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Operator: Good day, and welcome to the InfuSystem Holdings, Inc. Reports First Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Glenn Axward, Investor Relations. Please go ahead. Glen Akselrod: Good morning, and thank you for joining us today to review InfuSystem's First Quarter 2026 Financial Results ended March 31, 2026. With us today on the call are Carrie Lachance, Chief Executive Officer; and Barry Steele, Chief Financial Officer. After the conclusion of today's prepared remarks, we will open the call for questions. Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of InfuSystem during this conference call constitute forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. Except for statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under the Risk Factors in the documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2025. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. InfuSystem does not undertake and specifically disclaims any obligation to update any forward-looking statements, except as required by law. Now I'd like to turn the call over to Carrie Lachance, Chief Executive Officer of InfuSystem. Carrie? Carrie Lachance: Thank you, Glen, and good morning, everyone. Welcome to InfuSystem's First Quarter Fiscal Year 2026 Earnings Call. Thank you all for joining us today. I will provide a first quarter overview, highlighting key initiatives and updating our progress on strategic priorities. Then Barry will provide a detailed summary of our financial results. I will then come back with some closing comments before opening the line to questions. Today, we reported first quarter of 2026 revenue of $33.7 million. This represented a decline from our prior year of just over $1 million on a GAAP basis, but a 1.7% increase on a pro forma basis. The GAAP reduction was mainly driven by the restructuring of our biomedical services contract with GE Healthcare, which reduced revenue by $1.6 million during the first quarter and is the basis for the adjustment to providing pro forma revenue. As we reported on our last two earnings calls, this restructuring improves our earnings because it allowed for an even larger reduction in direct contract expenses. Despite the decline in revenue, we generated approximately $6.4 million in adjusted EBITDA this quarter. Roughly in line with the prior year, resulting in a modest improvement in adjusted EBITDA margin to 18.9%, up from 18.2% in the first quarter last year. Behind these results are two very important initiatives that warrant the progress update. First, we continue to expand our wound care product category. During the first quarter, Wound Care net revenue came in at $2.1 million. While the number is still small, representing only 6% of our total quarterly revenue, we are excited about the growth rate, which was more than double the prior year at just under 112%. About 60% of the growth came from our compression device product line, which we recently added during the third quarter of last year. This product line was expanded with the launch of a second compression device supplier during the first quarter of 2026. The first manufacturer relationship brought us pneumatic compression devices or PCDs, which use sequential compression technology to treat patients with lymphedema and similar disease states. The additional supplier now adds adjustable compression wraps, which feature vicryl closures that are easier for patients with limited mobility as compared to traditional products such as compression stockings. Adjustable compression wraps represent a significant expansion of our addressable market as they serve a diverse patient demographic ranging from simple postsurgical recovery to lifelong management of chronic disorders that may not qualify for other treatments such as PCDs. The second key initiative I'd like to update you on reached a very important milestone during the first quarter. Sunday, March 1, 2026, was a very busy day for the team here at InfuSystem. After 20 months of intense meetings, data compilation and endless process analysis and testing, live transactions started running in our newly installed enterprise resource planning system, our ERP. As is fairly typical for these type of projects, the first month wasn't entirely seamless, and we continue to work out initial bugs and make the necessary adjustments to stabilize the system. However, I'm happy to report that we successfully cleared the go-live hurdle and are charging forward to secure the benefit of the new system that we have been looking forward to implementing over these many months. This marks a very significant milestone for InfuSystem. After putting this application in place and retiring several legacy systems, much of our data is now integrated, workflows are connected and the many processes supporting our various business lines run through a common platform, not multiple disparate systems. While we continue to make final adjustments, resolve open items on the punch list and get over the learning curve, we are starting to focus on capturing the benefits that we anticipate will start to pay back our investment. These benefits are expected to come in many forms and include improved ability to complete tasks with greater productivity, better cost and margin analysis to focus on high-return cost optimization initiatives, improved visibility to support pricing decisions, improved utilization of our medical device fleet and optimization of working capital levels. Additionally, we are already working to identify system enhancements and we will implement those that provide the fastest payback and highest investment returns. As we look forward to the rest of the year and after adjusting for the expected $7.1 million lower annual revenue related to the GE Healthcare contract restructuring, on a pro forma basis, we continue to anticipate annual revenue growth in the range of 6% to 8%. Additionally, we continue to anticipate that our adjusted EBITDA margin will remain in the low to mid-20% range. This is inclusive of the impact of costs related to our ongoing information technology systems upgrade. We are excited about the opportunities ahead, and we'll look to update you again in future quarters. Now I'll turn it over to Barry for a detailed review of the first quarter financial results. Barry? Barry Steele: Thank you, Carrie, and thank you, everyone, on the call for joining us today. I'm going to give details of the current quarter's results, provide a few updates on the ERP spend and update you on our current financial position and how it changed during the quarter. Now let me start with our financial results for the period. During the first quarter of 2026, our net revenue totaled $33.7 million, representing a $1 million or 3% decrease from the prior year first quarter. Adjusting for the GE Healthcare contract restructuring, our pro forma net revenue grew by 1.7%. Patient services net revenue increased by $1.3 million or 6.4% and included increased patient treatment volumes in oncology and wound care. Oncology net revenue increased by approximately $450,000 or 2.4% and wound care treatment volumes revenue grew by $1.1 million, which represented an increase of nearly 112%, driven by compression devices, as Carrie mentioned. Device Solutions net revenue decreased by $2.3 million or 17%. Nearly 70% of the decrease was attributable to the GE Healthcare contract restructuring. The remaining amount of the decrease, which was about $760,000 was due to lower rental revenues and lower equipment sales of $432,000 and $1 million, respectively. Both of these decreases are related to a large customer rental buyout that began in the prior year. The buyout, which started during the prior year first quarter, elevated the amount of equipment sales in the prior year and reduced quarterly rental revenues during the subsequent quarters, including the current 3-month period. These reductions were partially offset by an increase in the non-GE related biomedical services revenue of $340,000 and higher disposable medical supplies revenue, which also increased by $340,000. Breaking down the biomedical services revenue a little further, we see that our field-based services grew by nearly $600,000 after adjusting out the GE Healthcare revenue decline. This underlying increase demonstrates partial success in replacing lost GE revenue. Furthermore, as you will see when I get to discussing gross margin, the benefit to earnings for this trade-off was rewarding. Despite the decrease in net revenue, gross profit for the first quarter of 2026 was $19.7 million, representing an increase of $515,000 or 3% over the prior year first quarter. The gross margin percentage at just over 58% increased by 3.2% from the prior year amount. At the segment level, patient services gross profit increased by $1.3 million and gross margin increased by 1.3% to 64.8%, driven by the higher sales and reduced pump disposal and maintenance expenses. Device Solutions gross profit declined by $623,000, mainly due to the lower amounts of rental and equipment sales revenue, but the gross margin increased by 3.4% to 46.3%. The greatest contributor to this improvement was the aforementioned trade-off between GE Healthcare and smaller field service projects, which despite resulting in an overall decline in revenue netting to just over $1 million, contributed nearly $400,000 of additional gross margin, resulting in a more than 7% increase in device services gross margin. This benefit was partially offset by unfavorable revenue mix and higher wage and employee health care expenses, which reduced the gross margin by nearly 2% and 2.5%, respectively. Selling, general and administrative expenses for the first quarter of 2026 totaled $17.9 million and was $418,000 or 2.2% lower than the prior year first quarter amount. The prior year amount included a nonrecurring expense related to the departure of our former CEO of $1 million. Additional reductions included a $300,000 reduction in the accrual for management bonuses, lower accounting fees totaling $200,000 and $100,000 in reduced travel expenses. These decreases were partially offset by increases in other expenses, including $400,000 in increased expenses related to information technology and business applications upgrades, including the replacement of the company's ERP that Carrie discussed. Additional personnel directly related to increased Patient Services net revenue, including revenue cycle personnel totaling $300,000, a $100,000 increase in stock-based compensation expenses and cost inflation impacts from increased employee wage rates and higher health care expenses totaling $400,000. The ERP system upgrade project expenses were higher during the current period due to the higher intensity of activities related to the go-live phase of the project, which, as Carrie mentioned, occurred on March 1, 2026. While additional costs are expected to be incurred during the post go-live phase to support system stabilization and enhancement activities, project expenses are expected to begin to taper down during the future quarterly periods. Similar to impacts to gross margin and selling and marketing expenses, higher wages were the result of typical annual merit and cost of living increases. However, the increase in cost of health care benefits, which in total increased by $374,000 during the quarter were significantly higher than the increases experienced in the prior years. Adjusted EBITDA during the 2026 first quarter was $6.3 million, which, despite the lower net revenue was about the same amount as the prior year first quarter. This represented 18.9% of net revenue for 2026, which was slightly above the prior year rate of 18.2%. These amounts included the spending on our ERP project, which, again, is expected to start to decrease by the end of the second quarter here in 2026. Now a few comments on our financial position and capital reserves. During the first quarter, we generated operating cash flow of $970,000, which was $817,000 less than the prior year first quarter, mainly due to higher increases in working capital in 2026. Our net capital expenditures were $1.3 million during the 2026 first quarter, which represented a decrease from $2.6 million spent during 2025. This decrease was attributable to our overall capital spending requirements being lower as compared to amounts in prior years as the sources of our revenue growth have been more weighted towards less capital-intensive revenue sources, including additional wound care revenues. We expect moderate amounts of capital expenditures to continue in 2026 similar to 2025. We remain well positioned to fund continued net revenue growth with a strong cash flow from operations backed by significant liquidity reserves available from our revolving line of credit and manageable leverage and debt service requirements. Our net debt increased slightly by $1.1 million during the quarter, and we repurchased over -- just over 800,000 of our common stock during the quarter through our stock repurchase authorization. Our available liquidity continues to be strong and totaled just over $57 million as of March 31, 2026. At that time, our ratio of net debt to adjusted EBITDA was a modest 0.56x. Our debt consists of $20 million in borrowings on our $75 million revolving line of credit with no term payment requirements and a maturity date of July 2030. We continue to benefit from an outstanding interest rate swap, which fixes our interest rate on the $20 million of our outstanding borrowings at a below market rate of 3.8% until April 2028. I will now turn the call back over to Carrie. Carrie Lachance: Thanks, Barry. As I reflect on the progress we have made during the first quarter, the update shared with you today and what we are focused on as we move through the rest of 2026, I hope you will agree that we continue to be diligent in pursuing the strategic priorities previously laid out for our shareholders. Those priorities are to execute with discipline, deliver profitable growth and drive long-term value creation for shareholders. Operator, we are ready for the Q&A portion of the call. Operator: [Operator Instructions] And the first question will be from Anderson Schock from B. Riley. Anderson Schock: Congrats on all the progress. So first, the ERP went live at the start of March. Can you talk about how the conversion is going? Have you seen any billing or collections disruption or impact on the working capital? And when do you expect the cost step down to begin showing in the P&L? Is it more second or third quarter weighted? Barry Steele: Yes, I'll take that one, Carrie. The -- as any ERP implementation, we definitely had our glitches that we dealt with. It affected a number of different areas. We do not think that anything is going to cause any disruptions in our cash flow or billings or anything like that. So we think we're pretty good. It's more kind of working out some of our processes and making them as efficient as they are expected to be. As far as the long-term outlook for the impact of the system, Carri mentioned a lot of the benefits that we can see sort of from a summary perspective. We believe that still going through the learning curve, still fixing a few glitches. By the end of the year, we'll be able to, I think, articulate very well and have plans in place for going and getting the cost savings that the system should be able to provide to us. And I believe that next year, we'll see some of that actually pay off, and we'll start seeing the expenses that we have today reverse to the actual proceeds from the reduced reduction in costs. Anderson Schock: Okay. Got it. And then on the last call, you indicated oncology would begin migrating to the Apollo-based RCM platform in the back half of the year. Now that the ERP is live, is the time line for oncology RCM migration shifted? Carrie Lachance: Yes. No, it should still be -- thanks for the question, Anderson. It should still be kind of second half of the year. That is some of the progress and why we decided to be second half of the year and delay that just a little bit to get the ERP behind us and some of those continued kind of processes through the ERP improvements in the system. So it is on track to hopefully finish up by the end of the year, but we've started to begin that process. Barry Steele: I would just add, we use a lot of internal resources for the ERP. There are a lot of the same resources that this other conversion will require. So that's why we had to stagger that. Anderson Schock: Okay. Got it. That's helpful. And then on the new oncology customers signed in the back half of last year, could you give us a sense of the typical ramp curve for a new hospital system? And specifically, how much of the contract volume signed in the back half of '25 has shown up in the first quarter versus what's still to come? Carrie Lachance: Yes. We can see sometimes in a new oncology account, they could have several hundred patients. A lot of times, that process will -- the newer patients will start to come on board, but the older patients that are on their older device, say, in elastomeric, for instance, they'll finish out their continued therapy and the rest of their cycles on that same device. So it can take from a month or two depending on how many new patients they have through a few months. We are pretty well on board with that newer customer from last year. Operator: The next question will be from Jim Sidoti with Sidoti & Company. James Sidoti: So with regards to lymphedema, this isn't the first time you've been in that market. Why do you think you're doing better this time than in previous attempts? Carrie Lachance: Yes, it's a great question, Jim. The difference today is really our partnerships. So we have a new partner that came on board, as we mentioned, third quarter -- fourth quarter, excuse me, of last year, really strong partnership with them. They bring us the PCDs. The partnership that we had a few years ago when we tried this, we need the paperwork. We need clean referrals. We need all of the ability to bill those claims, and we weren't receiving that during that prior start of our PCD and compression go-live. And so the new partner that we -- that we onboarded in Q4 of last year has been very strong. We continue to grow and stabilize and even improve that relationship. As well as Q1 this year, we have another compression opportunity there and very, very strong relationship there, and we're looking forward to growing them for the rest of the year. James Sidoti: Great. And can you talk a little bit about pain management? I know there's some reimbursement changes. Have you seen any impact from that? And where do you think pain goes in 2026? Carrie Lachance: We haven't yet seen. There's definitely been some changes in that market. We're pretty excited about that. We do work with our current manufacturers that are in that space to continue to grow. We're working closely with one of our partners on one of the pumps. They're growing their pain team and including some of our third-party payer opportunities as part of their bag and what they're offering for their customers. So we're excited for the year. We haven't seen a lift as of yet. We did add a decent-sized customer over the past couple of months in Q1 of this year. So we continue to be excited for pain management and see what the changes in the market will hold this year. James Sidoti: And I know you don't like to give quantitative guidance on cash flow. But just qualitatively, I mean, can you just give us some direction? Do you think it will be up materially from last year, about the same? Barry Steele: I would say about the same. I think that the operating cash flow and how we spend it probably be similar. Operator: And the next question will come from Matt Hewitt with Craig-Hallum Capital Group. Tollef Kohrman: This is Tall Kohrman on for Matt Hewitt. Apologies if you already stated it. I've been going through different calls here this morning. So can you provide an update on Chemo Mouthpiece, please? Carrie Lachance: I sure can. So Chemo Mouthpiece did not receive their current application for coding that was submitted in 2025 was due out in early of 2026. They did not receive approval for that code. So as we mentioned, as you may remember last year, we did take that out of kind of our pipeline moving forward. It was not in our guidance for this year. So we do still have clinics that do love the program. CMP continues to work on reimbursement opportunities for them. So we are still providing that device to patients. We're working with them currently and some of the patients, but I wouldn't expect it in our guidance. And they are looking -- we may look to slow down on some of the referrals for that just until they get some coding. Operator: [Operator Instructions] The next question will be from Benjamin Haynor with Lake Street Capital Markets. Benjamin Haynor: First off for me, just with Wound Care, nice to see the trajectory you guys are on there. With it being 6% of revenue now, it looks like that's on its way to double digits. How should we think about that? How quickly does it get there? What could this ultimately be? Any sort of color that you could provide there would be very helpful? Carrie Lachance: Yes, that's a tough question, Ben. We're really excited for the growth and the opportunities that we're seeing ahead. Again, a few new partnerships in compression have been really beneficial for that product line there. I would say with the lymphedema Patient Treatment Act that came out in reimbursement, we are seeing and the market is seeing some growth in that compression space and a good CAGR for that market. So we are looking forward to continuing into that as far as Barry. Barry Steele: I would only add that when we gave our guidance, obviously, the Wound Care is a very important element to the growth that we're expecting for this year. And as we look at where we would fall into our range, if we fall into the higher end of the range, it's probably going to be PCDs or the compression devices that help us get there, very important for us. Benjamin Haynor: Okay. Got it. That's helpful. And then just with the CMS putting the prior auth requirement in or policy in, I think it kicked in April 13 for these PCDs. Is that something that has impacted you guys in any way, collecting the paperwork? I know that was an issue historically with prior partners, but any issues on that front? Carrie Lachance: No, I think that's so great about our current partnerships that we do have in that space. We are receiving the appropriate paperwork that we need to build. The nice part is it's not a change for our current customers that we have. Again, we're a little bit newer to this space. So it's not a change we're going to ask for something that's abnormal for us to ask for. So it's just part of the process that we're really kind of growing with. So no hesitations from us there. Operator: And ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back to Carrie Lachance for any closing remarks. Carrie Lachance: Thank you, and thank you, everyone, for joining today's call. We look forward to speaking with you again on our second quarter call, where we will provide an update on our results and progress. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the DiaMedica Therapeutics First Quarter 2026 Earnings Conference Call. An audio recording of this webcast will be made available shortly after the call today on DiaMedica's website at www.diamedica.com in the Investor Relations section. Before the company proceeds with its remarks, please note that the company will be making forward-looking statements on today's call. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these statements. More information, including factors that could cause actual results to differ from projected results appear in the sections entitled Cautionary Statement Notes regarding Forward-Looking Statements in the company's press release issued yesterday under the heading Risk Factors in DiaMedica's most recent annual report on Form 10-K and most recent quarterly report on Form 10-Q. DiaMedica's SEC filings are available at www.sec.gov and on its website. Please note that any comments made on today's call speak only as of today, May 7, 2026, and may no longer be accurate at the time of any replay or transcript rereading. Please -- following management's remarks, we will open the phone lines for questions. I would now like to introduce your host for today's call, Rick Pauls, DiaMedica's President and Chief Executive Officer. Mr. Pauls, you may begin. Dietrich Pauls: Thank you, operator, and thank you all for joining us today. With me this morning are Dr. Julie Krop, our Chief Medical Officer; and Scott Kellen, our Chief Financial Officer. Given that our last call was only 5 weeks ago, we'll try to keep our remarks short. We are pleased with the progress we've made so far in 2026 as we continue to advance DM199 across both our preeclampsia and acute ischemic stroke programs. Most importantly, for our shareholders, we're poised to deliver multiple clinical milestones between now and the end of 2027, all of which could provide significant validation of the value of DM199. We also weigh the risks and advantages of providing interim updates as clinically meaningful data emerges ahead of formal readouts. We're particularly interested in completing the interim analysis for our stroke program. We've been working diligently on the ReMEDy2 stroke trial for a long time, battling through some significant challenges emanating from the COVID pandemic. With enrollment having surpassed 70%, we expect that the interim analysis will validate all of the hard work that has gone into the program. I now turn the call over to Julie to provide additional detail on our preeclampsia and stroke programs. Julie Krop: Thank you, Rick. In the Phase II investigator-sponsored trial, enrollment is near completion in the extension cohort for the Part 1a dose escalation study in late-onset preeclampsia patients. Late onset patients are planned to deliver within 72 hours. This cohort will allow us to detect the dose or doses we plan to use for the upcoming cohorts of the IST. We expect to complete this cohort and provide a data update later this quarter. As you may recall, the interim results from this study demonstrated DM199's potential to reduce blood pressure and improve placental perfusion without crossing the placental barrier. While we only have data in a relatively small number of patients, the results we observed were highly consistent and encouraging. We look forward to sharing the data from the extension cohort to further support the interim results. Additionally, learnings from Part 1a are guiding protocol amendments for the 2 remaining preeclampsia study groups. The first group referred to as Part 1b is an expansion study with up to 30 additional late-onset preeclampsia patients who will receive DM199 as a continuous IV infusion until delivery. In this cohort, we hope to learn more about the ability of doctors to use DM199 to effectively support blood pressure control management at this late stage of the disease. The second part referred to as Part 2 will study up to 30 early onset preeclampsia patients. Three doses will be evaluated to support dosing for a Phase III trial and an optimal dose level to extend the time mom is able to carry the baby, increasing the gestational age at the delivery. As you've seen in our investor presentations, the medical complications for the baby are expected to decrease significantly the longer mom carries the baby. With the potential for DM199 to help manage blood pressure and improve blood flow to the placenta, we believe DM199 has a chance to be a transformative therapy for preeclampsia. Initiation of these 2 preeclampsia cohorts which will recruit concurrently, is expected to begin after the completion of the ongoing Part 1a extension cohort. The IST also includes a study in women experiencing fetal growth restriction. In this group, we will be evaluating the effects of DM199 on fetal growth restriction in patients without preeclampsia. FGR is a condition with diminished fetal growth due to a poorly functioning placenta, the life support system of the unborn child. FGR is the leading cause of stillbirth and for infants that survive the FGR pregnancy, it is associated with enduring adverse health effects over the child's lifespan. In this cohort, we will evaluate the potential for DM199 to increase placental perfusion and improve fetal development. Enrollment of the first patient for this study is expected in the current quarter. In parallel with the IST, we are advancing our global Phase II study in early onset preeclampsia. We intend to conduct this study in North America, both the United States and Canada and the United Kingdom. In March 2026, we received approval from Health Canada to initiate this study and study sites have been selected. We are working to initiate enrollment in Canada by the end of this year. We expect to file a clinical trial application in the U.K. in the current quarter. With respect to the status of the IND submission in the United States, as we discussed previously, the FDA requested an additional nonclinical 10-day modified embryo fetal development and pre- and postnatal development study in a rabbit model. Results of a non-GLP dose-ranging study in rabbit suggest that the animals developed an adverse immune response to DM199, preventing us from completing the requested modified pre- and postnatal development study in a rabbit model. We have proposed to the FDA performing this study in a second rodent model and are awaiting their response. That said, I would highlight for everyone that we are moving forward in parallel with the study in Canada and are planning to add U.K. sites while we complete any additional preclinical work requested by the FDA. This study will evaluate 3 dose groups of DM199 in patients with early onset preeclampsia to further establish safety, pharmacokinetics and pharmacodynamics in a more ethnically diverse patient group prior to initiating a registration study. Turning now to our stroke program. We are encouraged by the continued progress on the ReMEDy2 trial. Enrollment has now surpassed 70% of the target required for the interim analysis. Site activations and enrollments have recently commenced in Europe as well. In addition to the United States, Canada and the U.K., we've added 6 additional European countries and now have approximately 70 sites activated. In April, we sponsored an investigator meeting for our European study team that was well attended and had many productive sessions and discussions, which we believe are the key to getting the study teams excited about and focused on patient enrollment. And we are reiterating our intention to complete the interim analysis by the end of 2026. As a reminder, in the Phase II ReMEDy1 stroke study, treatment with DM199 was associated with clinically meaningful improvements in functional outcomes for the patient group that most closely resembles the patients enrolling in our ReMEDy2 trial. In the subset of patients that did not undergo a thrombectomy, we observed a 15% absolute increase over placebo in the proportion of patients achieving favorable recovery as measured by a score of 0 or 1 on the modified Rankin Scale. Furthermore, ReMEDy2 is enrolling patients presenting with moderate stroke severity defined as an NIHSS score between 5 and 15. Looking at that subgroup in the ReMEDy1 study, there was a 19% absolute improvement over placebo in functional outcomes. There was also a 50% reduction in the number of patient deaths and a 13.3% reduction in recurrent strokes compared to placebo. These data inform the design and powering assumptions for the ongoing ReMEDy2 trial. I think you can understand why we are eagerly awaiting the results of the interim analysis. Let me now turn the call back to Rick. Dietrich Pauls: Thanks, Julie. I'd like to now ask Scott to review the financial results for the quarter. Scott Kellen: Thank you, Rick, and good morning, everyone. We announced our first quarter 2026 financial results and filed our quarterly report on Form 10-Q yesterday after the markets closed. As of March 31, 2026, our cash, cash equivalents and short-term investments were $51.3 million, current liabilities were $5.7 million and working capital was $46.6 million compared to cash and investments of $59.9 million, current liabilities of $5.1 million and working capital of $55.5 million as of December 31, 2025. We anticipate that our current cash and investments will be sufficient to fund our planned clinical studies and operations through 2027. Net cash used in operating activities for the first quarter of '26 was $9.1 million compared to $7.1 million for the first quarter of 2025. The increase in cash used in operating activities resulted primarily from the increased net loss for the current year period, partially offset by changes in operating assets and liabilities during the current year quarter. Turning to the income statement. Our research and development expenses increased to $8 million for the 3 months ended March 31, 2026, up from $5.7 million for the same period in the prior year. The increase is due primarily to the increased costs resulting from the continuation of our ReMEDy2 clinical trial and its global expansion, the expansion of our clinical team and costs related to additional reproductive toxicity testing being performed in support of our PE program in the United States. These increases were partially offset by net cost reductions in manufacturing development activity related to work performed and completed in the prior year period. We expect that our R&D expenses will moderately increase in future periods relative to recent prior periods as we continue our ReMEDy2 trial and continue to advance our DM199 clinical development program into PE. Our general and administrative expenses were $2.5 million for the 3 months ended March 31, 2026, and 2025. While small changes occurred within a number of expense categories, the differences were not material individually or in the aggregate and the overall net changes offset each other. We expect G&A expenses to remain relatively consistent in future periods as compared to recent prior periods. With that, let me ask the operator to open the lines for questions. Operator: Your first question is from the line of Josh Schimmer with Cantor. Joshua Schimmer: The preeclampsia data updates that we'll get this quarter for the late onset cohort, what incremental observations should we be looking for beyond blood pressure control? Obviously, preeclampsia can affect urine output, kidney function, liver function platelets and biomarkers like sFlt. At what point will you have data to share on those parameters? Dietrich Pauls: Yes. Thanks, Josh. So the expansion cohort that we're running is going to be 12 additional patients. We're almost completing that right now. It's going to be at the cohort 10 from the Part 1a. And so it's really just going to give us additional clarification here, particularly on blood pressure, dilation of the intrauterine arteries. At this point, we're really not expecting any changes in some of the biomarkers like sFlt because these patients really only got 2 doses. It's really we believe that having the drug on board for ideally a week, 2 weeks that we really would see some of those biomarkers improve. Joshua Schimmer: Okay. Got it. So I think at one point, the lead investigators suggested that there was an improvement in edema at the very least maybe might be something that can improve within a short period of time. Is that something you're looking for? Dietrich Pauls: Yes, that's something that if there is an improvement in endothelial health, and it is something that Dr. Cathy Cluver very clearly seen in some of these patients that the edema did resolve even within 12 to 24 hours of getting DM199, which is encouraging. It's a small number of patients, but we'll be looking to see maybe there's some additional insight there as well. Joshua Schimmer: Just a couple of other quick questions, if I may. What are the steps to start initiating enrollment in the early onset preeclampsia study? Why is that not going to occur until later this year? Dietrich Pauls: Yes. Julie, do you want to take that one? Julie Krop: Yes. Are you referring to the IST cohort? Or are you referring to the -- to our sponsored trial? Joshua Schimmer: Sponsored trial. Julie Krop: Yes. We are in the midst of getting our dosing data from -- again, from the IST study before we select our final doses for that protocol as well as getting sites contracted up and running and our CRO selection process, all of that completed and then we'll be initiating. So it's a combination of factors, but we should be again in Canada later this year. Joshua Schimmer: And then last sorry... Dietrich Pauls: Sorry, if I can add. And so importantly, as we mentioned, so we have selected the 2 sites in Canada and one site in particular, is already in our stroke trial. So we're looking forward to leveraging the relationships, the existing contract that we have to basically doing what we can to expedite and get those sites activated as soon as we can. Joshua Schimmer: Got it. And then last question, timelines for completing the second animal toxicology study and then ultimately reengaging with the FDA for IND. Dietrich Pauls: Yes. So it will really depend on the feedback that we get from the FDA. And so it is a rat study that we proposed. And if they agree to that, that's a matter of a few months, probably 3 to 4 months to complete. And so again, while that's all happening, we'll be running the Phase II in Canada and then expanding to the U.K. Operator: Your next question is from the line of Stacy Ku with TD Cowen. Stacy Ku: So we have a couple of questions. So I guess, first, follow-ups. When could you expect to hear from the FDA on the mouse study? And is there a possibility the FDA could ask for another animal model? And how are you looking to prepare for all these different scenarios? It sounds like the rat study is pretty straightforward, but just help us understand how you view the next 2 necessary steps. And again, just to clarify, it sounds like you are expecting a potential study initiation of the global Phase II by year-end. Just want to make sure you're reiterating that time line. And then we're looking forward to the updated preeclampsia results in Q2. But as we think about the early onset preeclampsia or fetal growth restriction subgroups of the IST, could we think about any potential for low-dose updates by year-end for either of these groups? And then, Julie, just a clarification again, what is the timing of potentially starting the early onset preeclampsia IST? And then last, just a reminder, what's the go and no-go decisions on the interim results for stroke? I can repeat some of these questions. Dietrich Pauls: Okay. Great. So we'll try to take those. I'll start off here. Maybe Julie, you can help me out here. So in terms of the -- we did our submission to the FDA over a month ago. And so we're just waiting to hear the feedback. So as soon as we get clarity from the FDA, we'll provide an update. We have looked at alternative kind of backup plans in case they want something different. But we think we've got a very strong rationale for the proposed rat study. And I think it's encouraged that the Health Canada has already approved us to start the trial in Canada. With the PE trial in terms of, yes, potential that we could get some data as soon as we have a cohort that's completed and we see some compelling data, we would look at potentially press releasing or getting that at a late-breaking conference. And the last question that you had with regards to the outcomes of the interim analysis for the stroke program. First, we'll do a futility analysis. So if there's not a drug effect, we'll terminate. Otherwise, there'll be a resample size. And the resample size will be between 300 and 700 patients. And we believe if we see a drug effect comparable to what we see from our Phase II, which is comparable to the data we've seen with the data with the human urinary form in China, and there's about 1 million patients either being treated with that form. We would look at completing the enrollment in the following quarter. Operator: Your next question is from the line of Thomas Flaten with Lake Street. Thomas Flaten: Rick, just following up on that last response, just to clarify, given that you've got 70-plus sites and 70% enrolled, if you -- when you said we're going to complete enrollment in the following quarter, do you mean the first quarter of '27 or the -- which quarter were you referring to on the full enrollment? Dietrich Pauls: Yes. So assuming that we have the interim analysis at the end of this year, then we would anticipate completing the enrollment the following quarter, so the Q1 of next year. Thomas Flaten: And does that assume an upsize in the total population? Because it seems to me it's only May. And by year-end, when the interim analysis reads out, you should be pretty close to full enrollment on the original study size, right? Dietrich Pauls: We will be. So that after patient 200 is dosed, there'll be a 30 -- sorry, a 90-day window here for the primary endpoint and then another approximately 4 weeks for the interim analysis to occur. And during that approximately 4 months, we'll be continuing to enroll. So we'll be getting closer to the 300 patient number during that period of time. Thomas Flaten: Got it. And then just to clarify a prior response. So once you get the Part 1a expansion data out this quarter, there's -- is it reasonable to assume that you would start Part 1b and Part 2 in the third quarter? Or should we expect maybe a fourth quarter start on that? Dietrich Pauls: No, those should be starting here this summer. And so we're just -- we finalized the dosing that will be going into those cohorts. So we'll be doing 3 doses at 5, 10 and 15 micrograms per kg subcutaneous every 3 days until delivery. So those cohorts should be starting very soon. We had some -- we've now got our sites, Cape Town South Africa has had some challenges with some staffing and they've added some new staff. And so they've been very active recently in the Part 1a expansion study. So we feel very good that, that study will be enrolling soon. Operator: Your next question is from the line of Jason (sic) [ Chase ] Knickerbocker with Craig-Hallum Capital Group. Chase Knickerbocker: One for Scott. I appreciate your comments on forward R&D, but maybe just a little bit more color there. You said kind of modest increase. I would imagine kind of enrollment is still picking up on an absolute number for stroke. And then can you just give us an idea kind of what the magnitude of that increase you expect sequentially in stroke and then kind of the incremental costs you expect for PE through the year. Scott Kellen: Sure. Thanks, Chase. Yes, with respect to the stroke, modest increases. I mean the -- and you're correct, it's all going to be driven by the enrollment rates. And to some extent, it depends on whether those patients are enrolled in the U.S. or Europe. U.S. is probably the most expensive followed by U.K., Canada and Europe. And then with respect to the incremental cost for PE, there'll be -- well, we're still working on the estimates for the Phase II trial. The financial support we provide for the IST is very modest. It's an incredible bargain. So again, moderate -- modest to moderate increases, nothing order of magnitude change-wise. Chase Knickerbocker: Could you just define modest or moderate for us, if you don't mind? And then just one for Rick. Just as we think about the resample, should we kind of just expect to receive the number on the resample or anything else at that point that we'll be able to provide? Dietrich Pauls: Sure. For the interim analysis, we'll be providing an update on the expected timelines to complete the enrollments. Scott Kellen: Chase, it's hard to give a specific number because there's movement inside all the different expense categories. I mean I wouldn't expect it to go up more than 10% a quarter. Operator: I will now hand today's call over to Rick Pauls for any closing remarks. Dietrich Pauls: All right. Well, thank you all for joining us today. We greatly appreciate your interest in DiaMedica and hope that you enjoy the rest of the day. This concludes our call today. Thank you. Operator: Thank you for joining. You may now disconnect your lines.
Operator: Good morning, everyone, and welcome to Blue Owl Technology Finance Corp.'s First Quarter 2026 Earnings Call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to Michael Mosticchio, Head of BDC Investor Relations. Please go ahead. Michael Mosticchio: Thank you, Operator, and welcome to Blue Owl Technology Finance Corp.'s First Quarter 2026 Earnings Conference Call. Joining us on the call today are Craig Packer, Chief Executive Officer; Erik Bissonnette, President; and Jonathan Lamm, Chief Financial Officer. I would like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in Blue Owl Technology Finance Corp.'s filings with the SEC. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we will refer to non-GAAP measures on this call, which are reconciled to GAAP figures in our earnings presentation, which is available on the Events and Presentations section of our website. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information. Yesterday, Blue Owl Technology Finance Corp. issued its financial results for the first quarter ended 03/31/2026, reporting adjusted net investment income per share of $0.29 and net asset value per share of $16.49. During the call today, we will be referencing materials including the earnings press release, earnings presentation, and 10-Q, which are available on the News and Events section of Blue Owl Technology Finance Corp.'s website. I will now turn the call over to Craig. Craig Packer: Thanks, Mike. Good morning, everyone, and thank you all for joining us today. Software has obviously been a major focus for investors and as a meaningful lender in the space, Blue Owl Technology Finance Corp. has been part of that conversation. Before getting into our views on software, I wanted to step back and provide some broader context on Blue Owl Technology Finance Corp. Credit performance remains very strong. Non-accruals are among the lowest in the space, and we are one of the only BDCs to have generated net gains since inception. At the same time, the current level of market concern around software has created one of the most attractive investing environments that we have seen in a while, with spreads significantly wider and capital a lot less available. We also think the market's discussion around software has evolved meaningfully over the last quarter. Early on, much of the debate was centered around whether software businesses had a reason to exist in an AI-enabled world. Today, we believe that discussion is becoming more balanced and nuanced as the market increasingly distinguishes between businesses with durable moats and those that may be more exposed to change. We think that evolution of the discourse is constructive and, importantly, that the Blue Owl Technology Finance Corp. portfolio is positioned well in the parts of the software market where durability matters most. Erik will speak in more detail in a moment about what we are seeing, but at a high level, while we remain appropriately cautious on AI, given how transformative the technology is, we are not seeing material signs of stress in the portfolio today. That view is also supported by our underlying credit metrics, including no new non-accruals this quarter and a non-accrual rate of just 10 basis points of the total portfolio at fair value. As a reminder, we lend to companies that are leaders in their markets and have durable business models. We remain in close dialogue with both sponsors and portfolio companies and in many cases are seeing borrowers adapt thoughtfully and invest to strengthen their competitive positions as AI continues to develop. As a lender, even if there is pressure over time on software profitability or terminal values in certain parts of the market, we believe the structures of our investments—with relatively short durations, conservative LTVs, and contractual maturities—position us well. With that said, our results in the first quarter were impacted by the broader volatility across technology and software assets. As spreads widened meaningfully across technology credit names, valuations came under pressure across the space more broadly, including within our own portfolio. Importantly, this was market-driven pressure rather than a reflection of credit stress. Over 80% of the write-down during the quarter was attributable to mark-to-market movements, and it did not reflect a weakness in the underlying quality of our assets. Since quarter-end, technology broadly syndicated loan prices have rebounded by roughly 70 basis points in April, which we think is an encouraging sign that the conversation is becoming more balanced and constructive. I would also highlight that our earnings this quarter were impacted by many of the same headwinds affecting the broader BDC sector. Lower base rates and tighter spreads weighed on adjusted net investment income, and elevated repayments kept leverage more moderate than we would have otherwise expected as we continue to ramp the portfolio. As we look ahead, we are confident in the fundamentals that underpin the Blue Owl Technology Finance Corp. portfolio. We are long-term investors and we have constructed the portfolio with that perspective in mind. While there are questions around the impact to software from AI, we believe that over time, the high-quality technology businesses we finance will display resilience, given the stability we have seen today and that we anticipate over time. Today, Blue Owl Technology Finance Corp. has ample dry powder and the ability to increase leverage towards our target range, and volatile periods like this have historically created attractive opportunities for disciplined capital deployment. That said, our underwriting bar will remain high and we expect to stay selective in the opportunities we pursue. With that, I will turn it over to Erik. Erik Bissonnette: Thanks, Craig, and good morning, everyone. Our strategy remains centered on lending to innovative, market-leading technology companies. Today, approximately 70% of the portfolio is in software, with a balance in other technology areas such as life sciences, hardware, and other tech-enabled services. We detailed our AI framework on last quarter's earnings call, and a full transcript of that discussion is available on our website. Today, we will focus on the portfolio to provide insight into borrower-level performance as the technology landscape continues to advance. We believe our portfolio remains positioned in the most durable segments of the software market, specifically within mission-critical products, embedded workflows, and trusted data. With a weighted average EBITDA of nearly $300 million, these scaled businesses possess the inherent resilience necessary to navigate industry shifts while continuing to invest in their platforms. The portfolio's construction further reinforces this durability, as our holdings remain predominantly senior secured. While the market selloff caused weighted average LTVs to rise modestly to 40% from 34% last quarter, these levels remain conservative and provide a significant equity cushion beneath our debt investments. We continue to see solid weighted average revenue and EBITDA growth across our software borrowers, and importantly, we have seen minimal signs of material disruption attributable to AI across the broader portfolio. Regarding core credit metrics, there were no new non-accruals this quarter, which remained significantly below the industry average at just 10 basis points of the total portfolio at fair value. Three- to five-rated names were steady at 8.5% at fair value, as our internal ratings were broadly stable during the quarter. Amendments remained similarly light with no pickup in material amendment activity, and portfolio company revolver utilization remained consistent with historical levels at just under 10%. PIK income also remained moderate this quarter at 13% of total investment income, down about half from prior peak levels, with approximately 7.6% of that coming from PIK interest and 5.4% from PIK dividends. As a reminder, PIK dividend income reflects our dedicated allocation to preferred equity positions, which are designed to generate current income and often come with attractive premium return potential. Over 98% of our PIK was structured at origination and notably we have not realized a single loss since inception on any PIK loan that was structured this way at origination. We view structured PIK as a valuable return enhancer that allows high-quality borrowers to prioritize growth reinvestment. These portfolio indicators are also consistent with our direct market observations. Our 40-person dedicated technology investment team maintains a constant dialogue with portfolio companies, sponsors, and industry experts as they adapt to the changing landscape and deploy additional resources. It is notable that sophisticated software operators continue to invest heavily in AI enablement. A prime example is the strategic partnership announced earlier this month between Thoma Bravo and Google Cloud, which aims to accelerate AI transformations across enterprise software companies. We view this as a significant external signal that AI serves as a catalyst for product enhancement and value creation rather than simply a source of disruption. It was an active quarter for both new investments and repayments. We had $1.1 billion of repayments during the quarter, including several meaningful ones, which we think reinforces the strategic value that scaled software assets can continue to command even in a more challenging market environment. For example, Intelerad, a medical imaging software business, was an over $400 million investment across the Blue Owl platform, including $163 million in Blue Owl Technology Finance Corp., and was acquired by GE Healthcare for $2.3 billion, resulting in a full repayment of our position at par. Mindbody, a 2019 vintage investment, is a software and payments provider to gyms, salons, and spas. It was a $105 million investment in Blue Owl Technology Finance Corp. and an over $200 million investment across the Blue Owl platform, and was fully repaid across our credit facilities and preferred equity in connection with its merger with a global leader in AI-enabled fitness tech. Relativity, a leading provider of e-discovery document review software, was a $137 million investment in Blue Owl Technology Finance Corp. and an over $340 million platform investment, where we were fully repaid through a broadly syndicated loan refinancing ahead of its recently announced plan to go public. Our equity sleeve provides another avenue for the portfolio to capture differentiated upside, as proven by the partial sale of our SpaceX equity in early March. We sold 50% of our position, generating approximately $133 million of proceeds and a realized gain of $117 million, which reflected roughly a 10x return on our original investment. We viewed this as an attractive opportunity to partially monetize a strong performer while retaining the remaining 50% of the position to participate in potential future upside. We view this as a prime example of how our strategy can selectively capture additional value while keeping the portfolio primarily credit-oriented. On the origination side, we entered the quarter with a strong pipeline, which converted into $1.7 billion of new commitments and $1.3 billion funded. Most of that activity reflected deals worked on in Q4 prior to the most recent widening of spreads. However, the strength of repayments offset a significant portion of originations and resulted in net leverage increasing modestly to 0.85x at quarter end, just below the low end of our target range. While software remains a primary focus, our underwriting threshold for new investments has never been higher. As we evaluate opportunities against a rapidly evolving AI landscape, we are increasingly selective, continuing to pass on legacy models that may have been investable years ago but now lack the core defensive attributes required to withstand technological disruption, which has always been our core focus. Looking ahead, we anticipate that software deal activity will remain tempered as the market recalibrates to current dynamics. Historically, these periods have yielded attractive entry points for disciplined lenders with the capacity to increase leverage towards our target range, and we are well positioned to capitalize on these opportunities as the market matures. At the same time, slower software deal flow may create an opportunity to revisit adjacent technology areas that have always been within scope for us, including digital infrastructure and life sciences. We believe we can generate attractive, less-correlated returns over time. In digital infrastructure, we continue to see opportunities that help power AI enablement, such as GPUs and data center financings. Blue Owl also has a dedicated life sciences credit and royalties platform called LSI Financing with specialized expertise and flexible financing solutions across the capital structure. That team focuses on term loans and royalty-based structures for later-stage companies funding innovation, commercialization, and drug development. LSI Financing currently includes 11 debt and royalty investments. Blue Owl Technology Finance Corp. entered the strategy in November 2024, and this exposure has since delivered a net IRR of over 14% for the fund. Collectively, these strategies represent approximately 3% of the current portfolio, so there is ample room to increase our allocation from here as opportunities emerge. Overall, we are confident in the quality of the portfolio and how the platform is positioned today. While AI-related uncertainty has clearly shaped market sentiment, the portfolio continues to perform, and we believe Blue Owl Technology Finance Corp. is well equipped to capitalize on opportunities as the market continues to adjust. I will now turn the call over to Jonathan to discuss our financial results in more detail. Jonathan Lamm: Thank you, Erik. In the first quarter, Blue Owl Technology Finance Corp. reported adjusted net investment income of $0.29 per share. While we continue to make progress in ramping the portfolio, our results this quarter reflected several headwinds that have been affecting the market, including the full impact of the three rate cuts between September and December, spread compression from 2025 as newer originations came on at tighter spreads, and lighter nonrecurring income, which came in approximately $0.01 below historical averages. We would also note that our GAAP results included $0.08 per share capital gains incentive fee reversals driven by mark-to-market impacts on equity investments following the market selloff. Earlier this week, our Board declared a first-quarter regular dividend of $0.35 per share, consistent with our last quarterly distribution, which will be paid on or before 07/15/2026 to shareholders of record as of 06/30/2026. We also continue to pay a quarterly special dividend of $0.05 per share through September 2026, supported by spillover income generated prior to listing, bringing total distributions for the quarter to $0.40 per share. At our current rate of deployment and leverage, along with the widening spread environment, we remain confident in the long-term support for our base dividend. However, given the current market backdrop, it may take somewhat longer for earnings to cover the base dividend than we previously expected. Importantly, we continue to have meaningful support from spillover income of $0.50 per share as well as gains from our equity book as we continue to ramp the portfolio. Moving to the balance sheet, NAV per share was $16.49 at quarter end, down from $17.33 in the prior quarter, primarily reflecting the impact of mark-to-market adjustments, partially offset by realized gains as well as $0.05 per share of accretion from share repurchases during the quarter. We bought back approximately $50 million of stock, bringing total repurchases over the past two quarters to $115 million. These repurchases reflect our conviction in the quality of the portfolio while still preserving ample capacity to deploy into what we see as an increasingly more attractive market environment for technology names. Our Board also authorized a new $300 million share repurchase program in February, replacing the prior $200 million authorization, leaving approximately $250 million remaining following our first-quarter activity. We ended the quarter with net leverage at 0.85x, reflecting $284 million of net funded investment activity. While leverage increased modestly during the quarter, it remains just below the low end of our target range of 0.90x to 1.25x, which we believe leaves us well positioned to continue growing the portfolio as opportunities become more attractive. Turning to our capital structure, we continue to be active in further strengthening our balance sheet. In January, we issued a $400 million unsecured bond, which we subsequently swapped to a floating-rate coupon. This transaction demonstrated continued access to the investment-grade unsecured market while maintaining alignment with our predominantly floating-rate asset base. We ended the quarter with over $2.3 billion of total cash and available capacity across our credit facilities. This provides ample liquidity to meet upcoming obligations, including our June 2026 note maturity, and support continued portfolio growth as we move toward our target leverage range while maintaining balance sheet flexibility. Additionally, at this time, approximately 80% of Blue Owl Technology Finance Corp.'s stock float has now been released, with the second-to-last lockup release scheduled for May 20 and the final lockup release on June 12. We believe these additional releases should continue to ease technical pressures, support trading liquidity, and further diversify our shareholder base over time. I will now hand it back to Craig to provide final thoughts for today's call. Craig Packer: Thanks, Jonathan. As we wrap up today's call, I want to step back and reflect on what we believe this environment means for Blue Owl Technology Finance Corp. Periods like this tend to create more dispersion across technology, and that is especially true when the market is trying to separate durable businesses from those that may be more exposed to change. In our view, this is exactly the type of environment where domain expertise, disciplined underwriting, and long-term perspective matter most. Recent volatility in the broadly syndicated loan market, along with slower retail capital inflows into private credit, has made the supply-demand balance for new deals look more favorable than it has been in years. We believe that backdrop may create a more differentiated opportunity set for lenders with the experience and underwriting depth to distinguish between businesses that can adapt and strengthen through this cycle and those that may not. Importantly, we do not need a significant rebound in LBO volumes to improve returns from here. Even in a more moderate deal environment, we see meaningful opportunity to enhance portfolio spread through activity within our existing portfolio, including refinancing or re-underwriting names we know well and continue to like. That is where we believe Blue Owl Technology Finance Corp. has unique positioning in the market. Our portfolio remains concentrated in businesses we believe are durable and mostly have considerable backing from large private equity sponsors. Our balance sheet still has meaningful room to grow, and with leverage below our target range, we have the dry powder, team, and platform to move thoughtfully as opportunities emerge. Importantly, Blue Owl Technology Finance Corp.'s path from here is also somewhat different from that of many other BDCs. Because we are still ramping toward our target leverage range, we have a clear opportunity to grow earnings through prudent deployment over time. At the same time, we are not dependent on one narrow part of the market. Although software remains our core focus, we have the flexibility to target adjacent technology areas such as digital infrastructure and life sciences, where Blue Owl has dedicated investment teams and where we believe we can generate attractive, less-correlated returns over time. Looking ahead, we believe Blue Owl Technology Finance Corp. is exceptionally well positioned to expand spread and improve returns by investing in this environment. We will remain cautious and highly selective, but we believe that discipline, combined with the quality of the portfolio and our long-term credit track record, should serve shareholders well. Blue Owl Technology Finance Corp. has generated a strong track record since inception in 2018 with a net realized gain of 29 basis points annually, which we believe speaks to the strength of our underwriting across cycles. Operator, please open the line for questions. Operator: Thank you. The floor is now open for questions. Today's first question is coming from Finianos O'Shea of Wells Fargo. Please go ahead. Finianos O'Shea: Hey, everyone. Good morning. Craig or Erik, big picture on software, performing well still, but the theme more and more—decided theme—is lenders in private credit and in the liquid market want to pare down exposure, have less appetite for it, maybe from a portfolio construction or a risk perspective. Maybe it is temporary, but to the extent that that continues, is that a concern for future credit quality if new money dries up from the broader credit domain? Craig Packer: Hey, Fin, I will start and Erik can chime in. To start, I would say that AI is a significant issue, and all lenders and equity holders are trying to make sense of the impact in AI and software. It is moving quickly. As time elapses, we will all be able to better understand just how significant this is. So this is a moment of peak uncertainty and time will help that. Your characterization is fair. I think most lenders that have significant software will be looking to reduce exposure, including us, but within reasonable bounds. We will still, at Blue Owl Technology Finance Corp., be a significant player in software. Our bar is going to be very high for new investments and also very high as we have opportunities to refinance. We are going to go through our same process in making investment decisions in new software deals like we do in every other investment and take into account our outlook and our confidence in getting repaid. We are certainly going to want to make sure that if we are staying invested in software names, we are getting appropriately compensated, and spreads have widened materially in the software sector given that uncertainty. Companies are doing well. We believe good, durable software businesses will continue to do well in an AI world, and they are working very closely with the sponsors to ensure that. If the companies are performing well, even in a world where lenders are looking to pull back, I would expect those companies to continue to have access to financing. The financing will be more expensive, but it had tightened quite considerably in the last 18 months, and to a certain extent, it is reverting back to more historical levels. Again, it is all about credit performance and confidence in getting repaid. I feel confident that if the company's outlooks are reasonable and lenders feel protected, then there will be plenty of capital there. It is just maybe more expensive. The private equity firms—again, if the businesses are performing well—will equally have capital to support those businesses. The general picture I am painting is one where credits will be refinanceable even if some lenders want to reduce exposure. There will be other lenders that can increase, companies can pay down debt, they can delever, and sponsors can commit more capital. If the companies are doing well, they will be refinanceable. Finianos O'Shea: Appreciate that. Follow-up more on the portfolio picture today. The marks this quarter look pretty broad, spread-related, but then the sharp, more acute marks look to us either tied to liquid—there is a BSL quote kind of thing—or junior, like preferred equity-type