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Operator: Good morning, and welcome to the Matrix Service Company Conference Call to discuss results for 2026. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to John Hewitt, President and CEO for Matrix Service Company. Good morning, everyone. John Hewitt: Before we get started, I want to take the opportunity to introduce two individuals joining our call today for the first time. First is Patrick Roberts, who has added investor relations to his current role, which also includes corporate development and strategic planning. Next is Sean Payne, currently chief operating officer, who, as you know, will take the reins as president and CEO on July 1. Sean is currently at a major project kickoff in Houston and will not be with us for the Q&A portion of this earnings call but will be joining us at upcoming investor conferences and on other scheduled calls. With that, I will turn the call over to Patrick. Thank you, and good morning, everyone. Welcome to Matrix Service Company's third quarter fiscal 2026 earnings call. Patrick Roberts: As John mentioned, participants on today's call include Chief Executive Officer, John Hewitt; Chief Operating Officer, Sean Payne; and Chief Financial Officer, Kevin Cavanah. Following our prepared remarks, we will open the call up for questions. The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany.com. As a reminder, on today's call, we may make various remarks about future expectations, plans, and prospects for Matrix Service Company that constitute forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements because of various factors, including those discussed in our most recent Annual Report on Form 10-K and in subsequent filings made by the company with the SEC. The forward-looking statements made today are effective only as of today. To the extent we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings, and on our website. Related to investor conferences and corporate access opportunities, Matrix will be participating in the Sidoti MicroCap Virtual Conference in May and will also be participating in the Stifel Cross Sector Insights Conference in June in Boston, and the Northland Growth Virtual Conference on June 23. If you would like additional information on these events or would like to have a conversation with management, I invite you to contact me through the Matrix Service Company Investor Relations website. Turning now to safety. As we begin our earnings call, I want to recognize that May is Mental Health Awareness Month. At Matrix, we believe that safety goes beyond physical well-being. Mental health is just as important. In our industry, the pressures of strenuous work and extended periods away from home can take a significant toll. Unfortunately, the construction industry faces some of the highest rates of suicide, making it critical for us to address these challenges directly. But whether you work in the construction industry or elsewhere, each of us faces challenges in life that can put our mental health at risk, and we need to know that resources are available and it is okay to ask for help. Matrix is committed to reducing the stigma surrounding mental health. We strive to foster an environment where everyone feels comfortable seeking support, and we provide resources to help our employees take care of themselves and each other. By prioritizing both physical and mental safety, we reaffirm that every aspect of our team's well-being is paramount. We encourage each of you to do the same. Together, we can make a difference and ensure that no one feels alone. I will now turn the call over to John. John Hewitt: Thank you, and good morning again, everyone, and thank you for joining us. I want to highlight many of the key events that have happened in the quarter that will provide clarity on the progress we are making on our win, execute, and deliver strategy. First, the business returned to profitability in the quarter as we earned $0.13 per fully diluted share on an adjusted basis despite revenue levels being impacted by client-related delays and weather during the quarter. We expect revenues to decline in Q4 and profitable performance to continue. The lower revenues in Q3 principally came in our book work caused by abnormal and unforeseeable weather events and late client deliverables. These delayed revenues are moving into later quarters. This profitable outcome was driven by the quality backlog, good operating performance against that backlog, and organization streamlining that has occurred over the past twelve months. As it relates to our revenue guidance, the revenue movement I mentioned contributes to a 2.2% reduction in the midpoint of our guidance range from what was $900 million to a new midpoint of $880 million. Even with the slight reduction in the midpoint of the guidance range, the revenue in the fourth quarter is expected to turn upwards and supports our continued profitability. During the quarter, we reached positive resolution on two legacy legal issues. The first was a collection issue from an industrial client working toward commercial viability and the other, a contract dispute with a midstream company for whom we built a crude terminal during the COVID outbreak. The collective result was in line with our balance sheet position, will increase our cash balance by nearly $20 million, and will allow us to reduce our legal spend in the future. These two items present final closure to the remaining significant legacy disputes that have distracted the organization these past few years. Our opportunity pipeline remains strong at $6.9 billion, which represents not only our traditional LNG business, but the addition of more opportunities in mining, minerals, power generation, and data center–related activities. The awards in the quarter were below our expectations, affected mostly by timing of client decision-making. Activity in the quarter and the month of April do contain some key strategic wins for the company. First, following the close of the quarter, we received a limited notice to proceed for a major mining construction project for a client in the Western United States. Second, over $30 million of our electrical-related awards received in the quarter are directly related to the build-out of data centers and enhanced power demand. Book-to-bill in our electrical business for the quarter was well over 1.0. We expect to see continued growth in both of these markets. The impact of the Iran conflict on our business has been minimal to date. However, we believe it will only serve to emphasize that as countries around the world look to find secure, reliable oil, gas, LNG, and NGLs, the United States can play a major role in filling that need. This will continue to support the infrastructure designed and constructed by Matrix Service Company. Finally, in the quarter, we continued our organizational realignment that started nearly twelve months ago. As previously disclosed, Sean Payne, our chief operating officer, will succeed me as CEO on July 1. I have had the privilege of working with Sean in various capacities and companies for more than thirty years. He is a seasoned strategic leader with strong values and a deep operations and finance background that position him well to lead the company forward. Last week, we announced that Kevin Cavanah, our chief financial officer, will depart the company in September. Kevin has been with Matrix Service Company for more than 22 years, fifteen of which have been as our CFO. Kevin has built a strong and experienced finance organization with a deep bench of talent and well-established financial and control processes. The company has begun a comprehensive internal and external search for our next CFO, and Kevin will ensure a smooth and seamless transition through the completion of our fiscal year-end reporting. In addition, while not a public-facing role, Nancy Austin, who has served as our chief administrative officer and has been with Matrix Service Company for twenty-six years, will also be departing the company. Nancy has been instrumental in establishing a strong foundation for key support services, most importantly focused on ensuring that we can attract and retain the needed labor resources. Nancy's responsibilities are being redistributed and the position will not be backfilled, reflecting the company's commitment to flattening our organization structure while ensuring we remain efficient and responsive to the needs of our customers and partners. Before moving on, I want to thank them both for their many years of dedication, hard work, and leadership. The transition to Sean's leadership of the business, including these changes, as well as his vision on organizational structure and operational priorities, has already commenced. The core elements of our win, execute, and deliver strategy, of which he is the principal architect, contain guiding principles for the company that are already positively impacting the bottom line and will be the focus moving into 2027. Most of the executive leadership will soon be operating out of our Houston office, which has the added benefit of putting us closer to many of our top energy clients. The organization is now better prepared for growth, has enhanced focus on our priority markets, is more competitive, and will have a more consistent execution approach. I am excited for this new group of leaders to continue our journey and drive continued success and value creation across the business. I want to turn the call over to Sean for a few words on the recent mining award and his focus areas. Sean Payne: Thank you, John. Good morning, everyone. As John mentioned, our profitable third quarter results show the progress we are making with our Win, Execute, Deliver strategy. These results demonstrate that the execution improvement initiatives related to the execute pillar of our strategy are driving clear, measurable gains in profitability. We are bringing the same disciplined approach to the win pillar of our strategy, where we are continuing to strengthen our leading EP position for critical LNG and NGL infrastructure, as well as expanding into new and reemerging markets across North America. This approach is building real momentum in our sales pipeline and has already led to early successes across several areas. One example is a limited notice to proceed that we received for an important mining sector project that we are kicking off today, which John mentioned earlier. The project is expected to start in Q4 and continue throughout fiscal 2027. After nearly a decade of limited capital spending, increases in demand and rising nonferrous metal prices are starting to support new development activity. As a result, our project opportunity pipeline in the sector has grown significantly. We have a strong history in mining, and reestablishing our presence as the market rebounds is a key part of our strategy. Moving forward, as I get ready to assume the CEO role, I have taken several early steps this quarter to continue shaping how the organization operates. These changes are intended to create a more efficient and operationally focused organization that can make decisions faster and respond more quickly to market opportunities and our clients. Examples of recent changes include streamlining, as well as the decision not to add a COO back into the organization once I become CEO. With operations reporting directly to me, we eliminate unnecessary handoffs and sharpen our organizational alignment around what matters most: our clients, our projects, and the safety of our workforce. Over my first hundred days, my focus will be on implementing a clear roadmap for how we drive higher growth and continue improving profitability. I will provide additional insight into those priorities on our fourth quarter earnings call. Before I turn the call over to Kevin to review our third quarter results, I want to say how grateful I am for the opportunity to build on our strong foundation and lead this organization into the future. Kevin? Kevin Cavanah: Thank you, Sean. Revenue increased to $206.7 million in the quarter as compared to $200.2 million in the third quarter last year. The growth was driven by the Storage and Terminal Solutions segment, partially offset by reduced revenue in the Process and Industrial Facilities segment. Gross margin was $17.2 million, or 8.3%, in the quarter compared to $12.9 million, or 6.4%, for 2025. I will discuss specific drivers for that improvement when I get into the segment results, but on an overall basis, gross margin improved from both higher direct project margins and lower under-recovered overhead. Moving on to SG&A, which was $15.2 million in the third quarter, compared to $17.7 million for the prior year. The decrease is due in part to lower compensation-related expenses resulting from continued efforts to improve organizational efficiency. Additionally, stock compensation expense was lower as a result of executive separations during the quarter. For 2026, the company produced net income of $0.8 million, or $0.03 per diluted share, compared to a net loss of $3.4 million, or $0.12 per diluted share, in 2025. The company incurred restructuring charges of $3 million in the quarter. Excluding those restructuring charges, adjusted earnings were a positive $0.13. Adjusted EBITDA improved to $4.9 million in the quarter compared to breakeven performance in the prior year third quarter. Moving to the segments. Storage and Terminal Solutions segment revenue increased 16% to $111.6 million in the third quarter, compared to $96.1 million in 2025. This is the highest quarterly revenue level for the Storage and Terminal Solutions segment in six years. We expect this growth trend to continue, driven specifically by specialty vessel storage projects, including projects for LNG, ethane, and butane. The growth is also reflected in the segment gross margin, which increased to 7% in 2026 compared to 3.9% in 2025. Utility and Power Infrastructure segment third quarter revenue was $60 million, compared to $58.7 million last year. Project execution was strong throughout the segment, including peak shaving and electrical, producing a 13.6% gross margin in the quarter compared to 9.4% in the third quarter last year. Process and Industrial Facilities segment revenue decreased to $35.1 million in the third quarter compared to $45.4 million last year. Gross margin was 2.5% in 2026 compared to 8.3% for 2025, a decrease of 5.8%, primarily due to mix of work and the settlement of a legacy legal matter discussed earlier. We expect revenue and margins in this segment to rebound in fiscal 2027 due in large part to the mining project previously mentioned. Moving to the balance sheet. Our cash balance increased $34 million in the quarter. We ended the quarter with cash of $258 million, which also drove an increase in liquidity, which was $297 million at the end of the quarter. The growth in cash and liquidity was primarily due to the timing of cash flows on projects, as well as positive earnings. While we expect the timing of cash flows on projects will utilize some cash as we complete fiscal 2026 and move into fiscal 2027, the financial position of the company remains strong. I will now turn the call back over to John Hewitt. John Hewitt: Thank you, Kevin. Before taking questions, here are the five critical takeaways from this call. First, the return to profitability in Q3 demonstrates the strength and credibility of our operating model and strategy even on lower revenues. Second, the Q3 revenue shortfall is due to timing issues from customer and weather-related delays that moved book work out of the period. Third, our balance sheet is strong and supports our financial growth and strategic objectives. Fourth, our book-to-bill is driven by timing with a strong backlog at over $1 billion. We expect awards in key sectors like mining, minerals, and LNG infrastructure to drive book-to-bill higher in fiscal 2027 and support continued profitability. And fifth, the leadership and organization transition currently underway is planned, delivered, and controlled, ensuring strong continuity. The CFO search is in motion, and you can expect Sean to share his first hundred-day roadmap as Matrix Service Company's CEO on the next earnings call. That concludes our prepared remarks. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, please press 1-1 and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question comes from John Franzreb from Sidoti. Please go ahead. John Franzreb: Congratulations on the return to profitability. Thank you. I guess I want to start with the just-reported quarter itself. There was a drop sequentially in the revenue in the utilities segment. There is a sizable increase in the gross margin of that business on a sequential basis. Can you walk us through the puts and takes on what is going on there? Kevin Cavanah: Yes. If you look at the profitability, there was really good performance throughout the segment. The power delivery business outperformed what we expected from a margin standpoint, and we also saw the same in the peak shaving work. It was really good performance there. It shows when you have good performance throughout a segment what that can do to gross margin. Now, the revenue level did come down, and we expected that. We have been doing some work on a peak shaver project for well over two years now that still has more work to do, but the manpower required for that project is coming down a bit, and that is driving the revenue down. If you look at the funnel for the company, peak shaving opportunities should continue to provide a lot of revenue into the future. We see a good piece of that in the funnel. It will take us a little bit of time to book the next one, so you will probably see the revenue for the utility segment level out for a while until that next peak shaver project is booked. John Franzreb: Got it. And you mentioned, and I might have missed this, the restructuring charge that you incurred in the quarter—what was that for? Kevin Cavanah: It related to a couple of primary things. One is our CEO transition. We also had a lease—because we have tried to become more efficient in what offices we have—that we are getting out of. We thought we were going to be able to sublease, but the market has not been as strong for a sublease on that facility as we had planned, and so we had to take a charge related to the lease, a lease impairment charge. John Franzreb: Got it, Kevin. And just on the backlog, we had two years of elevated bookings and backlog; in the last four quarters, it has been drifting lower. What is the confidence level that the new projects you have been writing are of sufficient profitability to maintain profitability into fiscal 2027? John Hewitt: I will hit that one. The backlog level is still at a billion dollars and contains solid margin work. Recall we booked two pretty major projects fairly close together that drove backlog up, and then it took a while for those projects to get started to really start burning revenue. We still feel really good about our opportunity pipeline, our expected award cadence over the next couple of quarters, and the award momentum we think will build as we move through fiscal 2027. Our expectation is to maintain a strong revenue level and profit on that revenue. John Franzreb: On that note, I will get back into queue. Thank you. Operator: Thank you. Our next question comes from Ted Jackson from Northland. Your line is open. Ted Jackson: Thank you very much. Excuse me. A couple of questions. Let us start with the restructuring and what is going on. I know there are many moving parts, and you have been working for a long time to make it more efficient and improve its margin. When we think about this company at a steady state, with the management team in place and