes what we have closed to date and what Dave spoke about regarding investments by quarter—that will get us by 3Q to 75% of our $600 million midpoint guidance. We feel very confident about where our investments are right now. We have eight transactions in total for 12 communities. The average age of that $460 million—again, including what we already closed in Q1—is 10 years, which has been very consistent with what we have talked about. Sixty-five percent of these deals in the pipeline are sourced off-market. With the Q3 closings that Dave spoke about under LOI, that is going to add two more operators—four new operators this year—and get Q3 up to 13 operators. We have two follow-on transactions. Sixty percent of the communities of this $460 million span a continuum of IL, AL, and memory care. The average size of the community is 100 units. Seventy percent of these deals are in primary markets. We feel very confident in our ability to source transactions, and, as Pam mentioned in her comments, we are buying assets that are going to be able to compete effectively against newer assets when those eventually come online. Austin Todd Wurschmidt: A lot of helpful detail, Clint. Just to clarify one thing before I yield the floor. You said you added another $200 million. Is that specific to the operator that is focused on the tax-efficient transaction? Because the $157 million is now $250 million closing in Q2, and then there is $90 million of signed LOIs set to close in Q3. So closer to $300 million. Can you reconcile the adding $200 million versus what I am getting to on the $300 million? Thanks. Pamela J. Shelley-Kessler: Austin, it is Pam. It was $90 million that is under LOI, expected to close probably in the third quarter. Austin Todd Wurschmidt: That is the difference. Alright. Thank you. Clint B. Malin: Thank you. Operator: Our next question will come from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Hi, good morning. Hope you can hear me okay. I wanted to ask about the earnings guidance for the year. There is an implied deceleration from the first-quarter run rate, so I am curious on the drivers there. Is there any triple-net softening in some of the rents versus the conversion to SHOP, any temporary cash flow degradation, or any one-timers in the first quarter that will not repeat? Caroline L. Chikhale: Juan, it is Cece. In the first quarter, there was a little pickup because of timing differences. For the most part, we think we are going to be in line. There is going to be a ramp-up for SHOP NOI, as Gibson has talked about in the past, and we still think it is in line. There is some uncertainty out there in the market with interest rates. We are not sure which direction it will go with the new Fed chair, but we will give you an update next quarter. Juan Sanabria: Great. And second, you mentioned potential monetization of some skilled nursing assets. Curious on the potential scope and where you see market pricing for in-place rents. Clint B. Malin: Thanks, Juan. We are supportive of the skilled nursing industry, and we do not see any immediate near-term headwinds. What we have recycled to date going back to 2025 has been for specific reasons. Prestige, as Gibson mentioned on our last call, was about reducing concentration to an operator and state, and reducing our loan book. Other sales were related to lease maturities and some purchase options. Those were at attractive 8% caps, which we felt very good about. Going forward, we would look to capitalize on the attractive pricing we are seeing in the market. Anything we do would be opportunistic—recycling from lower-growth triple-net leases into higher-growth SHOP assets—and we would look to limit, if anything, and avoid dilution. Our coverage on an EBITDAR basis is almost 2.0x, which is historically extremely strong. We are very comfortable with our skilled nursing portfolio and reduced concentration. Any actions would be opportunistic. Juan Sanabria: Great. So, just to summarize, given the high rent coverage, the yields could be closer to what you are buying SHOP at—around the 7s—given the rent coverage? Clint B. Malin: Thank you. Operator: Next, we will move on to Richard Anderson with Cantor Fitzgerald. Richard Anderson: Thanks. Good morning. I am looking at Slide 12 and the guidance you provided for SHOP. I appreciate you are in growth mode, so it is hard to get a real sense of any same-store organic growth picture. If you were to do a hypothetical stress test of your portfolio, would it be high single-digit NOI growth, putting aside additional acquisitions—the type of growth we should expect when the time comes that you are able to disclose a same-store perspective? J. Gibson Satterwhite: Hey, Rich, it is Gibson. Good question, and I think you have asked similar questions on previous calls. In my prepared remarks, I gave the math of how the higher growth rate in SHOP moves the needle for our overall portfolio, and cited that if you assume low to mid-teens SHOP NOI growth, that was the driver behind that math. What has changed from our prior calls is that now we have some experience with the portfolio. We are really confident in what we are assembling and what the deal team is buying. If you think about the math embedded in that same-store portfolio, we think you can