exposure. Correct me if I am wrong there. Is that a pure loan-to-value thing just taking down enterprise value, or is there any slowing in performance across that book? Jonathan Lamm: Thanks, Fin. About a third of the marks associated with our markdowns were in that book, and they were really all multiple-driven—nothing of materiality from a fundamental perspective. The vast majority on the debt side was spread-related. The book you are referring to has been an incredible driver of net realized gains for us since inception of close to 30 basis points annualized, so we are giving back a little bit here just on mark movements. Craig Packer: Eighty percent of the move in our debt marks was spread-driven. Blue Owl Technology Finance Corp., over the arc of time, has had one of the best credit performances in the industry, and we have had net NAV growth. It is very logical and expected after a quarter that went through a real rerating of valuation in the software space that investors would expect that to be reflected in our marks. You bucketed it properly: the public loans moved meaningfully—very observable—and that is reflected in the portion of our book that is BSL-related. The more junior investments, which have performed well, go through a valuation process and those were also marked down appropriately. The book behaved the way investors should expect given the environment that we just went through, but we are coming from a position of strength and gave back a little bit this quarter. Operator: Thank you. The next question is coming from Brian Mckenna of Citizens. Please go ahead. Brian Mckenna: Great, thanks. It feels like the tide might be shifting a bit in the public software market. The IGV is up 20% from the lows, and some subsectors are up quite a bit more. Erik, if this recovery in public software valuations continues, does that start to drive a recovery in transaction activity? And are sponsors you are talking to starting to look at some take-private opportunities? Erik Bissonnette: Yes. We have seen a marked change in sentiment as reflected in public stocks. We are going through public earnings right now. I will not mention specific names, but broadly speaking, the prints we have seen have been very strong. Publicly focused companies are performing extremely well, which is consistent with what we are seeing across our portfolios and in conversations with sponsors. They see opportunities similar to 2022, when you had a large number of go-private transactions coming off the peak ZIRP-related multiples in 2020 and 2021. We think there is going to be a meaningful pickup in activity. It is muted right now with a bit of a pause, but sentiment is shifting. The nuance around the conversation has changed dramatically the past two months. There are signals like the Thoma Bravo–Google announcement, and others. There is a lot of narrative shift around the reality of a combination or a partner at the application tier, which I think will give more balance to the conversation and unlock some deal activity in the latter half of the year. Brian Mckenna: Thanks. And a quick follow-up: not all the focus has to be on downside. When do you think the conversation starts to shift to some of the upside scenarios or positive tailwinds from layering on AI? Erik Bissonnette: I think it is going to take a few quarters. One of the great strengths of the software revenue model is multiyear contracts committed in advance. As businesses embed AI into their solutions, it will take time to roll through the financials and show up in new KPIs. We are seeing strong increases in R&D and revenue starting to roll through as these solutions take hold. People will want to see a couple of prints from large companies. Sentiment is already improving versus eight weeks ago, and I think it will continue to improve as we see the stability and durability of these assets and continued growth. Operator: Once again, ladies and gentlemen, our next question is coming from Kenneth Lee of RBC Capital Markets. Please go ahead. Kenneth Lee: Hey, good afternoon, and thanks for taking my question. In terms of opportunities outside of software—you mentioned digital infrastructure and life sciences—what sorts of deals are you seeing in those pipelines, and is there a wide enough funnel to continue to ramp up the portfolio within similar time frames? Craig Packer: Sure. I will start. The answer is yes, there is enough. Software is the biggest part of the book and will be for the foreseeable future because it has performed extremely well, and we expect it to continue to do so. That said, as I touched on earlier, we will look to reduce software exposure at the margin and really focus on the best names that we have the most confidence in. We have already been active in these adjacent sectors with dedicated capabilities. On life sciences, these are commercially successful drugs in the market—drug royalties or loans to companies with very predictable revenue streams. It takes technical knowledge of the underlying drugs and market demand to invest in, and we have a team with that expertise. We are seeing terrific opportunities that fit the remit of the technology fund but are not software. It is scalable and the deals are sizable. Often there is not a private equity firm involved—these are public or private companies—and it is an area we would like to scale up. Erik, do you want to touch on digital infrastructure? Erik Bissonnette: On the digital infrastructure side, we have done a few transactions in the GPU financing space, which I think is misunderstood. We are not financing GPUs to residual value. These tend to be JVs or SPVs with investment-grade counterparty credit risk, amortizing structures, premium rates of return, and very tight documentation—often with a corporate guarantee as well. You have seen a few of those start to come to the public markets recently, so there is broader acceptance of structures we have been pioneering over the past year. We have quite a few of those in the hopper right now. Demand for compute continues to be exceptionally high, well in excess of supply, so there will be interesting opportunities. On the data center side, there are opportunities we see through the broader Blue Owl platform. We have an IPI data center business that is actively involved in development with hyperscaler offtakes. There should be some activity we can review and analyze over the course of this year. I think we will increase the percentage of this exposure, but there are natural limiters—oftentimes they fall into non-qualifying buckets. It will not be disproportionately high, but it should be really attractive on a go-forward basis. Kenneth Lee: Very helpful color. One follow-up on the dividend: can you share additional thoughts around dividend coverage? Is the Board going to evaluate this based on deal activity and ramping progress, given time frames might be a little longer to reach your targeted leverage ranges? Jonathan Lamm: Yes. We are constantly evaluating dividends, and the Board is always focused on it. The drivers here are deployment, leverage, and spreads. There is also some churn associated with the structured capital book. Deployment and churn have been impacted by market events and perceptions over the course of this year, so it will take longer for those to play out. We have not changed our view of the ultimate outcome—just the timing. Post this quarter, we are still paying out roughly $0.11 more than what we earned, but we still have $0.50 of spillover income, so there is plenty of runway in the context of short-term slippage with respect to reaching the dividend. Erik Bissonnette: The only thing I would add is that as we go through any amendments or potential extensions of existing positions, we will do comprehensive and thoughtful re-underwriting. Given our AI reviews and internal evaluations, we think there are a lot of companies we financed over the past few years that are exceptionally well positioned to grow and compound in an AI future that we did at tight spreads. As those come up for renewal, we will re-underwrite them, but you will likely see meaningful mark-to-market spread adjustments on some of our better-performing assets. That is a third leg of the stool I would add. Operator: Thank you. Our next question is coming from Arren Cyganovich of Truist Securities. Please go ahead. Arren Cyganovich: I was wondering how the overall platform is dealing with the high level of redemption requests in the evergreen funds that are not directly associated with Blue Owl Technology Finance Corp., and whether that is impacting your ability to put as much capital to work as you need, or if there is enough institutional flow coming in to offset that. Craig Packer: It has not had any impact on our ability to deploy capital. The individual funds have capital. At Blue Owl Technology Finance Corp., we would like to find attractive investment opportunities. At OBDC, we reduced leverage. We also have non-BDC institutional capital. The non-traded funds that have outflows have ample liquidity to cover those outflows, so there is no ripple effect. It is only part of our business and very predictable given tender limits. We are one of the largest players in direct lending, with deep sponsor relationships and as much available capital as any direct lender. We are excited about this environment to deploy into good deals with good sponsors and good companies at attractive returns, just like we have for the last ten years. Operator: Thank you. Our next question is coming from Sean-Paul Adams of B. Riley Securities. Please go ahead. Sean-Paul Adams: Hey guys, good morning. On the equity co-investment part of the portfolio, it looks like there was a large shift on the marks for some of those equity positions and that drove some of the mark-to-market changes on the portfolio. Do you have any line of sight on near-term liquidity events at these names? And at what point would you point to this being a mark-to-market-driven event versus a realized loss scenario? Erik Bissonnette: The vast majority of the changes in the equity book were mark-to-market. You saw the IGV trade off pretty dramatically throughout the quarter, and that rolled through our marks directly for many of our equity positions. Most of those equity positions are senior preferred, so even if they are marked below par, there is a very real possibility for us to get our basis back and see some recoupment, regardless of where they exit. In terms of the forward, we discussed SpaceX and monetizing part of that position. There are another three to four behind that which we think are extremely attractive. One I would emphasize is Revolut—it is about a $75 million cost-basis investment, a challenger bank based in the UK. We had marked that up over the prior few quarters. There have been reports in the press around another tender offer and a potential IPO coming in 2028. We also have investments in Stripe and other really attractive assets that we could monetize. We feel we are in a good position to continue to generate some of those upside returns. Operator: Thank you. At this time, I would like to turn the floor back over to management for any additional or closing comments. Craig Packer: I thought I would just end with an observation. Obviously, Blue Owl Technology Finance Corp. has a lot of software exposure, and the stock has been impacted by that. A couple of statistics: the average debt spread in Blue Owl Technology Finance Corp. is about 530 basis points over; the average loan is marked at $0.97 on the dollar; the non-accruals in the fund are 10 basis points. The stock currently yields about 12.7% at today's prices—it is probably higher than that given today's trading activity as of this morning. The stock trades at 67% of NAV; earlier this year it traded closer to 80% of NAV. If the stock got back to 80% of NAV over the next one to two years and you factor in that recovery and the dividend levels, that would be a total return of 19% to 25% over a one- to two-year period. There are obviously a lot of assumptions embedded in that—time frame, what might happen to NAV, dividends, and so on—but I want to put a spotlight on where it is trading, what the yield is, and juxtapose that with the quality of the portfolio, which continues to be extremely strong. We have been talking on this call about recovery in the equity markets and the equity of software businesses, and here is another area of the markets that, if the market is starting to have a more balanced view on software, can offer equity-like returns. If folks have questions about the fund, we would be pleased to take them—just reach out, and we are available. Thank you, and have a great day. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Kinetik Holdings Inc. First Quarter 2026 Results. 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 Alex Durkee, Head of Investor Relations. Please go ahead. Alex Durkee: Good morning, and welcome to the Kinetik Holdings Inc. first quarter 2026 earnings conference call. Our speakers today are Jamie W. Welch, President and Chief Executive Officer, and Trevor Howard, Senior Vice President and Chief Financial Officer. Other members of our senior management team are also in attendance for this morning's call. As a reminder, today's discussion will include forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of these factors, please refer to our SEC filings. We will also reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures can be found in our earnings materials and on our website. With that, I will turn the call over to Jamie. Jamie W. Welch: Thank you, Alex. Good morning, everyone. Kinetik Holdings Inc. delivered record earnings in the first quarter. This reflects key execution across our three core pillars: commercial, operations, and financial. Before walking through each in more detail, I wanted to briefly touch on recent geopolitical developments. The global macroeconomic landscape has shifted meaningfully since reporting fourth quarter 2025 results. While Trevor will cover the implications that we see today in more detail, we believe that Kinetik Holdings Inc. is incredibly well positioned as these dynamics continue to play out. Commercially, our team has been highly productive. We have seen strong conversion of opportunities into new and amended agreements across both Texas and New Mexico. Over the past few months, we have added new customers across our gas, crude, and water service offerings, while continuing to advance our strategy of revising commercial terms and extending legacy Durango contracts. During the quarter, we completed a significant contract amendment with a large existing customer in New Mexico that expands the original dedicated acreage by roughly 25%. It consolidates multiple agreements into a single contract and extends terms through 2039. As a result, approximately 75% of legacy Durango gas processing volumes have now been amended over the past four months. Collectively, these new and amended contracts extend terms into the mid and late 2030s, increase margin, expand dedicated acreage, broaden services rendered, provide downstream control of plant products, and reinforce long-term visibility across our New Mexico system. As we have said before, the message from customers has been clear. Incremental sour gas treating and processing capacity is a necessity to support their development plans in New Mexico. Our strong runtime performance at King’s Landing and continued progress on the sour conversion project, combined with the recent contract amendments and new agreements, have created strong commercial momentum in support of potentially advancing a processing capacity expansion at the King’s Landing Complex. We also continue to pursue highly capital-efficient power generation-related opportunities. We signed a zero CapEx interconnection with Pecos Power, connecting our Delaware Link residue gas pipeline to the Pecos Power Plant in Reeves County. Combined with the CPV Basin Ranch interconnection, announced late last year, we have again demonstrated a fee-based template for monetizing our existing footprint as Permian power generation demand grows. On the operations front, field operations executed at a high level this quarter, delivering reliable performance across the system, while maintaining a strong focus on safety. We have also made solid progress across our capital projects in the quarter. We are nearing completion now of the ECCC pipeline, with in-service later this quarter. At King’s Landing, we received all required approvals from the BLM and the NMOCD, allowing us to proceed with the AGI and sour gas conversion project for the full 20 million cubic feet per day of Total Acid Gas, or TAG, capacity. All long-lead materials have been ordered, construction is underway, and we plan to spud the first acid gas injection well this summer. Once complete, the project will enable us to handle elevated H2S and CO2 levels across all three Delaware North processing complexes, providing total operational TAG capacity of 26.5 million cubic feet per day and permitted capacity in excess of 31 million cubic feet per day. Phase one of the sour conversion to King’s Landing remains on track for in-service by year-end 2026 and meaningfully enhances the long-term value of our New Mexico business. In Delaware South, we advanced our 40 megawatt behind-the-meter power generation solution at Diamond Cryer. Turbine equipment has started to arrive on site, and engineering, procurement, and permitting work is well underway. Financially, we remain highly focused on executing on our priorities, including leveraging data and technology to drive efficiency across our business. In February, we began our pilot program with Palantir and have been encouraged by early results which are reinforcing more data-driven execution across the organization. At the same time, our finance and operations teams are progressing on our operating cost reduction initiatives. Importantly, operating and G&A expenses are tracking in line with our budget estimates, and through our efforts so far, the teams have identified efficiencies that optimize our cost structure for 2027 and thereafter. At the end of last year, we secured more residue gas transport capacity to the Gulf Coast, which provided financial insulation to the pronounced price-related production shut-ins we had seen and expect for much of 2026. As new Gulf Coast takeaway capacity comes online, and hub differentials tighten into 2027, Kinetik Holdings Inc. remains well positioned as curtailed volumes return and gross margin normalizes, reducing the contribution from this spread-driven financial offset. We remain extremely vigilant about managing our medium- and long-term Gulf Coast transportation capacity portfolio. Not only is it important for our customers to receive Gulf Coast hub pricing, but also critical for growing with new customers. We recently secured additional Gulf Coast pricing exposure starting in 2028. We also have our European LNG price contract with INEOS starting in early 2027. Since 2018, we have shown that we think outside the box, and believe it is one of our corporate core strengths to creatively find premium pricing solutions for our customers’ natural gas. Stepping back, the contracts we have signed, the commercial opportunities we are pursuing, and the takeaway we have secured all extend Kinetik Holdings Inc.’s earnings durability well into the next decade. The near-term gas price environment is a cycle to manage through, not a thesis to revisit. We are managing through it from a position of strength, and our confidence in the multi-year plan has only increased over the passage of the last 90 days. And with that, I will turn it over to Trevor. Trevor Howard: Thank you, Jamie. First quarter adjusted EBITDA of $251 million was a quarterly—record and came in above the high end of the range that I outlined during our fourth quarter earnings conference call. Distributable cash flow totaled $181 million and free cash flow was $101 million. The Midstream Logistics segment delivered a record $179 million of adjusted EBITDA, up 12% year-over-year, essentially on flat volumes. The result is the direct payoff from the Gulf Coast takeaway capacity that we contracted late last year. Spread-based marketing gains have more than offset approximately 170 million cubic feet per day of Waha price-related production shut-ins in the quarter, converting what would have been a volume headwind into a margin tailwind. In addition to the wider basis spread, outperformance relative to our internal expectations was also driven by stronger-than-expected system operating performance that yielded more condensate and NGL recoveries, higher fee-based margins, stronger commodity prices, and slightly lower unit operating costs than budgeted. Our Pipeline Transportation segment generated $78 million of adjusted EBITDA, down year-over-year, reflecting the EPIC Crude divestiture that closed on October 31 and lower throughput volumes on Chinook. Turning to our updated outlook, as Jamie noted earlier, the macroeconomic environment has shifted meaningfully. Higher commodity prices in response to the conflict in the Middle East have driven improvements in the forward pricing curve, implying stronger commodity margins relative to the underlying assumptions in our guidance. While we have seen activity pull-forwards with certain customers, primarily pertaining to 2027 activity, overall producer behavior remains disciplined. In stark contrast, we have experienced a significantly more challenged price environment at the Waha Hub. In March and April, the gas daily average price at Waha was negative $4.81. Given the push and pull dynamic of higher crude prices and a highly oversupplied local natural gas market, a few of the assumptions underpinning our guidance have changed. First, processed natural gas volumes expectations. In February, we called for high single-digit volume growth year-over-year in 2026, inclusive of 100 million cubic feet per day of curtailments from gas price-sensitive customers. Actual production shut-ins to date have been materially higher than that expectation. We now forecast low- to mid-single-digit percentage growth in processed gas volumes year-over-year, which reflects approximately 220 million cubic feet per day of curtailments on average for 2026. At current processed gas volumes of approximately 1.8 Bcf per day, the incremental 120 million cubic feet per day of curtailments represents a decline of more than six percentage points relative to our original growth expectations. In conclusion, the reduction in volume growth expectations is driven by our assumptions on price-related shut-ins which are temporary in nature. Second, financially offsetting the impact from the Waha price-related production shut-ins are the wider natural gas hub price differentials. To date, the Waha-to-Houston Ship Channel spread has been wider than assumed in guidance, enabling stronger-than-expected marketing gains. We have approximately 50% of our transport spread exposure hedged in 2026. As a reminder, our spread hedging tends to be lower during the spring and fall pipeline maintenance seasons and higher during the summer and winter months. Third, commodity prices have moved higher since the onset of the conflict in the Middle East. While ethane has remained relatively flat, the NGL composite and propane have increased over 20% since the February 13 strip used in our guidance assumptions, and WTI is up over 30%. We have capitalized on higher prices with incremental hedges. Specifically, we estimate our equity volume exposures are approximately 75% hedged for propane and butane volumes and approximately 85% hedged for crude and C5+ volumes. Marking to market our commodity price exposure, we estimate an uplift of approximately $20 million to full-year 2026 adjusted EBITDA at current forward pricing, excluding our Gulf Coast marketing spread. We are affirming our 2026 adjusted EBITDA guidance range of $950 million to $1.05 billion. Relative to our underlying assumptions in our February guidance, we expect to benefit from improved commodity margin and Gulf Coast marketing opportunities, partially offset by lower volume expectations associated with the temporary price-related shut-ins. With respect to earnings growth cadence for the remainder of 2026, I would reiterate my comments from our fourth quarter call. We expected the first and second quarter results to be in the $230 million to $240 million range and the third and fourth quarter results to be in the $260 million to $270 million range. Given our first quarter results exceeded that expectation, we are tracking ahead of plan. We continue to expect quarterly performance to generally align with the cadence originally outlined for the balance of the year. We continue to expect 2026 capital expenditures guidance in the range of $450 million to $510 million. CapEx, including growth and maintenance, was $91 million in the first quarter. As we look to the balance of the year, we currently anticipate the remaining spend to be pretty evenly weighted across quarters. Now turning to the balance sheet, we ended the quarter with ample revolver capacity and leverage of 3.9x, which was within our targeted range. Our healthy balance sheet combined with our cash flow profile provides the flexibility to fund our growth program without compromising our return of capital to our shareholders. Looking ahead, the pace and scale of incremental residue gas takeaway capacity continues to reshape the long-term outlook for the Permian. More than 5 Bcf per day of new capacity is expected to be in service by early 2027, with an additional 6 Bcf per day anticipated across 2028 and 2029. This structural shift has reinforced the constructive view on long-term Permian gas growth. Combined with the direct feedback from our customers, our confidence in the durability of our multiyear plan continues to strengthen. Execution in the near term remains critical to sustaining that trajectory, and we remain focused on consistently delivering across our three priorities: disciplined commercial conversion, reliable operational execution, and conservative financial stewardship. We will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A list. Your first question comes from Michael Blum with Wells Fargo. Please go ahead. Michael Blum: Thanks. Good morning, everyone. I wanted to ask about the Durango agreements that you amended and extended here. How do we think about the incremental EBITDA contribution for 2026 and beyond? And with these new agreements, does this change at all the mix of your contract portfolio between fee versus POP and keep-whole, or just your overall commodity exposure? Trevor Howard: Michael, thanks for the question. In terms of 2026, I would call it, as we have characterized in the past, a modest uplift—so 1% to 2% of the overall base business. It is a nice uplift, but it really sets the stage for reinvesting in the field and also investing in King’s Landing further with the sour conversion and then the potential processing expansion, by pushing out the duration and term of those agreements. It also has removed a portion of commodity within the business. When we acquired Durango, the system was about 60% fee and 40% commodity. Through these restructurings and amended and restated agreements, we have taken that fee-based percentage up. Not quite like our business down south, where that is an 85% to 90% fee margin business, but we are closing the gap there. Michael Blum: Got it. Thanks for that. And then I wanted to ask on this Pecos Power deal. How do we think about returns for a project like this? And do you see other opportunities in the basin to replicate this? Because that is another way to deal with Waha—finding more in-basin demand for gas. Jamie W. Welch: Thanks, Michael. As far as the returns, there is no capital, so it is infinite in that context. We are seeing a lot of new gas-fired power generation located in and around West Texas. The footprint of our system is such that we have a lot of connectivity. We have the ability to provide residue natural gas to these new power generation plants, and we have a very active dialogue with a number of them. You are correct. We look at it much the same way you pointed out, which is a little bit of self-help for Waha on the basis of creating incremental demand. We will continue to capitalize on it and, from our vantage point, it is a nice incremental base of fee revenue. Kris Kindrick: Hey, Michael. As Jamie alluded to, it is an earnings opportunity not only to sell residue gas transportation, but a lot of these power companies want hourly services too. To the extent we can provide that flexibility, that is additional margin. We are in conversations with these parties right now, and it is future upside that we are working on. Operator: Thank you. Your next question comes from Spiro Michael Dounis with Citi. Please go ahead. Spiro Michael Dounis: Thank you, operator. Good morning, team. I want to start with King’s Landing 2. You announced these new dedications. You talked about growth accelerating into early 2027. Trevor, you just mentioned a lot of this sets the stage for an expansion. How close are you? I think, originally, the potential FID was a 2026 line item. Where does that stand? Is there maybe even a capital-light option you could pursue first? Jamie W. Welch: Spiro, good morning. As far as King’s Landing 2 is concerned, we have been actively engaged in commercializing that project opportunity for some time. We have knocked down incremental steps along the way which bring us closer and closer to the endpoint of finally being able to FID that particular plant. I think we are getting close, and the overall level of activity we continue to see reinforces our belief in the prospects and opportunity that we find in New Mexico. In the interim, as you know, ECCC will come into service in a month from now. We will be able to start taking incremental, what we would say, sweet New Mexico volumes down south for processing capacity. We will continue to look at the level of activity more broadly in New Mexico, which remains very robust. Trevor Howard: And on your last comment about the capital-light option, really, ECCC was that option. Because Delaware North was on an island and not connected to our Delaware South system, King’s Landing 1 is going to get filled this year, and we would have needed King’s Landing 2 in service by the end of this year to take incremental gas. We took that measure with ECCC, allowing us to utilize processing capacity in other parts of our system. There are also more markets and more optionality down in Texas. Spiro Michael Dounis: Got it. Understood. Going back to the 2026 EBITDA cadence, could you give a bit more detail on the drivers for the back-half ramp? Waha likely is not improving until maybe mid-summer. There are indications Hugh Brinson could come online by that time frame and help provide some relief. How are you thinking about when the marketing gains flip to curtailments coming back online and volumes being the bigger driver? It sounds like that is what you are counting on for the back half of the year. Jamie W. Welch: I think Trevor will answer this, but what we announced with the incremental expectation for curtailment is that we foresee a continuing period of challenge for Waha. For the sake of being conservative, we wanted to communicate that the overall level of curtailments was higher than we anticipated in our original guidance. More importantly, it is deferred revenue. That volume will show up, and in the meantime, we have found a bunch of value in the form of these marketing revenues that have ensured we met our financial guidance and created a net windfall for our stakeholders—because you have money from marketing, and you are going to have deferred revenue coming from the return of production. Trevor Howard: Also, piggybacking off Jamie’s comments, it makes it easier to grow in 2027 because the PDP base starting off in January 2027 will be higher. Again, Jamie’s comments are right: it is deferred revenue. PDP will be higher entering 2027, so it really sets up 2027 well. We have talked at length about the strategy we have employed with the Gulf Coast marketing hedge as an offset to curtailments. It has been effective. With respect to the ramp in the back half of the year, I would reiterate my prepared remarks: no changes to our second-through-fourth-quarter earnings cadence—$230 million to $240 million in the second quarter and $260 million to $270 million each quarter in the second half of this year. What is driving that is not a return of shut-in volume. We are expecting shut-ins to persist through the balance of the year and really resume in December. When you look at the forward spreads, Waha is negative up until October. We have taken a little bit of conservatism, given that is a maintenance period, and we wanted to ensure we are out of the maintenance season before expecting volumes to return. The drivers: we have a very summer-heavy development program and a handful of big packages of gas coming online across the system, particularly in New Mexico in the third quarter. In the fourth quarter, we have some Texas packages that are real needle movers for gas volume growth. Then come December, that is when you have the resumption of curtailed volumes and then Gulf Coast marketing margins declining. Jamie W. Welch: Spiro, it is interesting that we sit here in May and we have only had Waha being in positive territory—greater than zero—for 13 days; six days were attributed to Winter Storm Fern. Excluding Winter Storm Fern, seven days, and we are now in the fifth month of the year. We are dealing with unprecedented volatility. Even at the beginning of this year, we thought 2026 would be the tale of two halves, but seeing negative pricing for Waha going into October is truly hard to fathom. Trevor Howard: One more comment on the volume revision lower in our year-over-year volume guidance. As you saw, we increased our curtailments by 120 million cubic feet per day on average for the full year. That is about six percentage points to our overall gas processed volumes. We went from high single-digits year-over-year to low- to mid-single-digits year-over-year, solely attributable to the increasing curtailments. Spiro Michael Dounis: Understood. Helpful color as always. Thank you, gentlemen. Jamie W. Welch: Thank you. Operator: Your next question comes from Brandon B. Bingham from Scotiabank. Please go ahead. Brandon B. Bingham: Good morning. Thanks for taking the questions. I wanted to go back to the setup into next year. With all the egress capacity coming online at the end of the year into next year, what is your sense in discussions with producer customers that have higher in-basin pricing sensitivity about the appetite to maybe accelerate development? Is there a potential slug of pent-up supply beyond the expected curtailments as prices normalize? Jamie W. Welch: Brandon, as prices normalize, do you mean gas prices or normalized in the context of Waha pricing? Brandon B. Bingham: Yes. Trevor Howard: Okay. It is interesting because what we have tried to communicate in both the press release and the prepared remarks is that we have this push-pull impact right now for 2026 in activity. We are seeing some of the smaller independents pull forward packages in a matter of weeks or months, but we are seeing a building momentum in 2027. We had estimated second half of the year or middle of the year, and people are pulling forward packages into the very beginning of the year. The longer we have this elevated commodity price environment, the more we are going to see, particularly from our larger public customers, a lot more activity in the beginning of 2027 that capitalizes on that continued tailwind. That sets you up for an even better 2027. Not only will we have the return and a higher PDP base because of the shut-ins effect, but we also have a real pull-forward of a lot of activity. Brandon B. Bingham: Great. Thank you. And then, quickly, you mentioned some incremental cost optimization opportunities for 2027-plus. Could you expand on those to the extent you can? Trevor Howard: Sure. We have a fair amount of general equipment that is under lease—either where we are operating it or where it is a true lease. We are looking at all of our cost structure. The biggest opportunity for us is to integrate a few things that historically we have had others operate for us or have under some kind of capital lease. That is the majority of what we are seeing, and they are very capital-efficient, quick payback projects for us. As Jamie commented, we are in the early stages of transforming, from a data perspective, how we look at our cost structure and optimize there. That is more about building the framework and foundation in 2026 and starting to see benefits in 2027. In 2026, the immediate focus is buying equipment and insourcing services that we have outsourced. Brandon B. Bingham: Awesome. Thank you very much. Operator: Your next question comes from Truist. Please go ahead. Analyst: Thanks, operator. Good morning, everyone. Thanks for all the color thus far. Jamie, I was hoping to get some thoughts around adding more Gulf Coast exposure in the 2028 to 2030 period. Looking at the strip, with all the egress coming on, Waha should improve and experience better days ahead. What is the rationale for longer-term exposure there? Jamie W. Welch: Thanks for the question. It is interesting because we have gone from a situation where Waha was a heavily discounted price relative to Ship Channel or South Texas and was disadvantaged, to now where it is outright negative. It is in such a bad place. We think about 2028 to 2030 as follows: this too shall pass—we will get out of the purgatory of negative absolute pricing—but it is our estimation that Waha will remain a discounted price point relative to every other nodal market price in and around Texas. Therefore, the need for premium pricing will remain Gulf Coast or export. Those are your two options. Securing incremental Gulf Coast supply will remain critically important. Likewise, contracting for incremental export and LNG opportunities is something we are focused on. We start our INEOS contract at the beginning of next year, which we are looking forward to. We will get out of this negative price paradigm, but it will still remain a heavily discounted price point relative to other options. We will continue focusing on the premium options and how we can secure more of it for our customers going forward, because there seems to be an endless demand for that from our customers. Kris Kindrick: The important point Jamie said was “for our customers.” Our customers want to get out of Waha. The period of 2028 to 2030 is important. We have renewal options on our Gulf Coast capacity in 2031, so it syncs up well with that. The forward says Waha gets better, but the last five years, the forwards have been wrong. We are seeing gas growth out of the basin, and it has been an important differentiator for us. We are going to continue to get exposure in basins other than Waha. Analyst: That makes sense. As a quick follow-up, can you remind us what your fee floors are on the G&P side, given these curtailments you have highlighted? Trevor Howard: I am happy to jump in here. We do not have fee floors in our business. Operator: Okay. Analyst: Got it. Thanks. Operator: The next question comes from Jeremy Bryan Tonet with JPMorgan Securities LLC. Please go ahead. Jeremy Bryan Tonet: Hi. Good morning. Jamie W. Welch: Good morning, Jeremy. Jeremy Bryan Tonet: I wanted to build on some of the commentary before. It seems like 2026 you are tracking ahead of expectations at this point, but you do not want to lift the guide—you want to see how more unfolds—but you still have 4Q intact, gradually increasing over the course of the year. What does that mean for 2027? Is there any way you can frame how you see the momentum—what type of growth this could generate or a normalized growth for the business at this point? Jamie W. Welch: Jeremy, you are right to start with caution. You are talking to Trevor, myself, and the management team. This was our second consecutive beat. It followed a series of misses, which we took personally and felt we needed to do better. We are being very cautious and conservative. It is not lost on us that we had a very strong first quarter, and we are hopeful that will shape up for the balance of this year. We will sit with the guide we have until such time as we conclude that changes make sense. Importantly, on transparency, the incremental PDP base—on average, 120 million cubic feet a day—is 60% of one of our existing cryos on average, and it peaks and declines depending upon the period. There was already a heightened expectation for 2027, which we agree with. We have a lot of benefits flowing through into 2027: NGL contract resets, incremental benefits, the first full year of our sour gas conversion project at King’s Landing. With a higher PDP base and accelerated activity earlier in the year, it sets us up well. It is premature to quantify dollars or percentages of growth, but the sun, the moon, and the stars are aligning for a very strong and positive year post-2026. Trevor Howard: The other thing I would point you to is that historically we have guided to projects across our entire portfolio being mid-single-digit multiples. If you strip out maintenance, you are looking at $400 million to $425 million of growth capital last year and this year. Looking at 2025 actuals and then adjusting out for the EPIC Crude sale, this year you are looking at double-digit growth. That ties to a reinvestment multiple on the growth capital that we had spent in 2025. Just to provide additional color based on prior comments we have made. Jeremy Bryan Tonet: That is helpful. One more: some of your peers have talked about a cadence for processing capacity expansions—x plants per year. Any high-level thoughts on what it might look like for Kinetik Holdings Inc. in similar terms? Jamie W. Welch: We take note of those statements from our competitors. We are probably on the cusp of being big enough to think about what that cadence may look like, but I do not think we are at that point quite yet. We would like to get King’s Landing 2 sorted, done, and behind us, and then we can think about it. We are still exploring the full benefits and breadth of the opportunity set in New Mexico. That will reinforce the perspective on processing cadence and growth needs for the company going forward. Jeremy Bryan Tonet: Got it. That is helpful. Thank you. Jamie W. Welch: Thank you. Operator: Your next question comes from John Mackay with Goldman Sachs. Please go ahead. John Mackay: Hey, team. Thank you for the time. Back in October, you had talked about shut-ins from some oil-directed wells. I just wanted to check in. The shut-ins you are talking about either for first quarter or balance of the year—is that all effectively on the Alpine High side, or are you expecting some more regular oil-directed activity to be impacted as well? Jamie W. Welch: You have it right in the context of the impact—Alpine High and more gas-sensitive customers. We have not seen oil-directed customers shutting in. To the contrary, some of the smaller guys, given the current commodity price environment, are looking to accelerate their level of activity. It is a tale of two cities: crude-focused folks are doing cartwheels and backflips, and those that are localized Waha gas-centric sellers are struggling. John Mackay: Appreciate that. Second one: you keep noting we will see a lot more gas growth—GORs in the basin are going up. Would you be able to give us a bit of a mark-to-market on your NGL T&F recontracting expectations? Alongside this, we would expect NGL volumes to go up. Maybe recontracting gains might not be as high as we could have thought at the end of last year. Could you mark to market that? Jamie W. Welch: No problem. I think we said on the call in February that the market was even more aggressive than we were anticipating. It is still early days, and we are in this discovery phase as we have communicated. We said we would clearly communicate to the market at the appropriate time. The expectation is you will have even better net realized margins on our part than we previously communicated because of the environment we find ourselves in. It is the antithesis of what you just described. John Mackay: Fair enough. That is interesting. We will stay tuned. Thanks for the time. Operator: Your next question comes from Keith T. Stanley with Wolfe Research. Please go ahead. Keith T. Stanley: Good morning. For the new packages of gas coming on in the summer that boost the second-half outlook, I want to confirm those producers that are bringing on those new volumes have gas takeaway capacity, so they are not sensitive to what is going on with Waha. Jamie W. Welch: Yes, correct. They have Gulf Coast transport. Keith T. Stanley: Great. Second question: you have had a good couple of quarters dealing with the Waha issue. How confident are you that marketing gains can continue to offset curtailment losses this year, and what is the risk around that? I assume it is if pipes you have FTE on experience unexpected downtime. Can you frame how you are thinking about risks to continuing to manage this this year? Jamie W. Welch: From an overall dynamic, we have multiple FTE arrangements on multiple pipelines. The overall reliability we have seen remains high, and it would have far-reaching consequences if there were unexpected issues. We are not anticipating any. There is a very regular cadence of maintenance in the fall and spring, communicated clearly to shippers. As far as managing is concerned, we have been looking at the spread differential between Waha and Houston Ship Channel. We have some hedges in place that mirror the expected capacity profile. We see more dislocation in Waha in the spring and fall during maintenance seasons when there is curtailment of capacity when pipes come down for days or maybe a week. We have been able to manage it. We feel confident we will be able to manage it. We have managed it through the first quarter, through April, and May as well. We are finding our sea legs as far as managing this exposure, even though it is very volatile. Trevor and the team have done a really good job. Trevor Howard: I would also say part of the risk is testing new lows. This company has done a very nice job managing which customers are more sensitive as you move from positive territory to minus $1 to $2 Waha, then the next tranche being $2 to $6 negative Waha, and then, like we saw for a few days in April and March and also in October, where you start to see $8, $9, almost $10 negative Waha. Being totally candid, the risk is whether you go and touch new lows we have not seen, like minus $15 per MMBtu. Given the setup of Hugh Brinson starting to have some deliveries in the third quarter, Blackcomb coming online in the fourth quarter, Hugh Brinson reaching full in-service, and GCS coming online this summer, I think the risk of us touching new lows is quite low. The commercial team has done a nice job of playing offense, learning from customer feedback, and migrating the portfolio to primarily Gulf Coast sales, which is important and a long-term strategy to help insulate us from the shut-ins we have seen. There is a lot of wood to chop, but the team’s initial work has been strong, demonstrated over the last two quarters of performance. Keith T. Stanley: Thank you. That is helpful detail. Operator: Your next question comes from Jefferies. Please go ahead. Analyst: Good morning, everyone. It is Rob on for Julien. Just one for me. I think you alluded in your prepared remarks to being a bit less hedged during the spring. Waha has been even more discounted in April and May. Any reason you would not expect to perform as you did in 1Q, if not better, in the second quarter? Jamie W. Welch: Rob, thanks for the question. Let us not get ahead of ourselves. We feel confident and good about where we are. Your statement is correct that April and May have been fairly negative from a Waha pricing standpoint. We will take each day and each month as we find it, and we will continue to build upon our financial base and aim to outperform. Analyst: Understood. Thanks for the time, everyone. Jamie W. Welch: Thank you. Operator: Your next question comes from Saumya Jain with UBS. Please go ahead. Saumya Jain: Hi. Good morning. Thanks for taking my question. As you keep your 2026 CapEx guide, what sorts of growth opportunities are you looking at in New Mexico? Would that be more on the AGI facilities on the sour gas side, or infrastructure investments to capture more gas residue? Could you detail what sorts of infrastructure investments are also needed on the gas residue side to expand that opportunity? Jamie W. Welch: This is Jamie Welch. As far as infrastructure and capital in New Mexico, 70% of our budget is allocated to New Mexico versus Texas. A lot of it is related to the AGI sour conversion project being one of the larger ones, and the completion of the ECCC pipeline. You have some long-lead items in relation to King’s Landing 2. On the residue side, we have connectivity to the existing pipeline operators up there—Transwestern, El Paso—and we will have other connections going forward. That is not huge dollars from our vantage point. It is all encapsulated within the CapEx we gave and have listed in our prepared materials. If I were to think about dollars, it is roughly $320 million versus the overall $480 million midpoint for our guidance. Saumya Jain: Thank you. Could you comment on any discussions with customers on technologies increasing recovery in the Permian, and if you have seen any notable differences from that already in the Delaware Basin? Kris Kindrick: We have seen efficiencies. It shows in production data, and from at least our public customers discussing on their calls. A lot of them are reticent to share any competitive advantage because that is part of how they optimize their costs. We are seeing a decrease in days drilled and similar metrics. There has been a trend of improved technologies over time, but nothing specific to a certain customer that we can share. Saumya Jain: Great. Thank you. Operator: We have reached the end of the Q&A session. I will now turn the call back to Jamie W. Welch for closing remarks. Jamie W. Welch: Thank you, everyone, for your time this morning. We look forward to seeing you in a few weeks at EIC. We wish everyone a great day. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Good day and thank you for standing by. Welcome to the GPGI, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Marshall, Chief Legal Counsel. Please go ahead. David Marshall: Thanks, Ann. Good morning and welcome to GPGI's conference call where we'll review GPGI's first quarter 2026 financial results. With me on the call today are the business leaders from GPGI, Resolute Holdings, CompoSecure and Husky. We'll begin with prepared remarks and then open the call for Q&A. During the call, we'll make statements regarding our business that may be considered forward-looking, including statements regarding our growth strategy, customer demand, macroeconomic factors, implementation of the Resolute Operating System and our guidance for 2026 as well as other statements regarding our plans and prospects. For a discussion of material risks and other important factors that could affect our actual results, please refer to the information in our reports filed with the SEC, which are available on the Investor Relations section of our website and on the SEC's website at sec.gov. As a reminder regarding the company's accounting. On February 28, 2025, GPGI completed the spin-off of Resolute Holdings Management, Inc. and our wholly owned subsidiary GPGI Holdings entered into a management agreement with Resolute Holdings. As a result, the results of operations of GPGI Holdings and the operating companies which are subsidiaries, including CompoSecure and Husky, are not consolidated in the financial statements of GPGI and are instead accounted for under the equity method of accounting. For more information about our financial presentation, please see our SEC filings, including our quarterly report on Form 10-Q to be filed later today. In the earnings release we issued earlier today and in the discussion on today's call, we also present non-GAAP financial measures to help investors better understand our operating performance. The company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends impacting the company's financial condition and results of operations. These non-GAAP financial measures should not be considered as an alternative to performance measures derived in accordance with U.S. GAAP and may be different from similarly titled non-GAAP measures used by other companies. A reconciliation of GAAP to non-GAAP measures is available in our press release and earnings presentation available on the IR section of our website. With that, I'll turn the call over to Executive Chairman, Dave Cote. David Cote: Well, we have a tale of 2 cities. CompoSecure is performing better than our expectations reflecting just excellent implementation of the Resolute operating system for both growth and operations. Husky unfortunately has encountered unanticipated market headwinds because of oil market volatility and tariffs. This has caused customers to delay accepting orders that normally would have been expected to ship in the quarter while also reducing new orders. Well, you'll likely ask what changed. Since I spoke to you on our March 12 fourth quarter earnings call, we saw a significant and surprising increase in customers taking a wait-and-see approach in response to those changing macro conditions. At the time of the call, February year-to-date orders were up approximately 27% versus prior year and the pipeline was up approximately 6% year-over-year. The amount of book and ship required to make the quarter was not unusual given history. And in the subsequent 2.5 weeks, several customers would not finalize their orders for shipment, we could not ship to a couple of countries and customers delayed placing an official order. This trend continues today. We can't predict when it will end so we have provided a wider revised guidance range. In anticipation of lower sales, we've taken various actions on expenses to mitigate some of the impact of those lower sales. At the same time we're seeing order delays, we saw the pipeline grow approximately 4% over last year in the first quarter and up 7% year-over-year through April. So there are reasons for optimism that this will not be a long-lived problem. Consistent with this, we're seeing the 12-month pipeline up while the 3-month pipeline is down. Husky leadership is aggressively tackling ROS implementation for both growth and operations. The investment thesis is very much intact with their great position in a good industry. Now I'm very unhappy to be sharing a different result today than I expected when I talked to you on March 12. While certainly disappointing in the short term, I can still say with confidence that the prospects for GPGI performance are quite rewarding. CompoSecure is on a roll and the new leadership has significantly energized that team and is improving the culture. The commercial prospects for growth are better than ever and ROS implementation and operations is showing significant gains. The prospects for this business are terrific and they're apparent today. Compo also benefits from being more than a year ahead of Husky in ROS implementation. Husky prospects are also excellent. It doesn't show right now because of the market headwinds, but it is real. We continue to fund R&D expansion because it will greatly benefit the business' future. Consistent with our underwriting thesis, we can already see that ROS will also have a profound impact on our Husky business. With Rob's leadership, they are aggressively implementing ROS and driving the cultural change necessary for success. We will navigate the market headwinds, implement ROS, continue increasing R&D and commercial excellence and become a significantly stronger business as we exit the year. I'm also pleased to say that Kevin Moriarty, a current GPGI Board member and deeply experienced finance leader, has stepped in to be Husky's acting CFO. This is yet another benefit of having a Board of superb operators. I've worked closely with Kevin in the past and he has a tremendous reputation as an operating CFO. We are actively evaluating a long list of candidates for the full-time role. But in Kevin, we have a proven leader who brings a steady hand to Husky and I know we'll benefit from his financial and operating capabilities. I wish we could have seen the Husky market issues sooner than we did of course. I have not looked forward to today. That being said, nothing has changed concerning GPGI and the prospects for both businesses. I'm personally energized by the progress I'm seeing in both businesses. The cultural change is well on its way at Compo and the cultural change needed at Husky is being accelerated in dealing with these unfortunate market headwinds. We can't predict today how long the headwinds will continue so we'll be cautious in our 2026 outlook. That though shouldn't take away from what both businesses can accomplish given they both have a great position in a good industry. I can promise you GPGI has my full attention. You all know my family and I have a lot of our own money involved here so I want to see GPGI perform extraordinarily well as much as all of you do. We will get through this just like we have in the past. This is an unfortunate blip, nothing more. We're excited about the path GPGI is on and what it will become. So with that, I'll now turn it over to Tom Knott, our Chief Investment Officer, to review our financial performance. Thomas Knott: Thank you, Dave. Going to Slide 4. GPGI delivered pro forma adjusted net sales of $421.2 million, up approximately 3% from the prior year; pro forma adjusted EBITDA of $82.1 million, down approximately 16% from the prior year; and pro forma adjusted EBITDA margins of 19.5%, down approximately 430 basis points from the prior year. As Dave mentioned, these results reflect record sales performance at CompoSecure offset by market-related underperformance at Husky. Given Husky's size relative to CompoSecure, this macro-driven delay in demand at Husky is more than offsetting excellent performance at CompoSecure. Starting with CompoSecure. We delivered a record quarter as strategic investments in the sales force and enhanced focus on commercial excellence are driving strong organic growth supported by ROS in the factory. ROS initiatives have led to a step change in manufacturing yields and operational efficiencies throughout the production process, which were the primary drivers of adjusted EBITDA margins expanding approximately 300 basis points in the quarter. Graham and Mary will go into more detail. But I would just highlight that CompoSecure is now 18 months of implementing the Resolute Operating System and we are pleased with the cultural and operational intensity taking hold at the company today. We expect CompoSecure to continue its strong trajectory of organic sales growth and improved profitability through the remainder of 2026. Turning to Husky. Rob and Kevin will discuss our performance in the quarter and our outlook, but I will reiterate Dave's comments in noting that customer demand for Husky's products deteriorated rapidly at the end of March in a way that surprised us. This change more than offset the strong pipeline and order book we saw developing through the first 2 months of the year as customers aggressively shifted to a wait-and-see posture as resin prices spiked. While we expect the business to rebound when uncertainty subsides, this change in near-term demand has led us to revise our outlook for GPGI. Turning to Slide 5. You have heard us in the past discuss the complicated accounting we are required to use. Given the transaction this quarter on top of that existing accounting complexity, Slide 5 shows a simplified walk to pro forma adjusted EBITDA. The full reconciliation appears in the appendix. As previously announced, we refinanced our debt concurrent with the transaction closing, extending maturities and materially reducing our interest burden. This is the first major component. Transaction expenses were in line with expectations and were paid through closing. These transaction expenses taken together represent over $200 million of onetime GAAP expenses, which will not recur going forward. Net interest expense for the quarter reflects stub period interest, deferred financing cost and the interest on the new debt. Other key items include purchase price intangibles amortization, ordinary course income tax provision, noncash TRA liability remeasurement, stock-based compensation and foreign exchange impacts. Moving to Slide 6. We're providing more details this quarter than normal to give a full picture of what we were seeing at Husky when we last spoke to you on March 12 and how things changed through the end of the quarter. Pipeline orders and backlog at Husky were trending favorably through February with positive commercial activity giving us confidence in our full year guidance for both Husky and GPGI. This momentum turned quickly late in the quarter. Orders fell 16% year-over-year to the end of March as resin prices spiked and customers delayed accepting shipments and placing orders. Backlog followed a similar pattern in 1Q. We saw an accelerated recovery through February following a softer January, but the negative trend accelerated in the middle of March with simultaneously decline in order activity. Despite all of this, our pipelines remain strong growing 4% year-over-year for the first quarter and ending April up 7% year-over-year. Even with this healthy pipeline growth, we continue to see slower conversion rates as customers defer some purchase orders in the current environment. Turning to Slide 7. The underlying demand drivers for our products namely nonalcoholic beverage demand remains resilient. This supports the healthy and expanding pipeline we've discussed even though near-term orders are volatile. While macro conditions have introduced significant ambiguity that is influencing near-term customer purchasing behavior, the core fundamentals of the market that Husky serves remain intact. Even though oil market volatility and its impact on resin prices is impacting customer behavior today, the volatility is also reinforcing areas where Husky products are well differentiated. As resin prices rise, the value of our systems become increasingly compelling for customers because our equipment delivers industry-leading throughput, superior cycle times, higher preform consistency, greater uptime and lower energy consumption. All of this enables us to offer customers a 15% to 20% lower total cost of ownership versus competitive offerings. Additionally, as the price differential between virgin and recycled resin gets smaller, customers are increasingly evaluating RPET as a feedstock alternative to virgin resin. Husky is the preeminent manufacturer of recycled PET systems, which will result in additional opportunities for new equipment sales and retrofit upgrades if customers shift to more sustainable feedstocks as an alternative to now expensive virgin resin. So while the current uncertainty is causing some customers to delay near-term purchasing decisions, we remain confident that the underlying demand driver, particularly consumption of bottled water, remains strong and that this period will drive customers to focus more on productivity, sustainability and system efficiency; all areas where Husky excels. I want to also take a moment to explain how we're responding to this challenging market environment at Husky. On the cost side, we are in the process of implementing targeted furloughs across jurisdictions to reduce direct labor cost without impacting our industrial base or impairing our ability to respond to the rebound in demand. We are aggressively managing indirect spend and making necessary changes to be more efficient while also working towards a full return to office to maximize collaboration and increase cross-functional accountability across sales, finance and operations. On the commercial side, we are reinvigorating our sales force under new leadership thus commercial excellence is also a key strategic priority. Husky is a little more than a year behind CompoSecure on the implementation of ROS. And while the market backdrop for our customers has changed meaningfully in a short period of time, we remain focused on doing the right things to position the business to achieve its potential. This includes making the necessary investments to accelerate innovation and long-term organic growth through aggressive expansion of the R&D organization and an unrelenting focus on ROS implementation. These critical initiatives are not stopping despite the market volatility we are facing because they will position the business to benefit from the rebound in demand and for the future more broadly. With that, I will turn the call over to Rob Domodossola, the CEO of Husky. Robert Domodossola: Thanks, Tom. Going to Slide 8, I want to begin at the most fundamental level of what we do. Husky produces systems that make a precursor to nondiscretionary items, primarily water bottles. Demand for these products is durable with long established history of through-the-cycle growth in periods of macroeconomic volatility. The current period of volatility is no different. The demand for nonalcoholic beverages continues to expand around the world. Our customers are continuing to operate these high essential systems every day to meet this demand and that will continue. While the current demand shock driven by steep increases in oil and resin prices has made customers delay normal purchasing behavior, the fundamental drivers of demand for our products remain solidly intact. Specifically, we currently have an installed base of 13,500 systems that are primarily used to produce nondiscretionary products. This installed base is embedded in our customers' operations and drives a large and growing aftermarket revenue stream across parts, tooling and services. The installed base is globally diverse across developed and emerging markets and new systems have a higher content than legacy ones. Roughly 35% of our revenue is tied to new system sales, which is currently being impacted most significantly by the demand shock as customers pause large capital investments while 65% of our revenue is tied to recurring revenue. Although current market dynamics are causing near-term demand deferrals, the mission-critical nature of our products and consistent underlying demand drivers in the markets we serve gives us the confidence in a return to normalized order patterns. Adding to our confidence, Husky is well positioned because our system delivers the lowest total cost of ownership for customers through faster cycle times, higher quality, lower energy use and maximum uptime. As higher oil and resin costs persist; our lightweight solutions, resin efficiency and system productivity enhanced by our connected Advantage+Elite remote monitoring further differentiates the value proposition of Husky's equipment relative to competitors. Taken together, we remain very focused on delivering on what matters most to our customers; uptime, output and durability at the lowest total cost. Turning to our results. We delivered pro forma adjusted net sales of $29.8 million and pro forma adjusted EBITDA of $38.2 million, down 5% and 40% year-over-year, respectively. As Dave and Tom mentioned, the Middle East conflict altered customers' purchasing behavior nearly overnight in mid-March as supply disruptions drove sharp increases in virgin PET prices, up approximately 46% in March and April. These higher input costs combined with tighter supply and increased financing costs have weighed on near-term demand as Dave and Tom described. We view these dynamics as cyclical rather than structural. In fact elevated material and operating costs tend to reinforce demand for efficiency, lightweighting and system level performance; all areas where Husky is highly differentiated and we've seen this pattern before. When geopolitical tensions ease and input costs stabilize, deferred investments tend to rebound and they rebound sharply. Importantly, the end markets we serve are tied to essential customer needs, which has historically proven