the restructuring efforts behind you, what is the pro forma business model? Where do you see, with this restructuring, a standard gross margin, operating margin, and net margin for Matrix when you are done and the business is mid-cycle? Kevin Cavanah: I will give you a preliminary answer, and I would expect that as we bring in a new CFO, the new team will take a fresh assessment. John and I have published long-term metrics that we have been striving to achieve, and I would imagine the new team will reevaluate and put their own out there. Carrying on from the current metrics, the changes we are making to streamline the business will allow us to achieve the SG&A target we have out there, but at a much lower revenue level. You will see us around 6.5% SG&A in fiscal 2027, in my expectation. The gross margin target we have out there has proven viable. The direct margins we are seeing in the business are meeting or at times beating 10% or better, and we are seeing improvement in the recovery of overheads, which has been a drag on earnings the past few years. As we take cost out and continue to grow the business, that will continue to get better. We are tracking to achieve those targets, and the organizational changes we have put in place are helping us get there. It lowers the breakeven level and the level of revenue required to get to full recovery. In effect, these changes increase the earnings power of the business. Ted Jackson: My next question is about backlog and the pipeline, which remains robust. Your commentary suggests that you expect to see a turnaround in terms of bookings and backlog growth and a regrowth of backlog as we get into 2027. Previously, you indicated that would start to turn around mid–fiscal year. Does that scenario still hold, and given the size of projects in the funnel, what kind of bookings reacceleration could we anticipate? John Hewitt: Our current backlog and what we see as the award cadence—what we have said in the past is we expect our awards to be wrapped around our normal day-to-day business plus some smaller and midsize projects. That will allow us to continue to burn backlog and maintain a revenue level that, as Kevin said, sustains our profitability as we move into and through fiscal 2027. Our expectation on the big project awards—the big chunk projects—is that they will be entering into our proposal pipeline sometime probably in mid–fiscal 2027 and would be coming to awards later on in 2027. We feel good about where our backlog is and where our opportunities are. The award cadence and momentum, not only for the big projects but also for some of the smaller ones, will help us maintain a good quality backlog with good margins and maintain a revenue level that supports improving profitability. As some of those bigger projects enter our backlog and we start to burn that revenue, that will start to expand our margins. Kevin Cavanah: I would add, peak shaving opportunities and specialty storage really drove the prior backlog growth, and those opportunities are still there. Now we have other emerging markets we can add, including the mining we talked about on the call. There are construction-only opportunities we are pursuing and opportunities related to the continued expansion of electrical infrastructure. There are a number of areas that will add to the markets that drive backlog. We also see a lot of opportunity in the power generation market, even if it is working as a construction partner with some of the bigger EPC firms. We have a deep resume in power generation that has been on the shelf for the last five to seven years. With the return of higher demand across gas power generation—backup, peak shaving, simple cycle, or combined cycle—our resume applies strongly. We expect sometime in fiscal 2027 to be adding those kinds of projects into our backlog to support revenue. Ted Jackson: Switching to the oil and gas market, with the situation in the Middle East and oil around $100 a barrel, and potential for more drilling in the U.S., how do you see that benefiting Matrix? Are you seeing any pickup in dialogue because of the changed global environment? John Hewitt: We have a continuing client dialogue. Our view is that countries around the world are looking to ensure secure and reliable places to get their needed energy supplies—not only given what is going on in the Persian Gulf but also in Ukraine. Whether that is natural gas in the form of LNG or NGLs for chemical production, like ethane or ethylene, we believe this will create more investment in the U.S. for export and for the production of those energy assets. Those fit right within our wheelhouse. Construction of LNG facilities and natural gas liquids facilities are things we do day in and day out. We think these macroeconomic and global issues will drive increased investment in the United States in those energy assets, and Matrix Service Company is well positioned to take advantage of that. Ted Jackson: Final question: in your discussion about legal matters, you said you would see reduced legal spend going forward because of those settlements. Is that material enough to notice within the financial statements? How much were you spending, and what kind of expense is being removed with these resolutions? John Hewitt: Those disputes were contract-related, project-related, so that expense hit in what we call construction overhead, and it was one of the things driving some under-recovery of overhead. It should make us more efficient in fully recovering our overhead. We have not disclosed the dollar amount of legal expenses, but lawyers are not cheap. Operator: Thanks. John Hewitt: Thank you. Operator: As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. Our next question comes from John Franzreb from Sidoti. Your line is open. John Franzreb: Yes. I have a question about the deferred jobs. Do you expect them to fall into Q4, or are they deferred into fiscal 2027? John Hewitt: Both, frankly. When we are waiting for permits or engineering, you are just pushing, for instance on the labor, your hiring and manpower levels down the road. Where we might have had in the quarter on a job—making numbers up—100 craftspeople that would have ramped up to 200 in the fourth quarter, now that 100 is happening in the fourth quarter and the 200 is happening in Q1. I am just giving you a sense that we are not going to make up for all of those delays in one quarter because it pushes the whole job down the path. We certainly expect, as we said and based on our guidance, that revenues will climb in Q4 and the business will stay profitable in Q4 because of the quality of the work, the quality of our execution, and the level of revenues. Part of the message is that Q4 revenues are going to increase, and this pushes more revenue into 2027. John Franzreb: Got it. And, John, how much revenue was actually deferred out of Q3? John Hewitt: I would say it was probably $20 million to $25 million. The biggest piece was the weather, but there were some permitting issues too. John Franzreb: Got it. And if I understood your commentary to one of my questions earlier, Kevin, it sounds like near-term the utility segment will be kind of flattish with potential to recover in 2027, for the reasons John outlined. To hit your midpoint, that might suggest that the storage business will have a strong Q4. Am I interpreting that properly, or are there other puts and takes I am not thinking about? Kevin Cavanah: You are 100% right. I would expect the Process and Industrial Facilities segment and the Utility and Power Infrastructure segment to be relatively flat from Q3 to Q4. The growth is going to come in Storage and Terminal Solutions. John Franzreb: Okay. Thank you for the clarity. I appreciate it. Operator: I am showing no further questions at this time. I would now like to turn it back over for closing remarks. Patrick Roberts: Thank you. As a reminder, we will be participating in the virtual Sidoti MicroCap Virtual Conference in May. We will also be attending the Stifel Cross Sector Insights Conference in June in Boston and the Northland Growth Virtual Conference on June 23. Additionally, if you would like to have a conversation with management, please contact me through the Matrix Service Company Investor Relations website. You may also sign up to receive MTRX news by scanning the QR code on your screen. Thank you for your time. Operator: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to ACI Worldwide, Inc. Reports Final Results Call. [Operator Instructions] I will now hand the conference over to John Kraft. You may begin. John Kraft: Thank you, and good morning, everyone. On today's call, we will discuss ACI Worldwide's first quarter 2026 results as well as our updated financial outlook for the remainder of the year. The slides accompanying this webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call. We will then open the line for your questions. As always, today's call includes forward-looking statements and is subject to the safe harbor provisions. You can find the full text of these statements in our earnings press release and in our filings with the SEC. These documents describe important risk factors that could cause actual results to differ materially from those indicated in any forward-looking statements. Joining me today are Tom Warsop, our President and CEO; and Bobby Leibrock, our Chief Financial Officer. Tom will begin with an overview of our Q1 performance, strategic highlights and the progress we're making against our long-term plan, and Bobby will then review our financial results in more detail, including segment performance, cash flow and updated outlook for 2026. We'll then open the line for questions. Before we begin, I'd like to let everybody know that we will be attending several upcoming investor conferences, including JPMorgan's 2026 Global Technology, Media and Communications Conference on May 18 in Boston, Baird's 2026 Global Consumer Technology and Services Conference on June 4 in New York City; and D.A. Davidson's 2026 Technology Conference in Nashville on June 11. With that, I'll turn the call over to Tom. Thomas Warsop: Thanks, John, and good morning, everyone. As always, I appreciate you joining us for our first quarter 2026 earnings call. We're pleased with the start to 2026, and that's building on the strong performance we delivered throughout 2025. We're executing well. We're delivering on our promises, and we're staying focused on our strategic priorities. We're in a strong competitive position, and we're increasingly optimistic about the outlook for our business. If I look at the first quarter, we delivered 6% organic revenue growth in constant currency, and that growth compares against the strongest first quarter in the company's history last year. That is the strongest quarter until this quarter since we grew on top of that. So I'm particularly happy with this performance. Our focus on operational efficiency, combined with the operating leverage in our model drove over 160 basis points of FX-adjusted net adjusted EBITDA margin expansion and 8% adjusted EBITDA growth. The combination of this overall strong operating performance and our continued share repurchases, I'll detail that a little bit later, translated to double-digit growth in adjusted EPS. Bobby is going to cover the quarter in more detail in a few moments. But for my part, I'd like to step back and provide an update on our strategic initiatives and what we're seeing in our markets. Our business momentum stems from continuing sustained focus on our multiyear value creation strategy. As we regularly discuss, our strategy emphasizes growth within our core vertical markets, disciplined operational execution and a return-driven approach to capital allocation. We expect our strategy to enable us to deliver at least high single-digit organic revenue growth, strong cash flow conversion and the allocation of capital to drive incremental value, all with a focus on maximizing shareholder returns. Our growth strategy is built on expanding within our existing customer base in addition to winning new logos and of course, accelerating innovation all along the way. Within our Payment Software segment, we took a major step forward in 2025 when we unified our bank and merchant businesses into what we now call payment software. The goal is to increase efficiency, to accelerate innovation and to simplify our operating structure. We're seeing the benefits of this strategy and the payment software business had a very solid first quarter, growing 6%, 2% on a constant currency basis. Now again, as you recall, Q1 last year was particularly strong in this area, driven by our largest competitive issuing and acquiring takeaway ever in the Asia Pacific region. Our issuing and acquiring solutions remain leading edge and strongly in demand. We've been at it for 50 years, and our latest versions of these proven tools utilize leading technology as we continue to innovate and deliver market-leading customer value. And these solutions are, to put it very simply, mission critical. They're so critical, in fact, that we actually have one Middle East customer push itself to not let an upgrade go-live date slip even with the Iran conflict raging all around them. Together, we successfully delivered on time, and that's just another reminder of the resilience of our customers, the dedication of our employees and the mission-critical nature of the solutions we provide. They just wouldn't let it slip. We also saw strength in real-time payments. That part of the business grew revenue by over 20% as increasing real-time payment volumes drive larger total contract values at renewal. Transaction volumes, as most of you know, are one of the key levers we use at ACI to expand our relationships with existing customers. I'd like to share a specific example from Q1 of how this sometimes works as it relates to real-time account-to-account solutions. We had a renewal of a base 24 customer in the first quarter. It happened to be in Asia. And this is a customer that's seeing very significant growth in real-time payment transaction volumes. We were able to construct a deal which drove mid-single-digit growth in the pricing for their renewing portion of their transactions and 25% plus growth in pricing related to the net new real-time transactions. And those transactions are generating new business, incremental business for the customer. Overall, when you put all that together, this led to a healthy overall increase in total contract value from this customer. And as RTP volumes continue to grow, we expect similar opportunities across our portfolio. This is a demonstration of the power of having many different payment solutions our customers can use as the market evolves. They see ACI as a partner across payments, not just in a particular payment area. I gave you an example of RTP and its impact in Asia. Much of our business and the growth we're seeing right now is international, but the U.S. adoption of real-time payments is also starting to pick up. FedNow and RTP adoption is increasing. This is obviously a huge opportunity for us, and we remain optimistic about future volume growth here domestically. So the volumes are still small in the U.S., but we're definitely seeing them start to expand. We also continue to make progress advancing ACI Kinetic and that, of course, is critical to our long-term platform and modernization strategy. In the quarter, we expanded Kinetic's scope and momentum. We extended the platform to modernize card payments to unify multi-rail U.S. clearing connectivity and to embed advanced fraud and verification capabilities directly into the payment flow. These advancements reinforce Kinetic's role as a single cloud-native foundation that helps customers reduce complexity, manage risk and modernize across payment types at their own pace. Kinetic's capabilities, combined with ACI's proven reliability and future-ready road map remain and are, in fact, growing as meaningful differentiators between us and our competitors. And I want to share something about the broader Kinetic's strategy that may not be quite as clear to some people and may require a little more explanation. So let me try to put it this way. Simply investing in Kinetic, and of course, that's the name of our next-generation payments technology, just investing in that is providing confidence in our customer base that our longer-term technology road map is aligned with where most people in the industry want to go. I want to use a sports analogy here. We're skating to where the puck will be, not where it is today. As we compete for work under RFPs and during renewals, we're consistently asked about our multiyear road map and how we're going to help customers modernize without introducing undue risk. And Kinetic is that road map. It's resonating. Even when a customer isn't ready to migrate immediately, they're not ready internally. Aligning our strategy with theirs builds confidence and supports expansions and longer duration commitments. We've had several customers signed significant contracts with us for our core solutions because of Kinetic, even when they're not quite ready to go all the way down the Kinetic path. So to illustrate this dynamic, I want to use another specific example from the first quarter. We had a renewal with a major North American bank, and I personally engaged to finalize the renewal terms. And the entire conversation was not about the renewal itself, the products they use today, it was about Kinetic. And even though the bank is not ready to embark on the modernization journey Kinetic enables, they know they need it in the future. The bank's CTO told me he wants Kinetic. He wants to begin the preparation for it during the next few years, and that's during the renewal period, this renewal period, and that he wants us to be ready to hit the ground running at the time of the next renewal. And when I say us, I mean the bank and ACI. In the meantime, they've asked for our help to get the bank to a place where they can make the progress they need internally from a business process, a personnel perspective and a technology perspective. They want our help, and of course, we're thrilled to support that. This is an example of Kinetic supporting expansion of a renewal deal and positioning us as the long-term partner for our customers. Now I want to turn to Biller, where we continue to see strong results, and that's building on the momentum we saw in 2025. A key area of focus is advancing our market-leading Speedpay One platform, and that's driving core electronic bill payment transaction growth and new customer relationships. We signed significant new contracts in the quarter, and our total new ARR bookings grew 39% for the company, a majority of which was attributable to Biller. We signed several new logos, and we saw some nice expansionary up sells with existing customers in our utility and insurance verticals in particular. One renewal that I'd like to highlight provided us an opportunity to improve pricing substantially while offsetting interchange increases, and that shows the strength of the relationship and leadership position we hold in the utility sector. Another large client was able to work with us to significantly improve its customer experience while also dramatically lowering operating costs by shifting transaction volume from calls to self-service. And when they do that, that reduces the operating cost from about $20 per inbound call to about $1 for a self-service interaction. That client was also able to consolidate 4 platforms into 1 while significantly improving the overall experience and adding new payment options at the same time. Another deal in the quarter involved an existing customer in the insurance industry, and that also happens to be my personal insurer. In the first quarter, this