get double-digit—around 10%—NOI growth even without occupancy increases, with a 170 to 200 basis point spread between RevPOR and expense growth. Our guidance includes 140 basis points of occupancy increase and 14% growth at the midpoint; if you strip out occupancy to be conservative, we are still comfortable with around 10% NOI growth assuming about a 5% RevPOR increase. We have seen recent history sustain that. Step back and look at overall supply-demand dynamics—baby boomers turning 80, lack of new supply—and we feel more confident in a higher growth profile going forward. Richard Anderson: You mentioned platform investments being made that you expect to be largely completed and scalable by the end of this year. You and others are growing SHOP through external sources, but then you have to operate it, and you are married to it. How do you stress test the future of your SHOP portfolio? Things can get complicated in this business. What types of people are you bringing in, and what are you doing to manage through tougher environments? Pamela J. Shelley-Kessler: Rich, no one thinks it is a layup. We fully understand and appreciate the intensity with which you build the SHOP portfolio and operations. As we have discussed, we seek out the best managers that are the best in their markets, with strong track records. We supplement that with the data and analytics that Gibson has talked about to help arrive at better decision-making. Our value-add to operators is helping them with aggregating data. That is an expensive task, and that is what we have undertaken. We have hired people to help with data analytics, and we have hired strong asset managers with historical track records managing SHOP portfolios. If you are going to do SHOP, you have to go all in. We have fundamentally changed the way this company thinks and operates, and the way we acquire properties. We are not managers; we are hiring the best managers and helping them create the best outcomes for our portfolio. Clint B. Malin: One thing we have done on top of that is be very strategic with the portfolio we are acquiring—newer assets. We have retained the managers on the majority of all but one community we have closed to date. We have done this by design to curate a stabilized portfolio with the ability to drive continued improvement that Gibson spoke about. We are building larger, newer assets that can compete. We have the combination of the people and the assets to be successful. We have been in the business a long time, and we know this takes a lot of work. J. Gibson Satterwhite: Rich, I will add: the structure is relatively new to LTC Properties, Inc. in terms of our implementation, but we have been hard at work over the last 18 to 20 months, very deliberate about forming a plan, working through the issues with the initial conversions, and executing on that plan. Zooming out, we have had exposure to private-pay senior housing, and we have all been in the business for a long time. We are acutely aware of the challenges operators face. It is a tough business. We feel we have aligned with good operators and hired experienced people on the team, and we want to be there to support them. Richard Anderson: My last question: when you think about structurally how you are compensating your managers, what is the mindset? Percentage of revenues, NOI, incentive-based? Is there a specific model, or is it case by case? Clint B. Malin: It is a general model we are following. We look at base fees calculated on revenues as well as the bottom line—we think that helps align interests in the current 12-month period. We set budgets together, and if budgets are exceeded, we look to reward our operating partners with incentive fees. We are also aligning interests long term with synthetic promotes over time, so that when operators make decisions today between growing occupancy or rate, it is with a mindset of how it can benefit the communities long term and allow them to achieve financial awards through a synthetic promote structure a couple of years down the road. So, current 12 months, the ability to beat the budget, and a long-term horizon on overall performance—we think that is a good alignment of interests for both parties. Richard Anderson: Great. Thanks, Clint. Thanks, everyone. Clint B. Malin: Thank you. Operator: Next, we will move to Michael Albert Carroll with RBC. Michael Albert Carroll: Yes, thanks. Looking at your SHOP operator list, it looks like you have a number of operators within your portfolio. Are there a handful that you have closer relationships with that you want to continue to expand? For some with maybe one or two assets, is the plan for that to grow? How hard is it to have one operator managing one asset—does it make sense to have fewer operators managing bigger portfolios? Clint B. Malin: This is Clint. We started this investment platform mid-year last year through the initial conversions. We would look to grow with all of the operators with whom we have built relationships, and we will be adding three more relationships following this. This is a testament to the effort we put in back in 2024 when we first announced we were going in this direction. We took the time to go out and market what we were doing and let operators know, and this is the result of that intentional