resilient across cycles. Operationally, as Dave and Tom mentioned, we are in the early stages of implementing the Resolute Operating System and our focus is now entirely on disciplined execution. ROS is fundamentally changing the way we operate and these changes matter even more in times like these. A key initiative we are implementing includes the integrated sales, inventory and operations or SIOP planning to improve job sequencing, manufacturing output and to reduce waste. We are also managing indirect spend and enhanced enterprise cost discipline across our procurement team. And of course AI will be an accelerator to ROS as we identify bottlenecks and improve lead times. ROS is critical to our long-term success and we are using it every day to drive measurable inputs; improvements to growth, operations and financial performance. While the first quarter was disappointing, we know that fundamental SIOP planning efforts underway to establish a high performance culture and invest for the future are the right steps and are improving the business. Husky operates in essential categories. As macro pressures ease, we expect to see a rebound in deferred investment consistent with past cycles. Now turning to Slide 9. Given the breadth of our business, I want to cover what we're seeing in individual product lines and key geographies starting with our product lines. Specifically in systems, orders are being deferred to the resin price volatility, tariff-related uncertainty and elevated financing costs. We expect the weakness we saw in the first quarter to continue through the year if the market headwinds persist. For aftermarket tooling, orders at the end of last year were lower due to customer uncertainty related to tariffs, which weighed on Q1 2026 sales. However, we expect this segment to return to growth in the second half as customers invest in tooling for the existing installed base while deferring the purchases of new equipment. With respect to hot runners and controllers, we saw strong revenue growth across most regions in the first quarter, but continued market ambiguity is weighing on the order outlook in the near term. Lastly, for aftermarket parts and services, market ambiguity and tariff noise impacted demand at the end of Q1, which is expected to persist in Q2, but we expect to return to growth in the second half as customers increasingly prioritize productivity. In our key geographies, starting in North America, we see a pause in demand for PET systems, partly offset by growth in tooling, spare parts and services. We believe North American market is close to trough levels and represents a market within our oldest installed base. Shifting to Europe, we're seeing growth in aftermarket tooling driven by lightweighting and sustainability mandates that support further shifts to rPET adoption. For the Middle East and Africa, we see strong consumption-driven growth in PET systems and growth in hot runners for medical applications, offset by near-term geopolitical disruptions. Turning to LatAm. Inflationary pressures and the steep tax on sugar-sweetened bottled beverages in Mexico are driving near-term softness in PT systems. While aftermarket tooling continues to grow, given shift towards lightweighting and package optimization. Lastly, in Asia Pacific, we continue to see consumption-driven growth in PET systems and demand for hot runners tied to food and packaging and medical applications. I will now turn it over to our acting CFO, Kevin Moriarty, to review our financial performance in more detail. Kevin Moriarty: Thanks, Rob. Let's turn to our financial performance on Slide 10. Given the number of moving parts, let me level set where we landed for the quarter and our path forward. As a reminder, the first quarter is seasonally the smallest for Husky with the second half of the year typically much stronger than the first. Against this backdrop, Husky faced significant macroeconomic headwinds that weighed on both growth and profitability. We reported pro forma adjusted net sales of $290.8 million, down 5% compared to the prior year as declines in new system sales and tooling offset strong growth in spare parts, hot runners and controllers. Pro forma adjusted EBITDA decreased 40% to $38.2 million, driven primarily by lower revenue and resulting under-absorbed labor and continued investments in R&D and front-end sales capabilities to support future growth. In aggregate, these factors translated to an approximately 770 basis point erosion in pro forma adjusted EBITDA margin to 13.2%. As Dave, Tom and Rob all mentioned, we had over $20 million in revenue that got pushed out at the very end of the quarter. This included approximately $6 million tied to customer delays in taking deliveries, approximately $5 million tied to shipment and logistical delays tied to the Middle East conflict and approximately $4 million tied to delays in customer payments. Combined with the growth investments being made, this quantum of deferred revenue exacerbated margin degradation in the seasonally smallest quarter of the year as we carried excess labor costs relative to demand. Consistent with historical first half and second half seasonality, we expect margins to expand in the second quarter and continue improving sequentially throughout the year, driven by improved fixed cost absorption in the seasonally stronger second half, the impact of ongoing cost actions and acceleration operational efficiencies from ROS-led initiatives. These initiatives are central to our thesis of driving sustained margin expansion and bolstering long-term profitability at Husky. On the tariff front, after the Supreme Court invalidated IEEPA tariffs in February, the U.S. implemented modified Section 232 tariffs on April 6, 2026. While continued tariff policy pivot add uncertainty to when customers place their orders, we do not expect them to have a material impact on our results. The U.S. market represents less than 27% of our total sales, which helps moderate our overall exposure. Of this, roughly 40% of the revenue relates to systems and tooling shipped into the U.S. that is subject to a 15% tariff, 1/3 from imported aftermarket parts that have tariffs declining from 50% to 25%, and the balance is primarily hot runners, parts and services that are locally produced or delivered and therefore, not impacted. In addition, consistent with our standard terms and conditions, we have been successfully passing through tariff-related costs to customers since the third quarter of last year and will continue to do so. Finally, our Husky equipment qualifies under USMCA and remains exempt from the 3.1% U.S. import duty, further limiting our exposure. And we are not alone when it comes to tariffs. Industry demand in the U.S. has been negatively impacted for the last 2 years. The U.S. is an importer of PET systems and Husky's primary peers do not have domestic production capability. We believe our North American presence positions us favorably relative to international peers importing into the U.S., while this tariff regime remains in place, while also allowing us to capture the inevitable cyclical upturn. With that, I will turn the call over to Graham Robinson, the CEO of CompoSecure. Graham Robinson: Thank you, Kevin, and good morning, everyone. Going to Slide 11. We delivered an outstanding quarter at CompoSecure, continuing to build upon our commercial and operational momentum. We achieved record pro forma net sales of $130.4 million, up 26% year-over-year, underscoring both the effectiveness of our commercial execution and the robust demand for premium metal cards. We are seeing this strength translate into new program wins and accelerating issuer activity across leading fintechs and traditional financial institutions. We're also seeing growth in metal cards that have Arculus capabilities. At the same time, the Resolute Operating System continues to have a deep and profound impact across the business. We are realizing meaningful improvements across all functional areas from sales performance to improved operations, which helped us deliver strong pro forma adjusted EBITDA of $47.6 million, up 37% compared to a year ago. While we are encouraged by our progress, we remain highly focused on investing in our future, in line with our strategic and execution framework that includes 3 pillars of growth: one, accelerating organic growth; two, driving international expansion; and thirdly, increasing Arculus momentum. In the first quarter, we saw several exciting customer programs go live, including the American Express Graphite business card, X Money from Elon Musk, the Robinhood Platinum card and Revolut Audi F1 card as well as Fold, [ Cast ], Kraken and MetaMask US, which provide crypto rewards and the optionality to pay with crypto. These signature program wins reflect the breadth of demand for premium card solutions and our differentiated value proposition, combined with advanced design, engineering and manufacturing capabilities to reinforce our position as the partner of choice for issuers launching high-impact card programs. Most recently, we strengthened our leadership team by appointing general managers to lead our Arculus and international businesses. With that, I will turn it over to our CFO, Mary Holt, to review our financials in more detail. Mary Holt: Thank you, Graham. Let's turn to our financial performance on Slide 12. In the first quarter, CompoSecure delivered strong results across all key financial metrics, driven by continued demand strength and increasing impact of the Resolute operating system across the organization. As Graham mentioned, adjusted net sales were $130.4 million, up 25.6% year-over-year, driven by robust demand from traditional banks and leading fintech customers. Adjusted EBITDA increased 36.8% to $47.6 million, reflecting both volume growth and meaningful operational efficiencies, which led to a 300 basis point improvement in adjusted EBITDA margin to 36.5%. Some of these productivity gains will continue to flow through to profitability, while some will be strategically reinvested to support sustained growth. Overall, this performance highlights the operating leverage and tangible benefits we are realizing from the systematic deployment of the Resolute Operating System, including enhanced throughput and process innovation, which has led to higher and more consistent yields at the factory level. I will now hand it back to Tom to review GPGI's revised guidance. Thomas Knott: Thanks, Mary. Turning to Slide 13. We are introducing new guidance for 2Q '26 and revising our full year 2026 outlook to reflect the macro-driven headwinds facing Husky. For 2Q ' 26, we expect net sales between $425 million and $475 million, pro forma adjusted EBITDA between $105 million and $120 million and pro forma adjusted EBITDA margins between 24.7% and 25.3%. For FY '26, we now expect pro forma net sales between $1.95 billion and $2.1 billion, pro forma adjusted EBITDA between $550 million and $610 million and pro forma adjusted EBITDA margins between 28.2% and 29%. Consistent with the historical trends in the seasonally lowest quarter for free cash flow and despite the market-related challenges we faced at Husky, we generated approximately $29 million of adjusted free cash flow similar to last year's level, which gives us further confidence in our revised full year estimate of between $275 million and $325 million in pro forma adjusted free cash flow. Finally, we anticipate ending the year with approximately 3x total leverage. Our revised guidance reflects the impact of the market shock facing Husky, but we continue to view 2026 as a critical and foundational year of cultural change, ROS implementation and strategic seed planting at both businesses that will position us to deliver best-in-class top line growth, margin expansion and free cash flow generation across the GPGI platform. This remains our focus, and we are confident in the work underway at both businesses. With that, I'll hand it back to Dave for some closing remarks. David Cote: Thanks, Tom. We've got 2 businesses in CompoSecure and Husky that hold great positions in good industries, both of which are becoming even stronger through the cultural transformations their teams are driving and the consistent deployment of the Resolute Operating System. You can see the results clearly now at CompoSecure. The market dislocation we're experiencing in Husky is making those improvements harder to see, but they are there. The culture and the business processes are getting better. We're committed to continuing the course, investing smartly for the future and the results of our efforts will become evident. So with that, I'd like to open up the call for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jacob Stephan with Lake Street Capital Markets. Jacob Stephan: I guess, first, I just kind of wanted to understand on the guidance a little bit better and make sure I have clarification on Slide 13, you have kind of 2 arrows pointing to the high end and the low end. So the low end represents Iran conflict being delayed with the Strait disrupted and the high end would be if the conflict is resolved. I guess if you could give a little bit better sense on like timing. Does the low end of the range, I guess, assume the conflict last for the remainder of the year? Or does the high end assume that this is over to borrow? Any kind of comments you can give there? David Cote: Yes. The way I would look at it is what we're trying to reflect is the impact of delays. So if the delays continue because the Iran conflict just keeps going, then those delays are going to cause us to come into the lower end of the range. To the extent that our customers let go of those delays and maybe even if the conflict is continuing, but they stop delaying because they need the aftermarket or they need the machines, then we'll end up towards the higher end of the range. So it's more a reflection of what do we think could happen on customer delays today driven by the Iran conflict and tariffs. Jacob Stephan: Okay. Got it. And then I guess just kind of continuing on the guidance factor. When you look at kind of the second half for adjusted EBITDA, I think it implies relatively higher adjusted EBITDA in the second half. I know Q4 is a strong quarter for Husky, but we're looking at kind of $450 million to $550 million of EBITDA in the back half versus the first half. So I guess any color there, especially when you kind of talk about the margins compressing on Husky a little bit? Kevin Moriarty: Sure. This is Kevin. If you look at our first half, second half; seasonally, second half represents roughly 60% of our revenue base. And again, with the cost -- better cost absorption, vertical contribution margins improving as well as the cost actions, we feel that the second half will be stronger. Jacob Stephan: Okay. And then just lastly on CompoSecure the core business there. Wondering if you could touch on the, I guess, new card launch pipeline. Is that strong looking at the kind of the last 3 quarters of the year? Graham Robinson: Yes. The pipeline continues to be quite strong. And we speak in a number of different dimensions. The programs that we have with our existing customers, those customers are also continuing to create and generate new programs also. And then lastly, we continue to penetrate a new customer base, both internationally and domestically and also with fintechs and with our traditional banks. So we are -- we continue to be quite optimistic about the strength of the pipeline that we have and what we're seeing going forward. Operator: Our next question comes from the line of Tomo Sano with JPMorgan. Tomohiko Sano: I'd like to ask about the Husky s margin declined by 770 basis Y-o-Y in the past quarters. So looking ahead to second quarter and remainder of the year, what specific factors or initiatives do you expect will drive the margin improvement towards your full year guidance? Could you qualify the key assumptions for margin recovery in the back half, please? Kevin Moriarty: Sure. So as I alluded to, the first quarter is historically are some lower revenue number. So as we sequentially go through the year, revenue will grow, which has been our historical pattern, heavier weighted to the third and fourth quarters. So the variable part contribution margin we're expecting on that is going to sequentially improve the margin rate. We're driving the ROS initiatives internally, which we expect to provide some lift as well as we've commented on cost actions that we're taking. We institute some furloughs as well as some indirect cost actions that we're also expecting to provide some lift. Tomohiko Sano: And a follow-up regarding leveraging the ROS to drive the margin improvement for Husky. Could you share some examples of the cultural changes and operational opportunities being executed to enhance resilience and profitability, please? Robert Domodossola: Sure. Maybe I'll start. It's Robert. One of the biggest things is what I mentioned, the SIOP process is really intended to level out the factories. It's hard to keep your costs under control if you have peaks and valleys. But with level loading of the factories, it's much easier to get the labor and material costs aligned with the volume that's coming out of the factories. So that's one of the biggest initiatives that we have right now. With reduced lead times, that also helps to level load the factories, not just making us more competitive, but more profitable as well. We have a significant focus on supply chain procurement excellence that's helping with material cost reduction. And finally, on the commercial excellence side, our whole go-to-market approach, we are taking steps to have some very effective value propositions globally rolled out, especially with regards to our new product launches. Operator: Thank you. And I'm currently showing no further questions at this time. This does conclude today's call. Thank you all for your participation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Endeavour Silver First Quarter 2026 financial results conference call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Allison Pettit, Vice President, Investor Relations. Please go ahead. Allison Pettit: Thank you, operator, and good morning, everyone. Before we get started, I ask that you view our MD&A for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A and financial statements are available on our website at edrsilver.com. On today's call, we have Dan Dickson, Endeavour Silver's CEO; Elizabeth Senez, our CFO; and Luis Castro, Endeavor's COO. Following Dan's formal remarks, we will open the call for questions. And now over to Dan. Dan Dickson: Thank you, Allison, and welcome, everyone. Endeavour Silver delivered excellent results in the first quarter of 2026, setting new records in both production and revenue. The strong performance generated significant cash flow, underscoring the company's remarkable growth trajectory. With the [ Cubo ] plant expansion substantially complete and Terronera's operations performing near design expectations, we are entering an exciting phase for the company, and we look forward to building on this momentum as we progress throughout the year. In Q1, Endeavour produced nearly 2 million ounces of silver and 12,000 ounces of gold with base metals, totaling 3 million silver equivalent ounces. This represents a 78% increase compared to Q1 2025 with the additions of [ Copa ] and Terronera. We reported revenue of $210 million, an increase of 23% compared to prior year with cost of sales of $160 million, mine operating earnings of $94 million and mine operating cash flow of $115 million before taxes, a 400% increase from Q1 2025. Our all-in sustaining costs net of byproduct credits were $37 this quarter. This represents a 51% increase compared to Q1 2025 when [ Copa ] and Terronera had not yet joined Endeavour's production portfolio. It's also worth noting that these costs were 9% lower than Q4 2025 primarily due to the ramp-up of operations at Terronera with gained efficiencies throughout the quarter, and we anticipate further reductions in these costs as we continue to optimize operations throughout the year and capital expenditures become normalized. In Q1, Endeavor recognized adjusted net earnings of $59 million or an adjusted earnings per share of $0.21. Both direct operating cost per tonne and direct costs per tonne were elevated this quarter. To clarify how we define these costs, our direct operating cost per tonne include direct input costs associated with mining, milling and site level G&A. Our depiction of direct costs per tonne includes royalties, mining duties and purchase of third-party material. Changes in the metal prices have a meaningful impact on our direct cost per ton. For an example, a $1 increase in silver, cost per tonne rise by about $0.90 at Terronera, Guanacevi is $3.80 and $0.50 at [ Copa. ] Obviously, due to the higher royalties the mining duties, third purchase costs and federally required profit sharing. Our direct operating cost per tonne rose by 30% in Q1 compared to Q1 last year as a result of the inclusion of [ Copa ] and Terronera into our portfolio. Both assets carried higher operating costs in Q1 than what is expected going forward. During the first quarter, [ Copa ] installed and commissioned a new three-stage crusher in ball mill, increasing plant capacity to above 2,500 tonnes per day. It remains additional plant expansion expenditures. However, these will dissipate as we move through 2026, and we expect to see benefits on cost metrics starting this quarter. In Peru, we've experienced pressures on attracting and retaining skilled labor impacting labor costs, training costs and overall efficiencies. We expect this to continue, but the additional costs will be offset by the efficiencies of an updated and expanded operation. At Terronera, we're in the infancy of operations. In Q1, we made a significant transition from a construction and start-up team to an operations team, adjusting and reducing personnel. Mine and plant metrics have steadily improved through continuous measurement, review and adjustments. As the operation settles into consistent day-to-day rhythm, cost efficiencies are expected. As onetime capital investments are completed in the first half of the year, we expect operating cost metrics to decrease with higher ore grades expected in the second half. We also expect significant improvements on a cost per ounce basis. Exploration drilling has restarted at Terronera, and we expect to provide an update later this quarter. I should note, we have not transitioned our power generation to the LNG plant, but expect to before the end of this quarter. We have the necessary authorizations and plan to commission the LNG vaporization plant this month. At Guanacevi, cash flows were north of $20 million this quarter. The mine incurred higher operating cost per tonne, largely due to lower throughput with minor increases in our absolute costs. As an operation, the royalties, purchased ore mining duties and profit share is a significant part of that cost structure, and thus, we saw increases. Step-out drilling has commenced and also, we expect to provide results later this quarter. As of March 31, our cash position was over $232 million. Working capital was north of $173 million, which gives us a strong and stable foundation to drive our ongoing initiatives. We remain committed to advancing progress at Pitarrilla, where studies -- where steady investment in exploration, studies and economic evaluation continues to move forward with the expectation to provide economic evaluation in the third quarter. In closing, our strong financial footing and successful expansion of the Pulpa plant and the steady improvements at Terronera put Endeavour in an excellent position to meet our production targets this year. These achievements reflect our unwavering focus on operational excellence and our ongoing dedication to delivering long-term value for our shareholders. I would like to thank everyone for their continued support and engagement. And with that, I'm happy to open up to questions. Operator, let's proceed to the Q&A session. Operator: [Operator Instructions] The first question comes from Heiko Ihle with H.C. Wainwright. Unknown Analyst: This is [indiscernible] filing in for Heiko. He's on a [indiscernible] right now. First question, the great step up at Terronera. Next week, we'll be halfway through the second quarter. Any views of what you've seen with grades at site during this period so far? Dan Dickson: Yes. We have Q1 and Q2 grades a little bit similar. Q2, we expect to be slightly higher than Q1. Ultimately, the real step-up in grade in the back half of Q3 and into Q4. Unknown Analyst: Okay. Great. And second question, maybe a bit of a philosophical one. The Terronera approaches name plate capacity. Could you maybe talk about what you saw and learned during the ramp-up phase that maybe will be useful as you move other assets into production? And I guess, as a sweetener to that anything you expect to add to the Pitarrilla feasibility study that you may not have expected a year ago? Dan Dickson: Yes. I mean, how much time do you have on things that we learn during the Terronera build-out phase. I mean I think as an organization, it's our first build from scratch and there's a lot of learning. And I think we can apply a lot of that. And in fact, in Q4 and into Q1, we did a post mortem or post review of construction of things that we can improve. So we can take that over to Pitarrilla. Obviously, continuity is a very important part. And this year, Don Gray retired and we replaced Don with Luis Castro, who's been with the company for 21 years. But there are a lot of people that remain in the company that were involved with the construction in Terronera. If we can move Pitarrilla along in accordance with what we think is our time line sometime in 2027, starting that construction, we can benefit from it. From processes and protocols and procedures that would be put in place at Terronera, I think those will be stronger going forward. And a lot better positioned as a company to take on a second build, so to speak. And so we're well positioned. The biggest part of that is really understanding all the permits and permits that are required. I mean as we went through, we originally got our EMEA at Terronera about 2015, 2016, Pitarrilla already has MEA. There are some other permits that are required around MEA specifically around the tailings storage facility, and we're going through that process to try to obtain that by Q1 of next year. But behind all that, there's about 100 other 30-some-odd permit that you learn to go through and how to navigate that through the government. And I think we have the ability to do that a lot quicker than what we did at Terronera. So we're excited about what we gained from a knowledge standpoint at Terronera, and we think we can apply it up to Pitarrilla. And then for your second part of that question. At this point, there's nothing new that's surprising at Pitarrilla. There's a lot of work that was done. SSR and invested $145 million. They've done a pre-feasibility study on underground operation O9. They did a lot of work on an open pit operation in the feasibility study that was 2012. I mean we've been looking at this now for 3 years. And so there hasn't been anything, I'd say, in the last 6 months to 8 months have jumped out that's been surprising to us. We have a good indication of what the plant is going to look like, and what the capacity of the mine is, and that will come out in due course when we put out effectively the feasibility study or 43-101 feasibility study later this year. Operator: The next question comes from John Tumazos with John Tumazos Very Independent Research. John Tumazos: Congratulations on all the increased production and raining cash and all those good sense. Some other companies in Mexico have had bumps in the road, one company had their plane shot down a month ago. Another company has a very tragic incident in January. You've got at least four locations where you're operating, is there any particular secret to your operational success and good security results. I get to some parts in Mexico are so much better than others. Dan Dickson: Yes. But I think that's the specifics to it all is there are parts in Mexico that are more secure than others. And I mean it's hard to say that we haven't had our issues. In February, there was a code red in the State of Lisco, when one of the captains of the cartel was killed. And that on the Sunday following, they put blockades into 22 different states. And part of the State of Lisco and around Portovarta was significantly impacted with blockades of the highways. Now I don't think there is a lot of there is some unfortunate incidents with citizens. But generally, citizens weren't targeted. It was just the target to the government to show power, I guess, of that cartel. And for us, it impacted our supply chains, and we shut down operations for three days to make sure that if we had any safety incidents, so we could get to a hospital. So like I say, it's not to say that we have not been impacted. But I'd say, generally, our areas that we operate haven't had significant violence, but we're -- we've got a team in place, a security team in place provides us intelligence, and we make various decisions based on what's happening in Mexico and what's happening in various states. So again, we've been at Guanacevi for 20 years and very low impact to all that. We actually sold our Bolanitos operation in January. So we're no longer in Guanajuato. And then in Helisco, like I say, we're an hour in Porte Varta, which is considered a very safe area in that 2-day event. And there's about 3 million Americans and Canadians that visit that area on an annualized basis, and we're very happy to operate there, but we keep our eyes open and ears to the ground and just trying to understand what's all happening. John Tumazos: Are there any variations in cost between your locations due to logistical costs where you maybe avoid a bad neighborhood or anything like that? Dan Dickson: Yes. Nothing that would be significant I can recall back in '08 or '09, we made sure we didn't drive by a certain town, which added about 35, 45 minutes of driving time up to Guanacevi, which was about 4 hours away. But ultimately, the costs associated with our security between Terronera and between Guanacevi and ultimately also now at [ Copa, ] are very similar. I mean a lot of the same procedures and protocols are in place. So from a significant standpoint, I would say no. John Tumazos: And I apologize for even asking these questions, but... Dan Dickson: No, those were fair questions. John Tumazos: Investors' minds. Dan Dickson: Yes. No, it's a very fair question. We get them often in our meetings with investors. So happy to answer them. Operator: The next question comes from Soundarya Iyer with B. Riley. Soundarya Iyer: Congratulations on the quarter. Was with another call, so I don't know if this question has been answered. But so on Guanacevi, I mean the grades have come pretty low year-over-year. So -- and like third-party material purchase have also increased and its almost 1/3. At what point does this or economics change and start to dilute margins there to purchase in third-party or we continue doing that? Dan Dickson: Yes. I mean, with the higher prices, obviously, allows us to go after lower grade material. And the great thing is we mined Guanacevi now for 20 years, and there's areas of the old parts in the mines, North Provenir, and what we call Santacruz, South central propane that would have material left behind that would have been running 225-, maybe even 250-gram silver equivalent material that you can go back and and mine. And as prices go up, your cutoff grades come down. Some of the grades that we're pulling right now, where we had 275 grams more from the depth depth of El Curso, which is on Frisco ground. We pay significant royalty there, too. As we move through the year, we're going to be going into an area called Malache, which is 100% controlled by us. We've got an area near propane dose, which we mined up in 2015. We've been working in there. Some of that's on is ground, some of it's on ours. Obviously, as a management team, we continually look at grades and cut off grades and ultimately, margins. And has provided that Guanacevi is going to still continue to be profitable. And as I say, we did north of $20 million of free cash flow there this quarter. We're going to continue to operate it. So right now, we don't have a huge reserve base. We know we can get into and maybe into 2027 and maybe into '28, probably extend that. We're going through that work. We started some drilling and various areas. We start to go back into other areas and build out our resources, and we'll have a plan in place for the end of the year of how long -- much longer will be at Guanacevi. And I suspect we can get there for quite a while, especially at these prices. Soundarya Iyer: Got it. That's really clear. And just 1 more on Pitarrilla FS. So is it still on -- I mean, is it still targeted before 3Q 2026, I mean given that the spend -- $1.8 million spend in 1Q was pretty low. So how do we... Dan Dickson: Yes. We've made a lot of commitments. Our spend is a little lower in Q1 than we expected, but we've started to push that work. we would be probably a handful of weeks behind, not a significant amount. We're still hoping Q3 of 2026. Maybe it ends up being more of the back half of Q3 rather than the front half of Q3, but we'll see how all that progresses over the next couple of months. Operator: The next question comes from Craig Stanley with Raymond James. Craig Stanley: I think you indicated you expect grades to pick up a bit at Terronera in the second half of this year. Is that -- are you going to be mining a little lose? Dan Dickson: Yes, Craig, good question. We're actually drilling La Luz right now. As you probably know, it's about 150,000 to 250,000 tonnes in our mine plan -- in our feasibility mine plan. So right now, we're actually drilling a little bit to depth, so we can come up with a more efficient mine plan just because of the scale and trying to figure that out. So we took the rigs out. We were drilling Terronera this past quarter, and those rigs are going back to La Luz now that we have assays, and that will drill a loose probably until midyear and then start building a mine plan for that. So I suspect because of how things are going in Terronera that La Luz will get pushed to Q1 or Q2 of next year. But again, we'll have drill results out before this quarter is out at Terronera and maybe some La Luz as well. Craig Stanley: Okay. And then were you saying on Pitarrilla, you're sort of hoping to get the final permits in the first half of next year and then start construction later in 2027? Dan Dickson: Yes. Ultimately, we have a very good idea because of what Pitarrilla is and the resources that there in the underground sulfide resources that we'd be mining it from an underground standpoint, I don't necessarily think the economic evaluation is going to be that far off than what we've historically known. But really, the gating item is the permit to build the tailings storage facility, which is going to be a dry stack facility. We've been going back and forth with the authorities on that, hoping we can get through it relatively quickly. Now at the beginning of the year, we thought maybe Q1 2027, we could get that permit. Things have seemed to be still sticky when it comes to permits in Mexico. We've heard a lot of our peers expecting permits in Q1, and that never came to fruition, then it was going to be early Q2, and we're almost halfway through Q2. So I'm getting a bit nervous on time lines when it comes to permits, just because it still have -- we haven't seen a real floodgates open, so to speak. But that's what we were targeting. And then if we could start building in next year, that would be great. Now we are still continuing forward with our construction cap this year. So we have ultimately a plan of 800 beds. I don't -- I think we're putting in maybe a little bit less than that to start with 250 to 300 beds, and we're still making our movements to purchase mobile equipment and plant equipment, so we can do the basic and detailed engineering properly when it comes to the plant. So we're still pushing ahead, but the real kicker for a construction decision is that tailings and permit. Craig Stanley: Okay. And then just the last thing for me. When you're out talking to institutional investors, does M&A come up more in regards to Endeavour Silver being a potential target? And because when you look at the silver space, you have a lot of these companies with much larger market caps like Pan American core HACA First Majestic and then it sort of drops off and you're sort of in this sort of middle stage before you get that into sort of the real smaller producers. Just curious like Terronera has now ramped up. Is that something that's in discussion. Again, more with clients. Dan Dickson: Yes. I mean, with the investors, people always ask, like how do we want to grow? And we say we want to be a senior silver producer and Terronera has ramped up hitting criteria through the plant. I think once those grades really start coming through, and we get our costs down to expectations, I think there's a lot more value in our shares there. We want to build that value in our shares. Ultimately, we're a pretty young management team. I think we're pretty still hungry to grow and find things, never say never. But it's such a small space. There's only a handful of people that can actually look at us, and there's only a handful of things that we can look at. So we have a pretty good corporate development guy. Some days, he works hard. He's sitting right in front of me. So we are always looking at things and trying to figure out the right combination for Endeavour. Operator: We have a follow-up question from Soundarya Iyer with B. Riley. Soundarya Iyer: Sorry for just about getting another question. Just curious on the capital... Dan Dickson: No problems at all. Soundarya Iyer: Curious on the capital allocation part. You had $200 million -- $250 million in cash. And then this has been a record operating cash flow. Is it -- how are you thinking about like some dividend buybacks, not this year, maybe, but in the future... Dan Dickson: Yes, I think it's very clear -- yes, that's a fair question. I mean, for us, we're still on a growth trajectory. We're really excited about what we have at Pitarrilla. I think the market is going to understand that when a feasibility study comes out in Q3. The expectations, the cost to build is going to be somewhere between $500 million and $600 million. If we keep generating cash at this rate, we'll have a good chunk of that built into our balance sheet by the end of the year and then obviously, cash flows into 2027. Until Pitarrilla is built and operating and providing its cash flow is probably the time we'd start looking at dividends or share buybacks. But at this point in time, our -- we feel like the rate of return that we can get out of Pitarrilla will be very valuable for our shareholders, and that's what the cash that we're generating is going to be used for. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Dan Dickson for any closing remarks. Please go ahead. Dan Dickson: Well, thank you, operator, and thanks for all our listeners today. I think Q1 was a good quarter for Endeavor, but we still have more expectations going back to the year. As you say, Terronera's grade should pick up in the second half of the year, [ Copa ] will be operating close to 2,500 tonnes per day. And we'll get more rhythm at Guanacevi, Terronera and [ Copa ] that ultimately, we expect a very strong next 3 quarters and specifically the second half of the year. So we're excited with what we have. We're excited where we're going, and I look forward to getting the feasibility to say out of it in the second half of the year as well. So thanks for joining today. Operator: This brings to end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Evaxion Business Update and First Quarter 2026 Financial Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO, Helen Tayton-Martin. Please go ahead. Helen Tayton-Martin: Thank you, and welcome, everyone, to Evaxion's Q1 2026 Business Update Call. I'm very pleased to be joined today by our CSO, Birgitte Rono and COO, recently promoted, we will talk more about that; and Thomas Schmidt, our CFO; and our Head of Investor Relations and Communications, Mads Kronborg. So if we move to the first slide, just to provide some orientation as to what we will cover today. We will spend a little bit of time on our achievements in the first quarter of this year and some notable changes that we have made in order to address and focus on our strategy. I will then hand over to Birgitte, who will talk through some of the recent highlights from our R&D portfolio and AI-Immunology platform. Birgitte will then hand over to Thomas, who will walk you through our Q1 financial results. And then we will have some concluding remarks before opening up the call for Q&A. So if I move to the next slide, just to reiterate, we may make some forward-looking statements on the call today, and investors and all listening are guided towards our SEC filed documents. So if I go past our introduction to Slide 5. I just wanted to, as before, emphasize our 4 key focus areas within the organization and give you a sense of the momentum as we perform an update in each of those areas. First of all, our core focus around business development and partnering is very much underway and strengthened. By the way, we have reorganized the organization somewhat, and I'll come on to that to focus on the external outreach and positioning of the company to a broader audience and also to raise the awareness of exactly what it is that Evaxion can deliver in terms of products and the platform. And I'm pleased to say that we have many discussions ongoing there, and we hope to report more on that later as the year progresses. Secondly, in our R&D focus areas, we are delighted to talk about our recent data from our EVX-01 lead program Phase II study in which we were able to update some of the translational data recently at AACR, and Birgitte will talk in more detail about the performance of the cells that we produce in relation to the vaccines given to the patients and the 86% immunogenicity conversion rate we have there. We also were able to present at AACR, a new set of data preclinically in collaboration with our collaborators at Duke University on the scope to use the AI-Immunology platform in glioblastoma. We have always felt that the approach could be applied to other high mutational burden tumors, but also to others where high mutational burden was not a feature, and that is very much part of how we were able to demonstrate the broader applicability of the platform in glioblastoma. And again, Birgitte will speak more to that. Finally, we were able to confirm the completion of the last patient, last visit in the extension phase of our EVX-01 program and our Phase II trial, and more to come on that later in the year. More broadly on the AI-Immunology platform, we continued to optimize and strengthen that around its ability to deliver products across our infectious diseases as well as oncology portfolio and again, also in autoimmune disease, again, where we'll update later in the year. But in this first quarter, I'm delighted to say that we were able to show some initial data on a new polio vaccine concept presented in collaboration with The Gates Foundation. And finally, as Thomas will come on to, we have maintained our disciplined allocation of resources aligned to our stated aims with the portfolio and the platform, and our cash runway remains unchanged into the second half of 2027. Moving to Slide 6. As mentioned, we have reorganized slightly inside the organization. I'm delighted to announce the promotion of Birgitte to the combined role of CSO and COO, which really reflects on how we organize the company and how well it's been run in recent times, but also to enable me, in particular, to have a greater focus externally on behalf of the company in terms of our business development and our investor interactions. Separately, and in parallel, we were able to welcome Jens Bitsch-Norhave to our Board of Directors. And Jens comes to us with a huge amount of experience in BD and corporate strategy and outreach in general, both from a biotech perspective but more recently from J&J and Hengrui, where he is currently Corporate VP and Global Head of Corporate Development. So we're delighted with the way that we've been able to strengthen the organization to focus on our stated strategy, to build and maintain what we have and build greater partnerships. So on Slide 7, just to summarize, we remain a lean and capable and focused team in terms of the management organization. Two of the members are here on the call with me today, and Andreas continues to support and drive the organization's innovation strategy around AI-Immunology. And our Board remains the same but with the addition of Jens, as I mentioned. Finally, moving to Slide 8 to set up our objectives and key milestones for this year. Just a reminder that Evaxion over many years now has the privilege of having a pipeline in Phase II in oncology with our EVX-01 asset in advanced melanoma, our personalized neoantigen-directed peptide-based vaccine, where we've got great data, which Birgitte will touch on in terms of now and what's to come. We have our EVX-03 program, which is a combination of personalized and IRF-based antigens on our DNA platform. And then we also have coming along in preclinical development, aiming for clinical readiness by the end of this year, our off-the-shelf vaccine program, EVX-04 targeted to AML, which will be a single vaccine approach for multiple AML patients. More to come on that. Infectious diseases, we remain focused on driving forward our preclinical assets, EVX-B1 against pathogen staph aureus, our B2 program against Neisseria gonorrhea and also in collaboration in -- with Afrigen on an RNA platform. EVX-B3, our options partner program continues to move forward with MSD. And before our more recent newer program on Group A Streptococcus is making great strides in initial early discovery component design. And our first viral program is continuing to make progress in terms of confirming the candidate components. So a lot going on in the organization. In Slide 9, I just wanted to remind the audience of our 2026 milestones and the fact that we have achieved the first one of those in our EVX-01 additional biomarker and immunogenicity data, and we remain on track in terms of updating on the approach of AI-Immunology in autoimmune disease, our 3-year data for the EVX-01 melanoma program, our planned strategy with the EVX-04 AML program and the early work maturing in our preclinical EVX-B4 program against Group A Streptococcus. And fundamentally, we are driving the partnership strategy to focus on the platform and the assets so that we can continue to build value in the company and focus on delivering those into early development where we believe we can add value. So at this point, I'd like to hand over to Birgitte, who will talk you through our R&D and AI-Immunology update. Birgitte Rono: Thank you, Helen. So today, I'll be focusing on our lead candidate, EVX-01. And as mentioned, this is our personalized neoantigen cancer vaccine currently in Phase II in advanced melanoma. And then I will present the exciting new data demonstrating the scalability of our AI-Immunology platform into the hard-to-treat deadly brain cancer glioblastoma. And lastly, I will showcase how we have applied AI-Immunology to design optimized vaccine antigens for an improved polio vaccine. So if you take the next slide. So as Helen mentioned, we presented EVX-01 Phase II biomarker and T-cell immune data at the AACR Annual Meeting here in April. And we reported that 86% of the EVX-01 vaccine target triggered a specific immune response, and this is substantially higher than what has been reported for other similar vaccine candidates. Furthermore, we also reported that 86% of the immunogenic vaccine target induced a de novo T-cell response, meaning that the EVX-01 vaccine specifically triggers novel T-cell responses and not just amplifying existing responses. And this is of great importance as induction of these novel responses have been linked to clinical benefit. Furthermore, we demonstrated a positive correlation between the predicted quality of the EVX-01 vaccine targets and the magnitude of the T-cell response induced by the vaccine targets. And this high vaccine target success rate, together with this positive correlation demonstrates the strong predictive power of our AI-Immunology platform. If you take the next slide. So EVX-01 continues to deliver strong data, adding to the already existing and promising clinical and immunological data package. So at ESMO last year, we reported a 75% overall response rate, including 25 complete responders and 92 sustained responses, indicating a durable benefit. So importantly, more than half of the patients converted into an improved clinical response upon EVX-01 treatment. And with the newly presented Phase II immune data, this further strengthens the picture with the 86% immunogenicity and the 86% de novo immune responses, demonstrating broad and consistent immune activation. So looking ahead, we have a clear development trajectory. We will announce 3-year data, including clinical outcome in the second half of this year. Further, we are evaluating and discussing additional relevant cancer indications and with further trials expected to be conducted in partnerships. And importantly, EVX-01 has already received FDA Fast Track designation, validating both the unmet need and then also the development potential. So overall, this positions EVX-01 very strongly as we move forward into the next phases of value creation. If you take the next slide. So let's turn our focus to the other promising data set presented at AACR. So in collaboration with Duke University, we demonstrated that our AI-Immunology platform scales beyond melanoma. And here, it's exemplified with glioblastoma or GBM. So GBM is the most common and the most aggressive primary malignant brain tumor. And despite surgery followed by chemoradiation, outcome remains very poor for these patients with a median overall survival of approximately 15 months and a 5-year survival below 10%. So using our AI-Immunology platform, we have evaluated tumor omics data from 24 GBM patients and demonstrated that a fully personalized vaccine design was feasible for all these cases. And importantly, these designs were based on 2 classes of antigens or classical neoantigens and also antigens derived from the dark genome so-called endogenous retroviruses or ERs. So in 21 out of the 24 designs, they included both types of antigens, 2 vaccine designs included only neoantigens and 1 design relied solely on the ER antigens. This analysis showcases the flexibility and the scalability of the platform to integrate antigen from different sources, fitting the patient tumor biology. So overall, the data demonstrate that AI-Immunology can address hard-to-treat low mutational burden tumors like GBM and it also supports broader applicability of the platform across different cancers. If you move on to the next slide. So another example of how AI-Immunology can be used to design improved vaccine was showcased at the World Vaccine Congress. And together with The Gates Foundation, we presented a new polio vaccine concept using AI-Immunology, we designed a novel hybrid capsid antigen and a novel de novo B-cell antigen with the aim of eliciting a strong and broad tumor response against all serotypes. And overall, this highlights the potential of AI-Immunology to reinvent classical vaccines with improved simplicity and also improved breadth. Take the next slide. So having highlighted progress across the key R&D program, let's step back for a moment and focus on AI-Immunology and the data validating its ability to generate high-quality product candidates. So AI-Immunology is clinically validated with positive outcomes in 3 out of 3 oncology trials. And preclinically, we have demonstrated proof of concept across multiple disease areas, including cancer with our IRF targeting off-the-shelf vaccine concept as well as in infectious diseases with several vaccine candidates targeting multiple bacterial and viral pathogens. And importantly, the EVX-01 concept is highly scalable with potential in other solid tumors beyond melanoma. Additionally, the platform's applicability in challenging cancer indications was further validated in GBM. So finally, AI-Immunology supports multiple modalities, including peptides, proteins and DNA and RNA, enabling both pipeline and also partnership potential. So in conclusion, we have demonstrated strong progress across our platform and our R&D pipeline, and we are looking forward to keeping you updated as we advance our programs further. So with that, I will now hand over to Thomas, who will present our quarterly financial results. Thomas Schmidt: Yes. Thank you, Birgitte. And as mentioned, I will now then present and take you through our Q1 '26 results. The highlights of the first quarter of the year really is a continued discipline that we have applied in our resource allocation, of course, aligned with our strategy and certainly investing into our value drivers. So really according to plan. And that also means that we are on track to deliver what we expect of an operational cash burn of roughly USD 14 million for 2026. That also underlines and reconfirms that our cash runway is into the second half of 2027 and remains as such. Also, as earlier communicated, not assuming any partnerships or deals that we will hopefully be making and communicating within that time frame. Looking at the P&L, we have operating expenses overall more or less in line with last year, but slightly reduced. It comes from our R&D with a minor increase as we continue, as mentioned before, to progress and advance our pipeline and programs according to plan. On the other side, our G&A expenses are slightly lower versus last year, also mainly driven by the fact that we have lower capital market costs in Q1 '26 versus the same period in '25. The first quarter resulted in a net loss of USD 3.6 million, again, according to our plan. On the balance sheet side of things on the next slide, reconfirming once again, our cash position and equivalent end of the quarter stands at $18.4 million, which confirms runway until the second half of '27. And the total equity has been reduced since year-end, really as a result of the net result of the first quarter, meaning that we have USD 13.2 million as equity at the end of the quarter. So all in all, financials according to plan, allocation into our main priorities and cash runway confirmed until the second half of 2027. With that, I hand it back to Helen for some concluding remarks. Helen Tayton-Martin: Thanks, Thomas, and thanks, Birgitte. And so I would just like to emphasize that we believe we've made a great start to 2026, achieving the first of our milestones with a really encouraging translational data from EVX-01. We've got various presentations that have been made that validate the capabilities and scalability of the platform, as Birgitte has explained. Business development remains a key priority in terms of engaging with organizations on the value of the assets that we have and the capability to develop those assets as we've talked a bit about. And the cash runway is maintained through to the second half of 2027. So we are rigorously following execution of our strategy and engagement externally and making great progress. So with that, I would like to hand back over to take some questions by the operator. Operator: Our first question comes from the line of Thomas Flaten from Lake Street Capital Markets. Thomas Flaten: Two for me. With respect to the 3-year EVX-01 data, ASCO is obviously too soon. But should we anticipate something like an ESMO readout? Or will you do it independent of a broader scientific meeting? Helen Tayton-Martin: So we will be updating in the context of a scientific meeting. We will not be sort of outside of that, that's not our intention. And we'll confirm which of the 4 conferences it will be once we're able to -- once abstracts are released. Thomas Flaten: I think the GBM data that you put out, albeit early, was very exciting, and obviously, a disease state and great need. Is it your strategic intent to take that into humans? Or would you seek a partnership based on the data you have now and perhaps some additional preclinical data? Helen Tayton-Martin: So we are very excited about the data. We agree it's really interesting and it's really exciting in a very difficult-to-treat disease. We would anticipate that that will be something that we will be partnering. It sort of strengthens the overall personalized approach that we have developed with EVX-01, but probably more to come on that as more data and discussions mature, but it would be a partnering approach for that one, too. Operator: Our next question comes from the line of Michael Okunewitch from Maxim Group. Michael Okunewitch: Congrats on all the great progress. I guess to kick things off, I'd like to ask just a little bit about expansion and I guess, your design philosophy and strategy around that. So first off, when thinking about targets for expanded indications in cancer, in particular, is the plan to go after other diseases where PD-1s have historically been ineffective due to that synergistic activity of directing the antitumor immune response? Helen Tayton-Martin: So I think we've taken a lot of parameters into account. But Birgitte, do you want to comment on how we have been marshaling the approach internally to focus on the rare diseases? Birgitte Rono: Yes. So as mentioned, we are looking at multiple different antigen sources currently, and there's further development in this area in the company. So we would like to be able to provide a cancer vaccine for all patients independently of their antigen profiles or landscapes. So we have so far looked at more than 30 different indications, mapping out their seasonal burden, their ERV burden, et cetera, and can see that for many of these indications, we're able to -- with the capabilities we have currently to design a high-quality vaccine. And of course, one would need to further dive into medical need and current treatment landscapes to find the optimal subpopulations where our therapies would fit, but not necessarily in PD-1 low patient, it could also be in high. So it's mostly -- we are mostly focusing on understanding the antigenic landscape and fitting our therapies towards these profiles. Michael Okunewitch: When thinking about designing new vaccines, do you find that it makes more sense to use one personal vaccine and then see if you could expand that to multiple tumor types with the same vaccine for more universal coverage? Or does it make more sense to go tumor by tumor and create a new back of targets that are directed specifically at the common target for that given tumor type like melanoma or like glioblastoma and have an individual vaccine candidate for each of those different cancers? Birgitte Rono: So the way that we are approaching this is to look into a lot of data from certain indication and understanding, as mentioned, the landscape. If we do see that there are these conserved antigens, so antigens that are shared across patients, we would definitely develop an off-the-shelf vaccine just due to the fact that the statistics are more simple and also the cost for the manufacturing would be way lower than for a personalized approach. Further on, you can -- if there's an off-the-shelf therapy, you can immediately treat the patients and not have to wait for that personalized batch to be ready. So that's -- everything comes back to the patient omics data and the profiles that we are seeing in our analysis. For some indications, we know that developing an off-the-shelf cancer vaccine would be very challenging. So it clearly depends on these different biological profiles. Helen Tayton-Martin: I think the EVX-04 illustrates just where in that setting, I think, the high level of conserved has enabled us to produce a single vaccine for those patients. Michael Okunewitch: I appreciate the additional color and looking forward to the 3-year data coming up later this year. Operator: We will now take our next question. And this question comes from the line of Danya Ben-Hail from Jones. Danya Ben-Hail: Congratulations on the update. You mentioned that there are several parallel partnerships and discussions. Can you provide more detail on whether these discussions lean toward broad platform licensing or specific asset-based collaboration in future? Helen Tayton-Martin: So we obviously can't say much at this point. I think we have stated the priority around partnership on EVX-01. But as you've heard, that has broader applicability than melanoma in our minds. And that has obviously also gathered interest externally with partnering conversations also. Across our infectious diseases portfolio there are a number of assets there, which are of interest to a number of companies. So we can't really provide any more details than that. Suffice to say that we are trying to be strategic around the way we have the partnering discussions in terms of maximizing the value, whether it's from an asset group in infectious diseases or the approach with something like the personalized EVX-01, EVX-03 cancer vaccines. So obviously, we will -- as soon as we can tell you more, we'll be delighted to do so, but we're pushing forward on a more strategic basis, if you will, around how to get the most value out of the assets that we can produce from AI-Immunology. Danya Ben-Hail: Just one more question on the autoimmune platform part. So we should expect more details in the second half? Helen Tayton-Martin: Yes, that's our current plan and aligns to -- as is always generally with Evaxion, generally aligns to scientific relevant conferences to report on data. Operator: There are no further questions for today. I will now hand the call back to Helen Tayton-Martin for closing remarks. Helen Tayton-Martin: Thank you. Thank you very much. And thank you to all those who listened into the call, and thank you very much for the questions that we received. I think in summarizing, we are very enthusiastic and excited about the performance so far in Q1 2026. We are really just getting started and we are achieving our milestones as we have stated them to be. So very excited about the initial data, very excited about the additional updates to come later this year. With that, I'd like to thank you very much, and I think we'll be closing the call. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the 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: 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: Hello, ladies and gentlemen. Welcome to Himax Technologies, Incorporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Tiao, Head of IR and PR at Himax. Ms. Tiao, please go ahead. Karen Tiao: Welcome, everyone. My name is Karen Tiao, Head of IR/PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer; and Jessica Pan, Chief Financial Officer. After the company's prepared comments, we have allocated time for questions in a Q&A section. If you have not yet received a copy of today's results release, please e-mail hx_ir@himax.com.tw or HIMX@mzgroup.us or download a copy from Himax's website. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and industry growth, are forward-looking statements that involve a number of risk and uncertainties that could cause actual events or results to differ materially from those described in this conference call. A list of risk factors can be found in the company's latest SEC filings, Form 20-F, in the section entitled Risk Factors as may be amended. Except for the company's full year 2025 financials, which were provided in the company's 20-F and filed with SEC on March 27, 2026, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, and may vary materially from the audited consolidated financial information for the same period. On today's call, I will first review Himax's consolidated financial performance for the first quarter 2026, followed by our second quarter outlook. Jordan will then give an update on the status of our business and after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. Despite the typical seasonal slowdown during the Lunar New Year holidays, we are pleased to report that our Q1 profit exceeded the guidance range announced on February 12, 2026, while both revenue and gross margin were at the high end of the projected range. First quarter revenues registered $199.0 million, representing a slight sequential decline of 2.0%, reaching the high end of our guidance range of a decline of 2.0% to 6.0%. Gross margin was 30.4%, also at the high end of our guidance of flat to slightly down from 30.4% in the previous quarter. Q1 profits per diluted ADS was $0.046, exceeding the guidance range of $0.02 to $0.04. Revenues from large display driver came in at $24.2 million, representing an increase of 11.7% from the previous quarter, outperforming our guidance range of a single-digit increase sequentially. This was primarily driven by better-than-expected restocking of high-end TV ICs by a leading panel maker. Sales of large panel driver ICs accounted for 12.2% of total revenues for the quarter, compared to 10.7% last quarter and 11.6% a year ago. Revenue from the small and medium-sized display driver segment totaled $135.8 million, reflecting a slight decline of 2.4% sequentially amid a typical low season. In line with guidance, Q1 automotive driver sales, including both traditional DDIC and TDDI, declined double digits sequentially, reflecting Lunar New Year seasonality, customers' inventory control following 2 consecutive quarters of restocking, and the tapering of automotive subsidy programs in major markets including China and the U.S. In contrast, revenues for smartphone, covering both LCD and OLED products, increased sequentially primarily due to the new OLED solutions that began mass production with a top-tier panel maker for a leading smartphone brand's mainstream model. Q1 tablet IC sales also increased sequentially, driven by renewed demand for mainstream models from leading customer following several quarters of softness, as well as the commencement of IC shipments for a customer's new premium OLED tablet. The small and medium-sized driver IC segment accounted for 68.2% of total sales for the quarter, compared to 68.5% in the previous quarter and 70.0% a year ago. Q1 non-driver sales reached $39.0 million, a 7.7% decrease from the previous quarter, reflecting a decline in ASIC Tcon shipments to a leading projector customer, along with a moderation in automotive Tcon shipments following several quarters of solid growth. However, underlying demand for automotive Tcon business remains robust, supported by a strong pipeline of hundreds of design-win projects poised to enter mass production in the coming quarters. Non-driver products accounted for 19.6% of total revenues, as compared to 20.8% in the previous quarter and 18.4% a year ago. First quarter operating expenses were $50.3 million, a decrease of 8.4% from the previous quarter, but an increase of 9.9% compared to the same period last year. Both the quarter-over-quarter and year-over-year changes were primarily driven by differences in tape-out expenses, reflecting the timing of major project tape-outs. The year-over-year increase was also attributable to salary expenses and the appreciation of the NT dollar against the U.S. dollar. Against a backdrop of ongoing macroeconomic challenges, we continue to maintain strict cost and expense discipline, while strategically investing in selected non-driver IC areas with compelling growth potential, some of which are poised to ramp meaningfully starting in 2027. First quarter operating profit was $10.2 million, representing an operating margin of 5.1%, compared to 3.4% in the previous quarter and 9.2% for the same period last year. The sequential increase was the result of the lower operating expenses. The year-over-year decline reflected the lower sales and gross margin, coupled with higher operating expenses. First-quarter after-tax profit was $8.0 million, or $0.046 per diluted ADS, compared to $6.3 million or $0.036 per diluted ADS last quarter, and down from $20.0 million or $0.114 in the same period last year. Turning to the balance sheet, we had $287.6 million of cash, cash equivalents and other financial assets as of March 31, 2026. This compares to $281.0 million at the same time last year and $286.2 million a year ago. As of March 31, 2026, we had $27.0 million in long-term unsecured loans, with $6.0 million being the current portion. Our quarter-end inventories as of March 31, 2026, were $151.7 million, slightly lower than $152.7 million last quarter, but higher than $129.9 million the same period last year. Having maintained lean inventory levels in prior years, we made a strategic decision about a year ago to selectively loosen inventory control in response to an industry-wide shift toward tight supply. Accounts receivable at the end of March 2026 was $190.9 million, down from $200.9 million last quarter and $217.5 million a year ago. DSO was 86 days at the quarter end as compared to 88 days last quarter and 91 days a year ago. First quarter capital expenditures were $2.9 million, versus $4.0 million last quarter and $5.2 million a year ago. First quarter CapEx was mainly for R&D-related equipment for our IC design business. Prior to today's call, we announced an annual cash dividend of $0.252 per ADS, totaling $44 million and payable on July 10, 2026 with a payout ratio of 100% of the previous year's profit. The high payout ratio reflects our healthy balance sheet and positive outlook for cashflow generation over the next few years. For business areas where we have in-house manufacturing capacity such as WLO and LCoS, existing capacity is in place to support the strong growth anticipated for the next few years. Himax will continue to focus on maintaining a healthy balance sheet and driving sustainable long-term growth, while delivering shareholder value through high dividends and share repurchases. As of March 31, 2026, Himax had 174.4 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total number of ADS outstanding for the first quarter was 174.4 million. Now turning to our second quarter 2026 guidance. We expect Q2 revenues to increase 10.0% to 13.0% sequentially. Gross margin is expected to be around 32%, mainly reflecting a more favorable product mix, with increased sales from higher-margin non-driver products and reduced sales from lower-margin products. Q2 profit attributable to shareholders is estimated to be in the range of $0.086 to $0.103 per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q2 outlook. Jordan, the floor is yours. Jordan Wu: Thank you, Karen. The rapid rise in AI demand is placing unprecedented strain on memory chip supply, impacting many non-AI applications. This, in turn, has led to capacity tightness across foundry, packaging, and testing in mature process nodes where we are anchored, putting upward pressure on our cost structure. Rising gold prices have further compounded these cost pressures. With cost pressure expected to persist, we are actively working with customers on pricing adjustments to share rising costs, with some price increases already taking effect in Q2. Market conditions remain dynamic, compounded by ongoing geopolitical tensions, and the market's visibility remains limited on both consumer electronics and automotives for the second half of the year. That said, as indicated in our last earnings call, the first quarter marked the trough with the second quarter recovery tracking as anticipated, primarily driven by customer inventory restocking. We expect upward momentum through the remainder of 2026, supported by a meaningful number of new automotive projects scheduled to enter mass production in the second half, a view consistent with our outlook from last quarter's call. The positive outlook is also supported by the anticipated growth in our non-driver IC businesses, particularly Tcon and WiseEye AI. In our display IC business for automotive, we remain confident in our long-term growth prospects, as automotive is an area relatively insulated from memory price impact compared to consumer electronics products such as smartphone and notebook. The long-term positive outlook is underpinned by our leading technology portfolio, broad and diversified customer base, strong design-win pipeline across DDIC and TDDI, and substantial lead over competitors. Our display IC portfolio spans a comprehensive range of solutions which enable novel and stylish automotive displays. Such technologies include automotive Tcon with advanced local dimming functionality, LTDI for ultra-large displays, advanced Tcon solutions for state-of-the-art head-up displays, as well as automotive OLED and Micro LED technologies. Customer adoption of these advanced display technologies continues to accelerate across new vehicle models, driving higher content value per vehicle for us and creating new growth momentum for Himax's automotive display IC business in the years ahead. Despite ongoing macro uncertainty, Himax continues to expand beyond its traditional display IC business, focusing on key growth areas including smart glasses, ultralow power AI and CPO. These emerging technologies present significant growth opportunities that help diversify our revenue base into areas with attractive gross margin profiles and profitability while also strengthening our overall competitiveness. Starting with smart glasses, a key strategic focus area we are quite optimistic about. Himax is uniquely positioned as one of the few companies with both ultralow power AI capabilities and microdisplay, both critical for smart glasses. WiseEye provides ultralow power always-on AI sensing capabilities, targeting a broad range of smart glasses, while our LCoS microdisplay solutions enable display functionality critical for AR glasses with see-through displays. We are pleased to share that a leading brand has adopted our WiseEye for its smart glasses, with mass production expected later this year and additional prominent brands are expected to follow. In microdisplays for AR glasses, built on the debut of our proprietary Front-lit LCoS microdisplay at Display Week last year, Himax returned to Display Week 2026 with a new-generation upgrade that significantly enhances contrast, dynamic range, and optical efficiency. These advances, driven by Himax's proprietary technologies, deliver a substantial increase in contrast performance while effectively eliminating the postcard effect commonly seen for microdisplays in dark environments. Himax's Front-lit LCoS solution offers an optimal balance among weight, size, resolution, image quality, power consumption, and cost, positioning it as a compelling choice for AR glasses. For both WiseEye and LCoS microdisplay, supported by expanding customer engagements across technology heavyweights and smart glasses specialists globally, we are increasingly optimistic about the new space, even compared to just a few quarters ago. We expect revenues from AI and AR glasses applications to grow substantially over the next few years. Now I would like to provide a brief update on our progress in CPO. Together with FOCI, our strategic partner, we continue to make steady progress on both the Gen 1 and Gen 2 products as planned. Our Gen 1 solution, supporting 1.6T and 3.2T transmission bandwidth, is now ready with small quantity shipments expected to commence in the second half of this year. Meanwhile, our Gen 2 solution, targeting 6.4T bandwidth with significant volume potential, is nearing completion of customer product validation for AI data center applications. Building on this momentum, our main goal for 2026 is to achieve mass-production readiness, with only limited shipments expected during the year, followed by an accelerating volume ramp starting 2027. At the same time, in close partnership with FOCI, we continue to advance multiple future-generation high-speed optical transmission technologies and CPO architectures in collaboration with leading global customers and partners, focusing on higher fiber channels, more advanced optical designs, and enhanced optical precision to meet the explosive bandwidth demands of HPC and AI data center applications. In early March, FOCI completed a TWD 3.16 billion rights issue to support R&D, equipment purchases and preparations for CPO mass production. Himax, already a shareholder through 2 earlier tranches of share offerings in 2023 and 2024, participated in the rights issue, which not only demonstrates our continued support for our partner and further strengthens collaboration between the 2 companies, but also underscores that advancing CPO technology requires highly integrated efforts through close collaboration and joint development. With an average acquisition cost of TWD 120.6 per share, our equity stake, representing 5.36% of FOCI, now totals TWD 4.96 billion or USD 156 million as of May 7 when the market closed at TWD 815 per share. As a reminder, our FOCI investment has been booked as a so-called "financial asset measured at fair value through other comprehensive income" on the balance sheet since day 1 of investment. As such, based on accounting rules, FOCI's share price fluctuations are recognized in our books as so-called "accumulated other comprehensive income", a balance sheet item under owners' equity, and do not affect our profit and loss. Likewise, upon disposal, any resulting gain or loss will be recognized only on the balance sheet through change of retained earnings and, again, will have no impact on the profit and loss. This accounting treatment we chose underscores our long-term commitment to the FOCI investment. We expect CPO to become a major revenue and profit contributor in the years ahead. With that, I will now begin with an update on the large panel driver IC business. In Q2, large display driver IC sales are expected to decrease by high-teens quarter-over-quarter, attributable to customers pulling forward their inventory purchases for TV applications in prior quarters. In contrast, both monitor and notebook IC products are poised for sequential increases due to higher legacy product shipments to key customers. Looking ahead to the notebook market, our focus is on premium models featuring OLED displays and LCD displays with touch functionality. We offer a full spectrum of IC solutions for both LCD and OLED notebooks, including DDIC, Tcon, touch controller, and TDDI, enabling us to provide customers with a comprehensive one-stop solution while increasing our content per device. We continue to see strong design-in momentum, particularly in OLED for notebooks, where rising memory prices are depressing lower-end demand and accelerating the shift to premium segments. The scheduled ramp-up of new Gen 8.6 OLED fabs later this year and in 2027 in China adds another tailwind, further driving higher OLED adoption in notebooks. Turning to the small and medium-sized display driver IC business. In Q2, small and medium-sized display driver IC business is expected to increase high-teens from last quarter. Q2 automotive driver IC sales, including TDDI and traditional DDIC, are set to increase by a double digit quarter-over-quarter. Both DDIC and TDDI sales are expected to increase sequentially, driven mainly by the broad-based replenishment from panel customers with lean inventories, as well as the ramp-up of new TDDI and DDIC projects for a leading panel customer. Despite global softness in automotive sales, our long-term competitive position remains solid, supported by hundreds of design wins already secured across TDDI, DDIC, Tcon, and an expanding OLED portfolio. In addition, Himax is deepening its well-established supply chain in Taiwan while expanding across China, Singapore, Japan, Korea and Malaysia. This ensures production flexibility and cost competitiveness, while also addressing customers' geopolitical considerations. We continue to lead the global automotive display market with a 40% share in DDIC, well over half in TDDI, and an even higher market share in local dimming Tcon. We also continue to lead in automotive display IC innovation, pioneering solutions across a wide range of panel types while addressing diverse design requirements and cost considerations. Recent evidence of such efforts is our LTDI technology for ultra-large touch displays where multiple projects have entered mass production in several car brands across different continents. After years of engagement with customers globally, we expect meaningful revenue contributions from LTDI starting this year. Our integrated single-chip solution combining TDDI and local dimming Tcon represents another such innovation. Targeting smaller and lower resolution automotive touch displays, it delivers a compelling option for cost- and space-constrained applications without compromising performance. Design-in activities continue to expand globally, with multiple projects underway across leading panel customers, Tier 1s and OEMs. Looking ahead, the accelerating adoption of OLED displays in automotive creates significant opportunities for Himax. Our ASIC OLED DDIC and Tcon solutions have already been in mass production for several years, with continued customer adoption. We now also offer new standard DDIC and Tcon products to support scalable deployment. In parallel, collaborations are underway with leading panel makers on new custom ASICs, positioning us well to address diverse customer requirements across a wide range of automotive display applications. Together, these efforts position Himax to capture increasing semiconductor content as premium automotive displays evolve from LCD to OLED. In addition, Himax's advanced OLED touch ICs are a key pillar of our automotive OLED portfolio, delivering industry-leading signal-to-noise performance and high-precision multi-finger touch capability, enabling reliable operation even when wearing thick gloves or with wet fingers. Our OLED touch ICs started mass production in 2024. Since then, they have been increasingly adopted by leading panel makers and end customers across Korea, China, the U.S., and Europe. Multiple new projects are poised to enter mass production in the coming quarters. Moving to smartphone IC sales, we expect Q2 smartphone revenue, covering both LCD and OLED products, to decrease quarter-over-quarter following the initial ramp up of an OLED IC for a leading smartphone brand's mainstream model in the prior quarter. For tablet ICs, Q2 sales are expected to increase sequentially, driven by customers' early pull-in demand against the backdrop of rising memory price sentiment in the market, with ongoing shipments for a customer's premium OLED tablet also contributing to sequential growth. I'd like to now turn to our non-driver IC business update where we expect Q2 revenue to increase by double-digit sequentially. First for an update on our Tcon business. We anticipate Q2 Tcon sales to increase by double-digit quarter-over-quarter. Our automotive Tcon business is expected to deliver decent double-digit growth in Q2, driven by shipments from prior design-wins across the board. Despite automotive market headwinds, Himax continues to enjoy strong growth momentum in automotive Tcon. Particularly in solutions featuring local dimming functionality, backed by hundreds of secured design-wins across a broad and diversified customer base, we are well positioned for sustained growth. In Q2, we expect Tcon to account for over 12% of total sales, with more than half contributed by automotive Tcon. Meanwhile, head-up displays are poised to become an integral part of new-generation smart cockpits, driving demand for sophisticated Tcon technologies, an area where Himax holds a strong leadership position. Our multifunctional Tcon not only delivers excellent contrast, eliminating the so-called postcard effect often seen in HUDs, it also supports full-area selectable local de-warping to correct image distortion caused by windshield curvature and/or projection angle. In addition, integrated On-Screen Display function ensures that critical safety information remains visible even when the system is malfunctioning and/or powered down. Together, these features make our Tcon a compelling solution for customers' HUD applications, as evidenced by fast expanding design-in activities with leading panel makers and Tier 1 players. This growing HUD pipeline positions us well for broader deployment and meaningful revenue contribution starting in 2027. Switching gears to the WiseEye product line, a cutting-edge ultralow power AI sensing total solution, targeting endpoint device markets. WiseEye stands out due to its industry-leading, ultralow power design, operating at merely a few milliwatts, combined with an extremely compact size, on-device AI inferencing, and 24/7 always-on image and voice sensing. This combination enables advanced AI capabilities in endpoint devices that were once constrained by power and size limitations and has already been widely adopted across a wide range of applications, including notebooks, surveillance systems, access control devices, palm vein authentication, smart home solutions, and smart glasses, with further customer engagements currently underway. On the WiseEye modules front, design-in activities continue to expand, driven by their plug-and-play architecture, combined with ultralow power consumption and on-device AI capabilities. These features help developers accelerate innovation and scale their products from prototypes to commercial deployment. This broad applicability has led to adoption across a wide range of domains, including smart access control, space management, computer monitor, automotive, and bicycle applications. In particular, our PalmVein module is rapidly securing design wins, offering a touchless, high-security solution with high accuracy and advanced liveness detection. Combined with GDPR-compliant architecture, one of the world's strictest data privacy laws, our PalmVein solution ensures robust data privacy and protection of user biometric information through privacy centric on-device processing. We are seeing growing PalmVein module adoption across applications such as smart access control, workforce management, and smart door locks, with multiple projects progressing toward mass production in the coming quarters. As mentioned earlier, WiseEye is gaining broad market recognition in smart glasses as a compact, ultralow power, always-on perceptual front end. WiseEye supports both outward-facing environmental sensing, mainly object classification and scene understanding, and inward-facing capabilities, including eyeball tracking and iris authentication, delivering environment-aware vision AI and responsive, low-latency human-machine interaction for smart glasses. This combination of capabilities makes WiseEye ideally suited for wearable devices requiring real-time responsiveness with minimal battery impact and is a key factor driving design-in momentum among smart glasses players. Moving on to our latest advancements in LCoS microdisplay technology. At Display Week 2026 this week in Los Angeles, we showcased our ultra-luminous, high-contrast miniature Dual-Edge Front-lit LCoS microdisplay. We were also invited to deliver an in-depth presentation at the symposium, highlighting Himax's recognized expertise and leadership in LCoS microdisplay technology. Our LCoS solution is a full color microdisplay that integrates illumination optics and LCoS panel into an exceptionally compact form factor of just 0.09 cc and 0.2 grams, delivering up to 350,000 nits of brightness and 1 lumen output at just 200 mw total power consumption. It can also be configured for high-brightness, low-power, green-only mode and frictionlessly switched back upon command from the central processor, allowing for improved power efficiency across different ambient light conditions while supporting customers' cost targets. In addition, its ultra-high luminance ensures excellent visibility in bright environments, while our proprietary technologies significantly enhances contrast and reduce the postcard effect frequently observed in low-light conditions. Himax is currently working closely with multiple waveguide partners across China, Europe, Israel, Japan, Taiwan, and the U.S. to bundle these technologies into display systems for AR glasses, streamlining system integration and driving future design-in opportunities. We will provide further updates in due course. That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today's call and are now ready to take questions. Operator: [Operator Instructions] We'll have our first question, Donnie Teng, Nomura. Donnie Teng: I have 2 questions. The first question is regarding your automotive business. So wonder if, Jordan, if you can give us a full year outlook regarding your automotive-related business growth. And also what could be the possible quarterly revenue pattern into the second half this year? Because it looks like customers still maintain pretty low inventory. So I'm not sure whether it will be still like restocking, destocking coming off for the coming quarters. And the second question is regarding to the CPO. So you have mentioned about the Gen 1 and Gen 2 products. Wondering if you can share with us regarding to the competition landscape for the Gen 1 product and Gen 2 products. Are you seeing different competitors? And also another thing is I'm curious is like the overall optical communication supply chain is facing supply tightness at upstream, like indium phosphide substrate for lasers, et cetera. Are you seeing other components are facing the short supply as well? For example, whether the micro lens will be under shortage. Jordan Wu: Thank you, Donnie. If I may, I will address your second question first on CPO on competition or potential supply shortage of other components, et cetera. They are not really our major concern to be honest because for now, once the mass production gets started and is successful, what we're seeing is with the multiple customers we have already in hand, I'm talking about major customers that we really, really focus on, they are actually other customers. I mean they are all very big match, but they are still, so to speak, priorities internally. So with their demand, actually based on the opportunity [ made ] is much, much bigger than what we can supply for now. So we are not worried about competition. I'm not saying whether they are good or whether they exist. What I'm saying is we just need to focus on our completion of validation and that's mostly enter mass production. And once that happens, the customers have put all right to us that the potential demand in the early stage and that actually much always what we can supply. So I think competition, I mean, for now is not really an issue. I mean I can say the same to answer your question on the potential shortage of other components. And I think, I said in the prepared remarks earlier that 2027 is likely we can see meaningful revenue contribution for us. So well, I like to manage that even before the official mass production, early shipments for engineering rise were already have positive impact on our financials. And as I said earlier, the customer demand almost always what we can supply. So once all the shipments get started, the drills will likely be explosive because of demand driving this there. And one small production in case we believe CPO will deliver the strongest growth among all our product lines, a drill that is likely to sustain for the years to come. So that is my answer to your CPO question and automotive. For the full year outlook, I mean bear in mind, we don't actually provide full year guidance. So I'm not going to give numerical projections. But we can say quite comfortably we are well-positioned to see sales growth for the year, obviously gross margin compared to last year, and that is primarily among other things driven by automotive outlook. So the overall automotive industry outlook, as we all know, remains muted which I think most market surveys project for a flattish, normally a shipment year-over-year. However, I think we believe we will be able to outperform the market like we did last year. And I did say in the prepared remarks that we expect sales automotive to grow quarter-by-quarter this year. So that is a response to your question. Yes, the customers' inventory level remains fully, but even that they seem to historically handle automobile and then [indiscernible] such a cycle, but I cannot predict whether this cycle will repeat this year in the second half, but our confidence level for the after quarter drills comes mainly from a few major projects with our customers, which are 24 months for exchange second half. Maybe they are after years of design-in [indiscernible]. So we are now also projecting some growth for this year's automotive sales. And again, I think our automotive business is well positioned to beat the market like last year in terms of growth. Donnie Teng: And a follow-up on CPO -- the power and CPO is like are you able to quantify the sales contribution for this year and next year potentially? And I'm also curious that are you -- do you require to expand the capacity for the demand coming in 2027 or you will utilize the existing sale first? Jordan Wu: Well, you realize how this is [Indiscernible], which actually is fully utilized for this application, can already generate hundreds of millions of annual sales for us with a very decent profit. Our partner, FOCI, actually, I cannot comment on their behalf, but they did say in their prospectus issued a few months back in their recent rights issue that -- I mean, they too have plan to continually spend a capacity. As we all know, the positive purpose for the right to issue recent deals to build capacity for this purpose for mass production. So in the prospectus, that is something you would rely on to -- given the right conditions, they would certainly continue to expand the capacity. And that is what they say in their prospectus. And, I mean, certainly beyond that, I cannot say anything more on their behalf. But what I can say is our capacity actually outweighs their capacity. So, to be honest, they have to expand first. But given where they are at the moment, I think we again feel confident that somehow [indiscernible] mass production progressing, they will sort the issue as well. But yes, our capacity is more than sufficient to support up to hundreds of millions of annual sales for us. And with that, I'm afraid I am not able to quantify sales contribution for this year or next for now. But this year is still small. They are primarily sampling and engineering shipments. They are not -- I mean quarter-over-quarter, good growth, but they come from a very small base. So for overall group perspective, they are still not meaningful. But next year, as I said, regardless of when mass production will commence, so like the -- even before mass production, the engineering runs will contribute meaningfully to our top line and especially bottom line growth. Operator: Thank you. And there are no questions at the moment. We thank you for all your questions. I'll pass the call back to Mr. Jordan Wu. Thank you. Jordan Wu: As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences. We will announce the details as they come about. Thank you and have a nice day. Operator: Thank you, Mr. Wu. And ladies and gentlemen, this concludes first quarter 2026 earnings conference. You may now disconnect. Thank you again. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the APA Corporation First Quarter 2026 Financial and Operational Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Stephane Aka, Managing Director of Investor Relations. Sir, please go ahead. Good morning. Stephane Aka: And thank you for joining us on APA Corporation’s first quarter 2026 financial and operational results conference call. We will begin the call with an overview by CEO, John J. Christmann. Ben C. Rodgers, CFO, will share further color on our results and outlook. Stephen J. Riney, president, and Tracey K. Henderson, executive vice president of exploration, are also on the call and available to answer questions. We will start with prepared remarks and allocate the remainder of time to Q&A. In conjunction with yesterday’s press release, I hope you have had the opportunity to review our financial and operational supplement, which can be found on our investor relations website at investor.apacorp.com. Please note we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website. Consistent with previous reporting practices, adjusted production numbers cited in today’s call are adjusted to exclude noncontrolling interest in Egypt and Egypt tax barrels. I would like to remind everyone that today’s discussion will contain forward-looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discuss on today’s call. A full disclaimer is located with the supplemental information on our website. And with that, I will turn the call over to John. Good morning, and thank you for joining us. John J. Christmann: Today, I will review our first quarter 2026 results, highlight our execution against APA Corporation’s strategic priorities, and share our outlook for the remainder of the year. I want to first acknowledge the ongoing events in the Middle East. The escalation in geopolitical tensions and the human impact of the conflict are deeply concerning. Our thoughts are with those affected. Our teams in Egypt continue to operate safely and without disruption. We remain in close coordination with our partners and government stakeholders. We have a long track record of operating in the country, and our priority remains the safety of our people and the reliability of our operations. The increased volatility in global energy markets reinforces the importance of a sound long-term strategy. At APA Corporation, our strategy is very clear. We will deliver top-tier operational performance across our assets, we will build and grow a high-quality portfolio, and we will maintain financial discipline. These principles have guided our strategic direction and capital allocation priorities over the last several years and continue to shape our path forward. Our operational focus has never been stronger. In the Permian, we have significantly improved capital efficiency while delivering resilient oil production volumes, all with fewer rigs and lower capital intensity. Our improving execution is driving cost leadership across key operational categories, with great momentum and clear visibility to further progress ahead. In Egypt, we have strengthened base production reliability through targeted waterflood investments, a more efficient workover program, and increased uptime, all of which have helped moderate effective base decline rates. At the same time, we are expanding our gas development activity to build a more durable total production foundation. Across the broader portfolio, we have continued to high-grade our key assets and build long-term optionality. First, in the Permian, we have repositioned the asset base to be entirely unconventional, establishing more than a decade of economic inventory with meaningful upside. Second, in Egypt, we have enhanced the value of our assets through improved fiscal terms and a more gas-weighted activity mix. Third, in Suriname, we are advancing a world-class development toward first oil. And finally, we are building future growth opportunities through exploration. With respect to financial discipline, we have streamlined our corporate overhead to drive sustainable structural efficiencies. This lower cost base combined with disciplined capital allocation across our high-graded portfolio supports more steady free cash flow generation through commodity cycles. Alongside our highly profitable gas trading business, this positions us to deliver meaningful shareholder returns while accelerating progress toward the $3 billion net debt target we set just nine months ago. Together, these actions demonstrate consistent execution of our strategy, which is to drive strong operational performance, position the portfolio to deliver long-term value, and maintain balance sheet strength. Turning to the specifics of our first quarter performance, I would like to highlight several notable achievements. Across the portfolio, our teams executed exceptionally well and delivered capital spend and operating costs below guidance, despite inflationary pressures. In the Permian, operational efficiencies and improved uptime drove oil production above guidance, while gas volumes were curtailed due to weak Waha pricing. In Egypt, continued success in the gas program, including on our newly acquired acreage, is underpinning the delivery of our ambitious 2026 targets. Longer term, we remain excited about the extensive prospectivity of the Western Desert. Robust asset performance, complemented by favorable commodity prices, generated nearly $500 million in free cash flow during the quarter. Ben will discuss the steps we are taking to further strengthen our balance sheet in the current price environment. Looking ahead, we are carrying significant operational momentum into the balance of the year. In the U.S., we are raising our full-year oil production outlook to 122,000 barrels per day, reflecting our confidence in continued strong performance. In Egypt, despite gross production volumes above previous expectations, our adjusted volume guidance has been lowered to reflect the PSC impacts of higher commodity prices. We remain focused on capital discipline and cost management, with no change to our upstream capital or LOE guidance. In closing, our first quarter results reflect continued execution across our Permian and Egypt assets. In the current higher commodity price environment, we are prioritizing free cash flow generation over incremental activity and maintaining a sustained focus on cost reductions to drive long-term value. We remain rigorous in our capital allocation across our foundational assets in the Permian and Egypt, which are poised to deliver consistent production volumes for the next several years, providing a stable and durable base for free cash flow generation. Organic high-margin oil production growth is expected to come from Suriname Grand Morgue, which remains on track for 2028 first oil. This is a clear differentiator relative to our peers, representing a significant free cash flow growth engine for the long term. We remain committed to our capital returns framework with a clear path to further debt reduction and share repurchases supported by our current free cash flow outlook. I will now turn the call over to Ben. Ben C. Rodgers: Thank you, John. For the first quarter, under generally accepted accounting principles, APA Corporation reported consolidated net income of $446 million or $1.26 per diluted common share. Consistent with prior periods, these results include items that are outside of core earnings. The most significant after-tax item impacting adjusted earnings was $37 million of unrealized derivative instrument losses. Excluding this and other small items, adjusted net income for the first quarter was $489 million or $1.38 per diluted share. APA Corporation generated $477 million of free cash flow in the first quarter, of which $88 million was returned to shareholders. John already covered key elements of our outlook for the rest of the year, so I will focus on a few additional items. For the second quarter, our outlook for U.S. BOEs assumes continued natural gas curtailments through the end of the second quarter, driven by the current forward strip for Waha gas pricing. No price-related curtailments are assumed in our U.S. BOE production guidance for the second half of the year. For Egypt adjusted total production, about two-thirds of the second quarter decline from the first quarter is related to higher Brent prices. As a reminder, while higher prices increase profitability, they reduce adjusted volumes under the PSC cost recovery mechanism—an accounting impact rather than a change in underlying gross production volumes. The remainder reflects the successful recovery of backlog costs from our 2021 PSC modernization, which was completed in the first quarter. As John mentioned, our full-year upstream capital guidance remains unchanged at $2.1 billion. We expect to incur approximately 55% of this spending in the first half of the year, largely driven by the cadence of activity in the U.S. We anticipate most of our Permian turn-in-lines to occur in the second and third quarters, sustaining oil production volumes through the second half of the year. We have also updated our guidance for current taxes to reflect higher pricing assumptions relative to our prior outlook. We now expect 2026 U.S. and U.K. current tax expense to be approximately $230 million, nearly all of which is in the U.K., where we are subject to a 78% effective tax rate. Looking at our oil and gas trading portfolio, based on current strip pricing, we expect these activities to generate approximately $1.1 billion of pretax cash flow in 2026. This is inclusive of commodity hedges and reflects significantly wider Waha basis and higher LNG prices since our last update. Turning now to the balance sheet. We ended the first quarter with approximately $4.1 billion in net debt, compared to $4 billion at the end of 2025. This slight increase is attributable to a large use of working capital, almost all of which was driven by two factors: first, an increase in total company receivables due to the significant rise in oil prices late in the quarter; second, the payout of incentive compensation accrued throughout 2025, consistent with our usual practice. As outlined on page 8 of our supplement, we have repaid $634 million of near-term bond maturities year to date, including $555 million in April. Combined with the deleveraging steps taken in 2025, this results in interest savings of more than $60 million versus last year. Compared to 2024, we now expect annual interest expense to be approximately $150 million lower on a run-rate basis at the end of 2026. With no debt maturities until December 2029, we have significant financial flexibility to manage our decommissioning liabilities in a deliberate and efficient manner while maintaining our broader capital allocation priorities. Moving now to our cost reduction initiatives, where we are continuing to make progress across capital, LOE, and G&A. We remain on track to achieve our $450 million target for cumulative run-rate savings by the end of 2026, which is reflected in our current guidance. Building on the significant strides made last year on capital and operational efficiencies, our focus this year will span all three categories, with the same discipline and focus that enabled the results we delivered in 2025. Including the previously noted interest savings, we expect run-rate cash costs to be $600 million lower exiting this year compared to 2024. While commodity prices have been volatile since the start of the conflict, the strength of our execution and contributions from our gas trading portfolio position us to generate significant free cash flow this year. Currently, as outlined on slide 9 of our supplement, we expect to generate approximately $2.2 billion of free cash flow for the full year. This level of cash generation meaningfully advances our progress toward achieving our $3 billion net debt target in the near term while supporting shareholder returns. In closing, these results mark another quarter of consistent, predictable performance across our asset base, underscoring the disciplined execution we have demonstrated for more than a year. We remain well positioned to deliver significant free cash flow this year and beyond, supported by continued execution and structural cost improvements. We will continue to allocate capital with rigor, balancing shareholder returns, balance sheet strength, and investments in future growth through exploration. With that, I will turn the call over to the operator for Q&A. Operator: Thank you. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. We ask that you please limit yourself to one question and one follow-up. One moment while we compile our Q&A roster. Our first question will come from the line of Doug Leggate with Wolfe Research. Your line is open. Please go ahead. Doug Leggate: Hello. Thanks. Good morning, guys. I guess, Ben, maybe for you first, the gas trading number is pretty meaningful. I think if I go back maybe about six or nine months ago, you talked about a $300 million kind of run rate, but now we have GCX expansion and a bunch of things going on in Midland coming online. With what you know today, given what has happened with 2026, what tools do you have to maybe protect some of that? That is my first question. My second question, if I may, is, John, a quick one on Alaska exploration. My understanding is you have been waiting on the seismic, and you now have the seismic. I am just wondering what that informs for your views on the existing discoveries and what your running room is for the upcoming drilling program. Thanks. Ben C. Rodgers: Sure. Thanks, Doug. When you look at the marketing book, the $1.1 billion this year, a lot of that is coming from the pipeline transport side. About $300 million is coming from LNG for the remainder of the year. And the bulk of the pipeline transport really is through the summer, where we see very wide basis differentials. To your point, that starts to compress, at least per the curve, given GCX expansion, the Blackcomb pipeline, and GCX Hidalgo coming online in the second half of the year. We watch that, and we will see how the basis trades given the different dynamics with gas production in the basin—higher GORs, a lot deeper targets being drilled with more gas cut than other wells. Basis does, at least per the curve, continue to tighten into 2027. The good thing is that with the elevated LNG prices this year, that does carry through into next year, and, at current strip, we are just above $400 million of expected pretax cash flow in 2027, at strip for both basis and TTF. So still another good year expected next year. We will monitor that. We have hedges on just the basis for this year. We do look at other options to hedge 2027 both on the LNG and the basis side. We have not done any of that, but we monitor that daily and, if we find the right opportunity, we will look to lock some of that in. But even next year, around $400 million, it is still looking to be another good year for us. John J. Christmann: And on the Alaska question, yes, we took this winter off to reprocess the seismic. If you go back, when we drilled Sockeye, we said we went to Sockeye not because it was our biggest prospect, but because it was where we had the best seismic picture. Taking the results from Sockeye and King Street and integrating those into the new reprocessed seismic was really the right thing to do. We and our partners are all thrilled that we took that pause. It now looks like we did not drill Sockeye even in the thickest place, and we will be coming back this winter with a two-well program. We are in the process of assuming operations, and you will see us come back with an exploration well and an appraisal well. We are very, very excited about Alaska. Doug Leggate: Great stuff. Thanks, John. Operator: Thank you. And one moment for our next question. Our next question will come from the line of John Freeman with Raymond James. Your line is open. Please go ahead. John Freeman: Good morning. Hi, guys. The first question, obviously, it was nice to see you be able to take advantage of the macro backdrop and retire all those near-term maturities, and buybacks took a pause. When I think about the rest of the year, should we assume, given that the next maturity is not until 2029 and those are not callable yet, that the majority of the free cash flow goes toward buybacks? I know Ben mentioned the decommissioning obligations. I was not sure if that meant that maybe some of those get accelerated. Any color on uses of the free cash flow? And then a follow-up on Egypt: the flexibility between gas and oil—given the roughly 50% gas-focused activity and the $4.25 gas price—how do oil versus gas prices influence the allocation of activity currently and into next year? John J. Christmann: It is a great question and a good observation. I would start by saying we are living in unprecedented times. We remain committed to our 60% returns framework that we initially outlined in 2021. Since the inception of that framework, we have returned 71% of our free cash flow to shareholders. There have been times when we leaned in. We also, nine months ago, outlined a net debt target of $3 billion, and that is also a priority for us. The beauty of today is we have commodity exposure to WTI, Brent, LNG, and Waha basis. That puts us in a position where, rolling forward, we have a very robust free cash flow outlook for the remainder of the year. While we have made progress on the balance sheet, we are going to continue to be very thoughtful about how we deploy that. We like where the valuation is, but we also want to be thoughtful. Ben C. Rodgers: Sure. To reiterate, given the current price environment and the opportunity we have to improve the balance sheet, we took some of those steps through April. We think the responsible thing to do is evaluate how we deploy our free cash flow for the remainder of the year. We are committed to our framework, as John said. Starting from fourth quarter 2021 when we put the framework in place, cumulative through year-end 2025, we have returned more than 75% to shareholders through dividend and buybacks, and $3.2 billion of that was in buybacks. On the debt side, since year-end 2021, we have reduced debt by $3.6 billion. Being only two months into the conflict, and given the immense volatility over the past two months, we are going to be patient. The responsible thing to do is evaluate how we deploy the significant amount of free cash flow we expect to generate this year. To be clear, this is not a view on the valuation of our equity; it is solely how we would deploy the free cash flow for the remainder of the year. We will pay down debt, we will pay our dividend, and we will buy back shares. The mix is what we are evaluating. At these prices, that is the right thing to do. It is a great position to be in, where we have an increasing free cash flow picture and we are going to be thoughtful on how to deploy it. On decommissioning, we raised guidance on decommissioning spend this year by $20 million. To be really clear, that is not an increase in cost of planned activity; that is all increase in planned activity. There are some more platform wells in the Gulf of Mexico that we want to go ahead and get after, and we will do that this year. John J. Christmann: On Egypt allocation, first, when we negotiated the increased gas price, we geared it towards a $75 to $80 Brent price inclusive of infrastructure investment. We have been fortunate to bring a lot of our new gas discoveries online without a lot of infrastructure spend. There have been some lines that we have laid. We are in a position today where it is still very attractive. With the new acreage we brought on last year, we have new wells to drill there. You are going to continue to see the program about fifty-fifty. They need gas. What we are providing right now is saving about two LNG cargoes a month on the gas side. We are in a pretty good place and will monitor how things play out over time. Stephen J. Riney: I would just add that we are basically splitting rig counts fifty-fifty between gas and oil. In a mid-cycle price environment, we are agnostic between gas and oil. We are not in a mid-cycle price environment today, and it is certainly more volatile, but we feel like this is the right split at this point in time. I would also remind people that while we are getting an average of $4.25 for gas, the actual marginal price on new gas is higher than that. Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Chris Baker with Evercore ISI. Your line is open. Please go ahead. Chris Baker: Hey, guys. My first question: clearly a lot of great progress on the cost-saving front. Some good first-quarter numbers around LOE and other costs. You mentioned inflationary pressures, I am presuming in the Permian. Any additional color you can add in terms of what you are seeing there? And second, as you make significant progress toward the $3 billion net debt target, what does that unlock in terms of strategic priorities—cash returns, buybacks, dividends, or longer-cycle investments? John J. Christmann: I think the teams are doing a really good job. We came into the year in the Permian with higher power costs that we outlined. You are seeing diesel on the rise here and globally as well, but we came into the year with most of our services under contract, so we are in a pretty good place. You have seen a little bit on tubulars. Power and diesel would be the main items, but in general our teams have done a good job, which is why we did not raise the cost outlook due to those inflationary pressures. Ben C. Rodgers: On the net debt target, last year when we outlined the $3 billion net debt target, we said that at mid-cycle prices we would expect to get there in three to four years. If we were below mid-cycle, it might take toward the end of the decade. If we were above, one to two years. It is now in the crosshairs of being achievable in the near term. Once we achieve that, we will look at our priorities. We have a strong debt maturity runway with no maturities due until the end of the decade, which allows flexibility to prudently manage ARO and decommissioning. We have exploration on the horizon, and we will continue to invest in the future. Last year and this year, exploration spend was less than $75 million. This year’s guidance is still at $70 million—about $20 million for ice roads in Alaska and another $50 million for exploration in Suriname. In 2027, with additional exploration in Suriname and wells being drilled in Alaska, we will see more exploration spend and that number will tick up next year. We will balance all of those priorities if we reach the net debt target. In the near term, we will reevaluate at that time and likely set another target below that. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Neal Dingmann with William Blair. Your line is open. Please go ahead. Neal Dingmann: Morning, John. Thanks for the time. My first question is on Suriname. I know first oil production you talked about from the Grand Magoo project in Block 58 is scheduled for mid-2028. You also mentioned there are various other exploration projects either in Block 58 or 53. Anything you would talk about here in the near term? And second, on Egypt, how many workover rigs are you currently running, and would you consider boosting the workover count to take advantage of higher oil prices? John J. Christmann: Both us and our partner are excited about the additional exploration we have in Block 58. If you remember back when we announced the appraisal wells at Crab Dagu, I said those not only appraised Crab Dagu, but they derisked an entire exploration play from a seismic perspective. We have a number of prospects. The plan is, when we get the rigs out there, to start drilling some exploration wells that at a minimum could extend plateau or potentially even look for incremental infrastructure. We are very excited about getting back to exploring in Suriname. On Egypt workovers, we are in a pretty good place. We have been investing in secondary projects and waterflood performance. We have maintained a pretty flat profile for several quarters, so in pretty good shape. Stephen, anything to add? Stephen J. Riney: I do not know the exact count of workover rigs today. It is somewhere in the mid to high teens, as it has been for quite some time. It got higher than that for a while, but remember, we use workover rigs for completing new drilling wells as well as for workover activity. Operator: Thank you. One moment for our next question. Our next question will come from the line of Kevin McGrude with Pickering Energy Partners. Your line is open. Please go ahead. Kevin McGrude: Hey. Good morning. Thanks for taking my question. I wanted to touch on oil realizations. The international oil realizations were quite good in the first quarter. I realize we are in a very volatile environment right now, but is there any outlook you can provide for the second quarter and maybe the back half of the year for Egypt and North Sea realizations relative to Brent? Ben C. Rodgers: Sure. On both of our oil commodities, Brent and WTI, the current market is giving a premium for spot prices. We sell on dated Brent for our North Sea oil as well as our Egypt cargoes. That dated Brent differential to the futures price you see on the screen has varied pretty widely in the first quarter and into the second quarter—kind of $8 to $10 in the second quarter. That compresses through the year. Based on current strip, it is about a $5 to $10 premium for dated Brent versus the futures Brent. Similar on WTI, there are a couple of factors that go into getting the forward price to a spot price. When you put those together, it is about a $2 to $5 premium on WTI that producers are realizing for the barrels sold in Midland as well. Operator: Thank you. And as a reminder, if you would like to ask a question, please press 11. Our next question will come from the line of Leo Mariani with Roth. Your line is open. Please go ahead. Leo Mariani: I wanted to follow up on LOE. It looks like your LOE has come in below guide the last couple of quarters. Can you provide some color around the drivers there? And do you see inflationary pressures rolling through LOE the rest of the year as well? Also, on Egypt oil, you have talked about a modest decline in gross oil volumes. Looking at late 2025, you did not see a decline, though it ticked down a little in 1Q. Are we still looking at a modest decline for the rest of 2026, or can you stabilize it more? Finally, given energy security, could you consider doing a bit more Egypt oil in coming years if prices are supportive? Ben C. Rodgers: In the first quarter, coming in below guidance on LOE was really cost savings in the U.S., with a little bit of timing. For the full year, keeping guidance at $15.25, we do see inflationary pressures mainly on diesel in Egypt—diesel usage and higher diesel prices pushing up Egypt LOE. Those are offset by other savings we are realizing and expect to continue to realize through the rest of the year, predominantly in the U.S. We have talked about the $100 million of spend this year on LOE uptime projects in the Permian. Those are going according to plan, and when you bake in savings from that, as well as additional work the field is doing in the U.S., it offsets inflationary pressures in Egypt. So full-year LOE guidance is unchanged. Stephen J. Riney: On Egypt gross oil, both are true: over the long term, we are on a slight decline, but recent performance has been stable. Adjusting for the small concession we exited earlier this year, we did four quarters in a row right around 121,000 barrels per day—basically flat. For the next three quarters of this year, you will see something closer to flat around 118,000 barrels of oil per day—about a 2.5% to 3% decline from the prior four-quarter average. That reflects a slight year-to-year decline. Quarter to quarter, you can have noise. We are drilling some very nice gas wells in Egypt; some of those are rich gas and come with condensate, which counts as oil volumes. Some success on the gas side is helping with the oil decline rate. Also note: when we first talked about a slight oil decline several years ago, we were running basically 12 rigs drilling for oil. Today, we are running 12 rigs—half drilling for oil, half for gas—and we are still talking about only a slight annual decline. That speaks to oil that comes with gas and more efficiency on the oil drilling side. John J. Christmann: [inaudible] Today, we are in a good place with what we are executing on the projects. We have new acreage where we are drilling prospects. We do have oil and gas prospects there, and more success in the program could drive what we do. Right now, they need both commodities, and we are doing what we can on both fronts. Stephen J. Riney: I would echo that ending comment by John. Egypt is importing LNG now. From an energy security perspective for the country, they are just as interested in gas as they are in oil, because they can import both oil or refined products, which they do. Operator: Thank you. I am showing no further questions at this time. I would like to hand the conference back over to John Christmann for closing remarks. John J. Christmann: Thank you. In closing, we delivered an excellent first quarter, with continued execution across our asset base driving strong operational and financial performance. In this current price environment, our focus remains on free cash flow generation through disciplined capital allocation and continued cost reductions. We continue to make significant progress toward our $3 billion net debt target and will continue to balance further debt reduction and meaningful capital returns to shareholders through the cycle. Finally, we are well positioned to sustain production volumes across the Permian and Egypt over the next several years, providing a durable foundation for free cash flow generation. Suriname Grand Morgue remains on track for first oil in mid-2028 and is expected to drive meaningful organic oil production and free cash flow growth over the longer term. With that, I will turn the call back over to the operator. Thank you. Operator: This concludes today’s conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.
Operator: Good morning. And welcome to Fidelity National Financial, Inc.'s First Quarter 2026 Earnings Call. During today's presentation, all callers will be placed in listen-only mode. Following management's prepared remarks, the conference will be opened for questions with instructions to follow at that time. I would now like to turn the call over to Lisa Foxworthy-Parker, SVP, Investor and External Relations. Please go ahead. Lisa Foxworthy-Parker: Thanks, Operator, and welcome, everyone. I am joined today by Michael Joseph Nolan, CEO, and Anthony John Park, CFO. We look forward to addressing your questions following our prepared remarks. F&G's management team, including Christopher Blunt, CEO, and Connor Murphy, President and CFO, will also be available for Q&A. Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy. Please refer to our most recent quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP measures which management believes are relevant in assessing the financial performance of the business. Non-GAAP measures have been reconciled to GAAP where required and in accordance with SEC rules within our earnings materials available on the company's investor website. Please note that today's call is being recorded and will be available for webcast replay. I will now turn the call over to Michael Joseph Nolan. Michael Joseph Nolan: Thank you, Lisa, and good morning. Our combined business continued to deliver outstanding financial results through the first quarter. Starting with Title, we delivered adjusted pre-tax Title earnings of $268 million, up 27% over 2025. This generated an industry-leading adjusted pre-tax Title margin of 13.1% for the first quarter, an increase of 140 basis points over 11.7% in 2025. Our first quarter results reflect continued strong performance across the business, highlighted by strength in our direct commercial, refinance, and agency businesses. Additionally, our disciplined expense management drove strong incremental margins. Looking at our Title results more closely, on the purchase front, we saw typical first quarter seasonality with sequential improvement coming off the fourth quarter. While existing home sales remain well below the historical average, our daily purchase orders opened were up 2% over 2025, up 25% over 2025, and up 4% for the month of April versus the prior year. Our refinance volumes continue to be responsive to 30-year mortgage rates. This boosted refinance orders opened to 2,000 per day in the first quarter as mortgage rates moved into the low 6% level. Volumes subsequently moderated to 1,600 per day in the month of April as mortgage rates moved higher. Our refinance orders opened per day were up 52% over 2025, up 16% over 2025, and up 13% for the month of April versus the prior year. For commercial, volumes continued to be strong, with direct commercial revenue of $338 million in the first quarter, up 15% over $293 million in 2025. This was driven by a 22% increase in national revenues and an 8% increase in local revenues. We continue to see growth in both national and local market daily orders, with each up 5% over 2025. Total commercial orders opened were 906 per day, up 5% over 2025, up 11% over 2025, and up 9% for the month of April versus the prior year. We also have a strong inventory of commercial deals slated to close, diversified across a broad set of asset classes including industrial, data centers, multifamily, affordable housing, retail, and energy. To bring it all together, total orders opened averaged 6,400 per day in the first quarter, with January at 5,900, February at 6,500, and March at 6,600. For the month of April, total orders opened were 6,200 per day, which was up 7% over the prior year. As we enter the second quarter, I want to address a question we hear: How do we think about our 15% to 20% targeted annual range for adjusted pre-tax Title margin? Let me start with what we have already demonstrated. Existing home sales have been near 4 million units for more than three consecutive years, among the lowest levels in three decades, while mortgage rates have remained elevated. And yet, we delivered an industry-leading full-year 2025 adjusted pre-tax Title margin of 15.9%. That is a direct result of our scale, decades of investment in technology and automation, and our disciplined operating model that have continued to strengthen the earnings power of this business. We are confident that we can continue to deliver within our 15% to 20% annual range even if total residential volumes remain at current levels over the near term. Once mortgage rates improve, we believe residential purchase and refinance activity will accelerate and trend toward historical levels. This recovery represents additional earnings power, given the operational leverage that we have built into our model. Beyond our residential volume recovery, the benefits of our continuous investments in technology and AI have the potential to further enhance our business. I want to spend a few minutes on AI—what we are doing and what it means for our business. Fidelity National Financial, Inc. and the Title industry hold a unique position in real estate transactions. We do not sit next to the real estate transaction; we sit inside the transactions, orchestrating complex multi-party settlements, safeguarding the movement of funds, and mitigating fraud in every transaction. By embedding AI tools into these workflows, we can drive significant value by enhancing efficiency and our customers' experience, reducing risk, and strengthening fraud prevention across real estate transactions. These gains come from having highly curated, deep sets of transactional data to augment AI. We have built our proprietary data by closing and insuring transactions. It cannot be replicated by simply digitizing public records regardless of how sophisticated technology becomes. As we build out our AI capabilities, we are leveraging this proprietary data alongside our deep experience and historical knowledge. And this is what sets Fidelity National Financial, Inc. apart. Usage of AI tools by our employees is growing, with more than half of our workforce using AI tools regularly, and we are deploying customized solutions across our Title and escrow operations as well as within ServiceLink, LoanCare, our real estate technology companies, agency operations, and software development. Importantly, we are focused on implementing AI responsibly and compliantly with appropriate governance, human oversight, and risk and regulatory controls in place. We have deliberately avoided a concentrated bet on any single model or platform. Instead, we are deploying AI directly with the data and workflows each team already owns inside or alongside the technology they already use. While we already have a highly automated process for searching county records, we believe AI will have a meaningful benefit to other significant areas of real estate transactions as we integrate AI capabilities end-to-end throughout the entire Title and settlement process. We are confident that our scale, our proprietary data, our fully deployed technology, and our financial strength will continue to position Fidelity National Financial, Inc. as an industry leader and place us at the forefront of shaping changes in our industry in a way that continues to bring value to our customers, shareholders, and employees. Turning now to our F&G segment. F&G's assets under management before reinsurance have grown to nearly $75 billion at March 31, up 11% over the prior year. On a standalone basis, F&G reported GAAP equity excluding AOCI of $6.2 billion at quarter end and has grown its book value per share excluding AOCI to $46.51, up 70% since the 2020 acquisition. F&G's diversified self-funding capital model is supported by its annual in-force capital generation and third-party capital through their reinsurance sidecar and strategic flow reinsurance partnerships. Together, these sources of capital provide financial strength and flexibility to invest for growth and return capital to F&G shareholders through dividends and opportunistic share repurchases. We are very pleased with F&G as they continue to execute on their strategy toward a more fee-based, higher-margin, and less capital-intensive business model, with a focus on growing the core business and creating long-term shareholder value. Before I turn the call over to Tony, I want to take a moment to recognize our employees. I would like to extend my sincere thanks for their continued dedication to our customers, their focus on execution, and their embrace of the innovation and technology that is driving this business forward. They are the foundation of everything we are building. With that, let me now turn the call over to Anthony John Park to review Fidelity National Financial, Inc.'s first quarter financial performance and provide additional insights. Anthony John Park: Thank you, Mike. Starting with our consolidated results, we generated first quarter total revenue of $3.2 billion. Excluding net recognized gains and losses, our total revenue was $3.3 billion, as compared with $3 billion in 2025. We reported first quarter net earnings of $243 million, including net recognized losses of $78 million, compared with net earnings of $83 million, including net recognized losses of $287 million in 2025. Adjusted net earnings were $249 million, or $0.93 per diluted share, compared with $213 million, or $0.78 per share, in 2025. The Title segment contributed $197 million. The F&G segment contributed $80 million, and the Corporate segment adjusted net earnings were zero before eliminating $28 million of dividend income from F&G in the consolidated financial statements. Turning to first quarter financial highlights specific to the Title segment, our Title segment generated $2.1 billion in total revenue in the first quarter, excluding net recognized losses of $46 million, compared with $1.8 billion in 2025. Direct premiums increased 14% over the prior year, agency premiums increased 16%, and escrow, title-related and other fees increased 12%. Personnel costs increased 11%, and other operating expenses increased 9%. All in, the Title business generated adjusted pre-tax Title earnings of $268 million, up 27% over $211 million in 2025, and a 13.1% adjusted pre-tax Title margin in the quarter versus 11.7% in the prior-year quarter. Our Title and Corporate investment portfolio totaled $4.8 billion at March 31. Interest and investment income in the Title and Corporate segment was $99 million, excluding income from F&G dividends to the holding company. For the remainder of 2026, we expect a range of $90 million to $95 million in interest and investment income per quarter during 2026, assuming no Fed rate cuts in the remainder of the year and stable cash balances. In addition, we expect approximately $28 million per quarter of common and preferred dividend income from F&G to the Corporate segment. Our Title claims paid of $57 million was $5 million lower than our provision of $62 million for the first quarter. The carried reserve for Title claim losses is approximately $31 million, or 2% above the 4.5% of total Title premiums. Next, turning to financial highlights specific to the F&G segment. Since F&G hosted its earnings call earlier this morning and provided a thorough update, I will provide a few key highlights. F&G's AUM before reinsurance increased to $74.5 billion at March 31, up 11% over the prior year. This includes retained assets under management of $56.4 billion, up 3% over the prior year. F&G reported gross sales of $3.2 billion for the first quarter, as compared with $2.9 billion in 2025. This reflects core sales of $2 billion for the first quarter, which includes indexed annuities, indexed life, and pension risk transfer, as well as $1.2 billion of funding agreements and multiyear guaranteed annuities—two products we view as opportunistic depending on economics and market opportunity. F&G's net sales were $2.2 billion in the first quarter. This reflects flow reinsurance in line with capital targets for multiyear guaranteed annuities and fixed indexed annuities. Adjusted net earnings for the F&G segment were $80 million for the first quarter, reflecting our approximate 70% ownership stake, compared with $80 million in 2025, which reflected our approximate 84% ownership stake. F&G's operating performance from their underlying spread-based and fee-based businesses continues to be strong. F&G continues to provide an important complement to our Title business. The F&G segment contributed 32% of Fidelity National Financial, Inc.'s adjusted net earnings for the first quarter, as compared with 38% in 2025. From a capital and liquidity perspective, Fidelity National Financial, Inc. continues to maintain a strong balance sheet and balanced capital allocation strategy. Our track record has generated a steady level of free cash flow, allowing us to continue to invest in our business through attractive acquisitions and technology as we manage the business and continue to build for the long term. Fidelity National Financial, Inc. has returned approximately $222 million of capital to our shareholders in the first quarter, as compared with $161 million in 2025. This reflects $140 million of common stock dividends and $82 million of share repurchases in the current period. We have remained active with share repurchases in the second quarter. From a capital allocation perspective, we ended Q2 2025 with $659 million in cash and short-term liquid investments at the holding company. During the first quarter, our cash position and cash generation funded $140 million of common dividends paid, $25 million of holding company interest expense, and $82 million in share repurchases, all while keeping pace with wage inflation and funding the continued higher spend in risk and technology required in today's landscape. We ended the first quarter with $495 million in cash and short-term liquid investments at the holding company. This concludes our prepared remarks. I will now turn the call back to our Operator for questions. Operator: Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, a confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from Mark Christian DeVries with Deutsche Bank. Please state your question. Mark Christian DeVries: Yeah, thank you. Good morning. First question maybe for Tony. How are F&G's earnings tracking to your expectations, and are there any disconnects that you observed between your expectations and where we in the analyst community have been modeling after these earnings? Anthony John Park: Yeah, thanks for the question. I am probably going to turn that over to the F&G guys because it has been a bit of a frustration that the analyst expectations seem to assume a return on alternative investment, and yet when we report, they are maybe not picking up that piece. And so there seems to be a larger delta than what we see, which is actually earnings that were pretty close to in line with what we thought the consensus was. But maybe Christopher and Connor, you can weigh in a little bit here. Christopher Blunt: Yeah, this is Chris. I would say Tony hit it. Other than there is usually a little bit of first quarter seasonality, we were actually pleased with the results. I think they were on expectation. And I do think the disconnect is around alternatives, which have obviously underperformed. Industry standard is to normalize for that, so I think in some cases it is either being normalized too high or not normalized at all. And I think our outlook there has been fairly consistent. We have redefined alts to be focused on what you actually think of with alternatives—private equity interests, anything equity-related. That is about $4 billion. So it is really not that hard to model if you look at your long-term expectation. I think we gave a range of 12% to 14% of what you think over time that should kick in from an earnings perspective. But in terms of base spread, own distribution, reinsurance, operating leverage of driving down expenses, it has been consistent and growing. We had a little bit of noise this quarter—the fixed income yield was down. Probably two-thirds of that was more timing and one-offs as opposed to anything permanent. So— Mark Christian DeVries: Okay, got it. And then maybe a question for Mike. On technology, I know you are kind of optimistic as this could return. How often could you see some margin lift over the next couple of years even if the market size holds its current levels? Michael Joseph Nolan: Yes, Mark, you did cut out a little bit, but I think the question is what benefits we expect to see from AI on the margin side even if the market stays flat? Was that it? Mark Christian DeVries: Yes. Yes. Thank you. Michael Joseph Nolan: I cannot cite a number, but we absolutely expect margin improvement in the same-size environment over time with technology tooling like AI, just like we have seen with Title automation that we have implemented over the last couple of decades. That has been a big driver behind our margin improvement and the fact that we can get the kind of margins we are getting now in low transactional environments. But I cannot give you a number. I think that will become more apparent as we go through the balance of the year and probably see smaller wins with AI investments and AI tooling, and then bigger wins as we move into 2027 and get more advantage out of really embedded tooling in the more full settlement process. Mark Christian DeVries: Okay. Are there specific tools that you are building on that you are more optimistic about that can more meaningfully move the needle that are worth calling out? Michael Joseph Nolan: I do not know that I will get into specific tools, but maybe as I think of parts of the business: We said from the beginning a four-part process for us relative to AI. It first begins with really building out a risk and governance framework, which we have done and worked on the past year and a half. I think that is very important to have in place given both the opportunities for AI and the risks that come with AI tooling. Second is building literacy and diffusing the tools across the entire company. As we talked about, more than half of our employees are now using these tools regularly. Third are individual solutions inside ServiceLink, LoanCare, etc., as we talked about on the call. And then the fourth is really the area that I think will have the biggest impact, and that is when you embed tools into workflows like SoftPro and inHere that we have built at scale that no one else has. We will get more benefit on the settlement side where you really have more of your labor and your cost in terms of the process inside the business. Mark Christian DeVries: Got it. Thank you. Thanks. Operator: Our next question comes from Bose Thomas George with KBW. Please state your question. Bose Thomas George: Just sticking to the margin discussion, can you go through margins by segment, and just curious how the commercial margins look especially compared to previous peaks? Anthony John Park: Yes, thanks, Bose. As you know, we reported 13.1% pre-tax Title margin up against 11.7%. If you break that down into our various operations or divisions, our Direct ops had roughly a 20% margin, up about 100 basis points. Agency, about a 7% margin on gross, up about 100 basis points. Our National Commercial units—so this is just the 20 or so large operations that handle exclusively commercial transactions—had a 27% margin in the quarter, up against 24% in the prior year. Our loan subservicing was down a little bit but still had a 20% margin in that business. Our home warranty business had a 16% margin versus 14% in the prior year, and our ServiceLink business, which is centralized refinance and default, had a 23% margin up against 18% in the prior-year quarter. So really, almost to a unit, a positive improvement over the prior-year quarter. And if I just add one thing to that, Bose, in our centralized refi business inside ServiceLink, the margin lift just shows the power we have in the model—we had a 23% first-quarter margin up against 9% last year. So a little bit of extra volume can go a long way inside the efficient model that we built for the centralized platform. Bose Thomas George: Okay, great. That is great color, thanks. And then I wanted to just ask about the buybacks. You noted it remained strong in April. Just curious how we should think about that relative to what you did last year, or just ways to think about a range this year? Anthony John Park: Yeah, thanks, Bose. It is hard to know exactly where we will land in terms of buybacks. I did say that we remain active, and we will remain active—I firmly believe that. We bought $82 million of shares back in the first quarter, almost 2 million shares. Certainly, if we see signs of weakness, we are more active. But I would expect that once blackout windows lift, we will be back in the market on a regular cadence. Last year’s second quarter, we came in really strong—I would not necessarily expect that. That might have been to the tune of about $250 million. But having said that, I do expect that we are going to be active throughout the year. Bose Thomas George: Okay. Great. Thanks. Operator: Our next question comes from Mark Hughes with Truist Securities. Please state your question. Mark Hughes: Yeah, thank you. Good morning. Michael Joseph Nolan: Good morning. Mark Hughes: On F&G, the question about returns—and we chatted about this on the conference call earlier—but I just wanted to make sure I am on the right track. The return on assets in the quarter was 76 bps; if you take into account the unusual items or the underperformance on the alts, you get up to about 110 bps. When we model that on a go-forward basis, would it just make more sense at this point to model it more at the 80-basis-point level and factor that into the Fidelity National Financial, Inc. earnings rather than, I think, kind of the longer-term target, which was 110, but it has been dampened here recently? Just wanted to get your sense on the best approach. Christopher Blunt: Yeah, Mark, this is Chris. I think that would be a very conservative way to model it, but not an inappropriate way to model it. So, yeah, I think 80 bps is probably a little low as a jumping-off point, but if you said that is a jumping-off point for just pure spread income at current alts levels, then, yeah, you are more likely to have tailwinds coming from alts. We have been normalizing, and it has been five years since we have seen meaningful realizations, and every year we come in expecting that it is going to be the year of the IPO and then something happens externally. So I think we are still confident that we will see that when things normalize. But, yeah, I do not think that is an unreasonable way to think about it; it would just be a conservative way, I believe, to model it. Connor, if you agree with that? Connor Murphy: Yeah, I think that is fair. And as we talked about some of the things that happened this quarter, there were some temporary elements this quarter—was probably about 10 basis points that we do not expect to continue, aside from the alts differential. Mark Hughes: And just to be clear, it is been kind of that difference—between the 34 basis points this quarter—is kind of the difference in what leads to some misinterpretation or volatility perhaps, thinking back to the earlier question? Christopher Blunt: Yeah, I think what Connor is saying is there was probably 10 bps of some other one-time effects, but if you look at it over time, quarter by quarter, alts is the big one—that is the disconnect of how do you think about that normalization. And my guess is neither stock gets a whole lot of credit for it given how long it has been since we have had realizations. But again, still optimistic that if we do start to see transaction activity pick up, that should actually become a tailwind for us. Mark Hughes: When we think about the purchase business, moving on to Title, the growth in open orders in Q1 and a 4% for April, if I heard properly—sounds like Fidelity National Financial, Inc., at least relative to the public peers, is doing a little bit better. Is that a geographic issue, an execution issue? It may just be a few points here and there, but I am curious if there is any driver to that a little better performance. Michael Joseph Nolan: Yeah, Mark, it is Mike. It is hard to know, but we were very pleased to see a 25% sequential improvement in the first quarter. That is above historical averages, even though we are still in an overall low environment. The 4% up in April—I do not know if it is a geographic issue or not. I do know that our recruiting has been incredibly strong, and it was very strong last year. We just had a phenomenal first-quarter recruiting effort, maybe our best ever, and we are attracting a lot of talented people to the company and they bring volume with them. So whether that is playing into those numbers, I cannot say for sure. But I am very pleased with what the field is doing in terms of just building more talent inside this organization. Mark Hughes: Is there a kind of structural reason for that—maybe in a softer market people want to be in a bigger organization—or is it just more company specific? Curious on that. Michael Joseph Nolan: Again, it is hard to know. I would say our recruiting is broad-based. It is across a lot of other players in the industry. Perhaps people see that we continue to invest in the business consistently regardless of the macro environment—building technology, creating good marketing tools, inHere digital transaction platform. I think we are doing a lot of things that lead this industry, and hopefully people at other organizations see that and want to be a part of it. Mark Hughes: If I could just squeeze in one more—there is a discussion about the process to look at a way to optimize value in the owned distribution within F&G. I was curious if there is any sense of timing on process—when we might hear more about that. Christopher Blunt: Yeah, it is probably premature to comment on the exact timing. But again, to just go back to the rationale, we have invested about $700 million in owned distribution. We see substantial opportunity to grow what we already have and make more investments. And so it is really just an exercise of what is the best way to fund that growth opportunity. Is it still underneath F&G? Is it consolidated, deconsolidated? So that is the exercise we are going through. But I would imagine the next couple of quarters we would probably have a bit of an update for you there. Mark Hughes: Thank you very much. Operator: A reminder to all participants, to ask a question please press star and 1 on your telephone keypad. Our next question comes from Analyst with Stephens Inc. Please state your question. Analyst: Hey, good morning. My first one is on F&G. In mid-March, F&G announced the $100 million buyback program, which was right after the December distribution of F&G shares to Fidelity National Financial, Inc. shareholders. And I think during the F&G earnings calls today, it was mentioned that $29 million of the program was deployed in Q1. One would think that if Fidelity National Financial, Inc. has no plans to sell shares in the open market, the buyback could increase Fidelity National Financial, Inc.'s ownership stake in F&G. So how should we be thinking about this? Anthony John Park: Yeah, it is a good question. Clearly, the reason for the distribution back in December was to get more float out into the marketplace. And so we went from roughly an 82% ownership down to a 70% ownership. But F&G shares were under pressure, and the float was not really helping, at least in the early phases of having those shares out there. I think F&G saw an opportunity to buy back their shares at a discount—real significant, almost a silly discount. And so Fidelity National Financial, Inc. does not take a position that we need to own X number of shares. We are just trying to really have value out there for the respective shareholder base. And so if that means that we close that gap from 70% to 80%, or wherever it might be, that is very possible. But again, there is no target necessarily for where Fidelity National Financial, Inc. might end up in that ownership percentage. Analyst: Yes, alright. That is very helpful. And then turning to Title, starting with the fee per file, what can you share on what you are seeing in terms of the trajectory of fee per file for both residential and commercial? Michael Joseph Nolan: Yes, thanks for the question. I would say that the residential fee per file has been pretty consistent year-over-year—actually flat with the first quarter of last year—and I think we have seen pricing moderate to the most extent over the past few years, so we are seeing a little bit more stability there. We saw, again, a strong, particularly national commercial fee per file in the first quarter—up almost $1,000 over the first quarter of last year. Local was up a bit as well, maybe about $500 on a fee-per-file basis. So I would say fairly stable in residential and still upside in commercial. Analyst: Thank you. And just one last one on the outlook. Looking at the residential outlook since your last earnings call, the MBA and Fannie Mae have revised their forecast down, and they are now calling for existing home sales to be between 4.1 and 4.2 million seasonally adjusted for the year in 2026 and around 4.5 million in 2027. What is your take on that? Do you view those assumptions as conservative, or are they too aggressive? Michael Joseph Nolan: I do not think they are aggressive. Our base case as we came into the year for residential was really upside purchase and refi with the fact that we had lower, more stable rates to start the year. Then the macro environment as we got into March and into April kind of upset the apple cart a little bit, and that is probably when Fannie and MBA revised theirs down because their 2027 forecast now looks a lot like their 2026 forecast that they had 60 days ago. It is just hard to say. What we do see, though, is—and I have commented on this before—just more sensitivity to lower rate movements than we probably have seen in prior vintages. I think it really comes down to if things stabilize, the macro environment gets a little calmer, and rates stabilize maybe in that lower-6% environment, we are going to have upside in the back half of the year in residential. And if they do not, we will probably continue on this current trajectory. I am very pleased we had a 4% increase in purchase opens in April, and we are still driving, we think, really strong margins. Our first quarter margin, absent the 3% mortgage years, is really one of the best first quarters we have ever had. So we will perform well regardless of the environment, and we will manage the business to whatever order environment we have. We are very confident in our position. Analyst: And if I can squeeze just one last one on capital allocation—what are you seeing in the M&A pipeline, and has there been any notable shift in activity since last quarter? Anthony John Park: Yes, thanks. My impression is even though we have not made many acquisitions over the course of the last 12 to 15 months or so, I get the sense there is more opportunity, especially on the Title agent side. I feel like we are hearing a lot more about it. We are having more discussions, and I would expect that we have more activity this year and next than we have seen in the last two years. Michael Joseph Nolan: I would agree with that, Tony. I think there are more conversations, I think there are more opportunities, but you never know if you are going to strike a deal. I would say just stay tuned on how that plays out over the next couple of quarters. Analyst: Great. Thank you so much. Thanks. Operator: And this will conclude our question and answer session. I will now turn the conference over to CEO, Michael Joseph Nolan, for closing remarks. Michael Joseph Nolan: Thanks for joining our call this morning. We delivered strong first quarter results with our complementary businesses executing well in a dynamic environment. The Title segment is performing well in what remains a low transactional environment and is capitalizing on stronger commercial activity. We are delivering industry-leading margins and remain well positioned to benefit from a recovery in residential volumes should mortgage rates move lower. Our focus on technology and AI is contributing to our performance today, and we see potential to further enhance our business. Likewise, F&G is executing on its strategy and is focused on balancing continued growth in its spread-based business alongside the fee-based flow reinsurance, middle-market life insurance, and owned distribution strategies as they focus on delivering long-term shareholder value. Thanks for your time this morning. We appreciate your interest in Fidelity National Financial, Inc., and look forward to updating you on our second quarter earnings call. Operator: Thank you for attending today's presentation. The conference call has concluded. You may now disconnect.
Operator: Please stand by. Your program is about to begin. Welcome to the Stabilis Solutions, Inc. first quarter 2026 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If at any point your question has been answered, you may remove yourself from the queue so that others can hear their questions clearly. We ask that you pick up your handset for best sound quality. Lastly, if you require operator assistance, we would now like to turn our call over to Andrew Lewis Puhala, Chief Financial Officer. Mr. Puhala, please go ahead. Andrew Lewis Puhala: Good morning, and welcome to the Stabilis Solutions, Inc. first quarter 2026 results conference call. I am Andrew Lewis Puhala, Senior Vice President and CFO of Stabilis Solutions, Inc., and joining me today is our Executive Chairman, and Interim President and CEO, J. Casey Crenshaw. We issued a press release after the market closed yesterday detailing our first quarter operational and financial results. This release is publicly available in the Investor Relations section of our corporate website at stabilissolutions.com. Before we begin, I would like to remind everyone that today’s call will contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 and other securities laws. These forward-looking statements are based on the company’s expectations and beliefs as of today, 05/07/2026. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. The company undertakes no obligation to provide updates or revisions to the forward-looking statements made in today’s call. Additional information concerning factors that could cause those differences is contained in our filings with the SEC and in the press release announcing our results. Investors are cautioned not to place undue reliance on any forward-looking statements. Further, please note that we may refer to certain non-GAAP financial information on today’s call. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in our earnings press release. Today’s call is being recorded and will be available for replay. With that, I will hand the call over to J. Casey Crenshaw for his remarks. J. Casey Crenshaw: Thank you, Andy, and good morning to everyone joining us today. Our first quarter results reflect the expected transition following the completion of two large multiyear contracts at the end of 2025 that were in our marine and behind-the-meter power generation markets. As anticipated, that created a near-term revenue and earnings headwind in the quarter. At the same time, we continue to see strong demand in the quarter for aerospace and emerging power generation opportunities for additional data center work. While our financial results were soft during the transition period, our commercial activity remains very encouraging. Demand for small-scale LNG and integrated last-mile delivery solutions continued to grow, and our commercial teams are actively engaged with both existing and prospective customers across multiple end markets. Importantly, the contracts already awarded to us combined with our active pipeline of opportunities provide us with increasing visibility into improved performance as we move through the balance of 2026. Based on expected contract startups later this year and advanced commercial discussions underway, we expect results to improve meaningfully in the second half of 2026, even before the expected 2027 startup of the large data center contract we announced earlier this year. As a reminder, the data center award is an estimated $200 million minimum two-year contract to support behind-the-meter power generation for a U.S. data center. While delivery is expected to begin in 2027 and continue through 2029, we view this award as a strong validation of Stabilis Solutions, Inc.’s platform and a meaningful step forward in our participation in the rapidly growing distributed power market. The accelerating demand for behind-the-meter power, bridge power, commissioning support, and durable energy infrastructure is creating a clear need for flexible, reliable LNG solutions. This is where Stabilis Solutions, Inc. is especially well-positioned. Our value proposition is not simply LNG supply; it is the ability to deliver a complete solution, including sourcing, logistics, storage, regasification, and last-mile reliability in environments where customers need dependable energy infrastructure quickly. A key advantage of our model is that we are not limited solely by the capacity of our own liquefaction facilities. Our multi-source LNG supply model allows us to serve customers across regions of the United States by combining our own production assets with third-party supply arrangements, logistics capabilities, and mobile infrastructure. This scalability is critical as we pursue larger opportunities in data center, aerospace, marine markets, and industrial applications. Within the aerospace market, demand remained strong. Activity among commercial space customers continues to grow, and we are seeing increased engagement with current customers as launch activity and LNG requirements expand. We continue to believe aerospace represents a long-term growth opportunity for Stabilis Solutions, Inc., supported by our ability to provide high-purity LNG, reliable delivery, and fit-for-purpose solutions for customers with demanding technical requirements. Turning to our Galveston LNG project, as we announced last month, we elected to terminate an offtake agreement for our proposed Galveston LNG facility. During negotiations with prospective financing partners, we were asked to amend the offtake agreement to facilitate the financing. The customer did not agree to the requested modification and we elected to terminate the agreement. While this development has delayed the project timeline, I want to be clear that we remain committed to pursuing the Galveston LNG project. We are in active discussions with other potential customers to sell the available capacity. We also continue to express support for the project. Galveston LNG remains an important component of our long-term value creation strategy, particularly as we look to serve durable multiyear demand in the Port of Galveston and the broader Gulf Coast marine market. At the same time, it is important to emphasize that the Galveston project is only one part of our growth strategy. We continue to see significant organic growth opportunities across our existing platform, including distributed power for data centers, fuel for aerospace, and LNG for industrial applications. As we look ahead, we believe that 2026 is a temporary low for the business as we move through this transition period and prepare for the ramp-up of new contracts and opportunities beginning in 2026. The demand environment remains strong, our customer engagement is active, and our awarded contracts provide a foundation for recovery in 2026 and substantial growth in 2027. We remain focused on converting current and future demand into sustainable, profitable growth while maintaining financial discipline and creating long-term value for our shareholders. We believe Stabilis Solutions, Inc. is well-positioned across multiple high-growth end markets, and we look forward to updating you on our progress in the quarters ahead. With that, I will turn the call over to Andy for a detailed review of our financial performance. Andrew Lewis Puhala: Thank you, Casey. I will begin with a discussion of our first quarter performance, followed by an update on our balance sheet, cash flow, liquidity, and capital spending. First quarter revenue was $10.4 million, a decrease of approximately 40% compared to 2025. The year-over-year decline was driven primarily by a 41% decrease in LNG gallons sold and lower rental and service revenue, partially offset by a slight increase in the underlying commodity price. At an end-market level, there were no revenues from marine customers during the quarter, and revenues from behind-the-meter power generation were not material due to the completion of the large multiyear contracts late last year. This was partially offset by continued growth in our aerospace and other legacy markets, where revenues increased [inaudible], respectively, compared to 2025. Adjusted EBITDA was negative $700 thousand in the first quarter compared to a positive $2.1 million in the prior-year period. The decrease was primarily attributable to the completion of the two large multiyear contracts. I would also note that our adjusted EBITDA for the first quarter excludes approximately $1.5 million of vessel charter costs incurred during the period. These costs relate to the lease of a non-Jones Act vessel that we entered into in 2025 in anticipation of supporting logistics requirements of our previously completed marine bunkering contract. We are currently working to fully subcharter this vessel. In the interim, we are leasing it back to the lessor at a reduced cost. Until a subcharter agreement is finalized, which we expect during the second quarter, our cost of revenue will continue to reflect these lease expenses, which we expect to exclude from adjusted EBITDA as an extraordinary item. Turning to cash flow and liquidity, cash flow from operations was $12.4 million for the quarter. This included $15 million of advance payments from a customer associated with our behind-the-meter data center contract scheduled to begin in 2027. These payments are restricted to support equipment and other preparations for that project. At quarter end, total liquidity was $17.2 million, consisting of total cash of $13.7 million, of which $10.6 million is restricted, and $3.5 million of availability under our credit agreements. Capital expenditures totaled $5.3 million during the quarter. These expenditures were primarily related to equipment purchases associated with our upcoming large data center project. Looking ahead, we expect to invest an additional $10 million to $12 million in capital for equipment and securing guaranteed supply for this project. We expect these investments to be funded through the advance payments received during the first quarter as well as additional advance payments we expect to receive over the course of the year. That concludes our prepared remarks. We will now open the call for questions. Operator: We will take our first question from an Analyst with Johnson Rice. Analyst: Good morning. The first question I had, I wanted to talk a little bit about the contracts that you are finalizing here that could start up in 2Q, but it sounds like they will definitely impact the second half of this year from behind-the-meter power. Could you talk about the size of those, for the two contracts that were canceled in the fourth quarter last year? And also, with behind-the-meter power, is this going to be a bridge-type arrangement until pipeline is hooked up to these facilities, and then is there the opportunity for backup-related contracts later on? J. Casey Crenshaw: Good morning, and thank you for joining today. Let me try to take on what are really two questions. First, on the type of contract for distributed power, we really talk about that being either commissioning power, bridge power, or more permanent backup related to behind-the-meter applications and distributed power. This is more of a commissioning project, which is normally a six- to twelve-month effort that we anticipate starting up at the end of the second quarter of this year and running through the end of the year. We do anticipate, with the work we have commitments around, being able to replace the contracts that ended at the end of last year during the back half of the year. Without giving too much in the way of forward-looking statements, we anticipate being able to replace that on the P&L, and that is before we get into the contracted demand starting in Q1 of next year, which is meaningful in size as well. Analyst: Great. Thank you. And then just on the Galveston LNG project, it sounds like you are active with discussions with offtakers to replace the canceled contract. Is there the possibility that the previous offtaker would return to sign up for offtake, and also are you satisfied with the provisions of the other offtake agreement contracts you have that they will not need to be modified for project financing purposes? J. Casey Crenshaw: Yes, that is a great question. I will take the last one first. The current offtake agreement we have works well with the project construction timeline and does not create risk on when construction would finish and when startup would happen, so that contract is in good position. Going back to the first question, we highly anticipate this customer that we were required to cancel that contract with coming back and doing business with us in Galveston once we get further down the road or complete the plant. Whether or not they will be part of the offtake that helps create the financing, or they become a spot market client post construction, we do not know yet, but we are actively working with that client. Timelines and the Iran war and different things happening caused delays and issues around dates and how that would affect financing, which created the need to exit that contract. Thank you. Operator: Our next question comes from William Dezellem with Tieton Capital. J. Casey Crenshaw: Good morning, Bill. William Dezellem: Good morning. I would like to talk a little bit more about the new data center contract. If we understood correctly, you said that was a commissioning contract that will begin in Q2 and basically last through Q4. Did we hear that correctly? And if so, was this a contract that you went direct to the data center, or did you have an intermediary that is taking care of all the power and they have hired you? J. Casey Crenshaw: Yes. This particular project you are asking about is more of a construction commissioning project. On all of these projects, we work with both the end user and the provider, and we are normally engaged with both. There are numerous projects like this that I would call construction commissioning, and those are normally, the way we view it, six- to twelve-month contracts depending on whether you are just going to commission Phase One or which systems you are going to work on commissioning. That is what this project is anticipated to be. It is different than the one that is starting up next year, which is more of a bridge power solution, longer in duration. All of these have minimum periods of time with potential extensions related to what is happening on their time schedule, etc. William Dezellem: Is the magnitude of the original commissioning contract’s monthly revenue similar to what you will have for the monthly revenue from the bridge, and it is simply a shorter period of time? Or is there a difference in the size of these two data centers that makes this very different? J. Casey Crenshaw: I would say, when you think about the bridge, it is defined by how many megawatts we are providing, and it is consistently provided in a consistent flow. The commissioning project that is starting this quarter and going into the back half of this year is smaller in total megawatt terms and is lower in gallons related to that, but still meaningful in size. What we wanted to present is the expectation of the recovery: kind of the trough in the first and second quarters and then how the recovery of the business goes into 2026. That is what we are trying to highlight for our shareholders and stakeholders. William Dezellem: That is appreciated, Casey. You mentioned there are many other contracts like this. We all hear of data centers ramping; there is lots of commissioning taking place. Talk to us about the pipeline of opportunities in the data center arena, because over the last few months you have announced two. J. Casey Crenshaw: Yes, Bill. We are certainly excited about it, and we are optimistic. If you look back about eighteen months, the expectation was that all the power was going to come in on time or early, pipelines would be put in on time or early; and then what has happened are natural delays—construction delays and other factors—creeping into this giant infrastructure buildout that you all know about. As that rolls downhill, first you have the power generation and backup power solutions, and now we are getting to how you provide the natural gas needed to do either commissioning, startup, or bridges. We are really excited about this commissioning activity because this is where we go in and support the data center commissioning their project—testing all their cooling and other systems—while they are waiting on either the final gas pipeline or the connection to the grid. In a perfect world it is connection to the grid with cheap power that never stops; secondly, behind-the-meter with pipeline. Stabilis Solutions, Inc. can participate in providing either commissioning, backup, or bridge, and that is what we are working around. We are seeing more commissioning activity in the first quarter of this year. That is where the activity is with our customers, with some people talking about the longer-term bridge. But the longer-term bridge is not the perfect solution for the client, so there is less activity there relative to six- to twelve-month commissioning activity. We have a number of those we are working on. William Dezellem: Essentially, we have come to this point because of delays. One way to think about these commissioning opportunities is that they may be ready to go live after testing, say in the fourth quarter, but if the grid or the pipeline is not ready, then your commissioning contract converts to a bridge contract. Is that likely? J. Casey Crenshaw: That is a good way to think about it. Another way to think about it is that their commissioning may be in modular formats; they may get power connected to one of the modular concepts and then move into the next phase of commissioning the next center nearby, because it is normally in groups or hubs. We do not expect it to be just a short-term situation. Secondly, you are going to have outages and other backup needs to continue with the reliability that they are committing to, and that will provide additional work for LNG long beyond the construction and bridge phases. Think of them as modular—80 megawatts, 50 megawatts, 100 megawatts—building modular, stacked up around each other, and we are providing unit work for units in the system. William Dezellem: One question relative to the subchartering of the vessel. What is the timeline you expect that to happen? J. Casey Crenshaw: Good question. We initially chartered that to support our client in Galveston. We ended up, for a number of reasons, with them going to a different solution. We anticipated a very quick subcharter capability with that vessel, but the Iran war disrupted rechartering activity and put a delay on it. We anticipate it happening in the second quarter for an effective date in the third quarter. We do not expect the subcharter to be at a big profit, so we expect it to be net neutral. Operator: We will go next to an Unknown Speaker, a private investor. Unknown Speaker: Good morning, guys. J. Casey Crenshaw: Good morning. How are you doing? Unknown Speaker: Pretty good. Just a couple of questions, if I may. First, with oil and LNG getting backed up, there is a lot of talk about some of these countries coming into the Gulf of America and picking up their oil and LNG. Are you currently in a position to capitalize on that development? J. Casey Crenshaw: Yes. We appreciate the question. We have never seen a macro for our Galveston LNG bunkering—reliable, consistent supply there for marine bunkering activity—being better than it is today. Though the conflict has caused some disruption in the timing of our subcharter of the vessel and potential short delays for construction, the macro around it is amazingly strong. It validates why we need more LNG, fit-for-purpose bunkering capacity on the water in the Gulf Coast. Our customers know that, and our commercial team is working hard on it. The duration of contract, credit quality, and how that matches with project financing are the things we are working on right now. Validation of the need for the project with a Jones Act vessel in the Houston Ship Channel is not in question. The conflict and the price of LNG also further our fit-for-purpose supply for aerospace and the value of what these aerospace customers are doing with telecommunications and other technologies. This further reinforces the need for U.S. presence to be successful in aerospace. Lastly, it reiterates that the price of U.S. natural gas and LNG for behind-the-meter power for AI data center activity is advantaged versus globally priced data centers. We have an advantage now, and given oil and LNG prices globally on a TTF or JKM basis, it further makes U.S. data centers more competitive when they are either on-grid power, pipeline, or LNG. It reiterates the thesis of all three of our growth legs. We are not reporting a great quarter—we do not want to gloss over that—but we are excited about the back half of the year and next year, and about marine, aerospace, and behind-the-meter power. We are working very hard on our Galveston LNG bunkering project, and we are equally excited about aerospace and behind-the-meter power. Unknown Speaker: That segues into my second question. Andy, I think you are still in charge of IR. With all that is happening now—and the data center stuff was all over Fox Business this morning—it is such a hot item. Is this a time to get on the radar a little bit with your story? Any plans for it? You are really becoming an AI company—without overhyping it—any plans to get the story out? J. Casey Crenshaw: We are starting this morning by talking about what is contracted and what we are doing on commissioning and bridge—different versions of the behind-the-meter power story. We have three growth stories: marine, which is really exciting; aerospace; and behind-the-meter. It is important, as you bring up, that these are three exciting growth platforms where we are delivering advantaged U.S. LNG into the market. We are communicating what we are doing, and we are hopeful that over time, as we see the growth we are anticipating for next year, and we see the Galveston project come online—moving it to FID, then through construction—we believe people will be able to do the math around what that means and understand the value like we see it. We cannot force people to believe in it to the same level that we do; we can only communicate what we are up to. I will now turn it over to Andy for additional comments on investor relations. Andrew Lewis Puhala: Thanks for the question. Philosophically, our number one priority is to demonstrate this in the results of the business—grow the top line, grow profitability—and then the stock price takes care of itself. That is number one. Number two, we do intend to get out there and do more in terms of telling the story as we get more exciting things to talk about. We think it is important both to deliver the results and to make sure we are communicating them. From a corporate governance perspective, we continue to file and keep the company positioned appropriately around that. Operator: We will take our next question from an Analyst with ID Capital. Analyst: I would like to follow up on the data center commissioning. Is this the same data center as the one where you are doing the bridge? J. Casey Crenshaw: No. It is a completely different project, different region, and different customer. Analyst: Will this commissioning use George West capacity or third parties? J. Casey Crenshaw: We can always do both. It is the benefit of having your own supply for backup and reliability to make sure you can deliver. This project is not an offtake as the primary source. Neither of these are. A lot of our own offtake is being drawn into both industrial projects and aerospace. That is how we think about the mix right now. Andrew Lewis Puhala: The great thing about both of these data center projects is that they are not using George West molecules, so it does not absorb all our capacity. It allows us to grow the top line and continue to grow the business without having to wait on expansion of internal production capacity. It is great for that reason as well. Analyst: Will the same third-party power provider be the one that contracted you for the bridge power with the other data center? J. Casey Crenshaw: We work with numerous power providers and numerous data center end users. Due to confidentiality and competitive information, we would prefer not to share that level of detail. Analyst: You mentioned aerospace activity and strength there. What is your current estimate on when George West volumes will be completely used again? J. Casey Crenshaw: We will have some room at George West. We are anticipating getting closer to a consistent offtake—we are not expecting 100% utilization—but moving toward reasonable utilization in the third and fourth quarters of this year. We were significantly off as those two projects ended; they were heavy offtakers of both of our production facilities. We are seeing a steady increase in pull-through and usage and expect that to happen in the third and fourth quarters—not fully utilized, but at levels consistent with what we have seen in the past. Analyst: When we look at the revenue and earnings profile of current operations, and that is prior to the addition of the new contract for next year, will that contract use George West molecules? J. Casey Crenshaw: Right now, it does not need to. It will be additional. Analyst: Thank you both again for taking the extra questions. J. Casey Crenshaw: We are delighted to do it. Thanks for joining the call. Operator: This concludes the Q&A portion of today’s call. I would now like to turn the floor over to Andrew Lewis Puhala for closing remarks. Andrew Lewis Puhala: Thank you, everyone, for joining the call today. We appreciate the interest in the company and the continued support, and we look forward to updating you on our developments as we have them and talking to you again next quarter. Thank you all very much. Operator: Thank you. This concludes today’s Stabilis Solutions, Inc. first quarter 2026 earnings conference call. Please disconnect your line at this time, and have a wonderful day.
Operator: Greetings, and welcome to the Maximus, Inc. Fiscal 2026 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Francis, Vice President of Investor Relations. Thank you. You may begin. James Francis: Good morning, and thanks for joining us. With me today are Bruce L. Caswell, President and CEO, and David W. Mutryn, CFO. I would like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions. Actual events and results may differ materially as a result of risks we face, including those discussed in Item 1A of our most recent Forms 10-K. We encourage you to review the information contained in our recent filings with the SEC and our earnings release. Maximus, Inc. does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances, except as required by law. Today’s presentation also contains non-GAAP financial information. For a reconciliation of the non-GAAP measures presented, please see the company’s most recent Forms 10-Q and 10-K. I will now turn the call over to David W. Mutryn for the financial results. David W. Mutryn: Thanks, James, and good morning. I would characterize our completed second quarter in three ways. First, strong execution with the sequential step-up to profitability we anticipated. Second, clear evidence that our technology investments are contributing to bottom-line returns as reflected in our improved full-year earnings outlook. And third, increased capital deployment toward share repurchases, given our view that our shares have been trading at an attractive valuation. Turning to second quarter results, Maximus, Inc. reported revenue of $1.31 billion, consistent with our expectations and on track with our full-year guidance. As I indicated on previous calls, as we progress across this fiscal year, we are facing tough comparative quarters to last year, which benefited from natural disaster work in the U.S. Federal Services segment and temporary clinical volume surges in both domestic segments. On the bottom line, adjusted EBITDA margin was 14.4%, and adjusted EPS was $2.07 for the quarter, which compares to 13.7% and $2.01, respectively, for the prior-year period. The improvement highlights our ability to drive margin enhancement through efficiency enabled by automation, including AI tools. One example is a dispute resolution program for a government customer where automation has helped create meaningful operating leverage. The second quarter results included two unusual items, with one reducing earnings and the other increasing earnings by approximately the same amount—meaning they effectively net out of adjusted EPS. First, we recorded an asset impairment related to a subset of capitalized assets attributable to the U.S. Services segment. This impairment was tied to an unusual circumstance dating back to fiscal 2024 where a software asset was built and capitalized under a prior contract for a specific customer. A recent decision by this customer led us to writing off the balance of the asset, which was $6.9 million, or a $0.09 per share impact to the U.S. Services segment operating income. The second item is the discrete research and development tax benefit totaling $4.2 million, or approximately $0.08 per share. As we have become a more tech-forward company with higher levels of R&D activity, we undertook an initiative to identify and document all eligible R&D tax credits. These credits became recognizable at the completion of the exercise during the second quarter. As I mentioned, the impact of these roughly nets in adjusted EPS, and both items have no impact on our adjusted EBITDA. Let us go to the segment results. Second quarter revenue for the U.S. Federal Services segment was $753 million and in the range that we expected for this period. The prior-year period revenue was $778 million and benefited primarily from elevated natural disaster support that has not recurred at the same levels. I mentioned on the February call that this dynamic is expected to recur for this segment in fiscal year 2026 when comparing to the prior year. Excluding the natural disaster work, U.S. Federal Services grew 1.5% organically year-over-year. The operating income margin for this segment in the second quarter was 17.6% as compared to 15.3% in the prior-year period. Another item I mentioned on the February call when we increased the full-year segment margin guide is the anticipated durability of this segment’s margins. This quarter’s segment margin is delivering on that commitment thanks to technology initiatives embedded in our programs that decouple labor costs from our ability to process more volumes. In fact, we are raising the margin guide for this segment again this quarter, which I will touch on shortly. Moving to the U.S. Services segment, second quarter revenue was $416 million as compared to the prior-year period revenue of $442 million. I noted on the February call that our first quarter segment results had the greatest anticipated divergence and that by the back half of 2026 we anticipate positive organic growth, which we continue to forecast. These second quarter results are evidence of that progression. Bruce will provide a positive update on current state customer priorities that are anticipated to make contributions in fiscal year 2027. The segment’s operating income margin for the second quarter was 9.3% and was impacted by the $6.9 million non-cash item I mentioned earlier. Excluding the charge, the margin would have been 10.9% for this period, and demonstrates substantial uplift from the lower segment margin in the first quarter that we anticipated. Turning to the Outside the U.S. segment, second quarter revenue was $137 million and the segment realized an operating loss of $3.1 million. As I mentioned on the February call, we are tracking a number of opportunities in the geographies that remain after our reshaping effort. The majority of segment revenue stems from programs in the United Kingdom, with Canada and the Gulf Region comprising the balance of the segment. Our goal remains driving growth and further margin improvement in this segment by building scale in those limited geographies, all of which have a corresponding set of pipeline opportunities. Moving to cash flow items, cash provided by operating activities was $190 million and free cash flow was $179 million for the second quarter. We continue to expect improving cash flow across the year and are reiterating our free cash flow guidance for the full year of between $450 million and $500 million. As we anticipated and communicated last quarter, DSO remained elevated at 78 days driven by ongoing administrative delays at a major federal customer. We are working diligently with this customer to process the outstanding invoices and we expect collections to accelerate and thus DSO to trend downward and finish fiscal year 2026 below 70 days, driving strong second half free cash flow. We currently believe that DSO may remain elevated as of June 30, then improve in our fourth fiscal quarter. Of note, we also expanded our receivables purchase agreement from a ceiling of $250 million to a ceiling of $350 million. We view this as a helpful and low-cost tool to help manage short-term liquidity needs. We ended the second quarter with total debt of $1.55 billion, representing a slight reduction from the first quarter balance. Our consolidated net total leverage ratio per our credit agreement was 1.8x and unchanged from the ratio at December 31. We remain below our stated target leverage ratio range of 2x to 3x. During the second quarter, we repurchased approximately 1.4 million shares totaling $111 million, and subsequent to quarter end through May 1, we repurchased an additional 600 thousand shares totaling $40 million. We were pleased to announce this morning a Board-authorized refresh of our share repurchase program for further share repurchases up to an aggregate of $400 million, effective May 11. Let me expand on our thinking and provide some context for capital deployment in the near term. This fiscal year, we have been carefully managing our cash through the DSO dynamics I mentioned. In the second quarter, we deployed the majority of our free cash flow to share repurchases. We have long said that we are opportunistic in our share repurchasing. To be more direct, we prioritize repurchasing when we believe our share price does not reflect the intrinsic value of the business based on a disciplined and conservative assessment. Going forward, we will continue to execute on our capital deployment priorities while considering near-term liquidity, the potential M&A opportunity set, and all within the constraint of our stated target net debt ratio of 2x to 3x. Even amidst market conditions that are favorable to share repurchases, we continue to seek acquisition targets to accelerate longer-term organic growth. We remain focused on targets that add capabilities, add and expand customer relationships, and create revenue synergy opportunities. We also remain disciplined in our evaluation of targets and require that valuations must be reasonable in the context of current market conditions, and the expected return must exceed our cost of capital. Moving to guidance, we are raising our fiscal year 2026 earnings outlook for the second consecutive quarter, and we are reiterating both revenue and free cash flow guidance. Starting from the top, we expect that fiscal year 2026 revenue will range between $5.2 billion and $5.35 billion. Our full-year adjusted EBITDA margin guidance for fiscal year 2026 is now approximately 14.2%, which is a 20 basis point improvement from prior guidance. Our adjusted EPS guidance increases by $0.20 and is now expected to range between $8.05 and $8.55 per share. It is notable that this represents 14% year-over-year growth at the midpoint of the new adjusted earnings guidance. Finally, free cash flow is expected to range between $450 million and $500 million. While the timing of specific receivable collections always has the potential to cause significant cash flow variation at the end of a given period, the guidance reflects our expectation that DSO will finish the fiscal year below 70 days as we catch up on collections from the major federal customer. I will provide some color on full-year operating margin assumptions for the segments. We expect the U.S. Federal Services full-year segment operating margin to be 17.5%. For U.S. Services, we expect approximately 10%, with the update reflecting the $6.9 million non-cash charge this quarter. And for Outside the U.S., we are expecting the segment to be roughly breakeven on a full-year basis. Other updated assumptions include expected interest expense of roughly $84 million, and we anticipate our full-year tax rate to range between 24% and 25%. I will conclude with updated thinking around our near-term margins. Approximately 18 months ago, we laid out a near-term adjusted EBITDA margin target range of 10% to 13%. At that time, our margin was around 11.6%, and we are now guiding to approximately 14.2% for fiscal 2026. Much of the improvement has come from technology enhancements and cost actions that we believe have staying power. Given that progress, we are raising our near-term adjusted EBITDA margin target range to 12% to 15%. We expect to operate toward the upper end of that range in periods with stable volumes and continued technology leverage, while recognizing that new program ramps and mix can affect margins in any given year. Meanwhile, revenue is holding within the range we set out for fiscal 2026 despite difficult comparable periods that we anticipated and communicated. Looking forward, we believe that our robust near-term pipeline is of high quality and capable of driving awards and revenue contribution in the coming quarters. With that, I will turn the call over to Bruce. Bruce L. Caswell: Thanks, David, and good morning. At roughly this point last year, I shared progress on our multiyear transformation initiative where we streamlined certain areas of the business, driving cost out and funding investments in technology, primarily in the area of AI-enabled automation. Those investments are improving our operations and enabling us to scale a business that already supports roughly one in three Americans who rely on the programs we deliver for government. At the halfway point of fiscal year 2026, our results provide further evidence that the investments we have made in technology, automation, and AI-enabled tools are improving execution across the enterprise. Our second consecutive earnings guidance increase reflects that progress and suggests that we are slightly ahead of the technology leverage goals we set at the beginning of the year. We also believe that we remain well positioned to execute against our capital deployment priorities, including selective investments in capabilities that strengthen our differentiation, potential acquisition targets that could accelerate longer-term organic growth by augmenting capabilities and customer access, and share repurchases supported by the Board-authorized $400 million program refresh. As a reminder, we remain focused on the federal, defense, and national security domains for our inorganic priorities. I will focus my remarks today on three areas. First, the growing emphasis across government on fraud prevention and program integrity. Second, how we are accelerating AI and automation in our solutions and across Maximus, Inc. And third, the progress we are seeing with state customers around Medicaid community engagement (also called work requirements), SNAP, and unemployment insurance administration. Our government customers want programs that work—programs with integrity that are effective, efficient, and trusted—delivered by partners free from conflicts of interest, often under performance-based contracts structured to provide transparency and accountability to outcomes. Increasingly, better technology and data quality is helping customers flip the model to combat fraud upfront rather than relying solely on after-the-fact detection, often referred to as pay-and-chase. The technology-enabled services that Maximus, Inc. provides to government are designed to embed integrity directly into program operations, using analytics, automation, data matching, and increasingly AI-supported workflows to drive execution and support oversight without slowing service delivery. It is important to emphasize our role in this ecosystem. As I have commented in the past, Maximus, Inc. does not make policy, but we do help operationalize it. Our focus is on translating policy intent into practical technology-enabled solutions that strengthen program integrity and reinforce public trust. We are seeing growing bipartisan alignment around this approach. A number of customers are using advanced data matching and analytics to address issues like concurrent enrollment, where Medicaid beneficiaries may be enrolled in multiple states concurrently, connecting data sets across programs to ensure enrollment integrity. Technology allows these checks to happen faster, more accurately, and at scale, increasingly preventing enrollment errors before they occur. As a trusted partner to government, we develop data-driven insights through tens of millions of interactions with citizens each year. That data matters not just because it provides our teams and our customers real insight on the user experience—how people engage, where they struggle, and how they make choices—but moreover, this data is increasingly informing models that are designed to improve program delivery, eliminate friction, prevent fraud, and improve outcomes for our customers. Fiscal 2026 has seen a planned acceleration of AI across Maximus, Inc. through a company-wide initiative, and I am pleased to provide an update on our enterprise activation. AI is already enabling Maximus, Inc. to deliver even greater value for our customers. Our solutions are accelerating service delivery, providing deeper insights on program effectiveness, enabling rapid adaptation to changing policy and mission priorities, and increasing operating leverage and scale. Let me begin with two customer-focused proof points. First, our Total Experience Management, or TXM, solution that I briefly mentioned on the last call is capturing the attention of government customers and winning in the marketplace. In fact, one representative of a federal agency acknowledged TXM as the most sophisticated deployment of AI in a contact center environment that they had seen to date. We continue to invest in TXM as we address this multibillion-dollar government market. Second, our AI accelerator team rapidly implemented an innovative solution developed in-house using a combination of generative and probabilistic AI to streamline high-volume claim processing on a core program where we serve as an independent dispute resolution entity. Nearly half of the effort required in processing claims is now handled through automation, enabling staff to focus on outcome accuracy and more complex cases. Our AI focus has been straightforward: we are deploying it where we believe it helps our customers run programs with greater integrity, speed, and consistency, and where it is designed to measurably reduce friction for the people those programs serve. Doing that responsibly requires more than a model. It requires a methodology that leverages domain knowledge, brings the workforce along, embeds controls into workflows, and integrates securely into legacy environments. We are intentionally acting as customer zero for many of these initiatives. In the government context, where trust and proven execution are critical, we believe that this matters. Through internal use, we gain firsthand insight into what drives adoption, the governance and controls required, how to integrate with real-world workflows, and what it takes to move from a successful pilot to scalable, sustainable operations. We are already seeing the impact of our AI investments applied at scale on certain programs. I only expect this to grow as we move from pilots to scale with high-value contact center use cases—from call deflection to summarization, from training to quality assurance, from intelligent document processing to real-time fraud detection. Our toolkit is broad, and includes proprietary techniques developed through our R&D investments, venture investments and partnerships with early-stage companies, and preferred relationships with industry leaders. That said, I am optimistic about the ultimate potential for AI for our customers as we are in the early innings with regard to deploying some of our most sophisticated AI solutions. These solutions have the greatest potential to transform delivery models with speed and cost-effective delivery of high-quality, complex services. As an example, through our Corporate Venture Capital function, we invested in the health AI domain to create new intellectual property that we plan to deploy in the near term. This IP uses knowledge graphs and a complex clinical ontology to provide decision support traceability for clinical assessments that government programs require. While we are advancing with the rapid pace of AI developments, we also acknowledge the still-evolving federal and state government regulatory environment, as well as the limitations of legacy systems which we often must integrate. An equal, if not more important, consideration of course is the environment of public trust that is foundational to the programs we administer on behalf of government. Finally, as you would expect, no area of the business has been exempted from our AI enablement. From back office operations such as AP invoice processing, to our business support functions like legal and human resources, to enterprise technology development, we are examining every aspect of how we work and create value. For employees, our generative AI tools delivered through familiar channels like Microsoft Teams are designed to streamline common tasks and are poised to evolve as agentic orchestration matures in the enterprise. So to summarize, we are executing as planned, moving with speed and urgency but also respecting the pace of our customers. We are demonstrating the art of the possible, backing it up with proof points, and differentiating Maximus, Inc. in winning new work and our rebids. We view our combination of domain knowledge, ability to gain insights from large