customer nearly doubled their relationship with us, and I can personally attest that the experience is straightforward, quick and convenient. These are the types of significant outcomes we're able to achieve within our Biller business that benefit both ACI and our customers and their customers. ACI is gaining share in the Biller market as more billers are consolidating on to modern outsourced digital bill payment platforms, ACI Speedpay One. They're meeting customers where they are with mobile-first digital payment experiences that enable them to tailor payments to their preferences. This is a highly fragmented market, and the immediate opportunity is converting the significant portion of the market that is using legacy or outdated platforms to ACI. Increasingly, we are the partner of choice, and we're excited by the opportunities for our biller business through modern, scalable, resilient platform, Speedpay One. So I want to talk a little bit about operational execution across ACI. Our model remains highly scalable. As we grow, we have a clear opportunity to continue expanding margins through operational discipline and continued productivity improvements, while we still continue to invest in the initiatives that support our long-term road map. We saw that in the first quarter with about 200 basis points, nearly 200 basis points of margin expansion. And while near-term investments have a little bit of ebb and flow and they can modestly dampen operating leverage in any given quarter, we expect the underlying scalability of our business to become increasingly evident over time. We're also very focused on our disciplined approach to capital allocation. We benefit from a strong business that has limited capital requirements and generates strong cash flow, and that gives us the flexibility to execute on our strategy. Our capital allocation strategy prioritizes investments in organic growth, strategic M&A, capital return and maintaining financial strength, of course. As we've discussed, a key area of recent focus has been returning capital through our share repurchase program. Last quarter, we committed to allocating at least 50% to 60% of our cash from operations to share repurchases in 2026, and that reflects our strong financial position, our confidence in the long-term outlook and our belief that current valuations are particularly attractive. During the first quarter of 2026, we repurchased 1.5 million shares, and that brings the total repurchase since the start of 2025 to over 5% of the shares that were outstanding at the beginning of last year. We remain in a very strong financial position with leverage well below our targeted range of 2x EBITDA, and we remain committed to our capital allocation framework. To sum all that up, I'm excited about our recent financial performance, and I'm very encouraged by our path ahead. I'm proud of what we've accomplished, and we have a lot of work ahead, and I mean that in a really good way. We'll continue to invest in our key growth initiatives, and that includes our cloud-native Kinetic platform and Speedpay One. In addition, as I discussed last quarter, we're investing in our AI-first road map. We view generative AI as a significant opportunity, not a threat. We're already deploying many tools across the enterprise, and this is accelerating our process. ACI is able to combine the power of these tools with our 50-plus years of engineering and architecture expertise and substantial volumes of proprietary data. When we put all that together, we can provide enormous customer value. Further, we provide certifications with hundreds of networks and payment schemes around the globe, and all of those regularly require updates. We are really good at that. AI simply cannot deliver these aspects of what we do. As I emphasized on our last earnings call, we see generative AI as a big opportunity, and we're well down the path to taking advantage of it. Before I close, I want to briefly address the macro environment. The conflict in the Middle East and the resulting energy shock have introduced real uncertainty into the broader economic outlook. And of course, no organization is entirely insulated from macroeconomic pressures, but our business at ACI is purpose-built for moments like this. Payments infrastructure doesn't take a pause during geopolitical disruption. If anything, the resilience of our customers and the criticality of what we provide becomes even more apparent. The example I shared earlier from the Middle East is not an exception. It's indicative of who our customers are, the role they play in the world's economy and what our solutions mean to them. I want to thank all of our employees across the organization for their hard work and dedication. We're excited about the opportunities ahead as we continue our shareholder value creation journey. I'll hand over to Bobby to talk more about our financial results and our updated outlook for 2026. Bobby? Robert Leibrock: Thank you, Tom, and thank you all for joining us today. I'll begin with a brief review of our first quarter financial performance, followed by an update on our balance sheet, liquidity and cash flows. I'll close with an update on our guidance and capital allocation priorities for 2026. As Tom said, we had a solid start to the year, driven by our progress on our growth initiatives, strong operating discipline and focused execution following the move to a 2-segment operating model last year. That translated into margin improvement and continued progress against our capital allocation priorities. Total revenue in the quarter was $426 million, up 8% year-over-year on a reported basis and up 6% in constant currency. Recurring revenue was $313 million, up 10% as reported and up 8% in constant currency. The continued growth in recurring revenue reflects strong momentum and increasing demand from our software-led offerings across both payment software and biller. We delivered first quarter adjusted EBITDA of $105 million, an increase of 12% year-over-year or 8% in constant currency, driven by solid organic growth and improved operating performance. As a result, adjusted EBITDA margin was 38%, up from 36% last year, reflecting continued disciplined execution and the operating leverage inherent in our software model. We also took certain onetime cost reduction actions in G&A during the quarter, which are excluded from our adjusted EBITDA. Net new ARR bookings increased 39% to $12 million, while new license and services bookings were $50 million, flat against a notably strong prior year comparison. Turning to our segment results. In Payment Software, revenue increased 2% in constant currency to $214 million. We continue to see increasing demand for cloud-based offerings with SaaS revenue growing 11% in Q1, excluding FX. Segment recurring revenue, representing SaaS and maintenance, grew 9% year-over-year as reported or 6% in constant currency. From a product perspective, we saw particular strength in real-time payments and merchant, which grew 22% and 21% in constant currency, respectively, driven by transaction-based volume growth within our customer base. Fraud management was essentially flat as we're issuing and acquiring, which maintained the strong revenue levels achieved in the first quarter last year. Payment software EBITDA was $113 million in the first quarter, up 2% year-over-year in constant currency. EBITDA margin was 53%, flat versus last year as operating leverage was offset by continued investment in growth initiatives, including ACI Kinetic. Turning to Biller. Revenue increased 10% to $212 million, driven by higher transaction volumes and new customer wins. Revenue net of interchange increased 5% year-over-year. We continue to see strong new business momentum across utilities, government and consumer finance as billers increasingly consolidate onto modern digital platforms. We also continue to advance Speedpay One, our next-generation biller platform, supporting the long-term modernization of the segment. Building on Tom's comments, I want to highlight the diversity of our top 10 ARR contributions this quarter. Three were consumer finance, 3 were utilities, 2 in insurance and 2 in government and higher ed. That breadth across verticals is exactly what we want to see. Equally important is the balance between new and expansion. 3 of the 10 were new logos and 7 were existing customers expanding the relationship with us. That mix is a healthy indicator of the durability of our growth. Biller adjusted EBITDA grew 10% to $34 million. EBITDA margin net of interchange was 51%, up more than 200 basis points from last year, reflecting operating leverage from new implementations and incremental volume from existing customers. Turning to cash flow and the balance sheet. Cash flow from operating activities was $64 million in the first quarter compared to $78 million last year. Strong underlying performance continued to translate into solid cash generation with the year-over-year change driven by timing in working capital, including a higher concentration of billings late in March. We are not seeing changes in billing discipline or collection patterns, and we expect this timing to normalize in the second quarter. We ended the quarter with $162 million of cash on hand and total debt of $812 million, resulting in net leverage of 1.3x adjusted EBITDA, below our targeted leverage range of 2x. With total liquidity of $560 million, including revolver availability, our balance sheet remains a strategic asset and provides flexibility to invest in growth while returning capital to shareholders. Capital allocation remains a core component of our value creation framework. As Tom discussed, during the first quarter, we repurchased 1.5 million shares for approximately $65 million. Since the start of 2025, we have repurchased roughly 5.7 million shares, representing more than 5% of shares outstanding. We remain well on track to allocate 50% to 60% of operating cash flow to share repurchases in 2026, and we ended the quarter with $391 million remaining under our current authorization. Turning to our outlook for 2026. Based on the strong start to the year, we are raising our financial guidance. This increase is driven by operational performance with minimal impact from currency movements relative to our February guidance. For the full year, we now expect revenue growth of 7% to 9% or $1.89 billion to $1.92 billion, up from our prior forecast. Both payment software and biller are expected to deliver upper single-digit growth. For the second quarter, we expect revenue of $420 million to $440 million, representing approximately 7% growth at the midpoint. Payment Software is expected to deliver double-digit growth, while Biller is expected to grow at mid-single digits against a strong prior year comparison. Looking to the second half, we see a strong pipeline of implementations and renewals with a heavier contribution weighted towards the fourth quarter. We expect an approximate 40-60 revenue split between Q3 and Q4, consistent with historical patterns. Payment software licenses are the primary driver of the SKU with Biller expected to accelerate in the second half. For the full year, we are raising adjusted EBITDA guidance to a range of $540 million to $555 million, up from $530 million to $550 million, representing growth of 7% to 10% -- this outlook reflects continued cost discipline while reinvesting in high-return initiatives and maintaining flexibility to support our long-term road map. For the second quarter, we expect adjusted EBITDA in the range of $85 million to $95 million. Looking ahead to the remainder of 2026 and beyond, we remain confident in our strategy and execution. Our strong balance sheet and a highly cash-generative business give us the flexibility to return capital to shareholders while continuing to invest in innovation and long-term growth. With that, Tom and I would be happy to take your questions. Operator: [Operator Instructions]Your first question comes from the line of George Sutton. George Sutton: Great job, guys. So I think you buried the lead a little bit with the 39% bookings growth. I just wondered if we could kind of talk about that in the context of the full year. What kind of growth does your pipeline support? Was there anything super unusual in that first quarter bookings? Robert Leibrock: George, this is Bobby. Thanks for the question and agree that, that was one of the most encouraging pieces underneath of our ARR recurring businesses there. And to provide some context, we delivered $12 million, 39% growth in our new ARR bookings that straddle both segments. Tom talked about the great performance we saw in there for our Biller Business, our Speedpay platform as well as the SaaS offerings across payment software that span both our banking as well as our merchant customers. Very encouraged across it. I think as you think about the pipeline for the year, it's strong. The team got off to a great focused execution. And then that means 2 things. One, healthy demand in the market for our products and platforms; and two, we're off to the races to go implement these SaaS-based offerings to go -- be able to get those live for our customers. I did try to expand, George, when I was talking a bit about the profile of those underneath the Biller business in my earlier comments. When I looked across the top 10 of those in our Biller business, I was really talking about new logos within there and equally encouraging, the amount of new customers that are doubling up on the revenue that they see and the commitments they're making to platforms like Speedpay. Tom talked about a big insurance business. That was one of our top 3 wins there. The team has been maniacally focused on reliability, new innovation, and we're seeing a lot of demand there from that piece. And it reflects when you look at our guidance for the year that we've taken that up. Thomas Warsop: Yes. I think, George, just to add, I want to reiterate the point Bobby is making about the spread of wins, and we saw it specifically in builder, we saw it across all the verticals. And that is precisely, as he said, what we want to see, and we are seeing that. The team -- they got off to an amazing start. And we just -- we're pushing them to continue to deliver at a very high level. George Sutton: I wondered if we could just talk about Kinetic and the target market. Originally, when you're building Kinetic, it was really driven towards more of a midsized institution and it sounds like it's creating confidence across even your larger markets in terms of sizes of customers. Are you kind of redesigning the target market or rethinking the target market for Kinetic as you build this out? Thomas Warsop: No, we're not -- I wouldn't say it that way, but I'll give you the kind of 2 most encouraging things from my perspective around Kinetic. One, the new customers, net new customers that are interested in Kinetic, they are, for the most part, that mid-tier that you were just talking about that we talked about at the Investor Day. whatever, 2 years ago, I guess it was. So that hasn't changed. The net new ones, that is absolutely the target. What's happening, which is super encouraging, is that the larger customers, they're not ready, as I was highlighting in my prepared remarks, they're not ready. And they're not ready because it's kind of an inertia thing. They've made huge investments in what they have. It's hard to turn a battleship as they say. So they're not quite ready, but Kinetic has had a very clear impact on our ability to cross-sell and expand with those big customers. So we always expected them to want Kinetic, always expected that. We knew it would take longer for them to really take advantage and to be prepared for the transformation at the institution that will be both facilitated by and required to take advantage of Kinetic. So the great news is this is a massive selling point for us. And we -- Bobby highlighted that we have increased our investment in Kinetic, and that's absolutely true. And one of the things that I want to tie that point together with my point that larger customers, current customers and even new customers are excited about Kinetic, and it's a big selling point. It's one of the reasons that they're buying or expanding. And we talked about that big Asia Pacific brand-new takeaway from last year. That deal would not have happened without Kinetic and our ability to explain the road map, show them where we're going. They were so excited about the future of Kinetic that they said, "I got to have that. I'm not ready. Can you put in current software right now and then phase us in over the next few years? Of course, we said yes. And that deal alone funded would -- if we looked at it this way, it would fund the entire budget for our Kinetic development. So that's the power of Kinetic with big customers, and then we've got these net new ones coming, pipeline continues to grow. So we're really excited about it. But these are -- just as a reminder, these are very complex transactions. These are big changes for financial institutions, whether they're midsized or extremely large. These are big deals and complicated. And so it does take time, but I couldn't really be happier with the way that our investment in Kinetic is driving our pipeline and our expansion of existing customers. Operator: Your next question comes from the line of Jeff Cantwell with Seaport. Jeffrey Cantwell: Can you elaborate a little more on Kinetic in terms of how sales are going right now? I'm curious if maybe you could talk a little bit about the announcement you had with the 8 major U.S. payment networks and give us some details on why that's important? And then more broadly, how is everything tracking with Kinetic versus your expectations at the beginning of the year? And when should we expect to see these announcements impact your P&L over time? Robert Leibrock: Yes. I'll jump in first, Jeff. I appreciate the focus there. And I was going to bring up actually that expansion we saw because what we were just talking about was one dimension of how Kinetic expands the addressable market from the top-tier banks into a longer tail within the mid-tier, as Tom described. There's 2 other dimensions, I think, and you've touched on one of them that I think are really important in Kinetic. One, it touches the payment software portfolio very holistically. It touches both the issuing and acquiring business, the card side of that, you saw those types of announcements and the account-to-account, the real-time payment side. We put out an announcement 2 weeks ago, really showing the breadth of that across 8 different payment types. And when you think about the core value prop of Kinetic, intelligent payment orchestration, orchestration is key with the amount of payment types that customers are challenged to deal with right now. The intelligence side, and Tom's had some great examples on this and our customers are really seeing the excitement and the value around this. The intelligence side is around the AI capabilities we're infusing in Kinetic across those payment types. So a couple of points. The second dimension after the addressable market is really it covers our portfolio. It embeds AI across that as well as the orchestration touches everything from our account-to-account capabilities to the issuing acquiring and the card side. The third dimension that's important is a geographic one. One of the impressive stats that I've highlighted over my last year here is how internationally diverse our payment software business is. It's 75% of payment software business for ACI comes outside of the domestic market here in the U.S. And with that, you've got customers that rely on us across Europe to operate within many different economies there, straddle, the U.K. economy, the euro economy. When you