effort. Yes, we would look to grow with each one of these operators. Michael Albert Carroll: Is it harder if there are more operators within the SHOP portfolio? Is there a limit—are you fine with what you have now since you are adding three more? Is there a number you want to cap to make sure you can track each relationship? Pamela J. Shelley-Kessler: We have not set any limit. It really comes down to the investment opportunities. As Clint mentioned in his remarks and follow-up Q&A, the majority of our investment opportunities are coming from our operators off-market. To the extent that this is the source of deal flow for us, we would not limit that. We are targeting the best operators in the geographic regions in which we have properties and where we are looking to grow. We would not limit it, though there is a law of diminishing returns. We would not have something like 50 operators, but where we are now and adding operators in the next year or two is very manageable by our asset management team. J. Gibson Satterwhite: We have built into our staffing plan additional resources. The core platform Rich was just asking about—we feel all the major pieces will be in place to allow us to scale, and we have a staffing plan aligned with our growth strategy. Michael Albert Carroll: Switching gears back to the SNF sales. Have you started marketing some of these portfolios, or is it something you would consider if something came up? Clint B. Malin: We are not marketing at this point, but we have received a lot of inbound phone calls. We are engaging, but it has to be opportunistic pricing that works for us to recycle into higher-growth SHOP assets. Michael Albert Carroll: Is there a specific size we should think about for potential sales? Could it be $100-plus million, or is it too early? Clint B. Malin: It would be situational depending on what comes up. It could be larger or smaller. Michael Albert Carroll: Okay, great. Thanks. Appreciate it. Clint B. Malin: Thank you. Operator: Our next question will come from Omotayo Tejumade Okusanya with Deutsche Bank. Omotayo Tejumade Okusanya: Yes, good morning, everyone. I also wanted to focus on Slide 12, the SHOP performance. When you look at the quarterly results disclosed on the page, RevPOR in Q2 2025, when we just had the SHOP conversion portfolio, was almost $10,000. In March, it was around $9,500. It has gradually dropped to about $7,850 by Q1 2026 with all the additional acquisitions. Can you talk about the post-conversion acquisitions—the characteristics of that portfolio that may be driving down RevPOR from the original 13 conversions? Are you targeting different market segments, or how should we think about what is being bought relative to the initial 13? Pamela J. Shelley-Kessler: Thanks, Tayo. It is a very simple explanation. Go back to the original 13 properties in February: 12 of those were memory care. Memory care has a much higher RevPOR. As you see us adding more traditional seniors housing properties into our SHOP portfolio—a mix of IL, AL, and memory care—you see that gradually go down. There is nothing to read into that other than the mix of the portfolio changing as we diversify away from standalone memory care. Operator: There are no further questions at this time. I would like to turn the floor back to Clint B. Malin for any closing remarks. Clint B. Malin: Thank you. Thanks to everyone on today's call for your ongoing support. We look forward to updating you on our progress next quarter, as well as seeing some of you at upcoming investor conferences. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time.
Operator: Hello, and welcome to the Aemetis, Inc. First Quarter 2026 Earnings Conference Call. Joining us today are Eric McAfee, Chairman and Chief Executive Officer; Todd Waltz, Chief Financial Officer; and Andy Foster, President of Aemetis Advanced Fuels. I will now turn the call over to Todd Waltz. Todd Waltz: Thank you, and welcome, everyone. Before we begin, I would like to remind you that during the call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risk and uncertainty that could cause actual results to differ materially from those expressed or implied. Please refer to our earnings release and SEC filings for a discussion of these risks. For 2026, revenue grew 27% to $54.6 million compared with $42.9 million in 2025, with growth across each of the three reportable operating segments. Gross profit was $2.8 million in the quarter, a year-over-year improvement of nearly $8 million from the gross loss of $5.1 million in 2025. Operating loss improved approximately 60% to $6.3 million compared with $15.6 million in the prior period. Net loss improved to $21.7 million compared to $24.5 million in 2025. Production tax credits under 45C contributed $4 million of operating income during the quarter, $1.4 million in dairy RNG and $2.6 million in California ethanol, representing our first quarter of ongoing credit generation tied to quarterly production since 45z eligibility was established in 2025. Adjusted EBITDA for the quarter was negative $1.3 million, reflecting typical winter seasonality with stronger revenue and margin performance later in the quarter. Adjusted EBITDA and a reconciliation of EBITDA to net loss are described in our earnings release issued