operational datasets, and our industry-leading tech talent as a powerful competitive differentiator. Next, I will share how the procurement environment looks for us today. On the federal side, particularly in civilian agencies, the shortage of acquisition professionals continues to make forecasting procurement timelines difficult. In an environment where awards have shifted right, protests have increased, further delaying outcomes. Moreover, certain technology modernization initiatives—again, particularly in civilian agencies—have been slow to manifest in formal procurements, although the underlying demand signal is strong. That said, we believe momentum is starting to build, and we will be in a good position heading into next year. On the state side, we are seeing solid traction in a number of areas related to H.R. 1, or the Working Families Tax Cut Act. Presently, there are two states working with us toward arrangements that could utilize our existing contracts to support Medicaid community engagement, or MCE, compliance. Depending on the contracting mechanism, these opportunities may either show up as higher volumes under existing contracts or be reported as new awards. One of these examples we estimate could drive a more than 30% increase in current program revenue, subject to final scope and implementation timing. More broadly, states remain actively engaged in both planning and delivery to address Medicaid needs, and the momentum we are seeing is consistent. The timing of final MCE regulations has necessitated that states leave placeholders in their operating plans until regulations solidify, which is expected next quarter. Following that, we believe action by customers to put in place solutions where we play a role could accelerate. We are also making good progress on positioning Maximus, Inc. to assist states in lowering SNAP payment error rates through our Accuracy Assistant offering. After multiple rounds of demos being well received with certain customers, our conversations are increasingly focused on integration, technical detail, and indicative pricing, which tells us that we have moved beyond concept and into serious implementation planning. Senior state officials have commented on the comprehensiveness of our SNAP solution, noting that Accuracy Assistant is the only truly end-to-end complete vendor solution they have seen. Finally, we are seeing renewed traction in unemployment insurance administration, representing a small but important pipeline. We view this as both reflecting current economic conditions and also the greater flexibility granted to states to use private partners for this work—a development championed by Maximus, Inc., of which I have spoken previously. Moving now to our award metrics and pipeline, our year-to-date signed contract awards as of the end of the second quarter were $913 million of total contract value. In addition, at March 31, we had a balance of $322 million worth of contracts that had been awarded but not yet signed. These awards translate into a book-to-bill ratio of approximately 0.5x using our standard reporting for the trailing twelve-month period. The second quarter had a quarterly book-to-bill ratio of 0.5x, reflecting sequential improvement from the prior quarter’s figure of 0.2x. Turning to our total pipeline of sales opportunities, we had $56.8 billion at March 31, comprised of approximately $4.6 billion in proposals pending, $1.5 billion in proposals in preparation, and $50.7 billion in opportunities we are tracking. The share of new work in the total pipeline is 59%, and the U.S. Federal Services segment share of the total pipeline is 58%. Finally, even as states await final work requirement regulations expected this summer, I am pleased that the second quarter pipeline includes an H.R. 1-related opportunity set that increased 75% compared to our tracking of this set last quarter. The other positive sign of H.R. 1 progression is that our forecast for U.S. Services includes mid-single-digit organic growth in Q4, providing early momentum as we enter FY 2027, with improvement possible as the H.R. 1 pipeline matures and converts. In all, I am proud of the team for their continued focused execution this quarter, for the momentum we are building to capitalize on market opportunities, and for the enterprise-wide focus on our continued evolution as a leading provider of technology-enabled solutions to government. We will now open the call for questions. Operator? Operator: Thank you. We will now open the call for questions. Our first question is from Will Gilday with CJS Securities. Analyst: Good morning. Thanks for taking our question today. Hope you are well. I guess for David, any more color on the higher DSOs in the quarter? And you refreshed the buyback authorization, but how are you thinking about capacity for share buybacks considering the cash flow lumpiness? David W. Mutryn: Yes, thanks. A little more color on the higher DSO. It stems from a major federal customer, as I said, and it is the same customer that contributed to the temporarily higher DSO in our fiscal year 2025. We did anticipate a buildup of accounts receivable in our November guidance and then again in February when we said we expected DSO to remain elevated in Q2. A little more detail: this is a large program with extremely complex and data-intensive invoicing requirements. The slowdown in collections has occurred since November as we have worked with our customer on incorporating new and evolving requirements, many of which are retroactive, so may require rework of prior period invoices. This is a federal agency. We are operating under a funded contract, so we have full confidence that the outstanding invoices will be collected. We continue to regularly collect, but this customer’s AR increased in Q2, and our current view is that it may remain flat in Q3 before declining in Q4 as we expect to catch up and collect more than our revenue. That matches with my prepared remarks that we believe DSO may remain elevated as of June 30, then improve in Q4. Near-term cash flow plays into our thinking, as I said, among other factors with the share repurchase, including the valuation as well as any near-term M&A opportunities. We factor all that into our repurchase calculations. Analyst: That is super helpful. Thank you. And then thinking about H.R. 1 opportunities in SNAP, you talked about that error prevention solution and the good response from potential customers. Are you currently marketing or planning to bring to market other solutions for SNAP? Bruce L. Caswell: The heart of the solution is the Accuracy Assistant tool, which has been very well received in the marketplace. As I mentioned in my prepared remarks, we have had customers say that it is the most comprehensive end-to-end tool out there. Those very same customers have now come to us and said, “How do we get this implemented? What would the indicative pricing be?” At the heart, it is really that tool and then the services we can wrap around it to help states identify instances where there could be inconsistencies. The tool surfaces inconsistencies in the data, and then the BPO services are used to contact beneficiaries, obtain corrections, and ensure an accurate eligibility determination. On the Medicaid side, we have a community engagement tool designed to allow beneficiaries first to navigate whether they actually need to comply with the work requirements, because they may have conditions that meet the qualifications for exemption. There is an entire upfront process where individuals can apply for an exemption; that has to be determined, and they have appeal rights if they do not agree with the outcome. If they pass through that process and need to demonstrate compliance with the 80-hours-a-month work requirement, the tool—mobile app–style—allows them to upload a timesheet or other evidence that they may have, whether volunteering or working. We use our intelligent document processing solution, which is AI-enabled, to ensure that those documents appropriately reflect the hours worked from a federal compliance standpoint in the core legacy system. There is a lot of tech we are building as part of this. As I mentioned, our view about implementing AI for our customers is that it is not about having a shiny tool. It is about understanding workflows, establishing governance and guardrails, bringing along the staff who will be using these tools because it requires retraining, and most importantly, working with customers to ensure that the public trust they have created with these programs is maintained, and if anything, enhanced through the use. We feel like we are in a great position to help our customers navigate H.R. 1. Analyst: That is great color. Thank you. And then just asking for some more color on the state side. What are the dynamics that have driven revenue declines in the first two quarters of the year, and why are you confident in a return to growth by Q4? David W. Mutryn: Yes, sure. We had expected the year-over-year comparisons to improve over the remaining quarters—we said that last quarter—and Q2 is sequentially up from Q1, so we are seeing that play out. I mentioned in the prepared remarks that there was an element of higher clinical work in the prior-year period in U.S. Services as well as U.S. Federal. On the U.S. Services side, a few of our larger clinical contracts in the segment had some state-specific dynamics that drove a reduction in volume year-over-year, not indicative of any broader trend. Our confidence in Q4 is really driven by the H.R. 1-related activities, which we expect to see coming in Q4. That sequential growth in U.S. Services actually drives our expectation that for the whole company, revenue and earnings should be a little higher sequentially in Q4 versus Q3. So that is a little quarterly color while I am at it. Analyst: Thank you. And then you keep raising the margin outlook on U.S. Federal based on tech initiatives and efficiency gains. Maybe add some more color on exactly what those efficiency gains are and why we have not yet seen a similar dynamic in the U.S. Services segment? Bruce L. Caswell: First, our federal contracts are generally larger, meaning that when you implement technology initiatives, they get applied in that segment to programs that are larger from a scale and volume standpoint, so they are by definition going to be more impactful on the margins of the business. Second, many of our U.S. Services contracts, particularly in Medicaid and the health benefit exchange area, involve us delivering services directly to consumers, and that issue of public trust is front and center for our state customers. As a consequence, they have expressed decidedly more caution in the adoption of AI and other automation tools without first really understanding how guardrails can be put in place to ensure compliance with program regulations, which is super important to them. It is also worth noting that there is a patchwork quilt of regulations at the state level that our clients must individually navigate, whereas that is less the case at the federal level presently. Third, U.S. Services contracts certainly have great incremental technology opportunities in them, but they also operate in a fairly sophisticated environment that incorporates a lot of state systems. Therefore, there are multiple points of integration with state legacy systems required in executing our program delivery model. To give you an example, in one state our employees are trained across five different state systems in order to do their work. Environments like this are much more challenging to apply automation to, particularly when this has to be done across multiple vendor contracts that must be coordinated. Finally, to overlay all of this, our state customers already have a lot on their plates, particularly with the requirements for implementing H.R. 1. In many cases, they have limited bandwidth and do not have the budget resources to do a lot more than that. Performing the “system surgery” needed to really drive significant automation and change an already very stable and positive end user experience has become less of an immediate priority for them. David W. Mutryn: No. That is great. Thanks. Analyst: Switching back to federal, do you have any updates on the VBA contract? Is a recompete still expected in the summer, or do you think there will most likely be an extension? And you have an industry day later this month—what are you looking to accomplish or learn there? Bruce L. Caswell: The current contract, as a reminder, goes through December 31, 2026 for all vendors. The VA has not yet released a formal timeline for the rebid, and we expect to learn at the upcoming industry day what that timeline is intended to be. Generally speaking, agencies across government have the ability, if needed, to extend existing contracts as they complete their recompete process. We do not know yet if the VA will need or intend to do that; we may learn that at the industry day as well. We would expect to be able to share more information on subsequent calls as it becomes available from the customer. In the meantime, we are remaining completely focused on providing first-class service to veterans and to the VBA. We think we have earned the reputation for delivering a high-quality veteran experience. This is very much made possible by the many employees in our Veterans Evaluation Services subsidiary who themselves have served and are veterans. They understand the experience and how to navigate these programs, and they do so with a great deal of empathy and compassion. We feel like we are delivering great value to the VBA under the current contract and therefore we are optimistic about the future outcome of the rebid. We have a strong track record with the VBA, demonstrated delivery capabilities at scale and capacity, and we have made significant technology investments—continuing to invest—in further improving the veteran experience, with a specific focus on reducing the time that veterans spend in our portion of the MDE claims process. That is the update I am able to provide at this time. Analyst: Thank you. And outside of the VBA, are there any notable recompetes over the next 12 to 24 months? Bruce L. Caswell: Nothing that I would call out in particular. As you have noted, the veterans exams recompete is the largest. Everything else is kind of normal recompete cadence within our contract portfolio. As I noted in my prepared remarks, we are seeing bid determinations—including rebid determinations—moving to the right, both on the federal and the state side. That is not necessarily a bad thing, because often our work can be extended while we are awaiting the outcome of rebids, and our rebid win rate remains very high. So it is not a bad environment necessarily. Analyst: That sounds great. And just one more, more of a guidance question for David. On the federal side, are there any other tough comps to lap in these last two quarters? I know the emergency stuff was a tough comp for this quarter. David W. Mutryn: Yes. If you look back at fiscal year 2025, Q3 (June) was also very strong on the surge in clinical volumes, so that will remain a tough comp, as will Q4 to a lesser extent. James Francis: Thanks, Will. Operator, back to you. Operator: Thank you. This concludes our Q&A session and our call. Thank you for your participation. You may disconnect your lines at this time, and have a great day.
Operator: Hello, and welcome to the Aemetis, Inc. First Quarter 2026 Earnings Conference Call. Joining us today are Eric McAfee, Chairman and Chief Executive Officer; Todd Waltz, Chief Financial Officer; and Andy Foster, President of Aemetis Advanced Fuels. I will now turn the call over to Todd Waltz. Todd Waltz: Thank you, and welcome, everyone. Before we begin, I would like to remind you that during the call, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risk and uncertainty that could cause actual results to differ materially from those expressed or implied. Please refer to our earnings release and SEC filings for a discussion of these risks. For 2026, revenue grew 27% to $54.6 million compared with $42.9 million in 2025, with growth across each of the three reportable operating segments. Gross profit was $2.8 million in the quarter, a year-over-year improvement of nearly $8 million from the gross loss of $5.1 million in 2025. Operating loss improved approximately 60% to $6.3 million compared with $15.6 million in the prior period. Net loss improved to $21.7 million compared to $24.5 million in 2025. Production tax credits under 45C contributed $4 million of operating income during the quarter, $1.4 million in dairy RNG and $2.6 million in California ethanol, representing our first quarter of ongoing credit generation tied to quarterly production since 45z eligibility was established in 2025. Adjusted EBITDA for the quarter was negative $1.3 million, reflecting typical winter seasonality with stronger revenue and margin performance later in the quarter. Adjusted EBITDA and a reconciliation of EBITDA to net loss are described in our earnings release issued earlier today. Cash and cash equivalents at the end of the quarter were $4.8 million, comparable to year-end 2025. Capital investments in carbon intensity reduction and dairy digester construction totaled $6.5 million during the quarter. With that overview, I will turn the call over to Eric. Eric McAfee: Thank you, Todd. I want to highlight three key takeaways from 2026. First, Q1 was a financial inflection point. We grew consolidated revenue 27% year-over-year, posted positive gross profit, and improved operating loss by more than $9 million. All three of our reportable operating segments contributed to this result. Second, we benefited from the California Air Resources Board approval of seven new Low Carbon Fuel Standard pathways for our renewable natural gas business at an average carbon intensity score of negative 380 compared with a negative 150 default, which has been providing additional revenue at the higher LCFS value each quarter since Q3 2025. Six additional biogas digester pathways are nearing approval. These LCFS pathway approvals substantially expand the LCFS credit generation per MMBtu of RNG produced and will continue to drive meaningful revenue increases as we scale production. Third, our capital projects are advancing. We received the initial deliveries of dairy biogas pretreatment skids in April under our $27 million fabrication contract. Major equipment for the $40 million mechanical vapor compression project at our Keyes, California ethanol plant has arrived on-site and construction has begun. In dairy RNG, we sold 110 thousand MMBtus in Q1, a 55% increase over the same quarter last year. With H2S cleanup and biogas compression equipment contracted for 15 additional digesters, and four of the equipment units already delivered by the vendor, we are on track to double our operating dairy network with construction into 2027. At our ethanol plant, the MBR project is on track for completion later this year. The system will use on-site solar and grid electricity to displace approximately 80% of the fossil natural gas consumption at the plant. We expect MBR commissioning later this year to add approximately $32 million in annual cash flow from operations, including additional 45z and LCFS uplift from the expected reduction in the carbon intensity of the ethanol produced by the plant and cost savings on natural gas. In India, biodiesel revenue rebounded to $10.5 million in Q1 with the resumption of Oil Marketing Company shipments under new contracts. This revenue growth supports our planned initial public offering of the India subsidiary, Universal Biofuels Private Limited, for which we have retained legal, accounting, and IPO advisers. Looking ahead, our focus for 2026 is scaling production, monetizing the stacked credit value of our renewable fuels platform, completing the India IPO, and the refinancing of existing debt into long-term financing. The principal catalysts we are tracking through the year include the publication of the updated 45z GREET model by the Department of Energy to significantly increase revenues and margins, commissioning the MVR at the Keyes Ethanol Plant, rising LCFS credit prices caused by continued quarterly credit deficits, and progress on the India IPO. Thank you to our shareholders, analysts, and partners for your continued support. Operator, let us take some questions. Operator: We will now open the call for questions. Certainly. The floor is now open for questions. If you have any questions or comments, please press 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if you are listening on a speakerphone to provide optimum sound quality. Please hold for just a few moments while we poll for any questions. Your first question is coming from Matthew Blair with TPH. Please pose your question. Your line is live. Matthew Blair: Thanks, and good morning, Eric. Certainly a lot of things going on at your company, but I was hoping you could talk about the possibility of the RD and SAF plant that has been on the table for a few years now, just in light of the very robust 2026 and 2027 RVO that materially increased the biomass-based diesel requirements. How are you thinking about that RD and SAF project? And maybe you could refresh us on how much it would cost and what kind of capacity it would provide. Thank you. Eric McAfee: Thank you, Matt. The capacity is 80 million gallons a year of SAF, or if we run it only in renewable diesel mode, it is 90 million gallons. And as you know from previous reports, we have 10 different airlines we signed definitive agreements with, etc. We got full permitting approval for construction to begin in 2024. However, market conditions in renewable diesel and SAF were hampered by a new president being hired that, of course, happened in late 2024. That caused the financing markets to take a delay in looking at SAF and RD. You have done a very good job covering margins at renewable diesel producers. Just yesterday in California, Phillips 66 announced they are running above their nameplate capacity on their renewable diesel plant. And certainly, the events since March 1 have driven the price of the molecule up substantially. LA quotes SAF in neat form at $9.80 a gallon as of yesterday. So the market conditions have moved in our favor significantly compared to where we were in late 2024 with a new president being hired who certainly had a policy position that needs some clarification. We are definitely in a position right now in which there is frankly a lot of interest in new SAF production. I would say that the uncertainty in the last few months has given a new certainty to the need for domestic production of renewable fuel and a clarity that airplanes are not going to fly on hydrogen, batteries, nuclear power, or any other sort of energy source other than liquid fuels for the foreseeable number of decades. So we positioned this project specifically for the conditions we are in right now: high price of crude oil alternatives and, frankly, coalescing enthusiasm for the renewable version, which is sustainable aviation fuel. So we are definitely making progress on the financing; that is actually the only remaining part of this. We have the authority to construct permit in place for the facility, and market conditions continue to be in favor of that. That 80 million gallons, of course, if we are selling at $9.80 a gallon, is almost $800 million additional revenue. And I think the industry today is reporting roughly $1.60 a gallon of operating margin. So, obviously, a very positive improvement in our company’s overall revenue and EBITDA growth. But I am going to wrap this up by saying that there are actually four different sources of revenue for that plant, and 45z, the clean fuels provision, is still an unknown. We do not have the updated 45z. It is absolutely expected anytime soon, certainly before June, that the Republicans need to post it. And since there are four revenue streams—you sell the molecule, you sell the California credits, the federal credits, and then receive the 45z production tax credit—that is having an impact on the timing of our financing. Most lenders especially are interested in knowing what the 45z revenue is for this project. Federal law is passed. Treasury adopted their guidance in February 2026 for 45z, but the actual calculator on the Department of Energy website is going to be—that spreadsheet needs to be posted with the updated rules in the spreadsheet in order to finalize that fourth leg of the stool. I want to put that note on the table that that is having an impact. Of course, right now, the business works great without 45z, but people are curious to know what your total revenue is if we are doing a project of that size. Matthew Blair: Sounds good. And then the India biodiesel operations—nice to see them restarted in the first quarter. It looks like profitability is essentially breakeven, maybe a little bit below. Could you talk about your expectations for the second quarter? Do you think volumes will be in a similar range as the first quarter? And I think we typically see some margin improvement in the second quarter as you are able to shift different feedstocks. Do you think that will happen in the second quarter this time around? Thank you. Eric McAfee: Thanks, Matt. Let us talk about the overall trend in India, because it is very important for investors to understand that India is a socialist country, and they have elections that occurred in May. In order to support the existing government, a decision was taken by the government to set the price of diesel at the same price in March and in April as it was in January and February. There is no change in the price of diesel. I think most people on this call would understand that the price of diesel and crude oil dramatically increased in both March and April, but in India, it did not. So as of today, when you go to the pump in India, you do not know that the Iranian war happened from the price of the diesel at the pump. That means that the government is running a very large negative from their expected tax collections from diesel, and the Oil Marketing Companies are losing a very large amount of money every single day on selling diesel because they are buying crude oil at high prices and then selling it at prices below cost in India. That is about to change, and it should happen in the next few days that the price of diesel in India dramatically increases. The Oil Marketing Companies and the Ministry of Petroleum have known about this for two months and have been proactively meeting with the biodiesel and renewable diesel and sustainable aviation fuel producers—or to-be producers—in the country in order to come up with a much more solid program for us to be able to utilize all of our production capacity. We have an 80 million gallon plant that has been operating recently at 10% capacity. There has been a renewed focus on domestic renewable fuels in India. With the policies already in place, the National Biofuels Policy is 5% blended biodiesel in a 25 billion gallon market. That is about 1.25 billion gallons. Unfortunately, they are not at 5%; they are at a 0.5% blend right now, and that is rapidly changing. So you asked about second quarter. I would put it in the context of the trend of this year. We are seeing dramatic increases and, frankly, signing larger contracts and going back to the cost-plus contract model, which is what is in process right now in India. During the course of the next few months, I think you will see that kind of certainty come into play. Our IPO is really being built around us working on that reality that those policies need to be known and need to be adopted. We are setting up our IPO to be directly correlated with when those policies are adopted. I think it will have a very positive impact on not only the valuation of our business but how much money we raise. We are seeking for the IPO in India to be truly a breakout opportunity. We are looking to build the first global diversified renewable fuels business ever to go public in India and certainly anticipate that that will be the positioning we have and that the events of the last two months are having a very significant impact on India and focusing them on redirecting themselves to these policies that they have already got in the books but they have not been fully enforcing. Matthew Blair: Sounds good. Thanks for your comments. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Nate Pendleton with Texas Capital. Please pose your question. Your line is live. Nate Pendleton: Morning. Do you provide more color around the financing commentary from the release? Just looking to better understand some of the options that are available to you on addressing the debt broadly. And then more specifically, what are you looking at with regard to Keyes and then the status of the refunding for the dairy RNG projects? Eric McAfee: The improved margins and, frankly, now recovery of confidence in the need for domestic renewable fuels is directly expanding our refinancing opportunities. We have been funded and supported for the last 18 years by roughly a $3 billion fund out of Toronto that holds our senior debt, except for the $50 million of U.S. debt that we have, and our expectation is that we will continue to have very positive trends toward having municipal bond financings available to us. Municipal bonds have been used by the renewable fuels industry for a variety of basically greenfield projects. We, of course, are not greenfield; we are expansion. We are actively in the market right now working on a municipal bond type refinancing of our existing bridge financing we got from Third Eye Capital. The Renewable Energy for America Program at USDA is active, but they have slowed down their expansion in renewable fuels in a portfolio review process. The timing of that seems to be changing on a regular basis. As they make a review of their portfolio goals, they will be expanding or not expanding—it is really quite uncertain, to be frank with you. The rapid expansion of interest in the municipal bond and even commercial credit markets, certainly private credit markets, all of which we have had active discussions with, I think are going to overshadow our Renewable Energy for America Program funding. I think we will be seeing much larger financings and moving much quicker than what the USDA program currently looks like for our company. Nate Pendleton: Understood. Thanks, Eric. And then I just wanted to get your perspective on LCFS prices for a moment. While the market has flipped to deficit generation recently, prices have broadly remained quite muted. Can you talk about your expectations for that market going forward? Eric McAfee: I think we are going to see a rapid price increase during the summer and early fall. What muted the deficit—that is, we had our second quarterly deficit on April 30, and that was for the fourth quarter of last year. So there is a trailing deficit announcement. It is literally four months after the end of the physical quarter when the announcement happens. But the price being muted was an expectation by traders that people would not drive as much with high gasoline prices. Interestingly enough, on a formulaic basis, gasoline currently represents roughly 2% of the income of the average American, and I think traders over-traded on this one. They were not anticipating that the Iranian war would actually not be as big of an impact on driving as what it has—or they thought it would have a bigger impact than what it really did. It did not have as big an impact, especially in California. LCFS credit deficits, however, are not driven just by consumption of gasoline. It is also driven by how many credits come from renewable diesel. Renewable diesel is the reason we got such a large 40 million credit bank, and renewable diesel has underperformed in Q4 last year and the first part of this year. I expect it to underperform in credit generation. So if you have fewer credits being generated, quite frankly, it was a lot more of a deficit than what was expected because there were fewer renewable diesel credits generated. We think the LCFS price trend is absolutely upwards. The question of pace has been impacted by the Iranian war. That play did not quite work out, and so we do expect increases to continue. There are plenty of credits in the market; it is not that issue. The issue is: do you want to pay $200 for it 18 months from now when there are very few in the credit bank? So it is a question of major oil company traders over the next 18 months at some point in time reaching a tipping point at which they decide they do not want to have to be buying $200 credits. They might as well get out there and buy whatever they can on the market. When that happens, you will see a very rapid price rise. I would not be surprised at all to see $150 in 2027 as traders see the cap as $268, and they want to get their book filled up as soon as possible. Nate Pendleton: Got it. Thanks for the color, Eric. Eric McAfee: Sure. Thank you. Operator: Your next question is coming from Sameer Joshi at H.C. Wainwright. Please pose your question. Your line is live. Sameer Joshi: Hey, good morning, good afternoon, Eric. Thanks for taking my questions. On the MBR, I understand it is going to be deployed before the end of the year. Are there any additional certifications or verifications needed to be done before you can start generating that $32 million annualized return from it? I know some of it will be immediate because of lower natural gas consumption, but for the other incentive-based cash flows, do you need to do anything? Andy Foster: Thank you for your question. No, there are no additional certifications necessary. We received an authority to construct from the air district, which is really the big number that we have to get crossed off before we can proceed with the project, and that was received last year. We have some local permits that are sort of ongoing as you do construction, but we do not have any requirements for additional permitting or authorization in order to proceed. Construction has begun. We have begun demolition on existing concrete structures. As Eric mentioned in his comments, we have received most of the major equipment stateside now. We received the turbofans from Germany last week. The main evaporator was received from PRASH in India about a week ago. It is currently in transit to the Keyes plant. All of the big-ticket items that take a long time to fabricate are either on-site or will be on-site within the next week or so. Sameer Joshi: Got it. Thanks for that, Andy. Moving to the India OMC activity there—thanks for the color that you provided, Eric, to the previous question. But in terms of pricing that will be available for you, do you expect it to be premium pricing relative to what you got in the last year, for example, or are getting currently? Eric McAfee: Yes, there is definitely premium pricing, actually. The next contract is already being discussed. The structure of a cost-plus contract—which we did $112 million of revenue and about $14 million of positive cash flow last time we had a cost-plus contract—is being strongly considered as a replacement for what they have done in the last couple of years, which was this uncertain sort of pick-a-number-and-see-what-happens kind of structure. We covered this a couple of years ago with investors, but just a reminder: the cost-plus structure was after many years of working with the government to come up with something that was going to expand capacity utilization in India. It worked very well. Then the India government passed a 20% tariff on the feedstock that was being used by the industry, and therefore the price of the formula went up 20% after they had issued us a contract. The Oil Marketing Companies did not want to take a loss, so they just did not take delivery. That created confusion in the market. That confusion has now gotten more clarified because of the very high-cost diesel and the need for them to start getting utilization in the biodiesel industry, and that is the resolution that is being worked out right now. We do expect to return to better conditions for full capacity utilization. India imports over 90% of its crude oil and really needs to expand its domestic production of renewable fuels. Sameer Joshi: Understood. Thanks for that. And then just one last one. You did mention you got seven LCFS pathways approved for the negative 380. Six are being worked on. Should we expect those to occur in the first half, or is it a second-half event? Eric McAfee: There is a strange delay in the process. We expect the approvals to occur, but then they are a look-back a couple of quarters. If we get an approval, for example, at the end of the fourth quarter, it is a look-back to the beginning of the third quarter. So an approval by December is actually effective July 1. Strange situation, but the reality is, yes, we do expect by the end of the year to see appropriate progress here with a look-back that looks like a six-month look-back because they do it the quarter after the closing of the quarter. We will keep the market apprised of progress here, and of course, we are focusing on moving it through the process as quickly as possible. Sameer Joshi: Understood. So that would potentially be a lump sum that you get if it is approved in the fourth quarter for the previous quarter? Eric McAfee: Yes, there might be a one-quarter catch-up, but in essence, it is just the delayed approval for the previous quarter—the way the government looks at it. Sameer Joshi: Thanks a lot. Thanks for taking my questions. Eric McAfee: Thank you, Sameer. Operator: Your next question is from Dave Storms with Stonegate. Please pose your question. Your line is live. David Joseph Storms: Good morning, and thank you for taking my questions. I wanted to stick with the dairy digesters. I believe you mentioned on the call you are expecting another 15—doubling your digesters by 2027. Can you just remind us when you actually get the investment tax credits related to those investments, and maybe just your thoughts around the monetization of those net credits? Eric McAfee: Good question. We get the tax credits upon the completion—the what they call in-service date—for each single digester. So we do not have to build all 15 of them and then add six months to that or anything. As we build each digester and it goes in service, we generate the section 48 investment tax credits. We have sold about $95 million of these tax credits. We tend to sell them in $5 million or higher increments, though that is not absolutely required, and we do expect to have a single party this year acquire each one of the investment tax credit projects that we generate. We will be seeking to do at least once a quarter. There is a potential to do it more than once a quarter depending on how many new units are completed. We expect this to be probably a third-quarter contribution but could be quicker than that. The market is moving quickly, and we have some refinancing activities going on that certainly are very positive for the business. We have already fully financed the construction of $27 million of H2S and compression skids. The process is going on; we have received four of them already and have more coming. We are rapidly executing on portions of this project right now. The investment tax credit delay is a month or so after the in-service date if we were doing it in the ordinary flow of business, so not a whole lot of delay between when the project is completed and when we get the cash. David Joseph Storms: Understood. That is very helpful. And then just sticking with those potential new digesters, do those come online at the negative 380 qualification status? Or how does that process look? If they do not come on at the negative 380, what do you think the current timeline is from the negative 150 to the negative 380? Andy Foster: Are you speaking about the new digesters that are not built? Correct. Given the temporary pathway score of negative 150, then once we go through the process with CARB—which hopefully now that they have moved to a Tier 1 approval process will be significantly shorter than what we have experienced in the last few years, which is this kind of 24- to 36-month approval process—it should be more like nine months. Then we would get the benefit of that higher—or lower, however you want to look at it—CI score. So initially it is a negative 150, and as you work your way through the approval process, then you go to the blended rate of the negative 380. David Joseph Storms: That is perfect. Thank you for taking my questions. Eric McAfee: Thank you, David. Operator: Your next question is coming from Ed Woo with Incendiant Capital. Please pose your question. Your line is live. Edward Moon Woo: Yeah. Congratulations on all the progress, guys. My question is, as we are getting closer to the India IPO, what are your priorities, or what have you allocated in terms of what you are going to do with the capital raised? Eric McAfee: The India IPO is primarily designed to support the expansion of the existing projects in India and in California. Our existing projects in California, specifically focused on dairy RNG, would be a use of some of the proceeds of our India business. That is one of the reasons why it will be the first global diversified—not just biodiesel, but multiple different fuels—company to go public in India that offers the India investor access to a very well-established incentive environment here in California called the Low Carbon Fuel Standard. The federal government support of the Low Carbon Fuel Standard in California is matched by the Renewable Fuel Standard at the federal level and the 45z production tax credit and the value of the molecule. So the Indian investor has access to arguably one of the best markets in the world for renewable fuels, and that is a diversification of the growth in the India business. Another point we have made publicly is that as the largest biodiesel producer in India, we happen to be very well-positioned to build the conversion of a biodiesel facility into sustainable aviation fuel. So our India IPO not only is biodiesel and dairy renewable natural gas, but also a conversion into a SAF producer in India in addition to expanding biodiesel. It is a diversified business. The India market is very deep and wide and right now is about to have the shock of its diesel life with an incredible percentage increase in diesel costs as a result of what has been going on in the world. It is a perfect storm in favor of us as a producer in India who has been there for 18 years to open our opportunity to the public markets. We are making excellent progress, and certainly market conditions will determine the actual timing of what we do, but market conditions are trending in our direction. Edward Moon Woo: Great. Well, thanks for answering my questions, and I wish you guys good luck. Eric McAfee: Thank you, Ed. Operator: There are no further questions in queue at this time. I would now like to turn the floor back over to Eric McAfee for closing remarks. Eric McAfee: Thank you to Aemetis, Inc. stockholders, analysts, and others for joining us today. We look forward to talking with you about participating in the growth opportunities at Aemetis, Inc. Todd Waltz: Thank you for attending today’s Aemetis, Inc. earnings conference call. A written and audio version of this earnings review will be posted to the Investors section of the Aemetis, Inc. website. Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone, and thank you for participating in today's conference call. I would like to turn the call over to Mr. John Ciroli as he provides some important cautions regarding forward-looking statements and non-GAAP financial measures contained in the earnings materials or made on this call. John, please go ahead. John Ciroli: Thank you, and good day, everyone. Welcome to Montauk Renewables earnings conference call to review the first quarter 2026 financial and operating results and developments. I'm John Ciroli, Chief Legal Officer and Secretary of Montauk. Joining me today are Sean McClain, Montauk's President and Chief Executive Officer, to discuss business developments; and Kevin Van Asdalan, Chief Financial Officer, to discuss our first quarter 2026 financial and operating results. At this time, I would like to direct your attention to our forward-looking disclosure statement. During this call, certain comments we make constitute forward-looking statements, and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results or performance to differ materially from those expressed in or implied by such forward-looking statements. These risk factors and uncertainties are detailed in Montauk Renewables' SEC filings. Our remarks today may also include non-GAAP financial measures. We present EBITDA and adjusted EBITDA metrics because we believe the measures assist investors in analyzing our performance across reporting periods on a consistent basis excluding items that we do not believe are indicative of our core operating performance. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our slide presentation and our first quarter 2026 earnings press release and Form 10-Q issued and filed on May 6, 2026. These are available on our website at ir.montaukrenewables.com. After our remarks, we will open the call to investor questions. We ask that you please keep the one question to accommodate as many questions as possible. And with that, I will turn the call over to Sean. Sean McClain: Thank you, John. Good day, everyone, and thank you for joining our call. I am pleased to announce that we have commissioned our Montauk Ag renewables project in Turkey, North Carolina and are producing gas. We expect the production and sale of renewable electricity from our syngas to commence in May 2026 with revenue generation triggered upon the calibration of the sales meter from the interconnection utility. We have operated the full production line as part of the commissioning process and expect to be able to produce our targeted first phase of 47,000 megawatts, and 120,000 recs annually with approximately 50% of our installed reactor capacity. Our capital investment expectation for this first phase of the project remains unchanged at $200 million. We expect a ramp up in production volumes throughout 2026 directly related to additional feedstock collection. Our joint venture, GreenWave continues to address the limited capacity of R&G utilization for transportation by offering third-party RNG volumes, access to exclusive, unique and proprietary transportation pathways. During the first quarter of 2026, GreenWave's matched available dispensing capacity with available third-party R&D volumes, separated RINs and distributed RINs to the partners of GreenWave. We received approximately $1.4 million in separated RINs and distributed from GreenWave in the first quarter of 2026. In April 2026 we sent a letter confirming termination of our contract with European Energy North America, EENA, for the delivery of biogenic carbon dioxide. The termination was due to EENA failure to provide certain contractual assurances and notices related to the construction of their Texas-based methanol facility. We are currently exploring alternative offtake arrangements with interested parties at our [indiscernible] location. The timing of capital expenditures will be [indiscernible] with the finalization of replacement offtake agreements. We continue to anticipate a capital investment of between $30 million and $40 million. While we continue to diversify the company, our production of renewable energy from landfill feedstock remains a priority focus. The U.S. EPA issued the final rules for the 2026 and 2027 renewal fuel standard on March 27, 2026. The 2025 cellulosic volume requirement was reduced from $1.376 billion to $1.210 billion D3 rents with cellulosic waiver credits also having been made available for 2025 compliance. Hinocellulosic biofuel volume requirements for 2026 and 2027 were established at $1.360 billion and $1.430 billion D3 RINs, respectively. These volumes also represent an increase of $60 million and $70 million, respectively, from the preliminary RVO previously issued by the EPA. These volumes reflect the EPA's assessment of expected regeneration capacity and the related pathway and strengths of the end-use demand for CNG LNG transportation fuels derived from biogas. The EPA did not provide reallocations of D3 RINs as part of the 2026 and 2027 RVO in the final rule. This is primarily due to the statutory conditions on cellulosic biofuel volume requirements which do not allow the EPA to set the total applicable volume of cellulosic biofuel at a volume that is greater than the projected volume available, which necessarily excludes carryover cellulosic rents. And with that, I will turn the call over to Kevin. Kevin Van Asdalan: Thank you, Sean. I will be discussing our first quarter 2026 financial and operating results. Please refer to our earnings press release Form 10-Q in the supplemental slides that have been posted to our website for additional information. Our profitability is highly dependent on the market price of environmental attributes, including the market price for RINs. As we sell market a significant portion of our RINs, a decision not to commit the transfer of their low RINs during a period will impact our revenue and operating profit. . We sold all of our 3.9 million RINs generated and available for sale from our 2025 RNG production in the first quarter of 2026 at a realized price of approximately $2.42. We will not be impacted by the EPA making available cellulosic waiver credits from 2025 production. We have entered into commitments to sell approximately 60% of our expected RIN volumes in the 2026 second quarter. Total revenues in the first quarter of 2026 were $46.4 million, an increase of $3.8 million or 9% compared to $42.6 million in the first quarter of 2025. The increase is related to environmental attribute revenue of approximately $4.2 million from RINs sold related to RINs distributed from Green Wave and the RINs related to pathway dispensing. We had no such RINs in the first quarter of 2025. Our first quarter of 2026 RNG volumes sold under fixed floor price contracts decreased approximately 82.1% as compared to first quarter of 2025 as a result of the expiration of fixed-price pathway contracts. Our RNG commodity revenue decreased approximately 49.3%, which was offset by an increase in RINs sold of 25.5%. Total general and administrative expenses were $8 million in the first quarter of 2026, a decrease of $0.7 million or 8.4% compared to $8.7 million in the first quarter of 2025. The decrease was primarily driven by vesting of certain restricted share awards in 2025. Turning to our segment operating metrics. I'll begin by reviewing our renewable natural gas segment. We produced MMBtu during the first quarter of 2026, flat compared to 1.4 million MMBtu during the first quarter of 2025. Our Galveston facility produced 41,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of 2025 as a result of the landfill host assuming responsibility of wellfield operations and maintenance beginning in the first quarter of 2026. Our [indiscernible] facility produced 43,000 MMBtu more in the first quarter of 2026 compared to the first quarter of 2025 as a result of landfill host well food operational and collection system enhancements. Our Apex facility produced 37,000 MMBtu more in the first quarter of 2026 as compared to the first quarter of 2025 as a result of the June 2025 commissioning of our second Apex facility and increased feedstock gas from improvements we are making to the landfill collection system. Our McCarty facility produced 88,000 MMBtu fewer in the first quarter of 2026 compared to the first quarter of as a result of landfill host well-filled bifurcation and changes to the wellfield collection system. Revenues from the Renewable Natural Gas segment during the first quarter of 2026 were $38.1 million, a decrease of $0.4 million or 1% compared to $38.5 million during the first quarter of 2025. Average commodity pricing for natural gas for the first quarter of 2026 was 38.1% higher than the first quarter of 2025. In the first quarter of 2026, we self marketed 12.4 million RINs, representing a $2.5 million increase or 25.5% compared to 9.9 million RIN self marketed during the first quarter of 2025. Average pricing realized on RIN sales during the first quarter of 2026 was $2.42 compared to $2.46 during the first quarter of 2025, a decrease of 1.6%. This compares to the average D3 RIN index price for the first quarter of 2026 of $2.41 being approximately 0.6% lower than the average D3 RIN index price for the first quarter of 2025 of $2.43. At March 31, 2026, we had approximately $0.4 million MMBtu available for RIN generation, 0.2 million RINs generated but unseparated to 79,000 RINs separated and unsold. At March 31, 2025, we had approximately 0.3 million MMBtu available for RIN generation, 1.5 million RINs generated but unseparated and 3.9 million RINs separated and unsold. Our operating and maintenance expenses for our RNG facilities during the first quarter of 2026 were $14.4 million, an increase of $0.3 million or 1.8% compared to $14.1 million during the first quarter of 2025. Our Rumpke facility operating and maintenance expenses, operating and maintenance expenses increased approximately $0.4 million, primarily related to preventive maintenance media changes. Our Apex facility operating and maintenance expenses increased approximately $0.3 million, primarily related to increased utility expense, which was partially offset by decreased preventative maintenance media changes. Our Itasca site facility operating and maintenance expenses increased approximately $0.2 million, primarily related to wellfield operational enhancements. Our Dowerston facility operating and maintenance expenses decreased approximately $0.6 million, which was primarily related to the timing of maintenance of gas processing equipment and preventative maintenance media changes. We produced approximately 43,000 megawatt hours in renewable electricity during the first quarter of 2026, a decrease of approximately 3,000 megawatt hours or 6.5% compared to 46,000 megawatt hours during the first quarter of 2025. Our PECO facility produced approximately 2,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to the decommissioning of one of our engines in the second quarter of 2025 due to the shift towards boiler heat digestion process. Our Bowerman facility produced approximately 1,000 megawatt hours fewer in the first quarter of 2026 compared to the first quarter of 2025. The decrease is primarily related to original equipment manufacturer required life cycle maintenance of 1 hour engines beginning in the first quarter of 2026. Revenues from renewable electricity facilities during the first quarter of 2026 were $4.1 million, a decrease of $0.1 million or 0.8% compared to $4.2 million in the first quarter of 2025. The decrease was primarily driven by the decrease in production volumes. Our renewable electricity generation operating and maintenance expenses during the first quarter of 2026 were $4.5 million, an increase of $1.1 million or 33.8% compared to $3.4 million during the first quarter of 2025. The increase is primarily driven by an increase in noncapitalizable costs of $0.8 million at our Montauk Ag renewables project. Our [indiscernible] facility operating and maintenance expenses increased approximately $0.4 million, which was related to the timing of gas processing preventive maintenance. We recorded approximately $4.2 million in the first quarter of 2026 related to the cost of RINs distributed from GreenWave when sold and the cost related to pathway dispensing associated with the dispensing of R&D. There were no such expenses incurred during the first quarter of 2025. During the first quarter of we recorded impairments of $0.4 million, a decrease of $1.6 million compared to $2.0 million in the first quarter of 2025. The decrease primarily relates to the first quarter of 2025 impairment of an R&D development project for which the local utility no longer accepted RNG into its distribution system. We did not record any impairments related to our assessment of future cash flows. Operating loss for the first quarter of 2026 was $1.6 million compared to operating income of $0.4 million in the first quarter of 2025. R&D operating income for the first quarter of 2026 was $8.7 million, a decrease of $1.7 million or 15.7% compared to $10.4 million for the first quarter of 2025. Renewable electricity generation operating loss for the first quarter of 2026 was $2.2 million, an increase of $1.2 million compared to $1 million for the first quarter of 2025. Other income in the first quarter of 2026 was $1.3 million, an increase of $2.5 million compared to the first -- compared to other expenses of $1.2 million in the first quarter of 2025. In the first quarter of 2026, we recorded approximately $3.3 million in income related to our joint venture investment in GreenWave. There was no such income reported during the first quarter of 2025. We received approximately $1.4 million in RINs distributed from GreenWave in the first quarter of 2026, of which approximately $0.4 million remain unsold. We sold approximately 1 million RINs in recorded revenues from those RINs sold of approximately $2.4 million. Additional information on GreenWave can be found in the supplemental slides that have been posted to our website. On March 9, 2026, we entered into a 5-year new security credit facility with a wholly owned subsidiary, Hannon Armstrong Capital LLC, HASI that consists of up to $200 million in senior indebtedness. These proceeds were used to repay all our outstanding debt. We expect to have an additional $45 million in proceeds drawn upon the conclusion of certain engineering review and operational requirements of our Montauk Ag renewables project in North Carolina. As a result of this refinancing in the first quarter of 2026, we recorded debt extinguishment cost of $1 million. We are only required to make interest payments during the first 2 years of the agreement, which matures in March 2031. We expect to work with has in the future to secure additional project-based financing for our current and future development projects. Turning to the balance sheet. On March 31, 2026, $155 million was outstanding on our new security credit facility with [indiscernible]. For the first 3 months of 2026, our capital expenditures were $38.6 million, of which $33.1 million and $1.8 million, respectively, were related to the ongoing development of Montauk Ag Renewables and our Bauerman-RNG facility. We had approximately $19.6 million in capital expenditures included within our accounts payable at March 31, 2026. As of March 31, 2026, we had cash and cash equivalents net of restricted cash of approximately $25.9 million. Our new senior credit facility with [indiscernible] requires us to meet liquidity and have quarterly minimum cash balances as defined in the agreement. We had accounts and other receivables of approximately $5.2 million. We do not believe we have any collectibility issues within our receivables balance. As of March 31, 2026, we held approximately [indiscernible] distributed from GreenWave in inventory on our balance sheet. Adjusted EBITDA for the first quarter of 2026 was $10.8 million, an increase of $2 million or 22.8% compared to adjusted EBITDA of $8.8 million for the first quarter of 2025. EBITDA for the first quarter of 2026 was $9.4 million, an increase of $2.7 million or 40.3% compared to EBITDA of $6.7 million in the first quarter of 2025. Net income for the first quarter of 2026 was $5,000, an increase of $0.5 million as compared to a net loss of $0.5 million for the first quarter of 2025. The difference in effective tax rates between the first quarter of 2026 and the first quarter of 2025, primarily relate to the change in our pretax book loss for the first 3 months of 2026 as compared to the first 3 months of 2025. I'll now turn the call back over to Sean. Sean McClain: Thank you, Kevin. In closing, and though we don't provide guidance as to our internal expectations in the market price of environmental attributes, including the market price of D3 RINs we would like to provide a full year 2026 outlook. We are reaffirming our RNG production volumes to range between $5.8 and $6 million MMBtu with corresponding R&D revenues to range between $175 million and $190 million. We are reaffirming our renewable electricity production volumes to range between 195,000 and 207,000 megawatt hours, with updated corresponding renewable electricity revenues to range between $33 million and $37 million. that reflects our current expectations of production at our Montauk renewables facility in Turkey, North Carolina. And with that, we will pause for any questions. Operator: [Operator Instructions] Our first question comes from Matthew Blair at TPH. Matthew Blair: I was hoping you could talk a little bit about this fixed price contract that appears to have rolled off. And I think there was a mention of that in the release is there any prospects for renewing that contract? And can you say if that contract was above current market rates? Like should we think of that roll off as being dilutive to your ongoing margins? Kevin Van Asdalan: Thanks, Matthew. In short, if you -- I'm going to point you to our operating highlights table within our 10-Q the rolling off of the fixed price contract is consistent with our moving and our ability to find homes for our RNG volumes in the transportation market. It's in concert with a quarter-over-quarter reduction in RINs that we're sharing with counterparties through our pathway. That has come down in the first quarter of 2026 yielding increases in RINs sold in 2026 over 2025. That's sort of a general understanding of a product mix moving away from fixed pricing into a more commodity and merchant availability of RINs generated from the production that we're getting as we are dispensing volumes in the transportation space and retaining more RINs and able to sell more RINs related to the roll-off of those fixed price contracts. Operator: Our next question comes from Betty Zhang at Scotiabank. Y. Zhang: Can you talk about the Montauk ag renewables? It looks like the revenue generation seems to be pushed out by about a month and that's also factored into your annual guidance. Can you just speak to what may have contributed to that? Sean McClain: Yes. Thanks, Betty. The adjustment to the revenue guidance is solely attributed to the timing of the commissioning that was completed at the end of April as opposed to the end of the first quarter with revenue commencement activity starting in May instead of April. So that's the month shift that's reflected in that updated guidance. Operator: Our next question comes from [indiscernible] at UBS. Unknown Analyst: With the North Carolina project coming online and production expected to begin this month. Can you help us think about the ramp profile from here? I know you mentioned in your opening remarks and in the press release that you expect ramp up in production volumes throughout 2026. But can you give us additional color into that? Kevin Van Asdalan: Thanks, Richard. As we've alluded, we have a certain amount of hog spaces that we're targeting to support our production expectations under a first year. We had announced that there were some weather delays on our call in our first -- at the end of the year in March. Some weather delays have delayed some installation of the own arm collection equipment as well as delaying some of our ability to timely assemble our dewatering equipment related to those sort of weather delays in installment of our feedstock collection and dewatering equipment. Our ramp throughout 2026 is contingent upon us getting caught up and meeting some internal expectations associated with our own farm installation related to feedstock collection and transportation to our production facility. Operator: Okay. I'm showing no further questions at this time. I would now like to turn it back to Sean for closing remarks. Sean McClain: Thank you, and thank you for taking the time to join us on the conference call today. We look forward to speaking with you again when we present our second quarter 2026 results. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Jumia's Results Conference Call for the First Quarter of 2026. [Operator Instructions] With us today are Francis Dufay, CEO of Jumia; and Antoine Maillet-Mezeray, Executive Vice President, Finance and Operations. We'll start by covering the safe harbor. We would like to remind you that our discussions today will include forward-looking statements. Actual results may differ materially from those indicated in the forward-looking statements. Moreover, these forward-looking statements may speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ from the forward-looking statements expressed today, please see the Risk Factors section of our annual report on Form 20-F as published on February 24, 2026, as well as our other submissions with the SEC. In addition, on this call, we will refer to certain financial measures not reported in accordance with IFRS. You can find reconciliations of these non-IFRS financial measures to the corresponding IFRS financial measures in our earnings press release, which is available on our Investor Relations website. With that, I will hand the call over to Francis. Francis Dufay: Good morning, everyone, and thank you for joining Jumia's first quarter 2026 earnings call. 2025 was the year we demonstrated the resilience and scalability of our model and '26 is the year we plan to demonstrate our path to profitability. Q1 '26 showed that our momentum towards profitability is continuing and in several important ways, accelerating. Over the past few years, Jumia has been building an e-commerce model designed specifically for Africa, adapted to the unique structural supply, logistical and consumer realities of our markets. In 2025, we proved that this model delivers scale with improving economics and Q1 '26 confirms that the flywheel is turning. This foundation drove our strong operating momentum in the first quarter. GMV grew 32% year-over-year adjusted for perimeter effects. Growth was broad-based across our core markets, reflecting the continued strengthening of our marketplace fundamentals and efficient execution. Profitability metrics continue to move in the right direction. Adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. The business absorbed higher volumes with increasing efficiency while maintaining a disciplined approach on costs. Excluding the onetime costs related to our Algeria exit in February '26, adjusted EBITDA loss would have been $9.7 million, reflecting an underlying improvement of 38% year-over-year in our core business. Based on the progress we made in '25 and the momentum continuing into Q1 '26, we remain focused on achieving our target of adjusted EBITDA breakeven and positive cash flow in the fourth quarter of '26 and delivering full year profitability and positive cash flow in '27. I should also note that we are monitoring the broader macro environment, including cost increases in memory chips and the ongoing geopolitical tensions in the Middle East as well as the potential effects on global supply chain, shipping costs and commodity prices. While we have observed limited impact on our business to date, we remain attentive to downstream risks, including potential pressure on smartphone components availability and transport costs. We believe the resilience of our model and the diversity of our supplier base positions us well to navigate this uncertain environment. Notwithstanding these external matters, we reiterate our guidance for 2026. Let me walk you through the key highlights of the quarter. Usage trends remain strong across our platform. Adjusted for perimeter effects, physical goods orders grew 31% year-over-year, driven by expanding in-country geographic coverage, improved assortment and sustained consumer demand. Our focus remains clearly on physical goods, which accounted for nearly all orders and GMV this quarter. Digital transactions through the JumiaPay app now represent a residual share of our orders as we continue to prioritize transactions with stronger economics. Relatedly, TPV and Jumia Payments gateway transactions have become less meaningful as indicators of our operating performance and effective as of the first quarter of '26, we will discontinue the quarterly disclosure of these KPIs. Adjusting for perimeter effects, quarterly active customers increased 25% year-over-year, reflecting continued traction in both acquisition and retention. Repeat behavior continued to improve with 47% of new customers from Q4 '25 making a repeat purchase within 90 days, up from 45% in Q4 '24. Demand was broad-based across electronics, home & living, fashion and beauty and consistent across most countries, reflecting a similar quality of execution and inputs across our markets. Adjusted for perimeter effects, GMV grew 32% year-over-year in reported currency. Average order value for physical goods increased to $36 from $35 in Q1 '25. Revenue totaled $50.6 million, up 39% year-over-year, driven by higher usage and improved monetization. First-party sales represented 46% of total revenue, supported by continued strength from international partnerships, including Starlink in Nigeria and Kenya. Now turning to profitability. The progress made over the past 3 years continues to translate into measurable operating leverage. Cost improvements across general and administrative, technology and fulfillment are structural. In addition, we renegotiated third-party logistics contracts in February and March and implemented increases in commissions and take rates across most countries in mid-January '26. This reflects the scale of our platform and improved service levels delivered to sellers. Importantly, these commission increases had limited impact on growth, validating our strategy of progressive monetization increases on the back of greater volumes and better seller experience. We also drove meaningful growth in higher-margin revenue streams with marketing and advertising revenue up 44% year-over-year and value-added services revenue nearly tripling, which both reflect improved platform monetization. These changes are consistent across markets and reflect stronger marketplace fundamentals. Fulfillment cost per order was $2.06, flat year-over-year on a reported basis or down 10% year-over-year on a constant currency basis. This reflects productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Most fulfillment operating expenses are incurred in local markets and denominated in local currencies. Technology and content expenses declined 8% year-over-year, reflecting ongoing headcount optimization, automation, platform simplification and the benefit of renegotiated seller agreements, including cloud infrastructure. As a result, adjusted EBITDA loss narrowed to $10.7 million from $15.7 million in Q1 '25. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Quarterly cash burn increased to $15.3 million in Q1 '26 compared to $4.7 million in Q4 '25. The shift from the previous quarter is consistent with typical seasonal dynamics. This compares favorably to the $23.2 million decrease in liquidity in Q1 '25, demonstrating the improvement in our financial trajectory. Now turning to operational highlights and execution at the country level. Q1 '26 demonstrated continued execution strength across our markets. Supply fundamentals remain solid with improvements in both local and international sourcing. Growth was supported by strong performance across multiple categories with fashion and beauty among the top contributors to items sold growth year-over-year and with international items continuing to gain share. Efficient marketing deployment, including CRM, paid online, SEO channels, supported customer acquisition at attractive unit economics. In the first quarter, we sold 4.9 million gross items internationally, up 87% year-over-year adjusted for perimeter effects. This reflects the continued scaling of our Chinese seller base as well as growing volumes from our supply base from affordable fashion in Turkey. Operationally, we continue to extend our reach beyond major urban centers. Orders from upcountry regions accounted for 62% of total volumes, up from 58% in the prior year quarter, both adjusted for perimeter effects. These regions are delivering strong growth while benefiting from a cost structure that scales efficiently with volume. In secondary cities, we are addressing clear customer pain points, including limited product availability and elevated prices from local traders. As a result, our value proposition continues to resonate strongly, driving both adoption and repeat purchase. Now at the country level. Nigeria delivered a strong quarter. Physical goods GMV increased 42% year-over-year. Sustained growth was driven by a broad range of categories with home & living performing particularly strongly alongside continued traction from a country expansion, where a large part of the addressable market remains untapped. We opened over 80 additional pickup stations during the quarter, further extending our delivery network. I should note that Nigeria experienced a significant increase in local fuel prices during March, which created headwinds in our 3PL cost negotiations. However, consumer demand remains sustained and strong. Kenya performed strongly with physical goods GMV up just below 50% year-over-year. Performance was driven by continued strong supply fundamentals and efficient marketing despite similar headwinds to other countries in the phones category. Strong performance in home & living driven by local suppliers and in fashion, driven by international suppliers more than offset the tighter supply in phones. Kenya remains a relatively underpenetrated market for Jumia with vast opportunities up country and we continue to invest in expanding our reach. Ivory Coast growth gradually moderated over the course of the quarter. Physical goods GMV was up 16% year-over-year. Growth was affected by 2 converging headwinds. First, supply disruption in appliances, which is market specific and in smartphones, which is a global dynamic, both felt directly in the market where we have our highest penetration levels. And second, a sharp decline in regulated cocoa farm gate prices down nearly 60% effective in March '26, which reduced the purchasing power of a large share of the upcountry population. Cocoa is the primary export of Ivory Coast and approximately 6 million people depend on it for their livelihoods. This is a meaningful demand side headwind that we expect to persist in the second quarter. However, we remain confident in the fundamentals of our business in Ivory Coast, where we hold a very strong position with a trusted brand and healthy monetization. Egypt's performance this quarter confirmed sustained recovery. Physical goods GMV grew 3% year-over-year, excluding corporate sales, which were still material in Q1 '25, but has since been deprioritized. Physical goods GMV grew 56% year-over-year, confirming genuine market level recovery. Very strong dynamics on the supply side of our marketplace are driving top line acceleration, supported by improved assortment and seller engagement. Our buy now, pay later offering continued to gain traction with strong penetration in high-value categories. Egypt experienced a fuel price increase in March as well, which we are monitoring. However, core marketplace dynamics remain positive. We are also expanding our delivery network through pickup stations in more remote regions, which are poorly served by physical retail. Ghana delivered an exceptional first quarter with physical goods GMV increasing 142%, driven by a country expansion, the scaling of local marketplace and strong supply from international sellers. Ghana was largely unaffected by the disruption in the electronics segment. Our current focus is to continue building logistics capacity to sustain this rapid expansion with stronger customer experience and cost efficiency. Our other markets portfolio also performed well, collectively delivering 10% physical goods GMV growth. Uganda experienced a nearly 1-week internet blackout during the quarter, temporarily impacting volumes, though the market still delivered growth for the period. In February '26, we completed our exit from Algeria, which represented approximately 2% of GMV in '25. The winddown resulted in total onetime exit costs of approximately $1 million, reflecting employee termination benefits and asset impairment, which were all recognized in our Q1 '26 results. Over the medium to long term, this decision simplifies our footprint and improves operational focus, allowing us to allocate resources more efficiently towards markets with stronger growth and profitability profiles. We have not seen significant changes in our competitive environment in Q1 '26. The softening of competitive intensity trends observed in the second half of '25 has continued with competitive intensity remaining subdued across our core markets. The recent disruption of air freight going through the Middle East is expected to create headwinds for non-resident platforms that rely on direct international shipping, contributing to a more level playing field for locally embedded operators like Jumia. Most of our supply comes via sea freight, which was not impacted. We are also seeing increased regulatory scrutiny on cross-border platforms across several of our markets, further reinforcing this dynamic. We are navigating an international environment that is evolving quickly with 2 main developments having the potential to impact our business. First, the memory chips and CPU price increases. We saw a delayed impact on entry-level phone prices and the availability of components for products like smart TVs taking place gradually over Q1. Phone prices increased by approximately 20% between late '25 and early April. We do not see this as a fundamental long-term shift, but it is impacting our business in the near term as supply chains reorganize. Distributors remain temporarily reluctant to release fresh inventory, while prices may increase further and older, cheaper inventory in some markets is still temporarily competing with our more recent supply. We are mitigating this by diversifying our supplier base for smartphones and scaling our marketplace across both local and international sellers. Second, the war in the Middle East. The most immediate impact was the disruption of air freight through the UAE from Asia, which affected some smartphone distributors. Supply routes have since reorganized through other hubs. There are also delayed effects. Disruption to helium supplies creates additional uncertainty for chip production and the majority of our markets have seen fuel prices begin to rise from March, which is expected to weigh on local logistics costs, particularly for middle-mile trucking operations run by our local partners. The impact on our Q1 P&L has been limited with extra costs primarily in Nigeria. If high fuel prices persist, we should expect greater pressure in Q2, potentially partially offsetting the savings from our 3PL rates renegotiations. That said, our strategy of building pickup stations throughout countries is very helpful in this regard as it means that we have already decorrelated a significant share of our delivery costs from fuel prices. In particular, 74% of our ship packages are fulfilled through pickup stations rather than door delivery in Q1 '26, up from 67% in Q1 '25, both adjusted for perimeter effects. We have also taken steps to electrify our last-mile delivery fleet in Uganda and we are looking to replicate this successful pilot in more countries as we continue to reduce our dependence on fuel in logistics operations. '25 was the year when we showed that our business model is on the right track. It delivered growth and improved economics at the same time. '26 is the year when we intend to show that this model will take us to profitability. In this regard, Q1 is a strong data point that is consistent with Q4 '25 trends. We see sustained growth despite an uncertain environment, continued operational leverage and improved unit economics across the whole P&L, resulting in significantly reduced losses. We are committed to delivering trajectory to breakeven by chasing more scale in a disciplined way, improving operational execution and further streamlining our fixed cost base. While we are currently navigating an uncertain international environment, we believe that our business fundamentals, which were rebuilt from '22 to '25, mostly in much tougher times than this are strong. We do expect some temporary disruption, but it does not change our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. With that, I will now turn the call over to Antoine to walk you through the financials in more details. Antoine Maillet-Mezeray: Thank you, Francis, and thank you, everyone, for joining us today. I will now walk you through our financial performance for the first quarter. Starting with revenue. First quarter revenue reached $50.6 million, up 39% year-over-year or up 28% on a constant currency basis. Results reflect sustained customer demand and consistent execution across our platform. Marketplace revenue for the first quarter totaled USD 27 million, up 50% year-over-year and up 35% on a constant currency basis. Third-party sales were USD 23.2 million, up 45% year-over-year or up 31% on a constant currency basis. Growth was driven by solid performance in the marketplace, including healthy usage trends and higher effective take rates. Marketing and advertising revenue was USD 2.2 million, up 44% year-over-year or up 31% on a constant currency basis. The improvement was driven by continued growth in sponsored products, supported by strong tools rolled out in mid-2025 that increased seller adoption, improved return on ad spend and drove greater density and competition on our marketplace. With advertising revenue currently representing roughly 1% of GMV as we are improving this figure, we see meaningful opportunity to scale this profitable source of revenue. Value-added services revenue was USD 1.7 million in the first quarter of 2026, compared to USD 0.6 million in the first quarter of 2025, driven by strong growth in warehousing fees, reflecting higher volumes flowing through our storage infrastructure, largely driven by demand from Chinese sellers and improved monetization of our warehousing services. Revenue from first-party sales was USD 23.1 million, up 30% year-over-year or up 21% year-over-year on a constant currency basis, driven by strong momentum with key international brands. Turning to gross profit. First quarter gross profit was USD 29.4 million, up 48% year-over-year or up 33% year-over-year on a constant currency basis. Gross profit margin as a percentage of GMV increased by 160 bps to 13.9% for the quarter compared to 12.3% in the first quarter of 2025, reflecting continued progress in marketplace monetization. As we enter 2026, we implemented broad-based increases in commissions across most countries, leveraging the scale and improved service levels we have built with sellers. Q1 2026 was already tracking the expected impact with gross profit margin expanding by 160 bps year-over-year, marketing and advertising revenue up 24% and value-added services revenue nearly tripling. We expect these trends to continue supporting gross profit growth going forward. Now moving to expenses. We continue to see the benefits of our cost initiatives in the first quarter with additional improvements expected to materialize over the coming quarters. Fulfillment expense for the first quarter was USD 12.2 million, up 29% year-over-year and up 17% in constant currency, primarily due to higher volumes. Fulfillment expense per order, excluding JumiaPay app orders, was $2.06, flat year-over-year or down 10% year-over-year on a constant currency basis, reflecting productivity gains and economies of scale in fulfillment operations, increased call center automation and improved logistics partner rates. Sales and advertising expense was USD 5.1 million for the first quarter, up 64% year-over-year and up 54% in constant currency. We view this increase positively. We are scaling high ROI marketing investment on the back of stronger product fundamentals, improved quality of service and higher platform reliability, driving not only top line growth, but also better unit economics as higher volumes and improved customer retention contribute directly to operating leverage and margin improvement. Technology and content expense was $8.9 million for the first quarter, representing a decrease of 8% year-over-year or a decrease of 10% on a constant currency basis, driven primarily by continued headcount optimization and ongoing renegotiated seller contracts. First quarter G&A expense, excluding share-based compensation expense, was $16.8 million, up 4% year-over-year and down 3% on a constant currency basis. The year-over-year increase was primarily driven by staff costs with general and administrative expense, excluding share-based compensation expense, which increased by 16% to USD 9.1 million, driven by approximately USD 0.8 million in onetime termination benefits related to our Algeria exit and the appreciation of local currencies against the U.S. dollar compared to the first quarter of 2025. We continue to streamline the organization. The total headcount has declined by 8% since December 31, 2024, with just over 1,980 employees on payroll as of March 31, 2026. At the end of the fourth quarter of 2022, when current leadership was installed, we had 4,318 employees. We are actively working to further reduce headcount, continue process automation and leverage AI tools. We expect to reduce our headcount by at least an additional 200 full-time employees over the next 2 quarters. More broadly, AI and automation are becoming meaningful drivers of efficiency across Jumia. We are deploying AI tools across our operations, finance processes, headcount efficiency programs in our technology organization, encompassing cybersecurity monitoring and software development, which supported the net FTE reduction and drove efficiency gains year-over-year. Importantly, AI is also helping us solve problems on the ground. In logistics, it improves routing and reduces failed deliveries. In customer services, it enables faster resolution with fewer agents and in sellers operation, it streamlines onboarding and compliance monitoring. This is not only reducing cost but also improving the quality of service we deliver to customers and sellers, reflecting our ongoing commitment to structural cost efficiency. Turning to profitability, adjusted EBITDA for the quarter was negative $10.7 million or negative $10.9 million on a constant currency basis. Loss before income tax was $17.8 million, an 8% increase year-over-year or 21% decline on a constant currency basis, primarily reflecting noncash foreign exchange losses. Turning to the balance sheet and cash flow. We ended the first quarter with a liquidity position of $62.6 million, including USD 61.5 million in cash and cash equivalents and $1.1 million in term deposits and other financial assets. Our liquidity position decreased by $15.3 million in Q1 2026 compared to a decrease of $23.2 million in Q1 2025. Net cash flow used in operating activities was $12.5 million in the quarter, including a broadly neutral working capital contribution. The improvement reflects the continued strengthening of our marketplace flywheel driven by higher volumes, improved payment flows and stronger bargaining power with large third-party accounts. In summary, we delivered another quarter of solid execution and strong top line growth while continuing to improve cost efficiency. Progress on structural cost reductions, automation and cash discipline reinforces our confidence in meeting our near-term objectives and moving closer to profitability. Looking ahead, we remain focused on operational discipline, margin expansion and prudent and informed capital allocation, positioning Jumia for sustainable growth and long-term value creation. I now turn the call back over to Francis for a discussion of our updated guidance. Francis Dufay: Thank you, Antoine. Let me now turn to our expectations for 2026. Our focus for '26 remains on accelerating growth, driving further operating efficiency and continuing our progress towards profitability. We are seeing continued strong momentum validated by our Q1 results, which give us confidence in reaffirming our full year '26 outlook. We are navigating an evolving international environment. While we expect some temporary disruption from memory chips and CPU price pressures and the ongoing conflict in the Middle East, our business fundamentals are strong. Our Q1 '26 results demonstrate continued execution and we have not changed our midterm profitability targets or our belief in Jumia's long-term opportunity for growth. For the full year '26, we anticipate GMV to grow between 27% and 32% year-over-year adjusted for perimeter effects. On profitability, we expect adjusted EBITDA to be in the range of negative $25 million to negative $30 million. We confirm our strategic goal to achieve breakeven on an adjusted EBITDA basis and positive cash flow in the fourth quarter of '26 and to deliver full year profitability and positive cash flow in '27. Looking specifically at the second quarter, GMV is projected to grow between 27% and 32% year-over-year adjusted for perimeter effects. Thank you for your attention. We will now be happy to take your questions. Operator: [Operator Instructions] Your first question for today is from Jack Halpert with Cantor Fitzgerald. John Halpert: I just have 2, please. So on the memory chip inflation, are you maybe able to quantify this at all in terms of the impact in the quarter? And maybe how much of this has been resolved already versus expected to continue in 2Q and beyond? And just is it more about consumers like deferring purchases trading down? Or is it more of a supply availability issue? That's the first question. And then the second question, just on the AI efficiency you guys mentioned and I think the planned 200 reduction in headcount. First, just how much of this headcount reduction is tied to the Algeria exit, if at all? And then maybe on the AI side, what are a few examples of areas you're seeing the most efficiency in the business from AI currently? Francis Dufay: Let me take the 2 questions and Antoine will also comment on the AI impact across our business. Starting with memory chips, CPU prices inflation. So to quantify the impact, you can look at our presentation where we show the share of smartphones category in our mix. You'll see that the whole smartphones category, I mean, is directionally roughly 10% of our sales in GMV. This is usually a category with lower unique contribution. It's lower margins than, let's say, fashion, for example. So it definitely has -- I mean, it's not 10% of our gross profit, as you can imagine. It's not the whole category that's in danger. Obviously, it can impact the growth of the category and it has in the first quarter. It's likely to continue in the second quarter. But we're not talking of a major impact over the whole top line of Jumia, okay? It's something that we have to flag because it's global trends and it's relevant for our business, but we're talking impact on a fraction of our total business and it will not wipe out like half of the sales, obviously. It's limited. And most importantly, we see it as temporary. The timing here is that we had delayed impact really. A lot of people asked us questions, sorry, late 2025 and in the first month of '26 and really not much was changing on the market at this time. And then prices -- the price increase of directionally 20% that we've mentioned on entry-level smartphones was mostly felt in the month of March across key countries. So that's directionally what happened. We believe it's a matter of timing. I mean we're used to those kind of supply disruptions and market reorganizations. So it doesn't last forever, but we know that for a couple of months, supply may be disrupted. Some brands may be doing better and some brands may be more disrupted, which we've seen in the market. Some brands will be running out of stocks. Some brands will still be available with sometimes lower price increases. For example, we see that Samsung has had lower price increases because they have much better integration of the whole supply chain. But basically, we see it as temporary disruption as the supply chain reorganizes. And when it comes to consumer impact that you were asking, we see a mix of both, right? We see a mix of, of course, prices increasing, so consumers are trading down. When people are still buying smartphones, that will never change, but they are buying lower specs with the same amount of money in their pocket. And on the other hand, we also see supply -- I mean, pure supply availability issues on very specific brands in very specific markets. So as we mentioned in the -- earlier in the call, we've been more impacted in the Ivory Coast, for example, than in Kenya in terms of pure supply availability. So all of that is having an impact, some level of impact, but we see it as clearly temporary. It's not -- I mean, it's not a long-term challenge. We will keep on selling smartphones and the market will reorganize. And what matters is that we have access to the best supply, the best prices and our distribution is a huge advantage when it comes to selling smartphones across Africa. And then to your second question about headcount, the 200 target is not tied to Algeria. So most of the impact on Algeria is already behind us. So the 200 headcount reduction that we mentioned has nothing to do with the exit from Algeria. Antoine, do you want to comment on the use of AI across our team? Antoine Maillet-Mezeray: Yes, I can take this one. Thank you. Obviously, we're using AI in tech, be it in cybersecurity or coding. We are able to be much, much more productive thanks to the different tools that we are using. We pay a lot of attention to be agnostic in terms of tools so that we don't end up with 1 or 2 suppliers that will change pricing policy overnight. But we are going much further than pure tech. We're using AI in accounting, for instance, to automate bank reconciliations. If you want a very pragmatic example, we're also using AI in HR. Basically, we have a lot of database, which are very structured and ready to be used consumed by AI, allowing us to produce smarter reporting in a much faster way and being able to share the information across our very large footprint, resulting in better efficiency. Operator: Your next question is from Brad Erickson with RBC Capital Markets. Bradley Erickson: Just a couple of follow-ups on that first question. I guess with maintaining the full year guide, it looks like maybe a little bit of deceleration built in there through the year. I guess would you say that outlook kind of reflects this idea that some of these headwinds you're talking about are sort of dynamic and adjusting and reflected in Q2, but then sort of stabilize through the year? Or is there any contemplation in the range that maybe things get worse? Francis Dufay: Well, in the current international environment, if you -- Brad, if you know for sure what's going to happen, please tell me. We could make a lot of money. Well, more seriously, we acknowledged some level of uncertainty in the international environment with very specific aspects that can have a negative impact on our P&L. We mentioned chip prices and fuel prices. We remain confident in the range that we have given as guidance for the full year and for the second quarter. It accounts -- I mean, it covers, it includes some level of uncertainty. But I think it reflects -- I mean, the fact that we stabilized that range reflects our opinion that most of the disruption we're seeing is temporary. So we're seeing real headwinds like the demand side headwinds in the Ivory Coast due to cocoa prices is real and can be felt on the ground. Smartphone price increases and supply disruption is real and can be felt on the markets. But we all see that as quite temporary and really not disrupting the fundamentals of our business, neither the midterm or long-term opportunity. So we -- and we're also seeing continued strength in the trends in several countries, especially Nigeria, which is still growing over 40%; Ghana, which is growing over 100%. So in short, those headwinds and that level of uncertainty is not structurally challenging our business and it's not something we expect for the long run. So this range of 27% to 32% top line growth that we're giving for the second quarter as well is our best assessment in the current environment based on the early results of the quarter that we're already seeing and reflects the level of confidence in our business model. Bradley Erickson: Got it. And then you called out marketing and being a strong point in your prepared remarks. I guess just within your outlook, how much kind of flexibility do you think you have on marketing given some of these other headwinds you're talking about? And I guess how much kind of like offense do you feel like you can play here in 2026 in terms of putting your foot down on marketing? Or is it still fairly measured given how some of the macro factors you're talking about? Just kind of the upside, downside considerations there with marketing spend. Francis Dufay: Yes. I think 3 things on the marketing side. So first of all, I think we remain at spend ratios that are very reasonable for an e-commerce company of our size, right? Our ratio of spend is slightly lower than much, much bigger peers in emerging markets, which shows frugality and efficiency in that field. So we were very -- I mean we're confident in our ability to spend very efficiently our marketing budget and driving strong returns. Second, we still have major improvements coming over the year in terms of efficiency and the better use of our marketing channels, especially online. And third, we are very reactive as well. A large part of those budgets are spent on online channels where it's very easy to pilot on a monthly, weekly, daily basis. So we are able to make decisions if needed, if we see lower traction in a given market. We're very dynamic in reallocating budgets when we need to on a daily or weekly basis. At this stage, we believe we still have -- I mean we do have sufficient traction and that justifies the amount that we're spending. But we are very flexible and we can be extremely reactive if we see different trends. Bradley Erickson: Got it. And then one last one. Just when you think about the journey to cash flow positive in the next year, you talked about the headcount reduction here in the next few quarters. Besides that, just what are kind of some of the major pain points on reaching that goal that you still -- you feel like you still have to get through? Francis Dufay: You mean the goal of cash flow positive? Bradley Erickson: Correct. Francis Dufay: I would not talk about pain points. I mean I'll let Antoine comment as well, but I think the path is pretty clear, right? I mean if you look at our numbers, now it's just -- it's not just us talking. You have very clear verifiable numbers showing that we're able to scale, we're able to improve the unit economics, get operating leverage and further reduce the fixed costs. So that's a very clear trajectory that takes us to breakeven. It's mostly an execution game. It's mostly an execution game. I would not say we have blockers or pain points. We know very much what we're working on. We need to keep on scaling the top line and keep on delivering those improvements in the unit economics and further reducing in absolute terms of fixed costs. I think you can see a clear trajectory in the last 2 quarters. It's extremely consistent. It's all about execution unless there would be a major macro disruption that we're not seeing at this stage, it's really about execution. Operator: Your next question for today is from Ryan Sigdahl with Craig-Hallum. Ryan Sigdahl: Very nice quarter and execution. Laundry list of, let's call them, crosswinds, some headwinds in Q1 into Q2. Outside of those, it feels like the business is actually outperforming because you reiterated the guide, you outperformed in Q1. Q2 guide is in line despite kind of all of those challenges. So I guess trying to take a step back and maybe normalizing for a lot of those outside factors, how you feel about the progress thus far in the year internally? Francis Dufay: Yes. Thanks, Ryan, for putting it this way. I mean we -- Antoine and I are very deeply in the business and we -- it's sometimes good to step back and realize the progress. I mean we have a tendency to look more at the problems than the successes, but it's how we managed to push it forward. But yes, I think there are very clear bright side this quarter. It's very clear and that's what you see in our presentation on the operating leverage. And we see that we, again, this quarter, just like in the fourth quarter of '25, we're able to show significant GMV growth. So the business model is working while clearly improving all the unit economics. So 31% GMV growth that translates into a significant improvement of 64% of all gross profit after fulfillment and marketing costs. So that's real operating leverage and we're able to further reduce our fixed cost, thanks to pretty hard work on tech specifically this quarter, but also a lot happening in G&A that will pay off in the coming quarters. You see the 1/3 32% improvement in adjusted EBITDA. So I think the bright -- I mean, the key message of this quarter is we're able to show very consistent improvement after Q4 with significant growth that's sustained in spite of the environment and continued progress on the unit economics and fixed costs. And we expect that to continue. There's no reason why the trend should change in the coming quarters. Ryan Sigdahl: Very good. We've noticed -- you mentioned Nigeria strength. We've noticed an expanded pickup station footprint there, particularly in secondary cities. Can you talk about Nigeria, but also you mentioned it in Kenya and others, but kind of the upcountry expansion, how you think about that strategy with pickup stations? And then if maybe that strategy has evolved or changed in recent kind of months as you guys have rightsized the cost structure, infrastructure and overall company? Francis Dufay: So I'll talk about Nigeria right afterwards. But overall, across countries, we keep on expanding our reach. So basically opening new pickup stations in new cities that we're not covering or densifying the network in existing bigger cities. This is a very important component of our growth plan because it basically increases the addressable market, right? We are building our distribution network and partnering with local entrepreneurs. And if we don't have -- I mean, if we do not build the distribution network in a given city, it means that city is outside of our addressable market. So by expanding this network of pickup stations, we are increasing our addressable market, which is arguably one of the easiest and cheapest ways to grow our top line. This is happening across all countries, but Nigeria is the most striking example. A few months back, Nigeria, we are still covering about 1/3 of the addressable market of the population. If we look at the cities where we had established distribution, the total population was about 1/3 of total population, which is massive room for improvement. In our more mature markets, we're close to 60% in Ivory Coast, for example. So it gives you an idea of the potential that's still untapped in a country like Nigeria. So we're very -- I mean, we're happy about the growth in Nigeria. We believe we can still get more than that. The growth in Nigeria is largely driven by up country. So distribution expansion, that's a big driver. But we're also seeing very favorable trends across categories and supplies. We mentioned home & living as a strong category this quarter in Nigeria. We're seeing strong engagement on our local marketplace. We're seeing increased supply from international vendors, mostly from China, but also from Turkey in Nigeria. So I think we have lots of tailwinds in Nigeria and the hard work of the past couple of years is really paying off, which is critically important in a market where, first of all, there's so much potential to address. Second, the competitive intensity has reduced around us. And third and quite importantly, it's a market where we have good unit economics after -- especially after the devaluations over the past few years, local unit costs are fairly low and while it's quite profitable to scale in Nigeria to put it this way. Operator: Your next question is from Fawne Jiang with Benchmark Company. Yanfang Jiang: First of all, your international seller growth appeared very strong. Just wonder how should we think about the merchant ramp-up and the typical lead time from onboarding to more meaningful GMV contribution, particularly considering you are opening a new sorting center [indiscernible] and how would that potentially impact your take rate going forward? Francis Dufay: Yes. So that's an important question, guess -- so how can I put it? So the growth we're seeing today in volumes items sold and the whole business from international sellers is actually the result of the last 3 to 4 years of work. Typically, the timelines when a supply -- when a new Chinese vendor is onboarded, we expect meaningful contribution after more than a year, sometimes 2 years or more to deliver volumes and margins. It's because we onboard vendors who don't always -- I mean, don't know very well our markets. They need to test the waters first, they send small supply to the countries. And then gradually, they will scale their inventory in our most important countries. So this process does take time. So they learn the market and they commit more and more working cap and inventory to our countries. And so what you see today is really the result of like 3 to 4 years of real hard work. What we see on the ground in China, I mean, since the whole tariff thing last year, we've seen that strong -- I mean, much stronger enthusiasm and strong engagement with Chinese vendors. We've seen more and more vendors willing to join our platform and sell on Jumia. The trend has been very well maintained over the past quarters and consistent now. And this increased -- this increased volumes of onboarding of vendors is going to reflect over time, but it's not yet fully felt in the numbers. So the good news here is that we really have a pipeline of vendors and the pipeline of supply coming to Africa that will get -- should get stronger over time due to the medium- to long-term structural nature of the work we're doing with our Chinese vendors. And in terms of margins, as we mentioned in the past, the rise of international supply is accretive to our margins. These vendors typically operate in categories that have higher -- sorry, gross profit ratios such as fashion, accessories, home & living and so on. They are also much better contributors to our margins when it comes to purchasing advertising services and using our storage services. So at the end of the day, it enables us to get higher monetization from those sellers and from the local marketplace. Yanfang Jiang: Understood. Another, I guess, topic I want to touch upon is actually your fulfillment leverage. You guys continue to show the leverage there. Just given you are going to very high growth momentum, especially in some of the countries, how sustainable is, I think, the fulfillment leverage? Are any logistic capacity constraints or upcoming investment we should be mindful? Francis Dufay: I'll spend some time on fulfillment. It's an important one because it's our biggest cost bucket. So first of all, I mean, we're still seeing some leverage on costs this quarter with the fulfillment cost per order that's declining 10% in local currency and it's almost all local OpEx. So the local currency view is relevant. But we're not happy with the progress, right? In dollars, we're flat year-over-year at $2.1 per gross order. We want to do better than that. So just to set the stage, we're not happy with the progress here, although there is some leverage that visible in local currency. We believe those cost per order should keep on going down going forward. And scale should play in our favor. There can be very specific temporary cases where like very high volumes lead to some level of inefficiency, but that's really not what should happen across countries and over the long run. So looking specifically at the improvements and the leverage we have on that fulfillment cost per order, we have a lot of work that has -- well, that has been ongoing over the past 2 quarters already. On the fulfillment -- so on fulfillment staff cost, which is about 1/3 of the cost here, we have a big push for higher productivity and more automation. We're rolling out at the moment, for example, new tools at the warehouse to increase productivity and tracking of the workforce. So we believe we have some potential to improve there. And on the transport side, which is around 2/3 of the fulfillment staff cost, about 60%. So on transport, which is basically all the money we're paying to our local logistics partners. We have recently implemented a renegotiation of all the fees, I mean, a reduction of all the fees. Some of that will be partly offset by the fuel price increases, which will lead to surcharges in some countries. But over the long run, as prices will normalize, we expect the surcharges to go away. And we are working to improve also the efficiency of our local partners for logistics, so we can renegotiate their fees. So we're working on new tools to make middle-mile trucking more efficient for our partners so we're able to split the savings with them. And this will be operational later this year. So we still have a lot to do and we still have a lot of efficiencies to capture there. It's a lot of hard work, right? We're using more and more AI to make it more efficient in supply chain as well. Part of it depends on tech progress, which we're seeing on the ground and scale should be a tailwind in this regard. Yes, I hope that answers the question. Yanfang Jiang: Yes, that's very helpful. Lastly, more on housekeeping. Can you provide some color on the FX -- latest FX trends for your key countries? Francis Dufay: Yes, Antoine, do you want to take FX? Antoine Maillet-Mezeray: Yes. So you can see that we've had a disconnect between the progress we made on the adjusted EBITDA basis and the net loss before tax. And this was driven by Forex exchange, which was noncash. If you compare to Q1 '25 last year, we had a net FX gain of USD 2.1 million. And this year, we have recorded a loss of $3.5 million. Again, that swing is not cash-based. There is no cash impact. And this reflects the impact of FX swing on intercompany balances that we have between the total holding and the operations. We are working actively on this one to reduce the impact of the Forex by accelerating repatriating cash and other restructuring operations. This was for the finance and accounting part. On the business side, before Francis comments, if you want, we see some impact, but what is important for us is that the movements are not too violent so that our vendors do not hesitate to import in the countries, which has been the case this year. So so far, we are able to handle properly the FX swing that we are seeing. Francis Dufay: Yes. I'll just add briefly on that. We've seen huge swings in FX over the past 4 years across our key countries like Nigeria and Egypt. There's no such thing happening right now. Local currencies have been behaving much more strongly even over the past few months. And as Antoine mentioned, the most important part here is that it's not impacting suppliers' confidence. It's not impacting customers' purchasing power in any significant way and we're not seeing any disruption in the business because of this. Operator: We have reached the end of the question-and-answer session and conference call. You may disconnect your phone lines at this time. Thank you for your participation.
Operator: Welcome to the Fortuna Mining Corp. Q1 2026 Financial and Operational Results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, 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 Corp.'s call to discuss our financial and operational results for 2026. Hosting today's call on behalf of Fortuna Mining Corp. are: Jorge Alberto Ganoza, President, Chief Executive Officer, and Co-Founder; Luis Dario Ganoza, Chief Financial Officer; David Edward Whittle, Chief Operating Officer, West Africa; and Cesar E. 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 the reader advisories included in yesterday's news release, the webcast presentation, our 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 Mining Corp. Senior Vice President, Chemical Services, and a qualified person as defined by National Instrument 43-101. I will now turn the call over to Jorge Alberto Ganoza, President, Chief Executive Officer, and Co-Founder of Fortuna Mining Corp. Jorge Alberto Ganoza: Thank you, Carlos, and good morning, and thank you for joining us today. 2026 marked an exceptionally strong start to the year for Fortuna Mining Corp. We delivered strong operational and financial performance, and importantly, we achieved these results with zero recorded lost time injuries during the period. This extends our safety performance to five 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 Mining Corp. We are 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 Côte d’Ivoire and by bringing our Diamba Sud project in Senegal into production. The key message I want to emphasize is that we control this growth. This growth is driven by two projects already within our portfolio, not dependent on acquisitions or exploration success. Both Seguela and Diamba Sud are technically straightforward, benefit from strong social acceptance, and are financially de-risked. 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, costs, 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 probable mineral reserves increased by 50% 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 Diamba Sud feasibility study and the Seguela expansion study are expected to be completed in May, providing greater technical and economic visibility on our growth plans. In parallel, we are expecting environmental approval for Diamba Sud imminently, followed by the final mining permit shortly thereafter. All this as we continue to advance the Diamba Sud 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 Mining Corp. 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 non-sustaining 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 all-in sustaining cost in the first quarter: $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. These factors are not reflective of underlying operating execution, which remains solid across the portfolio. With that, I will now turn the call over to David Edward Whittle for West Africa operations. David Edward Whittle: Thank you, Jorge. Seguela delivered a successful first quarter, with strong production results and importantly zero LTIs reported. During the quarter, Seguela 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 to 1. The processing plant treated 430,000 tonnes of ore at an average gold grade of 3.21 grams per tonne, with throughput averaging 212 tonnes per hour. Production was sourced primarily from the Antenna, Fiery, and Koula pits, while waste mining progressed well at the Sunbird pit, positioning the operation for future ore contribution from that area. Seguela’s strong operating performance resulted in a cash cost of $679 per ounce and an all-in sustaining cost of $10.06176 million per ounce of gold. In terms of projects underway at Seguela, 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 sourced from the solar power plant providing approximately a 35% per-unit cost saving on power provided 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 ore for Seguela. A joint permitting committee has been established with Côte d’Ivoire’s Ministry of Mines with the goal of permitting the underground mine by 2026. Initial development is then targeted for 2027. We have also decided to develop and operate the Sunbird underground mine on an 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 will be established from the southern section of the Sunbird pit rather than through the originally contemplated dedicated boxcut excavation. This section of the Sunbird pit was not scheduled to be mined until 2027. While accelerating this mining has the effect of increasing Seguela’s forecast AISC 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 boxcut option. Mining of the Sunbird South pit has now commenced. Studies for the proposed processing plant expansion continued throughout the first quarter. Lycopodium, which designed and constructed the current processing plant, presented several expansion options and is now progressing detailed studies on the selected option, which includes the addition of a ball mill as well as increased thickening, leaching, and gravity circuit capacity. The current primary crushing capacity is expected to be sufficient to support the planned throughput increase. Exploration drilling at Seguela is ongoing with additional drill rigs being mobilized to site, bringing the exploration drilling fleet to seven rigs. 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 pit and the newly discovered near-surface footwall opportunity. At the Diamba Sud early works, programs and exploration activities continue 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 of mineral reserves in support of the construction decision by mid-year. Thank you. Back to you, Jorge. Jorge Alberto Ganoza: Thank you, David. Now we will move on to Latin America. Cesar? Cesar E. 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. At Lindero in Argentina, the quarter was defined by strong operating delivery and the successful execution of a critical maintenance milestone, which positions the operation well for the rest of the year. We mined 1.7 million tonnes of ore at a favorable strip ratio of 1.35 to 1, and placed 1.5 million tonnes on the leach pad at an average head grade of 0.62 grams per tonne 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 2025. From an operational standpoint, the mine performed as expected with improving momentum. The most important development in the quarter was the completion of the primary crusher foundation replacement. I want to highlight three 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 plant returned 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% and 59.5%, respectively, compared to 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 AISC of $1,783 per ounce. As expected, these costs were slightly affected primarily due to temporary and non-recurring factors such as equipment rentals and temporary crushing solutions associated with the primary crusher project, maintenance interventions, 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 temporary measures are removed, capital work is completed, and efficiency gains are fully realized. As a result, we continue to expect AISC to move toward $1,300 per ounce by the fourth quarter. Finally, on growth, we continue to advance both near-mine and regional exploration. At 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 Cerro Lindo, where activities started in March with camp construction completed and drilling now underway. During April, we also began the first phase of our 2026 drilling program at Alisaro. This 11,400-meter program is designed to test for deeper, fertile, intrusive centers 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. 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 of zinc and 8.2 million pounds of lead. Mine production totaled 136,007 tonnes of ore in the first quarter, which continues to come from well-established mining zones from the Animas vein, Pumoid vein, and Ramal Carolina vein, which supports operational stability and predictability. From a financial perspective, Caylloma 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. On costs, we reported cash cost of $30.26 per ounce and AISC of $44.36 per ounce of silver equivalent, similar to 2025. This was mainly explained by the increased impact of higher prices on the silver equivalent conversion, while production costs remained in line with plan for the quarter. The underlying operating cost base remains stable and well controlled. Finally, on exploration, the 2026 campaign commenced in February, targeting extensions to ore shoots three and four at the Animas zone where mineralization remains open. Thank you, and back to you, Jorge. Jorge Alberto Ganoza: Thank you. We will now go over the financial highlights with our CFO, Luis. Luis Dario Ganoza: Yes, thank you. I will 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 is 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 2025, and $2,884 per ounce in 2025. Cash cost per gold equivalent ounce was $951, broadly consistent with the prior quarter and slightly above 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 fuels specifically, we have seen rising prices at our Peruvian operations, while in Argentina and in Côte d’Ivoire, 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 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 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 roughly the 28% to 30% level we have 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 two 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 non-sustaining spend. The non-sustaining total included $8.8 million at the Diamba Sud 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 Alberto Ganoza: Thank you. Carlos? Carlos Baca: We would now like to open the call to questions. Holly, please go ahead. Operator: Certainly. At this time, we will begin a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from National Bank. Analyst: Hi, Jorge and team. Thanks for taking my question. Maybe if I can start with Seguela. During the quarter, you reported cash cost around $678, which is below the guidance of $735 to $815. Would you be able to give us a little bit of color on what is leading to that cost out? Understanding that you produced 42,000 ounces, but is there any improvement in the unit mining cost or unit processing cost that you are seeing, and any commentary as well as impact on fuel in country would be very useful. Thank you. Jorge Alberto Ganoza: David, do you want to tackle the question? David Edward Whittle: Yes, I can. There are probably three main drivers behind the cash cost for the first quarter. The first one, obviously, which you have already mentioned, is that we increased our gold output compared to previous quarters, moving to 42,000 ounces, so probably about a good 14% to 15% higher than previous quarters. The other drivers would be an accounting aspect. Depending on the schedule, the stripping is defaulting to the OpEx component or is part of the sustaining CapEx, which obviously does not form part of the cash cost per ounce. The third component is with regard to the scheduling within the mine plan. Stripping ratio within the quarter was 13.9, which was a little bit lower than our forecasted strip ratio for the year, which at the moment is scheduled to be a little bit over 16. So those are the three components: a simple accounting one in terms of which property the cost falls into, a lower strip ratio for the particular quarter, and then the additional ounces produced. Analyst: Thank you. That is very helpful. And maybe on unit cost pressure in country, are you seeing anything on fuel or diesel side, or anything impacting your mining or processing cost? David Edward Whittle: Not materially at this stage. We are starting to see some increases in grinding media, but nothing that is material. In terms of power costs, power costs are controlled by the Côte d’Ivoire government, and at this point in time, we have not been informed of any significant increases in gazetted power costs. Analyst: Great, thank you. And maybe the second question on Diamba Sud. I know that the technical report for that is likely due or an update due by May. What is the status of the permit with the central government? Do you have any update on that? David Edward Whittle: With regard to the permitting of Diamba Sud, the ESIA 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 exploitation permit we would expect to be in the middle of this year. So everything seems to be progressing pretty much in line with what we have outlined. Analyst: Thank you. I will get back in queue. Operator: Your next question is from Sternella. Analyst: Thank you so much for taking my call. I had a question around the cash and acquisition mandate. Specifically, when you are evaluating a West Africa acquisition, particularly an asset with existing processing infrastructure that you might toll mill or integrate with Seguela, 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 at an acquisition asset becomes your disclosure obligation under Form 8-K within four business days of determining materiality. So here is the question: if you are buying someone else’s mill, their 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 incidents or legacy vulnerabilities in their operational and technology stack that could become your problem—your disclosure obligation—the moment the deal closes? Thank you. Jorge Alberto Ganoza: The short answer is no. We have not been looking at targets at that level of development. Our latest acquisitions have focused more on pre-development stage opportunities, like we have done with the acquisition of Chesser Resources, which brought the Diamba Sud project to our portfolio back in 2023. We have made other investments. For example, we expanded our presence to Guyana that was announced a few weeks ago through an option agreement to form a joint venture, but that is also at the pre-research stage. Our acquisition and M&A mandate right now is focused more on pre-development stage opportunities, and I would have to refer to my lawyer to answer your question in more detail. Analyst: Thank you. Operator: Your next question for today is from Eric Winmill with Scotiabank. Eric Winmill: Jorge and team, thanks for taking my questions. Congrats on a good quarter. Maybe on Guyana, if you do not mind, just walking through a bit about what attracted you to the region. Do you see an opportunity potentially to accelerate your investments there, or maybe do more in-country in Guyana? Jorge Alberto Ganoza: Hello, Eric. Absolutely. We have been monitoring the Guiana Shield in general for some time—over a year. It has been on our watch list. As you well know, the geologic setting is very familiar to what we have in West Africa. We have been monitoring and searching for opportunity, and this recently announced Quartz Stone option agreement, I believe, is a very exciting entry point into the Guiana Shield. I was in Guyana only a few weeks ago and had the opportunity to meet with the Director of Mines, the Secretary or Ministry of Natural Resources and Environment, and the President of the country. There was a very consistent pro-business message from state authorities. Quartz Stone is, on its own, a very exciting opportunity. If we want to look at it from the proximology lens, it is roughly 30 to 35 kilometers away from where G2 has its exciting discovery, and we are in a very similar geologic setting—metasediments and metavolcanics against an intrusive through a big structure that hosts gold over a 26-kilometer stretch within the property. So lots of exciting geology there, and we have an exciting program there for us. Right now, we are very much focused not only on Quartz Stone, but also on expanding our presence in Guyana. We are looking at opportunities in Suriname as well. I would say those two places are where we find more opportunity and areas of focus for us right now. Eric Winmill: Okay, fantastic. Thank you. Maybe just one more if you do not mind. You are now planning to access Sunbird Underground from the open pit instead of a boxcut. That is going to start probably next year. Is it fair to say you will be drilling from underground there starting next year, or what are some of the critical path items you are looking for in the development path in Sunbird Underground? Jorge Alberto Ganoza: There was a bit of interference on the line, but I understand you are referring to exploration drilling and the start of underground development. Drilling will continue to take place from surface all through 2026 and very likely well into 2027. We are 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 Sunbird Deep. We are planning the underground mining and will continue to pursue that over the next at least 18 months, perhaps 24, from surface. Eric Winmill: Okay. That is helpful. I will hop back in the queue, but congrats again. Thanks. Operator: Your next question for today is from Adrian Vincent Day with Adrian Day Asset Management. Adrian Vincent Day: Good afternoon. How are you? A couple of general questions, if I may, and I will ask them together because they are connected. First, could you give us an overview of current exploration activities, particularly greenfields exploration—not the work at Seguela you have already talked about, but mostly greenfields? And how do you view greenfields exploration versus taking equity stakes in existing companies, because you have a couple of those you have done recently? And then that brings us to Guyana. In your minds, how do you view taking on an additional mine in an additional country—would you look at that as an opportunity to diversify your risk, or would you be more cautious on just adding one more country with its own needs and requirements? I am trying to see how you view all these different activities. Jorge Alberto Ganoza: Good questions, and I will start from the end. On diversifying risk, we are quite clear that Fortuna Mining Corp. has a business model where we sometimes play in the frontier. For us, mining has always been a frontier business, and we are happy to play in the frontier. We are designed for that. Everybody here is experienced with that. 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 perceived geopolitical risk, and what we ask in exchange is what we are enjoying right now in Senegal. Our time to cash flow is very short. As David pointed out during his intervention, we submitted our Environmental and Social Impact Assessment to the government in September, and we are expecting the approval of the environmental study imminently. So that is going to be seven to eight months to get full environmental and social approval from authorities to move ahead into construction. Those are the types of things we ask in exchange for that higher perceived geopolitical risk. We do not buy into the idea that there is unmanageable geopolitical risk. If you see the NAV of the company, it does not sit in one large asset. Our mines are not concentrated in one country. We have a good diversification of our mines and projects and, therefore, our NAV. It is not at risk in any one jurisdiction. That also brings managing the 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 Abidjan, where David Edward Whittle is our Chief Operating Officer looking after the business there, and in LATAM from the Lima office, where Cesar E. Velasco looks after the business. 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: 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. Again, it is a new jurisdiction; it is not necessarily a proven mining jurisdiction, but it offers tremendous opportunities not only on geologic endowment but also on ease of doing 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 yielded anything that meets our investment criteria. You will likely see us transferring resources from what we have been doing in Mexico into the Guiana Shield—basically Guyana and Suriname right now. Quartz Stone is a good anchor for our project, and we would certainly look to expand our presence with new opportunities in those two countries for now. On greenfields versus equity stakes, we do not have a set budget to make equity investments. Our assessment of equity investments is more by appointment. If there is geology we like, and a team we like—that is 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 Awalé in Côte d’Ivoire. We are the largest shareholder of Awalé Resources; we own 15% of the company, and Awalé has a very exciting discovery and continues expanding in geology that is of a lot of interest to us. Our greenfields are focused within the regions. We are active in Côte d’Ivoire, Guinea, and Senegal; we are retreating from Mexico and moving resources into Guyana; and we are active in Argentina and always looking for opportunities in Peru. We will make investments more by appointment rather than as a specific strategy and budget to make equity investments. Operator: As a reminder, if you would like to ask a question, please press 1. Once again, if there are any questions or comments, please press 1. 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 would like to thank everyone for joining us today. We appreciate your continued support and interest in Fortuna Mining Corp. 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 day, and thank you for standing by. Welcome to the Patria Investments Limited First Quarter 2026 Earnings. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would like to hand over the conference to our first speaker today, Andre Medina, Investor Relations Director. Please go ahead. Andre Medina: Good morning, everyone. Welcome to Patria Investments Limited’s First Quarter 2026 Earnings Call. Speaking today are Chief Executive Officer, Alex Saigh, and our Chief Financial Officer, [inaudible], who joins us for his first earnings call in this role. This morning, we issued a press release and earnings presentation available on our Investor Relations website and on Form 6-Ks filed with the SEC. A replay will be available on our IR website. As a reminder, today’s call contains forward-looking statements, is subject to risks and uncertainties, does not guarantee future performance, and undue reliance should not be placed on them. Please refer to the forward-looking statement disclaimer and risk factors in our most recent Form 20-F. Patria Investments Limited reports under IFRS and will reference non-IFRS measures. Reconciliations are in the earnings presentation. With that, I will now turn the call over to Alex. Alex Saigh: Thank you, Andre. Good morning, everyone. We started 2026 with solid operating performance as we continue to make progress expanding the breadth and reach of our platform. Our results this quarter reflect three consistent drivers: continued organic fundraising momentum, growth in fee-earning AUM, and differentiated investment performance across our investment strategies. Before I turn to the quarter, I want to formally welcome our new CFO for his first earnings call in the role. He has been a partner of this firm since 2024 and has been closely involved in our financial operations. He knows our business well, and I am confident he will bring a fresh perspective to the role. Now turning to the quarter. Fundraising totaled $2.1 billion, keeping us firmly on track to achieve our full-year guidance of $7 billion. We see upside potential as we work to beat our 2025 record fundraising of $7.7 billion, given the strength of investor demand we are seeing across the platform. Fee-earning AUM reached $45.8 billion, up approximately 12% from fourth quarter 2025 and 31% year-over-year, reflecting year-over-year organic growth and the closing of Solis, our Brazilian CLO platform, and three Brazilian REIT acquisitions, including RBR, Vectis, and Genial, which together added approximately $4.9 billion of fee-earning AUM. Pro forma for WP Global Partners, our co-investment platform in the United States, which closed on April 1, fee-earning AUM stands at approximately $47.5 billion. The growth in fee-earning AUM drove fee-related earnings of approximately $51 million for the quarter, up 19% year-over-year, and we remain on a solid path to achieve our full-year FRE guidance of $225 million to $245 million. To put this progress into context, annualizing our first quarter FRE and adding the $10 million to $15 million of seasonal incentive fees that typically crystallize in the fourth quarter gets us to roughly $215 million to $220 million, even before considering the additional revenue growth and margin expansion versus first quarter 2026 that we expect to see over the balance of the year. Finally, distributable earnings per share of $0.27 rose 14% year-over-year. Our CFO will take you through the financials in detail. I also want to highlight that subsequent to the quarter, Patria Investments Limited reached an important milestone as we completed our first issuance of $350 million of fixed-rate long-term debt. The notes were placed with a diversified group of institutional investors primarily in the United States, and the offering was approximately three times oversubscribed. This transaction extends our maturity profile, reduces our reliance on short-term credit facilities, and provides additional balance sheet flexibility. The notes include a mix of five-, seven-, and ten-year maturities with fixed coupons ranging from 6% to 6.6%, resulting in an average duration of 8.5 years and an average cost of 6.4% per year. Proceeds are being used to retire our existing revolving credit facilities, with the balance available to fund future growth initiatives. Pro forma for the offering, our net debt to FRE ratio stands at approximately 0.8x, consistent with our long-term target of 1x or less. Our CFO will provide more detail on our capital management outlook in his remarks. Of course, the bedrock of our ability to grow the business is investment performance, and we continue to generate attractive returns across our platform. As shown in our earnings presentation, the vast majority of our funds have historically outperformed their relevant benchmarks, with over 80% of our current fee-earning AUM, excluding SMAs and third-party managed funds, invested in funds that have exceeded their benchmarks since inception. This reflects the consistency of our investment process across cycles and strategies and remains the foundation of our LP relationships and our capacity to raise capital. I invite you to take a look at the return pages of our earnings presentation. For example, our largest strategy, Credit LATAM High Yield, with over $5 billion in fee-earning AUM, has generated 11% annualized net returns in U.S. dollars since inception 26 years ago, outperforming its benchmark by over 360 basis points, and it is outperforming its benchmark for all periods analyzed—year-to-date, one, three, and five years. Investment performance, of course, directly translates into revenue growth, as over 70% of our fee-earning AUM—mainly in credit, real estate, GPMS, and public equities—grows as our funds deliver positive performance according to their underlying market value. As a reminder, our drawdown vehicles charge fees on a cost basis, so marks in underlying portfolios do not affect management fees. Moving on, we are very pleased with our fundraising in the quarter, which reflected our continued momentum across multiple verticals. Our credit vertical continues to stand out, as we raised over $925 million across various strategies that keep attracting strong demand from local investors and, depending on the strategy, global investors as well. Of note, Solis contributed over $265 million in the quarter, quickly highlighting how this business is additive to our overall platform. The integration of Solis is progressing well and is expanding our capabilities in private structured credit, particularly in the Brazilian CLO market. This positions us to benefit from the continued development of non-bank financing in Brazil, which we view as a structural multiyear growth opportunity. We are also seeing strong interest in our dollar-denominated Private Credit LATAM Fund II from international investors and expect this to be a meaningful contributor to fundraising throughout the year. Infrastructure continues to attract sustained demand from global institutional investors and raised over $545 million in the quarter, particularly notable as we are not currently raising a flagship fund. We are seeing growing interest in large-scale SMA and co-investment mandates. Many of these mandates are targeted to specific initiatives, such as the data center project we announced in partnership with ByteDance that is now advancing through its construction phase, and we are in active conversations on additional transactions of comparable scale. This represents the kind of fee-generating structured mandate we expect to see with greater regularity as our product offering continues to develop. In addition, we continue to expand the breadth of our infrastructure platform into new strategies such as infrastructure core. In private equity, we raised $275 million through a co-investment opportunity and continue to develop a pipeline of additional co-investment and SMA transactions. We are also seeing growing traction in our local buyout Colombian fund and our high-growth reforest fund. Our ability to raise capital for co-investments reflects continued LP confidence in our origination capabilities, even considering the DPI challenge facing the more mature vintages of our flagship private equity buyout funds, Fund V and especially Fund IV. The DPI profile of our buyout funds reflects a slower realization environment as well as company-specific challenges. While lower interest rates would support improved exit activity, the new interest rate environment has not yet materialized. To address the challenges of that part of our business, we have recently appointed the leader of our value creation team to focus primarily on divestments, while the existing leader of our private active vertical will focus on investing our Buyout Fund VII and various SMAs and co-investment opportunities. Meanwhile, Buyout Fund VI and Buyout Fund VII portfolio companies are performing well, having generated an average EBITDA growth of 17% last year. Performance has also been strong for our growth equity and venture capital strategies, with flagship funds generating a net IRR in U.S. dollars of 13% and 17%, respectively. Now with respect to GPMS, first-quarter fundraising totaled around $265 million, and we anticipate that 2026 should be a good year for several reasons. First, this quarter’s fundraising includes a $139 million first close for our inaugural commingled co-investment vehicle, the Patria Co-Investment Partnership Fund. This highlights our ability to develop new products on top of acquired platforms. Second, we expect to complete the fundraise for our Secondaries Opportunity Fund V, or SOF V, in the coming months. We can share that SOF V has already received commitments in excess of its initial target of $500 million, and we believe the fund could reach close to $600 million by its final close, which would make it approximately 50% larger than its predecessor. This highlights our ability to enhance the commercial performance of existing products within acquired platforms. Finally, we are particularly pleased to see that our European program is seeing increased interest from a broad range of institutional investors, including local institutional clients in Latin America, as well as North American and Asian investors who are already part of Patria Investments Limited’s global client base. This is an important development I want to highlight: the incremental demand from existing investors who have partnered with us in Latin America and are now expanding their engagement with us into new strategies and, most notably, into new regions. Furthermore, the WP Global Partners acquisition, which closed on April 1, further strengthens our position in the U.S. lower middle market, adding a local institutional presence and origination network in a segment where track record and relationships are the primary competitive differentiators. Real estate fundraising outlook remains strong. Take two of our largest Brazilian REITs in logistics and urban retail, for example. They have over $100 million of capital already contracted, which should flow into fee-earning AUM in the coming quarters, highlighting what we believe to be one of our structural competitive advantages. The scale of our listed vehicles allows us to operate our asset exchange model, through which property owners transfer illiquid assets in exchange for shares of our large, liquid listed funds as a way to monetize their portfolios. This asset exchange program is generating an attractive fundraising pipeline that we believe is not only less dependent on the interest-rate environment than traditional fundraising, but also potentially less costly to originate as well. The RBR acquisition further enhances our scale and structural advantage, as we expect real estate—which is currently over 90% in permanent capital vehicles—to be a strong contributor to fundraising over the balance of the year. Reflecting on the growth and fundraising that we are experiencing across our platform, it is clear to us that we have significantly diversified our firm’s investment and distribution capabilities both organically and inorganically. We believe we now have at least 10 investment strategies with flagship funds with the potential to raise more than $1 billion each per fund, up from just two flagship funds at the time of our IPO. All of our fundraising initiatives reinforce and support the high quality of our asset base, as over 85% of our fee-earning AUM is in vehicles with no or limited redemptions, and our permanent capital base now stands at $10.7 billion, or roughly 23% of total fee-earning AUM. In addition, pending fee-earning AUM—capital committed that would earn fees as deployed—increased about 17% to approximately $3.3 billion in the quarter, providing additional visibility into future management fee revenues. At our December 2024 Investor Day, we set a three-year cumulative performance-related earnings, or PRE, target of $120 million to $140 million for the period from fourth quarter 2024 through year-end 2027. Having generated approximately $62 million through 1Q26, Infrastructure Fund III continues to support this progress, with about $19 million of net accrued carry well positioned for monetization this year. As we approach the midterm of our guidance period, and gain greater visibility into Private Active Fund VI, which has $237 million of net accrued carry, we now expect PRE realization to take longer, making contributions more likely beyond 2027 rather than within our original time frame. Importantly, this is a timing issue, not a value one, and Private Equity Buyout Fund VI is well positioned to be a significant PRE contributor in 2028 and beyond. Meanwhile, we are encouraged by the expansion of our PRE sources across growth, venture, real estate, and credit, which together have about $13 million of growing net accrued carry, some of which could generate PRE in 2027. Taking it all together, we believe cumulative PRE for the 4Q24 through 4Q27 period can reach $80 million to $100 million, with upside potential if markets improve and divestment activity accelerates. Now let me share a brief perspective on the operating macro environment. Having invested across Latin America through multiple cycles for nearly 40 years, we bring long-term perspective, deep local knowledge, and resilience that few can match. We continue to believe the region’s exposure to commodities, its evolving renewable energy mix, and its significant infrastructure needs make it an area of sustained structural interest for global capital well beyond short-term market dynamics. Given the recent geopolitical developments you are well aware of, we are seeing growing engagement from global investors, with institutional allocators across Asia and Europe increasingly turning their attention to Latin America and engaging with us across a broader and more diversified set of strategies than has historically been the case. This reflects not just interest in the region, but confidence in our integrated platform, scale, and execution capabilities. We are continuing to invest in our ability to meet this demand, and we believe we are uniquely positioned to capture these opportunities. In summary, we are executing consistently across the business. Fundraising is on track. Our asset base is predominantly long-duration and non-redeemable. Our investment performance is solid, and we remain confident in our ability to achieve our full-year objectives. With that, I will hand the call to our CFO. Thank you. Unknown Speaker: Thank you, Alex. Good morning, everyone. I am pleased to be here for my first earnings call as CFO. I have been deeply involved with Patria Investments Limited since 2023, and I aim to bring continued transparency, a focus on the quality of our earnings, and, over time, improvements in the clarity of our financial disclosures. Now let me take you through the first quarter results. Total fee revenues for the first quarter were approximately $92.6 million, up 20% year-over-year from $77.3 million in first quarter 2025 and up 3% sequentially from fourth quarter 2025 excluding the incentive fees that typically crystallize in the fourth quarter. The year-over-year growth reflects the full-quarter contribution of Solis and the Brazilian REITs acquired through 2025, two months of RBR, organic fee AUM growth, and the net FX and performance effect. Our last-twelve-months management fee rate was approximately 87 basis points in the quarter, reflecting the full-quarter impact of Solis in first quarter as well as stronger growth in credit, real estate, GPMS, and various co-investments and SMAs over recent quarters. Independently of fluctuations in average fee rates—and as evidenced by our margin outlook to be discussed in a few moments—the economics of these products remain very attractive given their open, high incremental margin and the sticky and long-duration structure of the mandates, which can include permanent capital vehicles. Regarding expenses, total compensation and operating expenses for the quarter were $42 million, up 14% sequentially from fourth quarter 2025. The increase reflects integration of recent acquisitions, planned investments in distribution and investment capabilities, and the seasonal reset of compensation programs at the start of the year. Fee-related earnings for the quarter were approximately $50.5 million, up 19% year-over-year, showing an FRE margin of 54.6%. The margin reflects the contribution of the acquisitions closed in the quarter, platform investments, and seasonal compensation timing, all consistent with our prior guidance on quarterly phasing. We expect the margin to improve progressively through the year as management fee growth continues, integration work evolves, and expense growth moderates. We remain comfortable with our long-term FRE margin of 58% to 60%. Overall, we are reaffirming full-year 2026 FRE guidance of $225 million to $245 million, or $1.42 to $1.54 per share, approximately 15% to 16% growth from last year’s $202.5 million. We are also maintaining our 2027 FRE target of $260 million to $290 million. Total distributable earnings for the quarter were $42.4 million, or $0.27 per share, up 14% year-over-year on a per-share basis. Growth was driven primarily by FRE. Alex has updated you on our PRE expectations, so let me turn to stock-based compensation. Stock-based compensation in the quarter was $10.1 million. Based on current programs, we expect full-year 2026 and 2027 stock-based compensation to represent between 10% to 11% of total fee revenues, respectively. The expected nominal increase reflects an intentional expansion of equity ownership deeper into the organization and a higher proportion of total compensation delivered in equity for key employees. When benchmarked against listed alternative manager peers, we believe our stock-based compensation profile is consistent with the group. Finally, we believe that over the long term, our stock-based compensation will moderate as a percent of net revenues as our business scales. Now a brief note on taxes. The first-quarter effective rate was approximately 10% to 13%, reflecting our evolving business mix and consistent with our guidance. This is driven by country mix as we engage in acquisitions with higher tax burden, which increase the total tax expense. Regarding the balance sheet, I want to take the opportunity to help you understand Patria Investments Limited’s updated liquidity profile following the completion of our debt private placement, which, as Alex noted, extends our maturity profile, eliminates reliance on revolving credit facilities, and provides fixed-rate capital for future business development. To facilitate this, we have added a specific slide to the reconciliation and disclosures sections of our earnings presentation available on our website. Between proceeds from the debt offering and cash generation, we expect to have ample capacity to meet all of our obligations, pay out dividends, reinvest in the business, and buy back shares while maintaining a conservatively structured balance sheet. In this context, share count for the quarter was 159.1 million shares, inclusive of 893 thousand shares repurchased directly in the market for $12.7 million and the initial implementation of a new total return swap, or TRS, of an additional 840 thousand shares. It remains our goal to maintain the share count in the 158 million to 160 million range. To summarize, our financial picture is straightforward. We have a business generating growing, sticky cash flows from a highly diversified and predominantly long-duration and non-redeemable asset base. Our fundraising momentum continues and fee-related earnings are growing, giving us confidence that we are on track to meet our objectives. In addition, the balance sheet remains strong and positioned to support future growth initiatives. We look forward to your questions. Thank you. Operator: At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Craig Siegenthaler from Bank of America. Your line is now open. Craig Siegenthaler: Good morning, Alessandra. Hope everyone is doing well. Hi, Alex. Thanks for taking my questions. You have a big election coming up in Brazil. I was wondering if you could talk about what the outcomes could mean for the asset management industry in Brazil and Patria Investments Limited, even though I know Brazil has been a shrinking part of your overall business given your diversification? Alex Saigh: Yes, of course. As you know, it is pretty tight between the two runner-ups, the current president, Lula, and the son of Mr. Bolsonaro, the ex-president, under the name of Flavio. It is very hard to say which way it is going to go. A scenario of having a fourth mandate of Mr. Lula is more of the same, and in our view we would see an environment with higher inflation and therefore higher interest rates driven by fiscal indiscipline that is currently the trademark of Mr. Lula’s government. The main difference for the asset management industry, Craig, is a higher inflation, higher interest rate environment under Mr. Lula’s government, and a lower inflation, lower interest rate environment under Mr. Bolsonaro’s. Even though in the first moment it would be hard for Mr. Bolsonaro to reduce the deficits immediately, projections would show that he would work on that deficit, and the yield curve would start showing a decline in interest rates during his four-year mandate. Under Lula, we think the environment will be more likely higher rates. Where does Patria Investments Limited stand in that? Our credit business will continue to perform extremely well, as it is right now, as you saw in fundraising over the last years and the last quarter—record fundraising for our credit products. We are expanding our credit portfolio mainly in Brazil. The acquisition of Solis positions us well. Non-bank financing in Brazil is a huge, multiyear opportunity. We want to place Patria Investments Limited in credit the same way we placed the firm in the REITs business in Brazil. Today, we are the number one leader of a R$250 billion-plus industry that is growing at double digits. In 2025, it was the first year that capital markets’ non-bank financing surpassed bank financing for corporations in Brazil. Due to regulation and Basel restrictions, banks are lending less, and capital markets surpassed banks in lending for the first time. For individuals, the same dynamic will happen. The right structures are through Solis and our FIIs focused on real estate credit. The opportunity is immense. We are positioning ourselves to continue expanding our credit business and our real estate business that does not relate to credit. On the other side, equities might continue to suffer given a high-rate environment under Lula. Under Bolsonaro, credit would continue to be a major source of income for us, and while it would take some time to reduce inflation and rates, the yield curve would project a decrease; brick-and-mortar real estate and equities would fare better. Given our 40-year experience in Brazil, we are maintaining a broad spectrum of products, with a strong bet on private credit and non-bank financing as an engine of growth, followed by real estate. GPMS is growing a lot outside LatAm for us. Infrastructure is inflation-hedged; with a higher inflation environment under Lula, that also should benefit. During his prior three terms, Lula promoted one of the largest concession programs in the world—toll roads, water and sanitation, etc.—and we are benefiting a lot through our infrastructure vertical, which has contracted revenues indexed to inflation. That should favor infrastructure under Lula as well. I hope that answers your question, Craig. Craig Siegenthaler: Great, very comprehensive. For my follow-up, Brazilian public equities have been very strong over the last 12-plus months. How has this impacted your realization outlook, which should make IPO exits easier? I am especially looking at some of your older vintage private equity funds like Fund IV and V. Alex Saigh: Yes, all true. Listed securities benefited first from flows to the region, even with Lula’s fiscal imbalance concerns, and we saw strong appreciation. Last year, our public equities funds returned from 40% to 60% in reais and even more in U.S. dollars. Our credit funds with listed securities also saw market value gains. We are now seeing some of that flow into private markets—it takes a bit longer to ripple down. We are using this momentum to exit most of our companies in our Private Equity Fund IV, Private Equity Fund V, Infrastructure Fund II, and Infrastructure Fund III, and using this momentum to clean our portfolio and send money back to investors. Even with exits under execution, we do not expect performance fees for Private Active Fund IV. Private Active Fund V might generate performance fees, but Private Active Fund IV will not. Infrastructure Fund II will not generate performance fees, but Infrastructure Fund III will, and it has been paying performance over the last years; we see it continuing to pay performance fees in 2026. Thank you. Craig Siegenthaler: Thank you, Alex. Operator: Our next question comes from the line of Lindsey Marie Shema from Goldman Sachs. Your line is now open. Lindsey Marie Shema: Hi. Good morning, Alex and Andre, and welcome to the new CFO—looking forward to working with you. Maybe following up on the private equity outlook and performance fees. On the last call you mentioned that the not-official accrued but Private Equity Fund V performance fees were running around $40 million. Is that still the case? What has changed since then to take it out of carry? I know it is volatile, but please update us on the outlook there. And then more broadly, what do you really need to see? I know rates are a factor and you mentioned momentum from inflows into Brazil. You now have a person entirely focused on divestments—so is the upside really just on rates, or is there more momentum? Please help us understand the factors that led to revising down guidance and what could be upside there. Alex Saigh: Thank you, Lindsey. As mentioned, we do not expect performance fees coming from Private Active Fund IV. We are selling companies from Fund IV and generating DPI for investors, but not enough for carry—not even close. For Private Active Fund V, we are conservatively valuing companies across the portfolio. The upside is that if we can sell companies above our current marks, then it would generate performance fees, but today I prefer to be conservative and not have expectations of performance fees from Private Active Fund V either. Fund IV—pretty sure no carry. Fund V—we are being conservative. Private Active Fund VI has over $230 million of net accrued carry, and Fund VII is too early, but companies are performing very well. Our growth equity funds are performing very well. We have a large asset in Growth I—PetLove, the online pet business and market leader in Brazil—that is now a sizable investment and can generate sizable performance fees. We do not see it within the 2027 range; upside could be 2027, which is why we reduced expectations for the 2027 period. Venture also is shaping extremely well with high DPI. Plus, performance fees can come from other asset classes like real estate and credit. Lastly, even if we generate $80 million to $100 million of performance fees versus the prior $120 million to $140 million, the difference of $40 million to $60 million over three years is roughly $13 million to $20 million per year added to DE. Given our FRE projection of $225 million to $245 million this year and $260 million to $290 million next year, an additional $13 million to $20 million is relatively small in percentage terms. Performance fees are becoming less relevant to our business and results by strategy: we have moved more to NAV- and market-valued funds—REITs, public equities, credit, GPMS—where about 70% of our fee-earning AUM charges fees on market value, and 30% are drawdown funds with performance fees. Looking to 2030, our 2030 vision will continue that path—expanding permanent capital and listed funds charging on market value—making performance fees even less relevant and our results more predictable and visible. That predictability is what bond investors and rating agencies appreciated in our recent notes offering. I hope that answers your question. Lindsey Marie Shema: That was great—heard you on the strategy moving more towards market-valued assets. One more question, more specific to this year: On expense growth in the quarter, could you break down by magnitude—how much was acquisition related, how much was investment, how much was comp resetting, how much was FX? How much can margin expand throughout the year? Could you reach your longer-term FRE margin target this year, or is that more of a 2027 topic? Alex Saigh: Short answer—yes, we can reach the 58% to 60% FRE margin this year. I will pass to our CFO for the breakdown. Unknown Speaker: Hello, Lindsey, and thank you for the question. We have three temporary factors that explain the first-quarter margin. First, integration costs from the Solis and RBR closings. Second, the seasonal compensation reset at the start of the year. Third, platform investments that were front-loaded. The path to the 58% to 60% margin is supported by simple math. Moving the margin from 54.6% to 58% on our $45.8 billion fee-earning AUM base generates approximately $50 million of additional FRE before any new fundraising contribution. On top of that, our $3.3 billion of pending fee AUM converts to fee-paying status through the year, and we expect $10 million to $15 million of seasonal incentive fees in the fourth quarter. Annualizing first-quarter FRE plus those incentive fees gets us to roughly $250 million, and the margin expansion plus organic growth reaches the rest. Regarding FX, we did have an impact on expenses in the first quarter, but remember we also have a positive impact on revenues; when viewed together, it nets through the bridge I just mentioned. Lindsey Marie Shema: Perfect. And just confirming, the $3.3 billion of pending fee AUM—is that all to be deployed this year, or only part? Alex Saigh: The plan is to deploy within a year, and at roughly 90 basis points average fee rate you can see around $25 million coming from there. Our expectation—and investors’ expectation—is to see the money on the ground being deployed in the next quarters. Lindsey Marie Shema: Okay. Perfect. Thank you so much. Alex Saigh: Thank you. Operator: Thank you. Our next question comes from the line of Guilherme F. Grespan from JPMorgan. Your line is now open. Guilherme F. Grespan: Thank you so much. Good morning, Alex and team. First question was answered regarding the pending AUM. Second question is on the average management fee rate. On the consolidated view there was a step down, mostly related to mix. On a per-segment basis for private equity and infrastructure—where there was no M&A—we saw a small step down. Can you confirm there was no step down or change to fee schedules for PE and Infra? Alex Saigh: Thanks, Guilherme—great question. Short answer: no fee pressure in private equity or infrastructure. What happens is mix. When we raise a flagship fund—which we are not doing this year—those post higher fee rates: private equity at 1.75% and 20%, infrastructure at roughly 1.5% to 1.6% and 15%. When we raise SMAs—like the data center SMA with ByteDance, or the toll road SMA we did with PIF and GIC—those are more in the 1% and 10% range. This year we are seeing SMAs, not flagship funds, so you see some lower average fee-rate movement. Private equity also raised an SMA for a large healthcare deal in Colombia and Chile related to assets formerly owned by UnitedHealthcare. We raised over $500 million there—about $200 million in first quarter, with another $200 million expected in second quarter. That SMA is 1% and 15% in private equity. So during years without flagship fundraising, you will see some mix-driven movements—no fee pressure. Large LPs that pay full fees in the flagship often co-invest at 1% and 10% as a way to get a blended discount, which is standard industry practice for the last 20 years. We do not reduce fees for flagship funds; we provide co-invest opportunities with lower fees. I hope that answers your question. Guilherme F. Grespan: Yes, super clear. Thank you, Alex. Operator: Our next question comes from the line of Nicolas Vaysselier from BNP Paribas. Your line is now open. Nicolas Vaysselier: Hello, hope you can hear me. Two questions. First, on co-invest in infrastructure and private equity—do you charge anything at all in terms of fees, or is it purely at zero? I understand it is necessary in the industry, but wondering if there is any revenue impact. Second, regarding your last acquisition in mid-market secondaries—would future M&A be focused on developed market capacities? You have talked about the United States quite a bit recently—will that be a focus near term? Alex Saigh: Nicolas, thank you. We do charge fees on co-investment vehicles, but there is typically a dollar-for-dollar match for very large investors. Example: if a large investor commits $300 million to a flagship fund, they often require that the first $300 million of co-invests be no fee, no carry. After that one-to-one threshold, we charge the standard co-invest fees—typically 1% and 10% in infrastructure, and 1% and 15% in private equity. If an investor is not in the main fund, they go straight to 1% and 10% (infra) or 1% and 15% (PE). I am generalizing, but that gives you the right picture; this is standard industry practice. On the United States and the WP acquisition: short answer, we do not intend to expand in the U.S. in a big way beyond GPMS. The WP acquisition was targeted to enhance our GPMS capabilities—primaries, secondaries, and co-invests—where two-thirds of our portfolio is European focused and our investors asked for a more global approach that includes a stronger U.S. presence in the lower middle market. Beyond strengthening GPMS, our focus is not expansion in the U.S. Our focus is LATAM and the U.K./Europe. The U.K. is effectively our second-largest alternative market opportunity (China is technically second globally, but harder for us to access). The U.K. market is very fragmented compared to the U.S., which has consolidated. We can see ourselves—through organic growth and acquisitions—becoming one of the top three to five alternative managers in the U.K., and therefore in Europe, across credit, GPMS, and real estate. So we will continue expanding where we already are: the U.K./Europe and LATAM—not the U.S., besides the GPMS enhancement. I hope that answers your question. Nicolas Vaysselier: Very clear, and thank you for the clarification. That was very useful. Alex Saigh: Thank you. Operator: I am showing no further questions at this time. This concludes our Q&A. I would like to turn it back to Alex Saigh for closing remarks. Alex Saigh: Thank you very much for your participation. It was a great quarter for us—strong performance starting with our funds, flowing through to fundraising of $2.1 billion for the quarter. We see upside on our $7 billion guidance and even the potential to beat the $7.7 billion record fundraising we had in 2025. Very strong FRE growth for us, confirming the $225 million to $245 million FRE for 2026 and a 58% to 60% FRE margin. Thank you for your participation. We hope to see you in person soon, and have a very good day. Operator: Thank you all for your participation in today’s conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Vontier First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. Replay will be made available shortly after. I'd like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead. Ryan Edelman: Thanks. Good morning, everyone, and thank you for joining us on the call this morning to discuss our first quarter results. With me on the call today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Executive Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call, we will present certain non-GAAP financial measures. We'll also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, please turn to Slide 3, and I'll turn the call over to Mark. Mark Morelli: Thanks, Ryan. Good morning, everyone, and thank you for joining us on the call this morning. Let's get started with a few high-level takeaways from the quarter. Vontier delivered solid sales and orders growth to start the year as we continue to gain traction on our connected mobility strategy. We're expanding our integrated offerings to capitalize on strong secular tailwinds across our end markets. Core sales grew nearly 2%, slightly ahead of our expectations, driven by strong performance in our Environmental & Fueling Solutions segment. Orders were up approximately 5% on a core basis, including strong demand for fueling equipment and key wins in retail solutions. Adjusted operating margin declined 70 basis points below our expectations, reflecting unfavorable mix and timing of R&D expenses. Importantly, the underlying fundamentals of the business are intact, and we are confident in our full year outlook as well as our ability to achieve the $15 million in savings related to ongoing simplification and 80/20 efforts. We're seeing meaningful momentum in our convenience retail end market, which strengthens our visibility and reinforces our confidence in the growth opportunity ahead. We have market-leading technologies that optimize our customers' operations, unmatched domain expertise to solve high-value problems and best-in-class channels to market. Growth within this end market was led by Environmental & Fueling Solutions with double-digit growth in both dispensers and aftermarket parts. Dispenser demand is strong, supported by the ongoing build-out and modernization of retail fueling infrastructure. The pull-through from advanced payment technology is helping to drive replacement and upgrade demand. As an example of this, we launched the next-generation FlexPay6 outdoor payment terminal in the first quarter. While bolstering our cloud-connected industry-leading payment security, it features a larger flush-mounted touchscreen along with an integrated card reader and PIN pad. It also enhances our unified payment solution by offering a more interactive consumer interface that helps reduce transaction times and improves engagement at the pump. We're also seeing strong momentum for our innovative technologies inside the store. Retail solutions, part of Invenco brand delivered strong growth in payment, media and point-of-sale systems. The convenience retail end market is resilient even in uncertain economic backdrops. Over the last 25 years, this end market has consistently demonstrated durability through periods of volatility. Higher oil prices have historically been a net positive as higher fuel margins drive improved profitability for C-store operators, enabling them to prioritize modernization, food and beverage offerings and invest in the consumer experience. Industry data suggests high retail fuel prices typically result in more frequent visits, which creates an opportunity for greater conversion for in-store sales as consumers place more emphasis on value. In prior cycles, higher fuel margins, combined with the trade-down effect as consumers shift toward lower-cost C-store options have created tailwinds to generate more cash flow for C-store operators. In turn, we see robust capital expenditures for multiyear storefront build-outs and retrofits. This is particularly true of larger regional and national C-store chains where we have higher share and they focus on delivering an elevated consumer experience. We're seeing this play out today. A good example is 7-Eleven's recently announced intention to remodel 7,000 stores across North America through 2030, standardizing around their more modern food and beverage focused format. This is in addition to the 1,300 new sites they expect to build over that same time horizon. This kind of long-term investment reinforces the strength of the category and the opportunity for Vontier. This morning, we also announced an important step in our portfolio simplification strategy. We've announced an agreement to sell our global fleet telematics business, Teletrac, for a total purchase price that values the business at $220 million. The purchase price consists of $80 million in cash proceeds and a $100 million seller's note, and Vontier will retain an approximate 30% equity stake in the business. We've outlined those details for you on Slide 4. The sale marks the completion of a successful multiyear turnaround of this business. At the time of our spin, Teletrac was churning out about 25% of customers with declining profitability and negative free cash flow. Since then, the team has meaningfully improved the business by launching a new platform, significantly reducing churn, accelerating ARR growth to mid-single digits, improving profitability and generating positive free cash flow. This has been a major effort for the Teletrac team, and we're grateful for their contributions. We believe Teletrac is well positioned for its next chapter of growth with better focus and access to capital under its new ownership. We expect this transaction to close in June, and we'll deploy the cash proceeds consistent with our disciplined capital allocation framework with a focus on additional share repurchases and selective bolt-on acquisitions. Before I turn the call over to Anshooman, I want to reiterate our confidence in the full year outlook. While the geopolitical backdrop added some uncertainty, demand trends remain constructive. We're also strengthening the foundation of our business to drive more profitable growth over time through commercial excellence and innovation and a relentless focus on execution. As we finalize the remaining organizational changes and implement our cost actions, we still expect incremental savings to ramp in the second half of this year. Combined with disciplined capital deployment, we are confident in our ability to deliver double-digit EPS growth. With that, I'll turn the call over to Anshooman to walk you through a more detailed review of the quarter's financials and our outlook. Anshooman Aga: Thanks, Mark, and good morning, everyone. Please turn to Slide 5 for a summary of our consolidated results for the quarter. Total sales of $751 million and core sales growth of 1.7% were above our guide, driven by notable strength at Environmental & Fueling Solutions with Mobility Tech and Repair Solutions generally performing in line with our expectations. As Mark mentioned in his remarks, adjusted operating profit margin fell short for the quarter, reflecting unfavorable mix and timing of operating expenses within both Mobility Tech and Repair. We expect full year margins to be consistent with our previous guidance. Adjusted EPS was $0.80, up 4% year-over-year. Adjusted free cash flow was below our normal seasonal pattern and prior year. The timing of our semiannual bond interest payment of approximately $19 million was in Q1 this year versus Q2 last year. Additionally, Q1 had an extra payroll run compared to the previous year, along with higher incentive compensation driven by the strong performance in fiscal 2025. We expect several of these timing differences to level out during the year, and we expect free cash flow conversion of around 95%. Turning to our segment results, beginning on Slide 6. Environmental & Fueling Solutions started the year off strong, benefiting from solid industry demand and an innovative product portfolio, driving higher new equipment and aftermarket activity. Total dispenser sales increased low double digits on a global basis, led by strength in North America. We saw notable bookings and sales strength from large national accounts, evidence of stable CapEx budgets. Segment margin was flat at nearly 30%, with volume leverage and ongoing productivity actions offset by less favorable mix. Moving to Mobility Technologies on Slide 7. Core sales declined by about 1% as strong underlying demand for convenience retail technologies was offset by more than a $25 million headwind associated with higher shipments for our Vehicle Identification Solution, or VIS in the prior year. Our commercial pipeline is robust, and we continue to win new business for integrated solutions, including orders for our unified payment point-of-sale and VIS offerings. The consolidated Mobility Technologies segment margin declined 260 basis points, driven by unfavorable mix and higher operating expense. On the OpEx side, we incurred higher R&D expenses in order to accelerate new product launches. At the same time, our cost-out activities are ramping in Q2, giving us momentum for the back half of the year. On the mix side, product and geographic mix impacted margins in Q1, which we expect to recover in Q2 and the balance of the year. When you combine this with stronger volume growth and incremental benefits from our cost initiatives in the second half, we remain on track for solid margin expansion this year. Additionally, the divestiture of Teletrac will be accretive to margin performance for the segment and Vontier overall. Finally, turning to Repair Solutions on Slide 8. Sales performance was in line with our expectations with progress on our growth initiatives successfully offsetting pressure on technicians' discretionary spending. This was most notable in our Tool Storage, Diagnostics and Power Tools categories. Additionally, we are focused on quicker payback tools that improve technicians' productivity. The lower segment margin can be attributed to unfavorable product mix and a discrete bad debt reserve of about $2 million related to delayed collections caused by the implementation of a new financial system. We're making good progress in collections and would expect to recover a majority of this reserve over the next several months. Turning to the balance sheet on Slide 9. Adjusted free cash flow of $28 million was impacted by the working capital items I highlighted earlier. We accelerated share repurchase in the quarter, buying back $70 million given the market dislocation. While we will maintain some flexibility on cash, given an increasingly actionable deal pipeline at current valuations, buybacks remain a very compelling use of cash. To address the $500 million bond maturity at the end of the quarter, we used about $200 million in cash on hand to repay a portion of the bond and issued a new 364-day term loan for the remaining $300 million at a relatively attractive spread. We ended the quarter with over $200 million in cash on the balance sheet and net leverage at 2.4x. Please turn to Slide 10 to discuss our guidance for 2026 and Q2. Beginning with a look at our full year guidance. What is shown here is what our guide would have been prior to the Teletrac divestiture, the impact that divestiture will have on our P&L, landing on our official guide, which includes the removal of Teletrac's results in the last column of this table. Importantly, there are no changes to the underlying fundamentals of our previous guidance, and we are only adjusting our guide to reflect the removal of Teletrac. We are assuming the transaction closes in early June, which means we remove about 7 months of contribution. Following this adjustment, relative to our previous guide, we lose about $110 million in sales, bringing the midpoint of our new range to just over $3 billion. Teletrac has little to no impact on our organic growth, but will be accretive to our margin rate by about 50 basis points. We now expect operating margin to expand by about 130 basis points to approximately 22.5%, which includes the contribution from the $15 million savings initiatives over the balance of the year. On a gross basis, the transaction will be about $0.05 dilutive to EPS for the full year. However, the interest received from the seller's note and the benefit from share buyback offset that EPS headwind, so we leave our full year range unchanged at $3.35 to $3.50. Our outlook for adjusted free cash flow conversion remains at 95%, representing around 15% of sales. Looking at our guide for Q2 on Slide 11, we follow the same format. We expect sales in the range of $730 million to $740 million, with core sales down about 1% at the midpoint, which implies the first half at roughly flat, in line with the initial outlook we outlined for you on the Q4 call. As you may recall, shipment timing of the vehicle identification system in the prior year drove high teens growth in Mobility Tech, along with 11% core growth for overall Vontier. This compare issue starts easing in the third quarter. Margins will begin to accelerate in the second quarter, expanding approximately 80 basis points, reflecting lower operating expenses. EPS will be in the range of $0.78 to $0.81, including a $0.01 headwind from the divestiture. As we highlighted on our last call, the year-over-year organic growth rates will look better in the second half, accounting for first half compare issues at EFS and Mobility Tech and the timing of shipments on projects in backlog, which favor Q3 and Q4. As always, we've included some other modeling assumptions on the right-hand side of the slide, which have also been updated to reflect the divestiture impact on the top line and adjustments still below-the-line items. With that, I'll pass the call back to Mark for his closing comments. Mark Morelli: Thank you, Anshooman. We're encouraged by the start to the year and by the underlying momentum across our most important end markets. I'd like to thank the entire Vontier team for their hard work and dedication to delivering for our customers and each other. As we look ahead, one of the most important evolutions underway at Vontier is how we operate the business. Historically, we've operated largely through individual lines of business. Over the past 2 quarters, we've reorganized significantly from the customer back, streamlining operations, raising the bar on operational excellence and becoming a more integrated enterprise. Today, our go-to-market strategy is deployed around 3 core end markets: convenience retail, fleet and repair. This shift is simplifying how we operate and setting the foundation for greater scale over time. By aligning around our customers, we bring more depth and expertise to enable integrated solutions. We believe this customer-led model strengthens our competitive advantage, improves how we innovate and sell and positions Vontier to deliver more consistent growth, margin expansion and long-term value creation. We believe our connected mobility strategy is the right long-term strategy for Vontier, and we are focused on executing with discipline to convert that strategy into durable top line growth, stronger profitability and greater value for shareholders. We have strong leadership positions in attractive and resilient end markets that offer significant opportunities. That means we need to continue to drive commercial excellence while also maintaining a relentless focus on execution, simplification and disciplined capital allocation. As we do this, we believe we are well positioned to deliver on our commitments and create meaningful long-term shareholder value. With that, operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from David Raso of Evercore ISI. David Raso: Two questions. One about the mobility mix moving forward and also the use of the proceeds on the divestiture. On the margin mix, can you help us a bit how you're thinking about the various pieces within Mobility, the growth the rest of the year? Just the margin in mobility was a little bit lower than I would have thought. And you mentioned also some costs involved. So maybe if you can help break out that margin decline year-over-year and again, how to think about the mix for the rest of the year? And then lastly, on the repo, the share count for the full year, it looks like maybe you are assuming it depends on the, obviously, share price, but maybe another $75 million, $100 million of repo after the $70 million guide in 2Q. I just want to make sure I'm thinking about that correctly. Anshooman Aga: David, thanks for the question. So for Mobility Tech margins for Q1, there were really 2 items that impacted margins. One was mix and mix really was product, customer and geographic mix played out differently versus our expectations and also historical norms. The second piece is higher R&D expenses in the tune of a couple of million dollars. And this was really accelerated spend on launch of new products. In the prepared remarks, Mark talked about the next-generation FlexPay6 products, which brings a lot of customer benefits that we launched, but also the redesign of some of our printed circuit boards for the memory chip shortage working around that, that drove the higher R&D expense. Coming back to the rest of the year for Mobility Tech, we've already seen in April, the mix normalize back to what we would expect in our historical norms. And also on the OpEx, we're confident that we'll get our $15 million savings. Part of it is obviously in Mobility Tech, and we're seeing traction on some of those saving actions in Q2 as we speak. So we feel pretty comfortable that for the full year, our guide for Vontier is unchanged other than the change for the divestiture of Teletrac. In terms of share buybacks, we've assumed about $150 million of buybacks for the year in the guide. We did $70 million already in Q1. So you can expect majority of the proceeds from the Teletrac divestiture would go towards buybacks at the current share price, buybacks remain extremely attractive from a capital allocation perspective. And additionally, we'll be generating a significant amount of free cash flow for the rest of the year. So that does give us optionality that's not built into the guide. David Raso: Okay. So to be clear, the $150 million, you'll have $140 million done by 2Q. So there isn't much baked into the second half at the moment? Anshooman Aga: Correct. David Raso: I appreciate it. Operator: And your next question comes from Julian Mitchell of Barclays. Julian Mitchell: I just wanted to start with maybe a longer-term question. So if I look at Slide 4, you've done another divestment today alongside a bunch of portfolio changes that you put on Slide 4. But I guess if I look at just the overall kind of history of this since it's spun out, the PE, I think, the first year after the spin was about 13, 14x. Now it's kind of 9 or 10x. Operating margins for the company are about where they were 5 years ago. So just I wondered to what extent the management, the Board are thinking about more radical portfolio options perhaps than shaving off one brand a year, adding another brand? Because certainly, the multiple doesn't seem to be reacting based on the last 5 years to these types of changes. Just wondered, again, the appetite to do something broader. Mark Morelli: Yes. Julian, this is Mark. Thanks for the question. Look, I think the way we've internalized the strategy and the pieces of the portfolio, I think we -- as a good example from the Teletrac one, you get accretive margin, you're left with a growthier space with less spend on R&D and a better drop-through. So I think when you take each piece incrementally, the portfolio is getting stronger. And we constantly look at our strategy. I think it's a step-by-step approach. I think the work we put into Teletrac Navman enabled a good transaction here and a good -- a better positioning for the overall portfolio. And I think we constantly look at the portfolio. We constantly look at what are the next set of actions that we think will drive greater shareholder value. And I think what we've got right now with the connected mobility strategy and a good backdrop with secular tailwinds from the majority of our portfolio here that, that strategy is working, and I think there'll definitely be a payoff as we continue to focus on that and improve the results. Julian Mitchell: Great. And then maybe a short-term one. So I think the operating margins are guided to be up 80 bps or so sequentially, and you have the expansion in Q2 year-on-year as well. Maybe just kind of flesh out how you're thinking about the segment level there, particularly repair, I guess, it looked like some of the headwinds you saw in Q1 in terms of lower price point tools that may be something that persists over the balance of the year just because of consumer wallets and so forth. Anshooman Aga: Thanks, Julian. And that's correct. So when you think of Q2 margins, our overall Vontier margins will be up 80 basis points. 20 basis points of that 80 will be because of the Teletrac divestiture. So core business up 60 basis points. That increase will be driven by Mobility Tech, which will be at somewhere north of 120 basis points in terms of margin expansion. EFS will also have margin expansion, probably 80 basis points or so, maybe a touch higher. And then repair, I expect will be down year-on-year. Just as you mentioned, we're seeing a higher percentage of the portfolio on the lower price point, higher -- quicker payback items being sold. So there will be a little bit of margin pressure that will continue into Q2. That will start easing towards the back half of the year, where some of the mix really coming into Q3, Q4, especially Q4 last year was in line with what we're trending towards. Operator: And your next question comes from Andy Kaplowitz of Citigroup. Andrew Kaplowitz: Mark, just back to Mobility for a minute. I don't think the memory chip shortage under inflation has been getting better, but it sounds like you're comfortable around that issue for Mobility. I just wanted to sort of double-click on that. And then obviously, comps in Mobility get easier. I think last quarter, you mentioned a number of wins though that ramp up in the second half. Is that still the case? So you've got good visibility to ramp up? And maybe do you need DRB to ramp up as well? Mark Morelli: Yes. So Andy, I'll give a little bit of color on the second half ramp. So first of all, the end market mostly tied to convenience retail. And I think our remarks there on the call is pretty resilient, and that certainly helps the Mobility Tech segment as well. And when you look at it, it's not only a good compare or a better compare for second half, our seasonality is definitely the same. Sales at 48% to 52% as that's our historical average. And then good bookings clearly in the quarter were pretty solid. And when we go into April, we're also seeing really good bookings as well. So I think to your point, we're getting better leverage for the second half. And while we over got a little bit better in Q1 on the revenue side, and we've got cost takeout actions in place that will carry through to the second half, we feel pretty good about the setup. Anshooman Aga: Yes. I would just add, as you mentioned, the compare does get easier in the second half. If you go back to the prepared remarks, we had over $25 million headwind in Q1, and it's about the same in Q2 tied to the vehicle identification system, which eases into Q3 and has definitely gone by Q4. Importantly, bookings in Q1 were up 5% on a core basis at a Vontier level. A couple of those were larger projects combined for $15 million and majority of that revenue based on our customer schedule is in the second half. So we are feeling incrementally better for the second half as we continue to book and how our compares also play out. Andrew Kaplowitz: That's helpful color, guys. And then I think you explained the trade-down effect kind of from high oil and gas prices when you were talking about the potential duration of the cycle for C-store CapEx and your EFS growth and your EFS growth in general. But maybe you could give us a bit more color regarding how to think about EFS moving forward. I think growth was even higher than you thought for Q1. Does that higher growth actually continue given C-store behavior such as what you mentioned with 7-Eleven? I think any color would be helpful there. Anshooman Aga: Yes. With EFS, we're very pleased with our team's performance. We remain bullish on a multiyear CapEx cycle that's playing through, and it's really driven by our innovation and our channel strength, which are both reading through. Dispenser shipments were up low double digits in North America, leading the way with especially strong national account bookings that we had in the first quarter. We expect dispensers will continue to play out strong for the year. We also expect strength in the build-out of convenience stores in North America to continue. So overall, we're feeling pretty good about the business in EFS, and we'll continue to see growth in line with what we're projecting for the year. Andrew Kaplowitz: Appreciate the color. Operator: And your next question comes from Joe Ritchie of Goldman Sachs. Luke McCollester: This is Luke McCollester on for Joe. Just curious if you can share any early data points on customer reception from the new outdoor payment terminal. How is this product fit into the broader connected mobility strategy? And is this a replacement cycle product? Or does it expand the addressable market? Mark Morelli: Yes. Luke, this is Mark. So thanks for the questions here. I think one of the things we showed in NACS in October or the fall of last year was unified payment, and this clearly extends our addressable market by providing a payment kit with more capabilities, order at the pump is a great example of that. It is incrementally better than the FlexPay6 that we recently launched and the uptake from our customers has been quite favorable. I think this is an outgrowth of our Invenco acquisition, where we've been able to build off that through integrating that platform. So I think we're seeing this also as an excellent example of the connected mobility strategy at work and differentiation that we can provide through launching new products where we're getting really good uptake from it. Luke McCollester: Got it. Helpful. And then within convenience retail, are you seeing any change in the pace of consolidation activity or capital spending plans there in light of the current geopolitical and macro backdrop? And this consolidation kind of tend to be more of a net positive or net negative? Mark Morelli: Yes. I think consolidation tends to go in our favor. The people that are doing the consolidators is where we have higher share in the marketplace, and they tend to buy up some of the smaller players where we sort of split share in the market. And so we tend to get more out of that as our -- as the folks consolidating in the industry are consolidating off typically our technology platform. There's no real change to that. I think there's been a backdrop of consolidation that's been sort of ongoing, I would say, over the years. and would anticipate -- of course, some of the prices have changed with interest rates and other things are ebbing and flowing. But I think you could just look at it as a long-term trend where there's plenty of opportunity for consolidation over the next 5 years. Anshooman Aga: And on the CapEx trend, keep in mind, while our bookings might be shorter term from a book-to-bill perspective, our customers are really planning out 2 or 3 years in advance. They're going through their site acquisitions, permits, build-outs. So they're really looking out 2 or 3 years from a CapEx plan, and there aren't -- oil price volatility doesn't really change their longer-term CapEx plans. Operator: And your next question comes from Katie Fleischer of Key Capital Markets. Katie Fleischer: Can we talk a little bit about the progress on the internal cost initiatives? I know that R&D is a focus there. So just how to think about incremental savings within that and potential upside kind of balanced against some of those higher R&D costs that you saw in Mobility Tech this quarter? Anshooman Aga: Katie, thanks for the question. We are very confident on the $15 million in-year savings that we guided to last quarter. We're reconfirming that. About $1 million in savings played out in the first quarter. The Q2 number will be $3 million, maybe a little bit higher and then the balance of it coming in the back half of the year. We're already through some of the savings plans, but I think we're progressing really well to our plans. Q1 was a little bit higher in R&D, timing of the launch of some products. We talked about the new FlexPay6 launch, but also the redesign on some of the printed circuit boards related to the memory chip. We're trying to stay ahead of the supply chain issues on memory chips. And as a result, there's some redesign work out there. But again, we're pretty confident in hitting our $15 million in-year savings target for the year. Katie Fleischer: Okay. That's helpful. And then on Matco, when we think about those customers recovering, what's really driving the spend there? Is it just delayed CapEx purchases? Is it more customer activity that's driving higher in days? Just help us think about what it will actually take to see a flow-through of spending from customers in Matco. Mark Morelli: Yes. So Katie, the backdrop on Repair is relatively attractive. The car park continues to age. It's about 12.8 years going to 13 years. So a lot more used cars out there in the market changing hands. That's good for Repair. The complexity for Repair is good. And the demand for tech and the wages are also strong. So we know from last year, actually, shop visits were up. So we -- that's a great underlying backdrop for Repair. I think the issue that has been underfoot is that the consumer has represented the working class for the shop technicians that buy our tools has had a harder time with their pocketbook. But the areas that we're getting traction is in the areas of diagnostics and toolboxes, and we had a good run of that in the quarter, which is indicative there can be strength there. And then also more value-added items where they can get more productivity. The technician gets paid based on a standard hour of work if they can be more productive and we say, well, how does the toolbox help with these are these productivity cards that help them on the job site. And so those type things, there's good payback for them. And as we continue to introduce and be more effective at selling those kind of things, even in a fairly rough backdrop, then we can have decent performance out of Matco. Operator: The next question comes from Andrew Obin of Bank of America. David Ridley-Lane: This is David Ridley-Lane on for Andrew Obin. Just sort of thinking about the full year guide here, did your expectations on Mobility Tech, have they shifted a little bit? What are you thinking for organic growth for that segment for the year? Anshooman Aga: Yes. Mobility Tech, their growth for the year will be low to mid-single digits versus the mid-single digits we said, but it's really on lower intercompany sales. If you look last quarter, we guided to north of $90 million of intercompany sales, and we dropped that down to $80 million. Part of it was every year, you update the transfer price, and we did that in Q1, where the transfer price intersegment came down a little bit, and then there's a little bit of mix between FlexPay4 and FlexPay6 products also that we updated for. So the underlying core business, no change to that. David Ridley-Lane: Okay. And I'm surprised I'm going to be the first person asked this, but the changes to Section 232 tariffs, IEEPA tariffs, can you just give us around the world on what the impact of Vontier is going to be inside 2026 as you see it? Anshooman Aga: Yes. The tariff remains a very dynamic environment. And there's -- we're continuously evaluating both where we are the importer of record and where our suppliers are the importer of record. We also are taking into account other dynamics that are playing out, for example, the memory chip pricing, oil and gas price and the impact on transportation costs, transportation routes. So net of all of this, while a lot of pluses and minuses, puts and takes, there's no material change to our view for the year, just playing out on aggregate as we'd expected. David Ridley-Lane: Got it. And just since it's been mentioned a few times on the conference call, can you quantify just in broad brush strokes, sort of memory chips like 1% of your total cost? Or is that -- do you have that number handy by any chance? Anshooman Aga: Yes, I'll give you last year's price or cost on memory chips because I think that's a little bit easier. The market is pretty dynamic. We -- it's in the mid- to high single-digit million dollars. So it's not material from an overall cost perspective, but it's -- every cost we control and manage to the best of our ability. David Ridley-Lane: I know there's -- when you have a small item that's doubling or tripling or quadrupling in price, it sometimes catch you up. Operator: And your next question comes from Rob Mason of Baird. Robert Mason: I wanted to see if you could just relative to the second quarter expectations on core growth in the down 1%. Kind of discuss how you think that may play out across the segments? Anshooman Aga: Yes. The EFS business will continue to grow. We expect that will be up low single digits for the quarter. Mobility Tech will be down low to mid-single digits on the compare issue. Just keep in mind the $25 million in shipments for the vehicle identification system order last year, both in Q1 and Q2. And then on Repair Solutions, we expect there will be also low single-digit growth, maybe low to mid-single-digit growth for the quarter in Repair. Robert Mason: Very good. Just a follow-up. Mark, just any quick thoughts on the decision to retain a minority stake in the telematics business and how we should think about how that plays out in the future as well? Mark Morelli: Yes. Thanks for that question, Rob. Look, we're pleased on the transaction. It's the result of a multiyear turnaround, launching a new product technology into the space. I think we're getting real momentum in that space. I think retaining a minority ownership there also gives us some upside on the trajectory they're on. They ended the year with strong bookings. They got past the 3G to 4G transition in Australia, which was a big headwind for them as well, and that's now in the clear. So we're optimistic also with more focus with the new owner and our partial ownership here and legacy knowledge of that business that we can unlock further value. Operator: Thank you. And there are no further questions at this time. I'd now like to turn the call back over to Mark Morelli, Chief Executive Officer, for closing comments. Mark Morelli: Yes. Thanks again for joining us on the call today. We're off to a solid start in '26. We're confident we can deliver above-market growth and in our ability to drive margin expansion and free cash flow. We're proactively managing the portfolio and staying disciplined on capital allocation, all through the lens of creating shareholder value. We appreciate your continued interest in Vontier and look forward to engaging with many of you over the next several weeks. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference. We thank you for participating and ask that you please disconnect your lines.