get into that, we've invested early on, and you can see the public wins that we've announced in Europe. This year is a big year for the U.S., and our pipeline starts to show that because you saw that announcement, we'll have kind of a rolling thunder of capabilities that customers are excited for here on the road map in the U.S. And then your last point there is where is the money? When is that -- how does the pipeline look? And how does that contribute to the year? Pipeline is healthy across the 2 markets we have availability in. It's, I'd call it, a little bit more than half in Europe and then the other part made up here in the U.S. Like Tom said, that does not preclude probably every one of our renewals we do in APAC or LATAM and asking about it. A lot of the face-to-face meetings I've had with customers across Latin America, we still spend half the time on the Kinetic road map, and they're eager to get that localized for their market. You put it in context for this year. We don't have a dependency on Kinetic revenue this year, and I'll tell you why. It's not related to the confidence that we're seeing from customers or the confidence in the pipeline. It's because of the availability that we're providing in a hybrid fashion for customers to consume Kinetic as a service or if they want to manage it themselves. It's a fully cloud-native offering, runs on Kubernetes. But if you're running it yourself, that's a different licensing revenue model for it as a service. So as we look at the pipeline, it's split across those, and that's going to either have a ratable revenue model or it's going to have more of our traditional upfront. But we're encouraged by it. This year, we'll continue to provide the visibility and the transparency that we've done against that. Thomas Warsop: And the early -- just to add a couple of things. The early wins have been primarily, I think, actually exclusively SaaS. And so those -- the rev rec, as Bobby was just saying, that happens as transactions flow and the first go-live is coming up here in the next few months. And so we will start to see revenue come in this year, but we're not dependent on it. It's not a huge amount this year, and it's not factored really into our guidance at all. So it's great pipeline growth. I mean we're seeing real excitement about the platform. It is driving, as I was just saying a moment ago, it is driving expansion with existing customers as well as new customers. So it's been a fantastic journey so far, and we're keeping the pedal to the metal, Jeff. Jeffrey Cantwell: Okay. Great. I appreciate all the color on that. And then my other one was, could you maybe just clarify for Q1, was there any pull forward of revenue from Q2? I seem to remember that happened last year. And I'm curious if there's anything to be aware of on that front. And then when we think about Q2, what are the biggest drivers for payment software delivering double-digit growth? Can you maybe unpack that for us in terms of what's driving the step-up in growth there? Robert Leibrock: I'll jump in. So one, I viewed it. We provided visibility on the first half SKU and reaffirm that here with our 2Q guide. Your beginning part of your question, you asked about the quality of the roughly $15 million, $16 million beat on revenue in Q1, which was a great way to start the year on top of the roughly 25% growth we saw last year in Q1, we posted the 6% constant currency this year. So underneath of that, really, Jeff, it was minimal pull forwards, and that's why we're able to reaffirm the 2Q guidance. Really, what we saw is on the deals that we had forecasted, both renewals and some of the new logo opportunities, it was exceeding the expectations we have on upselling and cross-selling into those accounts. We came in at the high end of those ranges, which is really encouraging when you think about the retention rates you're getting on renewals and the adoption you're getting and the commitment you're getting on the new logo side of it. As you put that in context and roll that forward through the year, we rolled the bulk of that beat right through to the full year for us. We maintained a disciplined approach to the way we're guiding. We want to provide you numbers we have high confidence in getting to. You look at Q2, which you asked about, pleased with the profile we've given you the range at the midpoint, revenue is growing 7% and strong operating leverage when you see the EBITDA that's growing 11% -- and I think you're asking about some of the durability underneath of that. I think hopefully, you see this year a transparent approach and more visibility that we're trying to give you into the quarterly dynamics. I talked about second half as well and really providing not just through adjusted EBITDA, I've given you all the componentry to think about the earnings power we have in the business. For the full year, we've guided an EBITDA range that's growing 7% to 10%. When you see what that translates to on an adjusted earnings per share basis, you can see we almost double that growth range at the midpoint of what we're telling you there. So we're excited about the year, the position of strength and the team is very focused. Operator: Your next question comes from the line of Alex Neumann with Stephens. Alexander Neumann: Just wanted to ask, are you facing any headwind from lower tax payments from the IRS this year from higher refunds? And then if you could quantify that impact, if so? And then just secondly, assumptions for FX benefiting the '26 guide? Robert Leibrock: Yes. I'll jump in on them. On the IRS side, I mean you're right to point out, we do have some seasonal benefits that started last year as we saw the ramping of this business. The IRS and our federal business maintains strong volumes, good resiliency there. And there is some spreading of that throughout the year as tax payments are made multiple times throughout the year. We don't -- we see growth continuing in that segment. So no declines forecasted there. I did try to provide transparent commentary, Alex, within Q2. As we lap on some of that growth, the 10% we had of biller growth in Q1, that's going to be more like mid-single-digit growth. And then we see that reaccelerating in the second half based on the compare we saw in Q2. And as you heard, I did try to provide segment-level commentary on the full year in line with our model that we see both segments growing high single digits there. Thomas Warsop: Yes. And Alex, we don't see a meaningful impact from what -- specifically what you were talking about, more refunds leading to potentially fewer tax payments. We're not really seeing that. So I read the same thing, more people are getting a refund, but we're not seeing material impacts. I think what Bobby was highlighting was there'll be -- it's a tougher compare because we had a very strong year last year and that IRS business, in particular, grew a lot over the previous year, but we don't we don't see anything material there. Robert Leibrock: And the second part of your question, Alex, was around currency impacts. I made the comment earlier that we -- versus 90 days ago, 60 days ago, roughly when we guided in February, we didn't see a change really in the U.S. dollar strengthening or weakening against that guidance level. But we did see 2 points of tailwind with a weaker U.S. dollar versus last year in Q1. On the full year basis, the rest of the quarters are more neutral and nominal when you look at the -- our reported delta. I'm not forecasting where the U.S. dollar goes, but versus current positioning, we don't see that 2 point really carrying forward in the remaining quarters. And that's how it plays out in terms of the modeling on the top line there. Operator: We have reached the end of the Q&A session. I will now turn the call back over to the company management for closing remarks. Thomas Warsop: Well, thank you very much for the questions and of course, for the support that you give us all the time. We really appreciate it. I want to just summarize, we're pleased with the start to 2026. We're pleased with the momentum we're seeing in our business. Of course, there's a lot of noise in the industry. There's a lot of geopolitical unrest, all kinds of things happening in the world, but we remain absolutely focused on continuing to execute on our strategy, and we're very confident that we remain well positioned to continue winning. The platforms we're operating are mission-critical, highly reliable and deeply embedded in our customers' critical workflows, and we sit at the center of payment flows that are global, highly regulated and increasingly complex. We have a clear strategy, a resilient portfolio. We're seeing accelerating growth. We have significant financial flexibility, and we're very well positioned to continue delivering our long-term value for shareholders. So we feel great about where we are, great start, and we're going to keep doing our best to deliver very high-quality results and shareholder value. Thank you very much. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day and welcome to the Myomo, Inc. First Quarter 2026 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Bruce Voss of Alliance Advisors. Please go ahead. Bruce Voss: Thank you and good afternoon, everybody. This is Bruce Voss with Alliance Advisors IR. Welcome to the Myomo, Inc. First Quarter 2026 Financial Results Conference Call. With me on today's call are Myomo, Inc.'s Chief Executive Officer, Paul R. Gudonis, and Chief Financial Officer, David A. Henry. Before we begin, I would like to caution listeners that statements made during this call by management other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, outlook, confidence, target, project and other similar expressions are typically used to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to risks, uncertainties and other factors that may affect Myomo, Inc.'s business, financial condition and operating results. These risks, uncertainties and other factors are discussed in Myomo, Inc.'s filings with the Securities and Exchange Commission. Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. Furthermore, except as required by law, Myomo, Inc. undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call today, 05/07/2026. Now it is my pleasure to turn the call over to Myomo, Inc.'s CEO, Paul. Paul, please go ahead. Paul R. Gudonis: Thanks, Bruce. Well, good afternoon, and thank you all for joining us today. We remain very excited about the opportunity in front of us to improve lives and grow our company. Chronic upper-limb paralysis is an underserved medical condition and each year stroke leaves hundreds of thousands of Americans with long-lasting arm impairments. When you add in spinal cord injury, traumatic brain injury and brachial plexus injuries, the addressable U.S. population reaches into the millions, and globally millions more. For most of these patients, the standard of care has been a passive brace, ongoing physical therapy with diminishing returns, or resignation to permanent loss of function. Our MyoPro is the only commercially available powered arm orthosis in the U.S. that uses non-invasive EMD sensors to detect the patient's own muscle signals and amplify them into functional movement, thereby permitting paralyzed individuals to feed themselves, carry objects, return to work, and reclaim independence at home. It is not an incremental improvement on existing care. It is really an entirely different category of device and Myomo, Inc. owns it. Let me start with a quick real-life story. Our staff just helped Mike, who lost the use of his right arm due to a brachial plexus injury from a motorcycle accident when he was just 17 years old, and now some 50 years later, he is using both arms again with the help of a MyoPro, carrying objects safely around his home and doing household tasks such as mowing his lawn. Our MyoPro has improved the quality of life for Mike and for his wife, reducing the burden of care from his impairment, and that is what this is all about. Several positive factors are converging right now to drive Myomo, Inc.'s success: reimbursement, distribution, and technology. Reimbursement by CMS and a new Medicare Part B benefit category with HCPCS codes for the MyoPro have opened access to the Medicare population of tens of millions and removed the single largest historical barrier to adoption. New clinical studies and in-network contracts with a growing number of commercial payers have significantly increased market access for patients covered by these plans. We are transitioning our go-to-market strategy with a distribution system based on recurring patient sources from rehab hospitals and O&P providers to reduce our customer acquisition costs and to build the foundation for accelerated growth going forward. And our investments in technology are increasing the value to patients and clinicians while reducing our operating costs as we scale the business to sustain profitability. Earlier this year, we established four success pillars for 2026: recurring revenue, market access, operating leverage, and innovation, with strong progress against each. First quarter revenue and profitability exceeded our targets. To measure our progress against these four success pillars, let us review each of them. Number one, the shift to recurring patient sources. We launched the MyoConnect program in mid-2025 to encourage therapists and physicians at rehab hospitals, stroke clinics, and other healthcare facilities to refer prospective MyoPro patients to us or to a local O&P partner. These channels not only provide recurring referrals but they also carry lower acquisition costs and higher conversion rates versus direct-to-patient marketing. With Medicare coverage in place and the new MyoPro 2X introduced last year, it was the right time to bring the benefits of the MyoPro to the incidence population of patients who are currently in outpatient therapy, expanding our target market beyond individuals with chronic arm paralysis and the large prevalence population. We reoriented our field clinical team, added sales specialists, and conducted numerous in-service educational sessions at these rehab locations. I am pleased to report that more than 150 rehab facilities are now referring candidates to us. The O&P channel is another source of recurring referrals, and our O&P revenue grew 79% year-over-year as we trained and certified additional CPOs and jointly implemented outreach programs. Earlier this week we announced that we have been working with Autoboc U.S. Clinical Operations to certify them as MyoPro Centers of Excellence, and we recently conducted training for over 20 clinical specialists from around the country, part of their national rollout. Autoboc is the world's largest provider of O&P products and clinical services, and we are very pleased to be working so closely with them. In Germany, we have more than 100 O&P practices working with us to provide the MyoPro to their patients. The insurance environment in Germany is highly favorable and our international revenues reached a Q1 record of approximately $2 million. We continue to expand our sales and clinical staff in Germany and later this month we will be attending the OT World Conference in Leipzig to engage with additional O&P clinics. This conference is the largest O&P event in Europe. As a result of these efforts, we are tracking extremely well against our targets at consistently increasing revenue from recurring patient sources. Pillar number two, the second success pillar, is to increase market access for patients by signing additional payer contracts. As discussed in March, we signed a national arrangement with Elevance, which manages a number of Anthem Blue Cross Blue Shield plans in 27 states including large ones like Texas, Ohio, Virginia, and California. We have been entering into these payer contracts to secure Myomo, Inc. as an in-network provider with case-by-case coverage determinations and an agreed-upon price for the MyoPro. As a result, we are now seeing a significantly higher authorization rate from these Medicare Advantage and commercial plans. Over the next several months, I expect we will sign additional state contracts under the Elevance national arrangements. Since we secured Medicare coverage in April 2024, and added various commercial and Medicare Advantage contracts, we have gone from just 9 million covered lives to 158 million lives currently. Pillar number three is to demonstrate operating leverage and the path to profitability. We demonstrated early operating leverage in the first quarter with revenue up 3% while OpEx was down 1% year-over-year. We also expanded gross margin by 100 basis points, and the combination of these accomplishments resulted in a 20% improvement in adjusted EBITDA. Pillar four is to continue to invest in product development and clinical research. In March, we launched a new mobile app which allows clinicians, patients, and caregivers to use their smartphones to adjust the device settings, display their muscle movements and EMD signals, and collect usage data that can be used by therapists and physicians. The app also eliminates the need to ship a laptop with our proprietary software to each user, reducing our MyoPro material costs by about 10%. You will see this benefit flowing through to gross margin beginning in the second quarter. Another R&D investment is a randomized control trial being conducted by the University of Utah Rehabilitation Hospital. After a successful pilot last year, the university's IRB approved the study, which will compare the outcomes of users with the MyoPro against those who receive the current standard of care of occupational therapy. We have enrolled 18 of the 50 subjects to date and, when completed, and assuming similar results to our pilot last year, this clinical evidence is expected to support increased reimbursement of the MyoPro. Finally, development of the MyoPro 3 next-generation platform is progressing and focused on enhanced functionality and increased processing power to support future software-driven innovations. The progress on each of our four success pillars is tracking with our targets, and we are excited to keep on delivering. On the marketing front, we added a new marketing executive and engaged a new digital ad agency in Q1. As a result, we have refined our marketing strategy with a new approach to digital channels and data-driven targeting. We are also expanding the use of social media to engage directly with healthcare providers and to introduce the MyoPro in geographies with payer contracts. These initiatives are already improving lead quality, which is resulting in more pipeline adds per lead generated and reducing patient acquisition costs. We expect further efficiency gains as these programs scale throughout 2026. With that overview, I will turn the call over to our CFO, David A. Henry, to walk through the financial results in more detail. David A. Henry: Thank you, Paul, and good afternoon, everyone. As Paul just discussed, we have been busy executing against the success pillars we introduced earlier this year, and I am pleased to report on the progress we have made. Our revenue for the first quarter of 2026 was $10.1 million, up 3% versus the prior-year period. The increase was driven by a higher average selling price, or ASP, partially offset by a slightly lower number of revenue units. ASP in the first quarter was $58,800, up 9% versus the prior year due to higher Medicare Part B and Medicare Advantage reimbursement amounts reflecting beginning-of-year fee updates, as well as a positive channel mix, including higher international and Medicare Advantage revenues. We delivered 172 MyoPro revenue units during the quarter. Looking at payer mix, Medicare Part B patients in our direct billing channel represented 51% of revenue in the first quarter, which was down 12% in dollar terms compared with the prior year. Medicare Advantage patients in our direct billing channel represented 19% of first quarter revenue and, in dollar terms, were up 11% compared with the prior-year quarter. As many healthcare providers are seeing, the macro environment for Medicare Advantage plans continues to be challenging. To mitigate the impact, we are focusing on in-network patients obtained through our contracting efforts; early results are showing higher authorization rates compared with non-contracted payers. The direct billing channel represented 71% of revenue in the first quarter compared with 79% in the prior-year quarter. Direct billing revenue declined as we continued transitioning our business toward recurring patient sources. Revenue from recurring patient sources represented 49% of first quarter revenue, up from 25% in the prior year. As you can see, we have made significant progress in shifting toward recurring patient sources at a lower patient acquisition cost compared with advertising-driven direct patient revenues, which carry a much higher cost to acquire. Breaking down the recurring patient sources, approximately 20% of first quarter revenue was generated by direct billing referrals, another 20% was generated by the international channel, 8% from the U.S. O&P channel, and the rest was from VA payers. International revenue was up 53% year-over-year and the U.S. O&P channel was up 79% year-over-year. As of 03/31/2026, the pipeline stood at 1,680 patients, an increase of 10% sequentially and 13% year-over-year. During the first quarter, we added 723 patients to the pipeline, which is up 7% sequentially and 3% year-over-year. 11% of first quarter pipeline adds were generated from direct billing referrals, demonstrating the traction so far with the MyoConnect program. 