earlier today. Cash and cash equivalents at the end of the quarter were $4.8 million, comparable to year-end 2025. Capital investments in carbon intensity reduction and dairy digester construction totaled $6.5 million during the quarter. With that overview, I will turn the call over to Eric. Eric McAfee: Thank you, Todd. I want to highlight three key takeaways from 2026. First, Q1 was a financial inflection point. We grew consolidated revenue 27% year-over-year, posted positive gross profit, and improved operating loss by more than $9 million. All three of our reportable operating segments contributed to this result. Second, we benefited from the California Air Resources Board approval of seven new Low Carbon Fuel Standard pathways for our renewable natural gas business at an average carbon intensity score of negative 380 compared with a negative 150 default, which has been providing additional revenue at the higher LCFS value each quarter since Q3 2025. Six additional biogas digester pathways are nearing approval. These LCFS pathway approvals substantially expand the LCFS credit generation per MMBtu of RNG produced and will continue to drive meaningful revenue increases as we scale production. Third, our capital projects are advancing. We received the initial deliveries of dairy biogas pretreatment skids in April under our $27 million fabrication contract. Major equipment for the $40 million mechanical vapor compression project at our Keyes, California ethanol plant has arrived on-site and construction has begun. In dairy RNG, we sold 110 thousand MMBtus in Q1, a 55% increase over the same quarter last year. With H2S cleanup and biogas compression equipment contracted for 15 additional digesters, and four of the equipment units already delivered by the vendor, we are on track to double our operating dairy network with construction into 2027. At our ethanol plant, the MBR project is on track for completion later this year. The system will use on-site solar and grid electricity to displace approximately 80% of the fossil natural gas consumption at the plant. We expect MBR commissioning later this year to add approximately $32 million in annual cash flow from operations, including additional 45z and LCFS uplift from the expected reduction in the carbon intensity of the ethanol produced by the plant and cost savings on natural gas. In India, biodiesel revenue rebounded to $10.5 million in Q1 with the resumption of Oil Marketing Company shipments under new contracts. This revenue growth supports our planned initial public offering of the India subsidiary, Universal Biofuels Private Limited, for which we have retained legal, accounting, and IPO advisers. Looking ahead, our focus for 2026 is scaling production, monetizing the stacked credit value of our renewable fuels platform, completing the India IPO, and the refinancing of existing debt into long-term financing. The principal catalysts we are tracking through the year include the publication of the updated 45z GREET model by the Department of Energy to significantly increase revenues and margins, commissioning the MVR at the Keyes Ethanol Plant, rising LCFS credit prices caused by continued quarterly credit deficits, and progress on the India IPO. Thank you to our shareholders, analysts, and partners for your continued support. Operator, let us take some questions. Operator: We will now open the call for questions. Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if you are listening on a speakerphone to provide optimum sound quality. Please hold for just a few moments while we poll for any questions. Your first question is coming from Matthew Blair with TPH. Please pose your question. Your line is live. Matthew Blair: Thanks, and good morning, Eric. Certainly a lot of things going on at your company, but I was hoping you could talk about the possibility of the RD and SAF plant that has been on the table for a few years now, just in light of the very robust 2026 and 2027 RVO that materially increased the biomass-based diesel requirements. How are you thinking about that RD and SAF project? And maybe you could refresh us on how much it would cost and what kind of capacity it would provide. Thank you. Eric McAfee: Thank you, Matt. The capacity is 80 million gallons a year of SAF, or if we run it only in renewable diesel mode, it is 90 million gallons. And as you know from previous reports, we have 10 different airlines we signed definitive agreements with, etc. We got full permitting approval for construction to begin in 2024. However, market conditions in renewable diesel and SAF were hampered by a new president being hired that, of course, happened in late 2024. That caused the financing markets to take a delay in looking at SAF and RD. You have done a very good job covering margins at renewable diesel producers. Just yesterday in California, Phillips 66 announced they are running above their nameplate capacity on their renewable diesel plant. And certainly, the events since March 1 have driven the price of the molecule up substantially. LA quotes SAF in neat form at $9.80 a gallon as of yesterday. So the market conditions have moved in our favor significantly compared to where we were in late 2024 with a new president being hired who certainly had a policy position that