62% of first quarter revenue units were from intra-quarter fulfillments, which is up from 45% of revenue units a year ago and demonstrates our increased velocity in fulfilling orders. 16% of first quarter orders came from direct billing referrals. We exited the quarter with a backlog of 226 patients. Gross margin for the first quarter of 2026 was 68.2%, up from 67.2% a year ago, driven by a higher ASP and material cost reductions, partially offset by higher labor and travel costs needed to fit patients on-site. Operating expenses for the first quarter of 2026 were $10.1 million, down 1% over the prior-year quarter. The decrease was driven primarily by lower R&D and G&A expenses, partially offset by higher sales, clinical, and marketing expenses. Operating loss for the first quarter of 2026 was $3.2 million, which narrowed from an operating loss of $3.5 million in the prior-year quarter. Adjusted EBITDA for the first quarter of 2026 was a negative $2.3 million compared with a negative $2.8 million in the prior-year quarter. The improvement was driven by the lower operating loss I just mentioned and higher add-backs for depreciation expense and stock-based compensation. First quarter non-operating income includes a mark-to-market gain from the change in fair value of derivative liabilities, partially offset by cash and non-cash interest expense through the Avenue Capital term loan. Net loss for the first quarter of 2026 was $3.0 million, or $0.07 per share. This compares with a net loss of $3.5 million, or $0.08 per share, in the prior-year quarter. Turning now to our balance sheet and cash flow. As of 03/31/2026, cash, cash equivalents and short-term investments were $15.7 million. Reflective of the improvement in adjusted EBITDA, our use of cash was $2.7 million in the first quarter compared with $3.2 million used in the first quarter of 2025. Let me conclude my remarks with our forward-looking guidance. As you just heard, we are making tremendous progress on our 2026 objectives. In the first quarter, we achieved higher year-over-year revenue, improved gross margin, and lower operating expenses, resulting in improved adjusted EBITDA. Our transition of the business toward recurring patient sources is running ahead of plan. In addition, the marketing changes we initiated are beginning to take effect. As a result, we expect second quarter revenue to be in the range of $10.3 million to $10.8 million, which is up 7% to 12% year-over-year and up 2% to 7% sequentially. We expect gross margin in the second quarter to be higher year-over-year but lower sequentially due primarily to channel mix. We expect operating expenses to increase slightly versus the first quarter, reflecting a modest increase in advertising spending. For the full year, we are reiterating our revenue guidance in the range of $43 million to $46 million, and we reaffirm our full-year operating leverage expectation to limit the growth of operating expenses in 2026 to about one-half the growth of revenue. With that financial overview, I will turn the call back to Paul. Paul R. Gudonis: Thanks, Dave. To summarize, we are keenly focused on implementing our four success pillars to grow MyoPro volume and revenues while improving key financial metrics including gross margin, adjusted EBITDA, and cash usage. Our technology is making a dramatic difference in the lives of patients who are suffering with chronic arm paralysis. And now Dave and I are ready to take your questions. Operator? Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Paul R. Gudonis: While we are waiting for the first question, I would like to mention that in May, we will be participating in the Sidoti Virtual Investor Conference and AGP's Annual Healthcare Company Showcase. And on June 23–24, we will be presenting at the iAccess Alpha Select Virtual Conference and holding one-on-one meetings with investors. Operator, let us take the first question whenever you are ready. Operator: Our first question comes from Chase Richard Knickerbocker of Craig-Hallum. Please go ahead. Chase Richard Knickerbocker: Good afternoon. Thanks for taking the questions. Maybe just first on the ASP increase, could you go into a little bit more detail as far as what drove that as far as the mix specifically that you were referring to and the drivers within that mix, higher or lower within ASP? And then how sustainable is that? How should we be thinking about ASP sequentially through the year? Thanks. David A. Henry: Yeah, sure. So the ASP was $58,800. The increase was due in part to the fee increase that happens at the beginning of every year with CMS. That also affected the Medicare Advantage payers as well. So both Medicare and Medicare Advantage—those were about 70% of revenues in the first quarter—and those were all subject to that fee increase. Also, in international revenues we get some foreign currency benefit from that. So international is our second largest channel in terms of both revenues and ASP, and they were 20% of revenue. So those are the reasons why. And then in terms of sustainability, I do expect that the ASP will come down a bit through the channel mix in the second quarter, and I think it is still prudent to assume maybe around, you know, $55,000 ASP on a more longer-term basis. Chase Richard Knickerbocker: Understood. Maybe just on the advertising side, can you break down what the percentage benefit was in the quarter from MyoConnect? Was the majority of that decrease in cost per pipeline add driven by MyoConnect, or were there some improvements that you are seeing on the digital marketing side? David A. Henry: Just in terms of the metrics, you know, 11% of the pipeline adds in the quarter were MyoConnect, and those come at a low cost per pipeline add because we are not advertising to get those. So that is a big part of it, plus just some of the efficiencies we are seeing. As Paul mentioned, we are seeing a lower cost or more pipeline adds per lead that we are generating through some of these efforts that we are making. Paul R. Gudonis: Yeah. We are finding that the quality of the leads, which was an issue a year ago, Chase, has really turned around. Now we are getting more of the leads that are generating; we are engaging with those patients, and they are medically qualified, they are moving into the pipeline. We redid our TV advertising as well with a new 120 seconds slot, and that has paid off really well—a good cost per call—and the patients who see that, or their caregivers, are really engaged. Those couple factors have reduced our cost per pipeline add. Chase Richard Knickerbocker: And you had mentioned ramping some of the marketing spend as we go through the year here into Q2. Is that driven by seeing some improvement on that side of things? Or maybe talk me through the drivers behind that reinvestment? David A. Henry: Yeah, I would say that is the case. And it is also something that we do typically every year. Second and third quarters are typically our highest spending for advertising, then it comes back down again in the fourth quarter just because of the inefficiencies that happen in the fourth quarter. Paul R. Gudonis: But also due to the revenue cycle, which could be four to six months or longer depending on the patient's insurance. Advertising now builds a good pipeline and backlog for Q3 and Q4 revenue. Chase Richard Knickerbocker: And then just last for me. Guidance assumes a step up in growth in the second half. Guidance was reiterated; the mix on a quarter basis was a little bit different than what we expected. Can you walk us through what the top end of your guidance assumes and the bottom end, as far as the moving pieces and the assumptions in there? Thank you. David A. Henry: I think the top end of the guidance would reflect more from the direct billing channel, particularly as it relates to more on the referrals side of things. MyoConnect, I think, is probably the biggest swing factor in terms of our guidance. Good news and good traction with that—which so far we are seeing—would lead us to trend toward the higher end of our guidance. If for some reason some of those results were to begin to flatten out or go down, that would drive us toward the lower end of our guided range. Chase Richard Knickerbocker: Understood. Thank you. Operator: Our next question comes from Edward Wu of Ascendiant Capital. Please go ahead. Edward Wu: Yes. Congratulations on the quarter. My question is on international. Once again, you had another very strong quarter, very good growth, record revenue. How much potential can the German market have, and is there ability to accelerate the growth near term? Paul R. Gudonis: Well, you look at the German market, over 80 million population compared to, let us say, 330 million here in the U.S., so it is about 25% to 30% of the total size of the U.S. market. So you can see that there is definitely upside potential there. Also, as we have seen, because of the statutory health insurance and social court rulings over there, we are getting good traction with the insurance companies there. So that is why we are continuing to add resources, which is the way to grow that German business. I will be there later this month in Leipzig, Germany for the OT World Conference to recruit more O&P providers. We will also start looking at some other international markets. Edward Wu: That sounds good. You mentioned other international. I know you previously have said that the German market was kind of unique. Other European markets, or would it be possibly markets in other areas? And any updates on the Chinese market? Paul R. Gudonis: Well, probably the other European markets where we can get the reimbursement relatively quickly. So we will be talking to some O&P providers in these other countries to see what they feel about the reimbursement environment. And we always look at where investing another euro is the best place to put it; so far the best return has been in Germany. Also, staying in Europe would help us leverage infrastructure we have over there. In China, we continue conversations with China Lead Ventures, which was one of the major investors in the joint venture. We have had regular conversations to introduce new potential partners, medical device manufacturers and investment partners into the JV, but nothing has been finalized over there as far as the next step with the JV. Edward Wu: And I wish you guys good luck. Thank you. Paul R. Gudonis: Thank you, Ed. Operator: Our next question comes from Jeremy Pearlman of Maxim Group. Please go ahead. Jeremy Pearlman: Thank you for taking my question. Firstly, I want to talk about MyoConnect. You have mentioned that you have roughly 150 rehab facilities that are referring patients currently. How extensive do you think that runway is? How many more rehab clinics are in the pipeline to convert to this MyoConnect? Paul R. Gudonis: Well, we have had tremendous results in just the first nine months, Jeremy, since we started that in mid-2025, and I expect we are going to add new clinics every month. I would love to get to the point where we have several hundred by the end of this year. There are about 1,500 stroke clinics in the United States plus many other major hospitals that treat stroke patients. Then on top of that, we are finding a lot of success with these smaller private rehab clinics. There are therapists out there who have their own clinic, and they are referring MyoPro patients to us. Our goal is to grow the number of rehab facilities to a couple of hundred by the end of the year. We also see what I call same-store sales growth where, after referring that first patient, they will refer a couple of others, and that should grow not only this year but well into next year. And that is why I see we are laying the foundation for accelerated growth next year. Imagine hundreds of these clinics, then growing the number of patients they refer next year, plus new clinics that come online next year as MyoConnect partners, and you have more and more OT providers coming on. We just announced Autobot; they have over 50 locations in the U.S. We just trained 20-some of their clinicians around the country who are going to be spreading the word within their territories. We have other major national accounts lined up for similar type of training going on. Jeremy Pearlman: Okay, that is great. And then just to follow up, you mentioned that you hope this is laying the foundation for accelerated growth. Once they refer the first patient, they will refer more. Is it too early to tell? Have you seen that play out with the rehab clinics that are already in the program—that once they refer the first patient, does that give you confidence that 2027 we could see a big uptick? Paul R. Gudonis: We are starting to see those green shoots. Remember that most of these have just come online, maybe made their first referral in December or January. The patient has to go through the insurance process, has the fit with the device, then goes to that clinic for therapy services, then they see the outcome. It may be six months from the time they make their first referral until they make the second, but I am confident that with the way our device performs for these patients, we will get these ongoing referrals. Jeremy Pearlman: Okay, understood. And then also, related to MyoConnect, do a higher percentage of the patients that are referred through this program convert eventually to the backlog into a paying customer? Or is it similar to your legacy advertising direct-to-consumer marketing where a certain percentage drops off and then whatever percentage goes through the funnel? Paul R. Gudonis: That is a very good observation because patients are better in two respects. One, we have trained the clinicians that are referring to pre-qualify these patients for us. So they are sending us better quality patients, meaning they are more likely to benefit from MyoPro in terms of their medical qualifications. That is a plus; they are higher quality patients than what comes in from the general advertising. And number two, because these clinicians know that Medicare will cover this, they are sending us a higher percentage of Medicare than in the general population. So it is almost like a double win from these referrals from the MyoConnect program. Jeremy Pearlman: Okay. That is great. I understand. And then just last question. I know you mentioned at last year’s Investor Day a section about adjudicating denied claims. Any follow-up—how has the success rate of that been? Is that steady? Has it been improving? Maybe anything you could talk about there? David A. Henry: Yes, we are continuing to do these ALJ hearings, still running about that same success rate. However, as we mentioned, where we have contracts with these various plans we have a much higher authorization rate right up front, and so you do not even need to go to the hearings. Jeremy Pearlman: Okay. That is great. Thank you for taking my questions. I will hop back in the queue. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Paul for any closing remarks. Paul R. Gudonis: Well, thanks, operator, and thank you all for joining us today and for your questions. We look forward to seeing and hearing from you in the coming months. Thanks again, and have a good evening. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Hudson Pacific Properties, Inc. first quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Laura Campbell, Executive Vice President, Investor Relations and Marketing. Laura, please go ahead. Laura Campbell: Morning, everyone. Thanks for joining us. With me on the call today are Victor J. Coleman, Chairman and CEO; Mark T. Lammas, President; Harout Krikor Diramerian, CFO; and Arthur X. Suazo, EVP of Leasing. This morning, we filed our earnings release and supplemental on an 8-K with the SEC, and both are now available on our website along with an audio webcast of this call for replay. Some of the information we will share on the call today is forward looking in nature. Please reference our earnings release and supplemental for statements regarding forward-looking information as well as the reconciliation of non-GAAP financial measures used on this call. Today, Victor will discuss our first quarter results and current market trends. Mark will provide detail on our office and studio operations. And Harout will review our financial results and updated 2026 outlook. Thereafter, we will be happy to take your questions. Victor? Victor J. Coleman: Thanks, Laura. Good morning, and welcome, everyone, to our first quarter call. 2026 is off to a strong start. Building on decisive actions we took last year, we delivered improvement in both occupancy and cash flow, sequentially growing FFO, in total and on a per share basis. We signed over 500 thousand square feet of office leases, our third consecutive quarter of occupancy gains, supported by leasing pipelines that remain robust. On the studio side, prime locations are performing and operational streamlining at Coyote continues to drive annualized savings. We also achieved substantial year-over-year reductions in G&A, maintained total liquidity in excess of $930 million with our credit facility fully undrawn, and advanced an active pipeline of FFO-accretive dispositions. From a macro perspective, a record $267 billion of venture capital was deployed in the first quarter, fueled by large-scale AI financings and broad investment across adjacencies. That capital is translating into leasing activity. Well-funded tech and AI-focused companies are accelerating demand across our West Coast markets while more traditional office users are reengaging on either new leases or expansions. The Bay Area obviously is leading. San Francisco had a record 2.3 million square feet of positive absorption, capping the strongest six-quarter run of occupancy growth to date. Leasing activity reached 4.1 million square feet and AI-related tenants accounted for nearly 60% of total volume, and asking rents rose close to 4% year over year. Silicon Valley extended its momentum with a sixth consecutive quarter of occupancy growth. The Peninsula is also showing further signs of positive inflection, particularly in Redwood City and Foster City where our assets are concentrated. The Puget Sound posted its second consecutive quarter of positive absorption. Downtown Seattle is beginning to capture its share of AI and tech demand, and our portfolio quality positions us to benefit as activity further extends from the Eastside to the urban core. In Los Angeles, fundamentals remain challenged, but with our own limited near-term availability concentrated in one well-leased top-tier asset, we can be patient as conditions strengthen. Turning to studios, U.S. production activity remains subdued, but the flight to quality is real. Our Hollywood stages are 97% leased, and Sunset Pier 94 reached 100% leased within the first quarter of operations. The leasing results made it clear these are the right assets in the right locations. We are actively refining our studio portfolio to focus on the highest performing assets and lines of business. And on Coyote, we are making the necessary and, quite frankly, difficult decisions. As announced, Coyote will wind down leased soundstage facilities and Atlanta-area operations. We remain committed to ensuring Coyote is earnings-neutral by year end. On capital recycling, we are in various stages on asset sales targeting $200 million this year, and these are all FFO-accretive non-core dispositions. We have a buyer and agreed price at 10950 Washington as well as another asset under contract. As we look ahead, both occupancy and our leasing pipeline should remain strong. We are making the hard calls and continue to ensure our overhead is controlled, our disposition pipeline remains on track, and we have ample liquidity and a clear, executable path to FFO growth through the balance of the year. I will now turn the call over to Mark. Mark T. Lammas: Thanks, Victor. Our leasing momentum continued to translate into tangible occupancy gains in the first quarter. We signed 554 thousand square feet of leases, 49% of which were new leases, driving our in-service office portfolio occupancy to 77.8%, up 150 basis points sequentially, and our lease rate to 78.4%, up 140 basis points sequentially. Occupancy improved across our core regions, except for Vancouver, where the lease percentage increased 110 basis points to 94.3%. On lease economics, GAAP rents increased 1.8% while cash rents declined 2.4%, representing sequential improvement in these metrics by 140 and 660 basis points, respectively. Net effective rents rose 4% sequentially though were down 2% year over year, with the latter comparison influenced by the large prior-year lease with the City and County at 1455 Market. We have excellent visibility into continued occupancy growth. Our leasing pipeline increased again to 2.4 million square feet, up 13% year over year, and we had 2.2 million square feet of tours in the quarter, up over 30% year over year. Our third lease with the City and County of San Francisco, which effectively absorbs the remaining vacancy at 1455 Market, remains on track to be finalized in the second quarter. We have close to 60% coverage—deals and leases, LOIs or proposals—on approximately 600 thousand square feet expiring for the remainder of the year, including full coverage on PayPal at Fourth & Traction and 80% coverage on Dell at 875 Howard. At Washington 1000, tenant interest has increased meaningfully. We now have coverage for approximately 60% of the project. To meet demand for prebuilt space, we will deliver 70 thousand square feet of move-in-ready suites in the second quarter. We are in late-stage negotiations with an amenity provider for the first and second floors to further enhance the property's marketability. Beyond that, we are in negotiations with seven office-using tenants, primarily growth-oriented tech and tech-enabled companies, with requirements ranging from under 10 thousand to over 100 thousand square feet. Turning to studios, our in-service stages were 72.8% leased over the trailing three months. Excluding Pier 94, which was placed in service this quarter and where stages went from 0% to 100% leased during the quarter, our in-service stages would have been 78.2% leased, up 370 basis points sequentially, driven by the lease-up of Sunset Las Palmas. As Victor noted, our Hollywood stages—Sunset Bronson, Gower and Las Palmas—were 97% leased over the trailing three months, up 280 basis points. Studio revenue was off $2.4 million sequentially, attributable to lower demand for Coyote's Lighting and Grip, Pro Supplies and Fleet. Despite expenses being $2.1 million lower, this led to a sequential $300 thousand decrease in studio NOI to $1.5 million. That said, Sunset Studio NOI, excluding Coyote, increased $1 million sequentially and was up $1.8 million year over year to $7.4 million, driven by the lease-up at Sunset Las Palmas and increased production activity at Sunset Bronson. On Coyote, the wind down of leased soundstage facilities and Atlanta-area operations would equate to approximately $5.8 million of annual cash NOI improvement. Finally, we continue to actively explore adaptive reuse opportunities across our portfolio. In the second quarter, we will submit for re-entitlement of 901 Market's 164 thousand-square-foot office component as residential with expected resolution by year end. We are also evaluating the potential to redevelop excess surface parking at select assets across Palo Alto, Redwood Shores, and Foster City as mixed use. These initiatives, along with others under evaluation, allow us to better align our portfolio with market demand while leveraging our deep entitlement and redevelopment expertise. Victor J. Coleman: Thanks, Mark. I will now turn it over to Harout for the financials and outlook. Harout Krikor Diramerian: Thanks, Mark. I will walk through our first quarter results and updated 2026 outlook. Total revenues were $181.9 million compared to $198.5 million in the prior year, primarily due to the sale of Element LA and office tenant move-outs, most specifically Uber's departure from 1455 Market midway through 2025, with studio production activity remaining stable. G&A declined 32% to $12.6 million compared to $18.5 million in the prior year, further reflecting the progress we have made to streamline our cost structure. Core FFO increased to $16.5 million, or $0.25 per diluted share, up from $12.9 million, or $0.61 per diluted share, in the prior year. Adjustments to FFO totaled $1.5 million, or $0.02 per diluted share, compared to $9.8 million, or $0.47 per diluted share, in the prior year. Same-store cash NOI was $85.2 million compared to $92 million in the prior year, driven by lower office revenues from tenant move-outs—again, largely Uber's departure at 1455 Market—partially offset by higher studio revenue from increased production activity at our Hollywood assets. On our balance sheet, total liquidity of $933 million includes $138 million of cash and full availability of $795 million on our credit facility. Interest expense was 13% lower year over year, representing $5.5 million of savings, and all of our debt was fixed or capped. We continue to work with our partner on a resolution for the Hollywood Media portfolio loan maturity. Conversations with the lender as well as those with Netflix regarding their long-term space needs are productive and ongoing. Turning to our updated 2026 outlook, we are increasing our full-year core FFO range to $1.10 to $1.18 per diluted share, up from the prior range of $0.96 to $1.06. This revised range reflects two key drivers. First, approximately $0.04 of outperformance in the first quarter compared to our initial expectations. Super Bowl parking revenue, lower repairs and maintenance expense, and favorable CAM reconciliations account for the outperformance. Second, a $0.09 benefit from the reclassification of Coyote's leased soundstages and Atlanta-area operations as discontinued operations beginning in 2026. Note, the $0.09 benefit is based upon projections for the discontinued operations included in our previously provided full-year outlook. As always, our outlook excludes potential dispositions, acquisitions, or capital market activity. Victor? Victor J. Coleman: Thanks, Harout. Let me bring it together. The first quarter demonstrates that our markets are recovering, but importantly, the deliberate decisions we are making ensure Hudson Pacific Properties, Inc. can capture this recovery better than most. Our outlook is up. Occupancy is growing. Prime studios are performing, and Coyote's drag is being addressed. And we are doing all this while keeping our liquidity and balance sheet intact. Each of these actions reinforces the same outcome: a clear and credible path to FFO growth through the balance of 2026. That is what we are committed to do. Thank you for your continued interest in HPP. Operator, now I would like you to open the line for any 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, please 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 assemble our roster. Your first question is from Dylan Burzinski with Green Street. Please go ahead. Dylan Burzinski: Hi, thanks for taking my questions. Can you talk about what you are seeing in the overall capital markets environment? Has pricing changed at all, and are you seeing any change to buyer appetite? And then, on the deal where you said you have pricing set, I think in the past you talked about various ways that could go, but it sounds like you are now going to fully dispose of that piece. Is that correct? Victor J. Coleman: Yeah. Dylan, thanks. We will take the second question first. On 10950 Washington, we are fully disposing of it. We indicated on our last call we had a series of offers on JVs and on outright sales. On the outright sale number that we have agreed upon and are about to go under contract with, the diligence time frame has been clicking. It is a deal that we felt was a good enough price—better than good enough—and it exceeded our expectations to where a JV structure would have been more applicable. So yes, we are selling that asset, and currently that is going very well. In terms of the overall marketplace, I can give you a high level in the three markets that we are in. Starting in Seattle, 505 First is an example—had a series of people that were interested at a fairly high price per foot on a leased asset where probably 50% of it needs repositioning in the marketplace. We were pleasantly surprised at the activity around that. There have been a couple of deals in Bellevue that are priced relatively aligned to what we would say is the new market cap rate pricing in the 5.5% to 6.5% range for stabilized, walled assets. And then people are looking right now at a couple assets in Seattle that are more buying vacancy. I think that trend started in the Bay Area, where we have seen quite a number of assets trade that are vacant assets and more inclined for value-add upside than we used to see with walled assets. But the material numbers in both those markets are still nowhere near peak activity. There are a few more coming to market—120 NDAs signed and a lot of activity—on a value-add asset in the Bay Area. So I think that is indicative of where the market is. Closer to home in Los Angeles, we are really seeing very little activity on the Westside, very little activity in all of the markets—even in the South Bay—of sales at this time. There are a couple of deals being tossed around at some good price-per-foot numbers, but not good yield numbers right now in the Southern California marketplace. Dylan Burzinski: That is helpful, Victor. Appreciate the color. And then on overall demand, it sounds like things continue to pick up and you are seeing increased activity in Seattle coming out of Bellevue. What is causing the continued acceleration in leasing activity across your footprint? Victor J. Coleman: As I mentioned in my prepared remarks, and Mark followed up on it, 50% plus of it is tech- and AI-related leasing activity. In Silicon Valley—from Foster City, Redwood City, Redwood Shores through Palo Alto, Mountain View, and even North San Jose—we are seeing an influx of larger tenants. Last quarter our team said there were six transactions over 100 thousand square feet, and two were 450 thousand square feet. That activity is taking space off the market. The kind of space getting taken is twofold: built-out, ready-to-occupy space, and space with energy efficiencies and additional power. Fortunately, we have an asset like that in North San Jose getting interesting activity because we have a lot of power there. In San Francisco, we see the same tech and AI-related trends. In Seattle, we are finally seeing Puget Sound’s positive absorption. It was led by Bellevue, and we are seeing activity consistently pick up quarter after quarter. In Los Angeles, it has definitely bottomed out. We have little exposure there, but what we do have is very active. We have a couple hundred thousand square feet of proposals in the marketplace today, and rates are as good as we have seen since 2019. Art, anything to add? Arthur X. Suazo: I think you covered it. Dylan Burzinski: Great. Thanks. Operator: Your next question is from Alexander Goldfarb with Piper Sandler. Please go ahead. Alexander Goldfarb: Good morning, and great to see vibrancy back in office. Two questions. First, Harout, can you go through the mechanics on the Coyote wind down and the $0.09 of discontinued ops—how that impacts guidance? I understand the outperformance, but just want more clarity on the $0.09. Harout Krikor Diramerian: Sure, Alex. Good morning. In our previous guidance, we had assumed $0.09 related to the items we are specifying and winding down. All we are doing is removing that from our continuing operations or core FFO. So on a go-forward basis, that is no longer going to drag earnings. Alexander Goldfarb: Got it. Second, Victor, bigger picture on Netflix—there was news a few weeks ago about possibly buying the Hackman CBS studio. Any color on what that would mean? I would appreciate your perspective. Victor J. Coleman: With conversations around Netflix, out of deference to the tenant and our discussions with them, I cannot talk about what is going on, but suffice to say our relationship is intact and positive. On the Radford situation, it is a 21-soundstage facility really directed to production and creative production as a campus. There is very little office on that campus right now, and the office that is intact is leased to CBS for a long period. Whether or not they buy it is up to them, and it is going to be a campus facility for soundstages. It is not going to interfere with our relationship with them and our conversations going forward. Alexander Goldfarb: Thank you. Operator: Your next question is from Seth Berge with Citi. Please go ahead. Seth Berge: Hi, thanks for taking my question. On Washington 1000, you mentioned increased activity, which is positive. Can you give some color on what stages those negotiations are in? Victor J. Coleman: I will talk top level and let Art jump in. The activity has increased dramatically. We mentioned on our last call we were in the final phase this month of opening up our spec suites there, and activity around those has been very strong. We have a couple floors in negotiations. Ready space is getting interest because people want to move in quickly. The building is in phenomenal shape. The amenities we are putting in are well received. We are starting to see not just 15 thousand to 40 thousand-square-foot tenants, but now four or five over 100 thousand square feet where we are a first, second, or third choice. Art? Arthur X. Suazo: Demand in Seattle has picked up tremendously. We are benefiting from tightness in Bellevue and from diminishing trophy sublease space that had been on the market. Tenants that were greater Puget Sound are now focusing on the downtown core. Tours have increased more in Seattle than anywhere else—up 20% quarter over quarter—and now Seattle represents 25% of our entire pipeline, which speaks to depth of demand and our team’s ability to pull deals forward. Washington 1000 is benefiting. We have seven deals in negotiation; four are on the move-in-ready suites Victor mentioned. Those suites deliver this month, and tenants are getting more excited as delivery approaches. These are high-growth tenants, mainly tech. On stages, they are all in negotiations. Two of the ready-built suite deals are in later-stage negotiations. We are not in leases yet, but with current momentum, we are hopeful to execute on the ready-built suites in the coming quarters. Seth Berge: More broadly on the pipeline, how much is AI tech demand, what is the average deal size, and any changes in conversion speed or late-stage versus early-stage? Arthur X. Suazo: It varies by market, but we are seeing a mix. Smaller deals include early-stage funding tenants, and we have captured some larger deals—50 thousand square feet or greater—but the bread and butter is closer to 10 thousand to 15 thousand square feet. Many smaller tenants want high-end, second-gen, ready-built, highly amenitized space, which is our wheelhouse. AI tenants have increased in our portfolio from about 10% of deals in negotiation or pipeline to about 25% of all tech deals, and it is higher in the Valley and San Francisco. Victor J. Coleman: As I mentioned earlier, in the Bay Area we are benefiting from larger deals that finally came to fruition. Six deals were completed last quarter at big numbers, taking a lot of space off the market, which helps our portfolio and peers. We are seeing that impact immediately. Seth Berge: Great. Thank you. Operator: Your next question is from Ronald Kamdem with Morgan Stanley. Please go ahead. Ronald Kamdem: Two quick ones. First, on same-store NOI guidance, can you talk about cadence for the rest of the year and whether it is primarily driven by commencements? Harout Krikor Diramerian: Hey, Ron. Good talking to you. We previously said the first quarter would be our weakest, primarily driven by 1455 Market—Uber specifically—moving out last year, and that showed up. We expect the rest of the year to improve. We expect the second quarter to improve, maybe a bit weaker in the third quarter, then improve again in the fourth quarter. That is the cadence—overall much stronger than the first quarter. Ronald Kamdem: Got it. On AFFO, it was negative because of elevated recurring CapEx. Any line of sight on when that CapEx run rate moderates, and how should we think about it? Mark T. Lammas: Hi, Ron. Looking at the latest estimates, for the rest of the year it looks like it will average pretty close to where first-quarter TI/LCs and recurring CapEx shook out. If you do the math on core FFO for the balance of the year, it points to higher FFO per quarter than we posted in the first quarter. Assuming TIs/LCs/recurring are close to first-quarter results but FFO is modestly higher, our expectation is that AFFO for the balance of the year should be at least as good, if not modestly better, than first-quarter results. Ronald Kamdem: Makes sense. Thank you. Victor J. Coleman: Thanks, Ron. Operator: Your next question is from Rich Anderson with Cantor Fitzgerald. Please go ahead. Richard Anderson: Thanks. Good morning. Any impact from your disposition activity on the occupancy and lease-yield gains you saw during the quarter? Mark T. Lammas: Not dispositions. As we announced a quarter ago, we are repositioning and re-entitling 901 Market, so we took footage off for repositioning just on the office component, and 6040 likewise is going to be fully repositioned. It was used for decades as a post-production facility. Neither of these assets is particularly big. They were in our fourth-quarter results and are not in our first. If you remove them to give an apples-to-apples comparison, you are still sequentially higher. The 150-basis-point lease-percentage increase drops to 140 if you pull 6040 and 901 out of the fourth quarter, and the 100-basis-point sequential occupancy increase drops to 80 without those two assets. Richard Anderson: Okay, so 10 or 20 basis points of impact. On the wind down of Coyote, you mentioned $5.8 million of upside from exiting the leases. Are there potential one-time lease termination fees or other costs that could make it a nonlinear process? Mark T. Lammas: We are going to wind down revenue and expense and manage that as cost-effectively as we can. Getting out of leases early often entails some kind of payment, so over the course of the year we will be incurring some expense associated with discontinuing those ongoing leases and other wind-down expenses toward that number. Richard Anderson: At the end of the day, should we think of you keeping the fleet but not the leases, outside of Atlanta? Mark T. Lammas: So far, based on what we have announced as discontinued ops, the fleet is still part of our continuing operations. Richard Anderson: Last for me. You mentioned 60% coverage on the remaining 600 thousand square feet. How quickly can that ramp to triple digits—say, by next quarter—given the 2.4 million-square-foot pipeline? Arthur X. Suazo: The pipeline has grown to 2.4 million square feet. Of the remaining roughly 606 thousand square feet, about 70% is second half of the year. We are engaged earlier with smaller tenants averaging about 6 thousand square feet. Once we start negotiating with those tenants, we feel good we can increase that number, but some smaller tenants wait until closer to expiration. The good news is that we are engaged with them now, whereas during the pandemic there was little early discussion. They feel more confident today. Victor J. Coleman: I would also emphasize we are just announcing first-quarter numbers. We have three more quarters. The expirations are spread out, and we have consistently increased occupancy quarter over quarter and signed at least a half-million-plus square feet a quarter. Matched to what we have done and foresee, the gap to June is not that material. Richard Anderson: Fair enough. Thank you. Operator: Your next question is from Andrew Berger with Bank of America. Please go ahead. Andrew Berger: Good morning, and congratulations on the strong quarter. On Seattle, you have said it is typically 12 to 18 months behind San Francisco. How much of the improvement in Seattle is existing tenants getting more active versus new-to-market tenants? And are you seeing smaller AI tenants already in your Bay Area portfolio grow into Seattle? Victor J. Coleman: Good question. We look at it on two levels. Name-brand tenants are entering or expanding in Seattle—Apple is in the marketplace, REI is in the marketplace. You are looking at Microsoft in the city and in Bellevue. Amazon has been contracting, but the big-name guys—xAI as an example—are in the marketplace. Now you are seeing a shift because of the labor pool, with smaller tech and tech-affiliated companies and support companies expanding. Bellevue has populated to a point where there is not a lot of quality space left, so they are coming to the city—in the core areas of South Lake Union, Denny, and Pioneer Square. In our pipeline, we have more tenants in the 15 thousand to 40 thousand range than we have had in a long time. There are a couple of large 100 thousand-square-footers, and their ability to execute quickly is tied to immediate access to space, which we are trying to accommodate. I have said on prior calls that Seattle is 12 to 18 months behind San Francisco. I would lean more to the 18 months than 12 months, but we are seeing it and it is on a positive trend. We should see it blossom this summer. Andrew Berger: Thanks. On Bellevue, given the momentum there and the spillover to Seattle, is Bellevue a market you would like to have a presence in over the medium term? How would you think about strategy to enter? Victor J. Coleman: For us to enter that marketplace, every time we have looked at it, the market has popped, and when we held off, it went the other way. As an owner in the area—we are a top-four owner in Seattle—it would make logical sense to eventually enter Bellevue at the right time. Right now, there is not a lot of product; what is there is being held and leased. Our goal in Seattle is to lease up our portfolio, and we are on track. Once we get through that, we will address expansion if that is the direction we want to go. Bellevue has proved to be very strong, and its benefactors have done well. We are hoping to see more flow to the city. Operator: A reminder to analysts: if you wish to ask a question, please press star 1 to raise your hand. Our next question will be from Caitlin Burrows with Goldman Sachs. Please go ahead. Caitlin Burrows: Hi, good morning. Staying on Seattle and Washington 1000, you mentioned seven deals in process, four for spec suites. For the other potentially larger leases—say, 100 thousand square feet or more—if they signed near term, how long would build-out take before move-in? One, six, twelve months? Victor J. Coleman: Twelve months, call it. Caitlin Burrows: Earlier you mentioned potential surface parking redevelopments in the Bay Area. Can you talk more about that? Is it retail-type outparcels, ground leases, or what are you thinking? Mark T. Lammas: Many California cities are undersupplied on housing and are working with landowners to add density where there is land availability. We have several locations—Palo Alto, Redwood Shores, Foster City—where land configuration and municipal goals to add density line up well. We are exploring opportunities primarily to add density where we can. There may be limited opportunities for conversion, but the emphasis is on densification. Caitlin Burrows: Thanks. Operator: Your next question is from John Kim with BMO Capital Markets. Please go ahead. John Kim: Thank you. On your resi conversion at 901 Market, is it safe to assume you are planning to entitle for residential development and then sell to a developer? Can you discuss timing as well as other resi conversions you see either in your portfolio or in the city center? Mark T. Lammas: We mentioned in our prepared remarks the timing for securing entitlements—we are targeting around year end. Victor J. Coleman: John, we like 10950 and we are looking at Palo Alto; we will address our decision tree based on when we get entitlements. It will be worth a lot more once entitlements are in place. As Mark said, the process is ongoing and we feel good about year end. At that time, we will look at the market, the amount of product coming to market, and whether a JV, sale, or doing it ourselves makes the most sense, and make that determination then. John Kim: Can you clarify the statement on the City of San Francisco taking your remaining space at 1455 Market? What is the confidence level on signing, and does it impact your occupancy guidance for the year? Victor J. Coleman: We have talked about that deal extensively. The impact on occupancy has been outlined. In terms of status, I do not see the pen in the hand of the mayor yet, but we hope it gets to that point relatively soon, and we are confident we will execute as we said this quarter. John Kim: Thank you. Operator: There are no further questions at this time. I will now turn the call back to Victor Coleman, Chief Executive Officer and Chairman, for closing remarks. Victor J. Coleman: Thank you very much for participating in today's call. I appreciate the team at Hudson Pacific Properties, Inc. for all the hard work. We look forward to talking to everybody next quarter. 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 Quantum-Si incorporated First Quarter 2026 Earnings Call and Business Update. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Risa Lindsay. Risa, go ahead. Risa Lindsay: Good afternoon, everyone, and thank you for joining us. Earlier today, Quantum-Si incorporated released financial results for the first quarter ended 03/31/2026. A copy of the press release is available on the company's website. Joining me today are Jeffrey Alan Hawkins, our President and Chief Executive Officer, as well as Jeffry R. Keyes, our Chief Financial Officer. Before we begin, I would like to remind you that management will be making certain forward-looking statements within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements of our press release. For a more complete list and description of risk factors, please see the company's filings made with the Securities and Exchange Commission. This conference call contains time-sensitive information that is accurate only as of the live broadcast date today, 05/07/2026. Except as required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements. During this call, we will also be referring to certain financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the press release filed earlier today. With that, let me turn the call over to Jeffrey Alan Hawkins. Jeffrey Alan Hawkins: Good afternoon, and thank you for joining us. On today's call, we will provide a business update and review our operating results for 2026. After that, we will open the call for questions. As we communicated on our last earnings call, we expect that 2026 will be a transition year with revenue primarily driven by consumable utilization from our installed base, some new placements of Platinum, very modest new capital sales, and a laser focus on Proteus development, preparing the market for a strong commercial launch by 2026. As such, our three corporate priorities for 2026 are as follows: to deliver Proteus with the capabilities customers need, to prepare the market for Proteus launch, and to preserve our financial strength. Our first priority is to deliver Proteus with the capabilities customers need. We made significant progress with the Proteus development program during 2026. The results of this progress were highlighted in our recent announcement regarding the successful completion of sequencing on fully integrated Proteus instruments. The achievement of a milestone of this complexity is a significant de-risking event for any new platform development program. To accomplish this result, we had instruments and software that automatically performed all the steps in the sequencing process from reagent preparation to sample loading through to sequencing and data capture and analysis. We also had developmental sequencing reagents, kinetic arrays, and associated surface chemistry that enabled single molecule loading and sequencing with the detection of 17 amino acids. While there is more work to do to get to the commercial launch, it is clear that the Proteus platform is a fundamentally superior technology compared to Platinum. Beyond automation and throughput, which customers will certainly value, the core technology in Proteus consistently delivers higher proteome coverage. At its core, Proteus has a better signal-to-noise ratio and can reliably detect much shorter pulses of recognizers, which translates into detecting more amino acids per peptide and longer average peptide read lengths. In terms of recognizer development, we recently reported that our internal developmental sequencing kit was able to detect 17 amino acids. Not only have we increased the number of unique amino acids detected from 15 in December 2025 to 17 in just four months, but we have also made improvements that increased detection frequency across all the amino acids we detect. Our recent progress in this area and the pace of improvement we are seeing provide us with high confidence that we are well on our way to delivering Proteus by 2026 with the detection of 18 amino acids, demonstrating detection of all 20 amino acids during 2026, and, in turn, delivering a sequencing kit in 2027 that detects all 20 amino acids. Finally, I want to provide an update on our progress toward enabling post-translational modification capabilities on Proteus. For background, depending on the PTM, customers today have two choices: affinity-based methods, which are limited to a specific site or specific protein of interest, or mass spectrometry, which requires complex sample preparation procedures and access to sophisticated bioinformatics personnel to collect, filter, and analyze the data using a variety of software tools that are required to provide site-resolved profiles. This is true for a well-studied PTM like phosphorylation. When you move into other PTMs like methylation, acetylation, or citrullination, the options are even more limited, with the available analysis tools often being lab-developed versus commercially available. During our November 2025 investor and analyst day, we provided insight into three different ways that our technology can detect PTMs. One of those ways is via kinetic signatures. In short, using the rich set of data that each recognizer generates as the sequencing reaction moves through each amino acid in the peptide, the software can automatically determine if a PTM is present or not, which PTM it is, and at which specific amino acid site. The primary advantage to this method is that the sequencing chemistry is universal, and the PTM detection is accomplished using automated analysis algorithms. This is in stark contrast to affinity-based methods, which require site-specific PTM reagents and, in some cases, those reagents are protein-specific as well. Given the extremely large amount of data we expect to generate in a Proteus sequencing run, and leveraging the power of advanced AI tools, the potential to develop PTM capabilities using kinetic signatures and continuously expand those capabilities over time is immense. This is why we are laser focused on this approach, and I am pleased to report that we are making great progress in this area and expect to have more specific updates to share in the near future. Our second corporate priority is to prepare the market for Proteus launch. In preparation for commercial launch of Proteus, we are focusing our commercial and scientific affairs teams on three main strategic initiatives: demonstrating the value of our single molecule protein sequencing technology, expanding awareness of Proteus across geographies and end market segments, and identifying and developing a funnel of potential Proteus customers to ensure successful commercial adoption upon launch. To demonstrate the value of single molecule protein sequencing, our scientific affairs team has been working with customers using our first-generation Platinum instrument and commercially available kits to generate data and release the results via posters at industry conferences and manuscripts via preprint and peer-reviewed publications. Since the start of 2026, we have had a total of three customer manuscripts released via preprint or peer review, five posters presented at industry conferences, and a customer podium presentation during US HUPO. The data released this year show a wide range of applications, from rapid pathogen and toxin detection to clinical proteomics to detection of post-translational modifications in translational research. Importantly, the data released this year also span multiple end market segments, including academic research, clinical, biopharma, and government. We believe that these sets of customer data and other studies in the pipeline will continue to demonstrate that the potential opportunity for our technology extends well beyond the basic research markets that we operate in today. This is important since customers in biopharma, translational research, and clinical testing typically have higher consumable utilization rates and repeat order patterns compared to basic research customers. Turning now to our work on expanding awareness of Proteus across geographies and end markets: In April, we announced the beginning of the Proteus roadshow series. These events are designed to educate the market on the value of our proprietary single molecule protein sequencing technology and the Proteus instrument and projected capabilities. The individual roadshow events can take the shape of one of two types of formats. First, in institutions where we have an existing customer, we work with them to bring together as many of their colleagues as possible to expand the institutional awareness of our technology. Expanding institutional awareness can benefit our existing user by creating more demand for inclusion of our technology in ongoing research studies, and it also aids us in building a large community of interested users for Proteus, increasing the number of potential avenues to pursue for funding the purchase of the instrument in the future. The second type of event is tailored to locations where we do not have an existing customer. In these locations, we focus on a centrally located venue, and our outreach focuses on engaging potential users from as many unique institutions in the surrounding area as possible. While we have just started the roadshow series, the early data are encouraging. At one recent event, we had 25 people register or attend, but on the day of the event, we had 35 people in attendance. All the attendees were researchers who currently use or want to begin to incorporate proteomic technologies into their research. Importantly, these 35 attendees invested nearly two hours of their time to learn about our technology, the Proteus system, and to discuss potential applications with members of our commercial and scientific affairs team. We expect to continue with roadshows throughout the year, and we will provide more updates on specific cities and associated event metrics as the program progresses. Finally, in addition to supporting our existing Platinum users, our sales team is focused on identifying and developing a funnel of potential Proteus customers to ensure successful commercial adoption upon launch. Our team has been assigned quantitative goals for each quarter, and we are pleased with the current progress we are seeing. As part of this process, we recently announced that we had completed sequencing of our first customer samples on the Proteus prototype. In this first instance, the customer is an existing Platinum user, and they were interested in seeing how much better the data would be with Proteus. While there were many exciting takeaways from the data, two that resonated the strongest with the customer were the increase in the number of amino acids detected and the increase in the average read length on Proteus compared to Platinum. When combined, improvements in these two attributes provide the customer with significantly more sequence-level information about each of their proteins of interest. The positive response from this customer confirms our belief that offering the ability for customers to send in samples for evaluation could be a valuable tool to deepen engagement and advance the customer through the buying process prior to Proteus commercial launch. We are working closely with our manufacturing partners to increase the number of Proteus instruments available within our R&D labs, and once complete, we expect to be able to offer sample evaluations more broadly to prospective customers. Our third priority is to preserve our financial strength. We believe that the data we will generate over the coming months will continue to demonstrate that Proteus is not only a new architecture with greater throughput and automation, but also a significant leap forward in terms of sequencing performance and application breadth. We continue to believe that Proteus will be the long-term driver of commercial adoption, revenue growth, and our path to profitability. We remain committed to continuing to operate with a high level of fiscal discipline while ensuring the