needs some clarification. We are definitely in a position right now in which there is frankly a lot of interest in new SAF production. I would say that the uncertainty in the last few months has given a new certainty to the need for domestic production of renewable fuel and a clarity that airplanes are not going to fly on hydrogen, batteries, nuclear power, or any other sort of energy source other than liquid fuels for the foreseeable number of decades. So we positioned this project specifically for the conditions we are in right now: high price of crude oil alternatives and, frankly, coalescing enthusiasm for the renewable version, which is sustainable aviation fuel. So we are definitely making progress on the financing; that is actually the only remaining part of this. We have the authority to construct permit in place for the facility, and market conditions continue to be in favor of that. That 80 million gallons, of course, if we are selling at $9.80 a gallon, is almost $800 million additional revenue. And I think the industry today is reporting roughly $1.60 a gallon of operating margin. So, obviously, a very positive improvement in our company’s overall revenue and EBITDA growth. But I am going to wrap this up by saying that there are actually four different sources of revenue for that plant, and 45z, the clean fuels provision, is still an unknown. We do not have the updated 45z. It is absolutely expected anytime soon, certainly before June, that the Republicans need to post it. And since there are four revenue streams—you sell the molecule, you sell the California credits, the federal credits, and then receive the 45z production tax credit—that is having an impact on the timing of our financing. Most lenders especially are interested in knowing what the 45z revenue is for this project. Federal law is passed. Treasury adopted their guidance in February 2026 for 45z, but the actual calculator on the Department of Energy website is going to be—that spreadsheet needs to be posted with the updated rules in the spreadsheet in order to finalize that fourth leg of the stool. I want to put that note on the table that that is having an impact. Of course, right now, the business works great without 45z, but people are curious to know what your total revenue is if we are doing a project of that size. Matthew Blair: Sounds good. And then the India biodiesel operations—nice to see them restarted in the first quarter. It looks like profitability is essentially breakeven, maybe a little bit below. Could you talk about your expectations for the second quarter? Do you think volumes will be in a similar range as the first quarter? And I think we typically see some margin improvement in the second quarter as you are able to shift different feedstocks. Do you think that will happen in the second quarter this time around? Thank you. Eric McAfee: Thanks, Matt. Let us talk about the overall trend in India, because it is very important for investors to understand that India is a socialist country, and they have elections that occurred in May. In order to support the existing government, a decision was taken by the government to set the price of diesel at the same price in March and in April as it was in January and February. There is no change in the price of diesel. I think most people on this call would understand that the price of diesel and crude oil dramatically increased in both March and April, but in India, it did not. So as of today, when you go to the pump in India, you do not know that the Iranian war happened from the price of the diesel at the pump. That means that the government is running a very large negative from their expected tax collections from diesel, and the Oil Marketing Companies are losing a very large amount of money every single day on selling diesel because they are buying crude oil at high prices and then selling it at prices below cost in India. That is about to change, and it should happen in the next few days that the price of diesel in India dramatically increases. The Oil Marketing Companies and the Ministry of Petroleum have known about this for two months and have been proactively meeting with the biodiesel and renewable diesel and sustainable aviation fuel producers—or to-be producers—in the country in order to come up with a much more solid program for us to be able to utilize all of our production capacity. We have an 80 million gallon plant that has been operating recently at 10% capacity. There has been a renewed focus on domestic renewable fuels in India. With the policies already in place, the National Biofuels Policy is 5% blended biodiesel in a 25 billion gallon market. That is about 1.25 billion gallons. Unfortunately, they are not at 5%; they are at a 0.5% blend right now, and that is rapidly changing. So you asked about second quarter. I would put it in the context of the trend of this year. We are seeing dramatic increases and, frankly, signing larger contracts and going back to the cost-plus contract model, which is what is in process right now in India. During the course of the next few months, I think you will see that kind of certainty come into play. Our IPO is really being built around us working on that reality that those policies need to be known and need to be adopted. We are setting up our IPO to be directly correlated with when those policies are adopted. I think it will have a very positive impact on not only the valuation of our business but how much money we raise. We are seeking for the IPO in India to be truly a breakout opportunity. We are looking to build the first global diversified renewable fuels business ever to go public in India and certainly anticipate that that will be the positioning we have and that the events of the last two months are having a very significant impact on India and focusing them on redirecting themselves to these policies that they have already got in the books but they have not been fully enforcing. Matthew Blair: Sounds good. Thanks for your comments. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Nate Pendleton with Texas Capital. Please pose your question. Your line is live. Nate Pendleton: Morning. Do you provide more color around the financing commentary from the release? Just looking to better understand some of the options that are available to you on addressing the debt broadly. And then more specifically, what are you looking at with regard to Keyes and then the status of the refunding for the dairy RNG projects? Eric McAfee: The improved margins and, frankly, now recovery of confidence in the need for domestic renewable fuels is directly expanding our refinancing opportunities. We have been funded and supported for the last 18 years by roughly a $3 billion fund out of Toronto that holds our senior debt, except for the $50 million of U.S. debt that we have, and our expectation is that we will continue to have very positive trends toward having municipal bond financings available to us. Municipal bonds have been used by the renewable fuels industry for a variety of basically greenfield projects. We, of course, are not greenfield; we are expansion. We are actively in the market right now working on a municipal bond type refinancing of our existing bridge financing we got from Third Eye Capital. The Renewable Energy for America Program at USDA is active, but they have slowed down their expansion in renewable fuels in a portfolio review process. The timing of that seems to be changing on a regular basis. As they make a review of their portfolio goals, they will be expanding or not expanding—it is really quite uncertain, to be frank with you. The rapid expansion of interest in the municipal bond and even commercial credit markets, certainly private credit markets, all of which we have had active discussions with, I think are going to overshadow our Renewable Energy for America Program funding. I think we will be seeing much larger financings and moving much quicker than what the USDA program currently looks like for our company. Nate Pendleton: Understood. Thanks, Eric. And then I just wanted to get your perspective on LCFS prices for a moment. While the market has flipped to deficit generation recently, prices have broadly remained quite muted. Can you talk about your expectations for that market going forward? Eric McAfee: I think we are going to see a rapid price increase during the summer and early fall. What muted the deficit—that is, we had our second quarterly deficit on April 30, and that was for the fourth quarter of last year. So there is a trailing deficit announcement. It is literally four months after the end of the physical quarter when the announcement happens. But the price being muted was an expectation by traders that people would not drive as much with high gasoline prices. Interestingly enough, on a formulaic basis, gasoline currently represents roughly 2% of the income of the average American, and I think traders over-traded on this one. They were not anticipating that the Iranian war would actually not be as big of an impact on driving as what it has—or they thought it would have a bigger impact than what it really did. It did not have as big an impact, especially in California. LCFS credit deficits, however, are not driven just by consumption of gasoline. It is also driven by how many credits come from renewable diesel. Renewable diesel is the reason we got such a large 40 million credit bank, and renewable diesel has underperformed in Q4 last year and the first part of this year. I expect it to underperform in credit generation. So if you have fewer credits being generated, quite frankly, it was a lot more of a deficit than what was expected because there were fewer renewable diesel credits generated. We think the LCFS price trend is absolutely upwards. The question of pace has been impacted by the Iranian war. That play did not quite work out, and so we do expect increases to continue. There are plenty of credits in the market; it is not that issue. The issue is: do you want to pay $200 for it 18 months from now when there are very few in the credit bank? So it is a question of major oil company traders over the next 18 months at some point in time reaching a tipping point at which they decide they do not want to have to be buying $200 credits. They might as well get out there and buy whatever they can on the market. When that happens, you will see a very rapid price rise. I would not be surprised at all to see $150 in 2027 as traders see the cap as $268, and they want to get their book filled up as soon as possible. Nate Pendleton: Got it. Thanks for the color, Eric. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Sameer Joshi at H.C. Wainwright. Please pose your question. Your line is live. Sameer Joshi: Hey, good morning, good afternoon, Eric. Thanks for taking my questions. On the MBR, I understand it is going to be deployed before the end of the year. Are there any additional certifications or verifications needed to be done before you can start generating that $32 million annualized return from it? I know some of it will be immediate because of lower natural gas consumption, but for the other incentive-based cash flows, do you need to do anything? Andy Foster: Thank you for your question. No, there are no additional certifications necessary. We received an authority to construct from the air district, which is really the big number that we have to get crossed off before we can proceed with the project, and that was received last year. We have some local permits that are sort of ongoing as you do construction, but we do not have any requirements for additional permitting or authorization in order to proceed. Construction has begun. We have begun demolition on existing concrete structures. As Eric mentioned in his comments, we have received most of the major equipment stateside now. We received the turbofans from Germany last week. The main evaporator was received from PRASH in India about a week ago. It is currently in transit to the Keyes plant. All of the big-ticket items that take a long time to fabricate are either on-site or will be on-site within the next week or so. Sameer Joshi: Got it. Thanks for that, Andy. Moving to the India OMC activity there—thanks for the color that you provided, Eric, to the previous question. But in terms of pricing that will be available for you, do you expect it to be premium pricing relative to what you got in the last year, for example, or are getting currently? Eric McAfee: Yes, there is definitely premium pricing, actually. The next contract is already being discussed. The structure of a cost-plus contract—which we did $112 million of revenue and about $14 million of positive cash flow last time we had a cost-plus contract—is being strongly considered as a replacement for what they have done in the last couple of years, which was this uncertain sort of pick-a-number-and-see-what-happens kind of structure. We covered this a couple of years ago with investors, but just a reminder: the cost-plus structure was after many years of working with the government to come up with something that was going to expand capacity utilization in India. It worked very well. Then the India government passed a 20% tariff on the feedstock that was being used by the industry, and therefore the price of the formula went up 20% after they had issued us a contract. The Oil Marketing Companies did not want to take a loss, so they just did not take delivery. That created confusion in the market. That confusion has now gotten more clarified because of the very high-cost diesel and the need for them to start getting utilization in the biodiesel industry, and that is the resolution that is being worked out right now. We do expect to return to better conditions for full capacity utilization. India imports over 90% of its crude oil and really needs to expand its domestic production of renewable fuels. Sameer Joshi: Understood. Thanks for that. And then just one last one. You did mention you got seven LCFS pathways approved for the negative 380. Six are being worked on. Should we expect those to occur in the first half, or is it a second-half event? Eric McAfee: There is a strange delay in the process. We expect the approvals to occur, but then they are a look-back a couple of quarters. If we get an approval, for example, at the end of the fourth quarter, it is a look-back to the beginning of the third quarter. So an approval by December is actually effective July 1. Strange situation, but the reality is, yes, we do expect by the end of the year to see appropriate progress here with a look-back that looks like a six-month look-back because they do it the quarter after the closing of the quarter. We will keep the market apprised of progress here, and of course, we are focusing on moving it through the process as quickly as possible. Sameer Joshi: Understood. So that would potentially be a lump sum that you get if it is approved in the fourth quarter for the previous quarter? Eric McAfee: Yes, there might be a one-quarter catch-up, but in essence, it is just the delayed approval for the previous quarter—the way the government looks at it. Sameer Joshi: Thanks a lot. Thanks for taking my questions. Eric McAfee: Thank you, Sameer. Operator: Your next question is from Dave Storms with Stonegate. Please pose your question. Your line is live. David Joseph Storms: Good morning, and thank you for taking my questions. I wanted to stick with the dairy digesters. I believe you mentioned on the call you are expecting another 15—doubling your digesters by 2027. Can you just remind us when you actually get the investment tax credits related to those investments, and maybe just your thoughts around the monetization of those net credits? Eric McAfee: Good question. We get the tax credits upon the completion—the what they call in-service date—for each single digester. So we do not have to build all 15 of them and then add six months to that or anything. As we build each digester and it goes in service, we generate the section 48 investment tax credits. We have sold about $95 million of these tax credits. We tend to sell them in $5 million or higher increments, though that is not absolutely required, and we do expect to have a single party this year acquire each one of the investment tax credit projects that we generate. We will be seeking to do at least once a quarter. There is a potential to do it more than once a quarter depending on how many new units are completed. We expect this to be probably a third-quarter contribution but could be quicker than that. The market is moving quickly, and we have some refinancing activities going on that certainly are very positive for the business. We have already fully financed the construction of $27 million of H2S and compression skids. The process is going on; we have received four of them already and have more coming. We are rapidly executing on portions of this project right now. The investment tax credit delay is a month or so after the in-service date if we were doing it in the ordinary flow of business, so not a whole lot of delay between when the project is completed and when we get the cash. David Joseph Storms: Understood. That is very helpful. And then just sticking with those potential new digesters, do those come online at the negative 380 qualification status? Or how does that process look? If they do not come on at the negative 380, what do you think the current timeline is from the negative 150 to the negative 380? Andy Foster: Are you speaking about the new digesters that are not built? Correct. Given the temporary pathway score of negative 150, then once we go through the process with CARB—which hopefully now that they have moved to a Tier 1 approval process will be significantly shorter than what we have experienced in the last few years, which is this kind of 24- to 36-month approval process—it should be more like nine months. Then we would get the benefit of that higher—or lower, however you want to look at it—CI score. So initially it is a negative 150, and as you work your way through the approval process, then you go to the blended rate of the negative 380. David Joseph Storms: That is perfect. Thank you for taking my questions. Eric McAfee: Thank you, David. Operator: Your next question is coming from Ed Woo with Incendiant Capital. Please pose your question. Your line is live. Edward Moon Woo: Yeah. Congratulations on all the progress, guys. My question is, as we are getting closer to the India IPO, what are your priorities, or what have you allocated in terms of what you are going to do with the capital raised? Eric McAfee: The India IPO is primarily designed to support the expansion of the existing projects in India and in California. Our existing projects in California, specifically focused on dairy RNG, would be a use of some of the proceeds of our India business. That is one of the reasons why it will be the first global diversified—not just biodiesel, but multiple different fuels—company to go public in India that offers the India investor access to a very well-established incentive environment here in California called the Low Carbon Fuel Standard. The federal government support of the Low Carbon Fuel Standard in California is matched by the Renewable Fuel Standard at the federal level and the 45z production tax credit and the value of the molecule. So the Indian investor has access to arguably one of the best markets in the world for renewable fuels, and that is a diversification of the growth in the India business. Another point we have made publicly is that as the largest biodiesel producer in India, we happen to be very well-positioned to build the conversion of a biodiesel facility into sustainable aviation fuel. So our India IPO not only is biodiesel and dairy renewable natural gas, but also a conversion into a SAF producer in India in addition to expanding biodiesel. It is a diversified business. The India market is very deep and wide and right now is about to have the shock of its diesel life with an incredible percentage increase in diesel costs as a result of what has been going on in the world. It is a perfect storm in favor of us as a producer in India who has been there for 18 years to open our opportunity to the public markets. We are making excellent progress, and certainly market conditions will determine the actual timing of what we do, but market conditions are trending in our direction. Edward Moon Woo: Great. Well, thanks for answering my questions, and I wish you guys good luck. Eric McAfee: Thank you, Ed. Operator: There are no further questions in queue at this time. I would now like to turn the floor back over to Eric McAfee for closing remarks. Eric McAfee: Thank you to Aemetis, Inc. stockholders, analysts, and others for joining us today. We look forward to talking with you about participating in the growth opportunities at Aemetis, Inc. Todd Waltz: Thank you for attending today’s Aemetis, Inc. earnings conference call. A written and audio version of this earnings review will be posted to the Investors section of the Aemetis, Inc. website. Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.