core strategic initiatives are appropriately funded to deliver Proteus on time and with the capabilities customers are asking for. I will now turn the call over to Jeffry R. Keyes to review our financial results. Jeffry R. Keyes: Thanks, Jeff. I will now walk through our operating results for 2026. Revenue in 2026 was $258 thousand, consisting of revenue from our Platinum line of instruments, consumable kits, and related services. Gross profit was $74 thousand, resulting in a gross margin of 29%. Gross margin in the quarter was primarily driven by revenue mix with a higher proportion of consumables relative to hardware. As we have discussed and guided for 2026, we expect revenue in the near term to reflect the anticipated launch of Proteus as some customers time purchasing decisions closer to the availability of our new platform. Turning to expenses, GAAP total operating expenses for 2026 were $24.1 million compared to $25.6 million in 2025. Adjusted operating expenses were $21.4 million compared to $22.9 million in the prior-year quarter. Year over year, we funded R&D at a slightly higher level to support Proteus development while maintaining discipline in total overall adjusted operating expenses. Dividend and interest income was $1.9 million in 2026 compared to $2.5 million in the prior-year quarter. The year-over-year decrease reflects lower interest rates and changes in invested balances. As of 03/31/2026, we had $190.4 million in cash, cash equivalents, and investments in marketable securities. As we presented on our last call, our outlook for 2026 includes total revenue of approximately $1 million, adjusted operating expenses of $98 million or less, and total cash usage of $93 million or less. 2026 is a delivery transition year as we prepare the anticipated launch of Proteus, and we are making intentional choices that prioritize long-term platform adoption over near-term revenue maximization. This includes embedding upgrade paths in certain Platinum Pro unit sales in 2026, which has a near-term revenue impact, as well as expected timing shifts as customers plan for Proteus availability. With our development progress, Proteus roadshow events, and continued education of channel partners worldwide, we are seeing strong interest in Proteus, which is influencing customer purchasing timelines. Our operating expense guidance and cash remain on track and reflect the activities required to complete development and support a successful commercial launch of Proteus. Our expected cash usage also includes modest inventory build and commercial readiness efforts ahead of the launch. With over $190 million in cash and investments at March 31, we continue to believe we have cash to support operations into 2028, approximately a year and a half after our estimated Proteus launch date. After the Proteus launch, we expect meaningful operating expense leverage over time as launch-related development spend rolls off. Because we are utilizing key external partners for certain development-related activities, we anticipate the ability to ratchet down R&D spend post-launch. This gives us flexibility to reduce total operating expenses and extend our cash runway while retaining the option to selectively redeploy resources into high-return commercialization initiatives as we scale. Finally, management and the board remain aligned with shareholders. Insider ownership remains meaningful, and recent Form 4 activity by management continues to reflect routine tax-related mechanics associated with equity compensation vesting, with no management team members selling shares outside of plan-mandated sales to cover required tax withholdings. In addition, it is important to note that two of our board members collectively purchased 600 thousand shares during the quarter in the open market. With that, we are happy to take your questions. Operator: We will now open the call for questions. 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 roster. Our first question comes from Scott Robert Henry with AGP. Scott, go ahead with your question. Scott Robert Henry: Good afternoon. The first kind of bigger-picture question: as customers are starting to use Proteus and they are seeing more amino acids and longer read length, can you talk a little bit about what that means to the customer experience? I know you mentioned more information, but is it also better information, faster information, new applications? I am just trying to get an idea a little bit more about the customer experience with Proteus versus Platinum. Thanks. Jeffrey Alan Hawkins: Yeah. Thanks, Scott, for that question. So maybe we will break it down into three different application buckets. One bucket could be: I have a sample, and I want to identify the proteins that are present in that sample. Another bucket would be post-translational modifications. And a third sort of application area would be, let us say, variants—an engineering approach where I want to see if there are variants of the target protein I am trying to make. If you think about getting more amino acids and getting longer read lengths—so getting more content per protein—if you are in that protein identification area, it means you are going to be able to deal with a more complex mixture of proteins. You will have more unique content, unique information, with which to determine the variety of proteins that are there. Even more importantly, when you look at post-translational modifications or looking for variants in proteins, that is where more amino acid coverage and longer read lengths give you the ability to detect more of those events. You see those events may be spread out along the length of a peptide; they are not always at the beginning of a peptide. So these things give you a much higher level of fidelity and capability when you start thinking about those applications like post-translational modifications or variants. So that is maybe a way to think about what these fundamental sequencing capabilities mean to a customer in terms of the applications they are doing. Scott Robert Henry: Okay, great. Thank you for that color. And somewhat related—and this relies a little bit on your perception and perhaps some of the earlier customer feedback you have gotten—how could you anticipate customers' volume when one switches from Platinum to Proteus, because you have all these added benefits? Could it double volume? Could it 4x volume? I realize this is a bit of guesswork, but I just want to get your thoughts on that. Jeffrey Alan Hawkins: Yeah, I mean, I think it is the right question, Scott, and I think it is a little hard to predict right now. If we maybe take the question up to the 10,000-foot level, within the Platinum customers, Proteus clearly is going to bring a broader set of applications, which we would expect would open up the utilization of our technology in a lot more research studies. So we would expect within that Platinum base that Proteus should see more volume than Platinum sees. Exactly how much that is—is that a factor of two? Is that a bigger number than that?—I think that is the part that, until we get machines in the field and running, is a little hard to predict. The other aspect is all those labs and customers and some of the market segments that we just have not been able to access with Platinum at all. We think the capabilities, focusing in on post-translational modifications and focusing in on those protein variants, are going to open up a whole bunch of new customers. Today, we do not even have a Platinum in there; we are getting no volume. That will be sort of a new addressable set for us and the ability to go farm that account across a lot of different researchers in one institute and really drive volume into our machine. Scott Robert Henry: Okay, great. Thank you for that feedback. Final question: between now and launch—you have about six months—are there any gating factors technologically, or is it mostly production and building of inventory between now and then? Jeffrey Alan Hawkins: Yeah, Scott, so the way I think about it is you have the invention or the big technological breakthrough phase. That has happened; that is behind us. We have achieved that. We know the technology works. We know we are getting the performance from the fundamental components of our technology, whether that is the consumable, the instrument, or sequencing reagents. So really what we view the next six months as is a mix of the manufacturing transfer and bring-up that you mentioned, but also what I would call very standard hardware or instrument engineering and systems integration—driving up the reliability and the success rates, making sure you really get to the target specifications you want, not just in terms of amino acid coverage but the precision you are getting, the reliability you are getting, the mean time between failures. I would put all of those things into what would classically be considered pretty standard systems engineering or systems integration work. So it is technical in nature, but not something where we would expect the need to have some sort of innovation breakthrough. We think the innovation phase of the program and the invention phase are behind us, and it is really now more an operational and execution-related development effort. Scott Robert Henry: Great. Thank you for taking the questions. Jeffrey Alan Hawkins: Thanks, Scott. Operator: Our next question comes from Michael King with Rodman & Renshaw. Michael, go ahead with your question. Michael King: Hi. Good afternoon, guys. Thanks for taking the question. A couple of quick ones. I am trying to understand how you have lower operating expense in the quarter—$24.1 million versus $25.6 million in the same period last year—but you say you funded research and development at a higher run rate year on year. So how does that math work? Jeffry R. Keyes: Hey, Michael. This is Jeff. From an overall R&D standpoint, it can be a little lumpy from quarter to quarter just as we deploy with third-party partners that help on certain aspects of related activities. So that is why I was saying this year compared to last year, we were spending at a slightly higher level in R&D, but we were spending in SG&A at a slightly lower level based on other activities that we have pulled back and streamlined as part of our overall OpEx optimization to ensure that we have good runway going forward. So R&D can be a little lumpy from quarter to quarter, but overall we expect to spend within those guidelines that I mentioned earlier. Michael King: I see. Okay, thanks for clarifying that. The next question is, are you ramping—I know you use a third-party manufacturer—but are you ramping their production in advance of shipments, or will that not happen until later in the year? Or does that just happen as a function of incoming orders? Maybe you can talk a little bit about that. Jeffrey Alan Hawkins: Yeah, Michael, right now the focus is really ramping the delivery of instruments that we are using for R&D purposes. That is really the main focus today—just building out that base of instruments. That said, some of the build that is happening will ultimately support the early access customers in the summer as we work through the continued development. In terms of building inventory for the launch, that is something we will start to look at as we move through the year and really pace that for what we see as the funnel and any preorders that may come in at the back end of the year. So think right now of more of an internal scale-up to continue to expand the development activities and be able to support those early access sites in the summer. Think of inventory build for sales as being something later in the year. Michael King: Okay, thanks for clarifying that. And then I am curious about the roadshow activity. How many cities, how many sites do you expect to hit? And are you thinking about bringing your existing customers or potential customers into your headquarters to train them up so that once the installation is completed, they can immediately start doing their sequencing at scale instead of having to climb the learning curve? Jeffrey Alan Hawkins: Sure. Let us break the question into two parts. In terms of the roadshows, we put out a press release a couple of weeks ago talking about the first few cities that we were targeting with those events. We are continuing to scale that up. We are committed to continuing to provide a press release around the cities. Right now, we have been most heavily focused in the U.S. market, but we have begun locking in the dates for some of the roadshows and events in Europe. Keep your eyes out for press releases in this area; we will continue to update you on the new cities each quarter as we move through. We are seeing this as a very valuable tool in terms of us reaching people and the amount of time you get. If you are a sales professional trying to educate somebody on a new product or technology and you just go as a sales call, you typically get allotted a fairly short period of time—maybe 30 minutes, a really generous customer maybe an hour—and it could take several sales calls to build the level of information awareness that we get when we do these roadshows, where people come and spend about two hours on average at these events. We like the format, we are liking the engagement, and we are getting positive feedback. To your point on training, the roadshow is more educational; it is not really hands-on with the technology. As we get our internal fleet of instruments up to the number we would like to have, with some additional capacity to apply to customer work, we would look to have customers initially send samples to us so we are generating data. They get that data in their hands and are starting to work through that evaluation process and ultimately the budgeting process. When we get to launch, we will have some number of customers who have already done the prework, and what they will be doing more is working through their budgeting process to get the capital to purchase the machine. Once it is in their lab, we are very comfortable with how to train a customer. We have done it to date on the Platinum instrument, and Proteus, having all of the sequencing components automated, should be easier to train a customer on than it even is today. We are not worried about that back-end training component. We think that sample evaluation access early to get data in their hands is the key thing, and that is the next major milestone we are looking to accomplish over the coming quarter. Michael King: Amazing. And then one final quick question. What does the early access site selection process look like, and how many sites do you expect to have active by the end of the summer? Can you give us a range or point estimate? Jeffrey Alan Hawkins: I would say the process looks like we are going to want to have early access sites that span market segments. Clearly, we are going to want some number of academic institutes because those folks will be the type of customer who not only will do the early access but are also going to publish. That said, we are also evaluating the potential to have one or more of the early access sites be in a commercial environment—whether that be biopharma, antibody production, some area like that—because we really want the data and the experience in that market segment. But we know that when you get into a commercial setting, oftentimes customers are not able to publish. So we are thinking about those factors: demonstrating the capabilities, multiple segments, and also thinking about geographies. We have not set out an exact number. The way we are thinking about it is we are going to want to have a reasonable number of these. Do not think you are going to see us do 10 of them, but at least a handful is probably in the neighborhood of what we would be looking to implement over the course of the summer and even into the fall, again spanning geographies and end markets. Michael King: Super. Thanks so much for taking the questions. Jeffrey Alan Hawkins: Thank you, Michael. Operator: Our next question comes from Charles Wallace with H.C. Wainwright. Charles, go ahead with your question. Charles Wallace: Hi. This is Charles on for RK. Thanks for taking my question. You called out that any Platinum Pro unit sold in 2026 is going to have an embedded credit towards Proteus. Have you sold any Platinum Pro units, and do you have some of these credits stacked up at this point? Jeffrey Alan Hawkins: I will start, and if I do not get everything out, I am sure Jeff will jump in here with anything I miss. Not every Platinum Pro has to have that credit. It is a credit that is available to customers if they want to have that ability. Sometimes when you have a new machine coming, people say, “I want to buy it, but I am not really sure what is going to happen when the new machine comes out—how long will you support it?” Those types of things. So they want to have a credit. It is available to customers if they request it. That said, sometimes the machines you are selling now were ones that were budgeted for many months ago, up to a year ago. Those processes and those quotes would have gone out without this credit. So that might not show up in some of the machines that get sold throughout the year if they were budgeted for in the past. At this point, we are not really breaking out which of the capital sales have had the credit or not. As we go through the year and see other metrics of the funnel building, perhaps we will be in a position to provide a little more color on that, because a credit is really a protection for the customer. They still have the option to buy the Proteus or not. At this point, we are not breaking it out; we do not want to overstate the demand for the future machine just based on whether somebody asked for a credit or not. Charles Wallace: Okay, that makes sense. For the early access program, you mentioned maybe a handful of units, and then you also said you are building a fleet of internal units. How large of an internal fleet are you targeting, and how long does it take typically for an instrument to be built and be fully ready? Jeffrey Alan Hawkins: In terms of the internal fleet, I do not know that we have an exact number that we would give out. You can think about the internal fleet as needing to support our instrument engineering team—people working on instruments, integration, software. We have reagent development—the people putting the sequencing reagents into consumables and getting those optimized and ready to go—so they have to have access to machines. Then, of course, as we are bringing up manufacturing, we have to have some number of machines in our quality control testing environment to develop the QC tests, run the specifications that we will hold ourselves to when we are launching, when we are finalizing a kit, and ultimately deciding what can be shipped to a customer. So we have multiple groups who need access. In general, our strategy is to continue to build those and maximize their utilization. If we see that those are all maxed out, we keep building. We do not ever want to be throttled in terms of our ability to push as much testing volume and development volume through those internal machines. In terms of timelines for build, it would be a little early to put a specific timeline on the lead time to build an instrument. There are a small number—as is the case in most instruments—of long-lead parts. We procure those in advance and hold those parts. The assembly process itself is more about applying the labor and optimizing those processes. We are not having issues with a machine showing up at a Quantum-Si incorporated facility and functioning properly. We are not having those types of challenges that sometimes exist in early hardware development programs. Are we operating the line with perfect efficiency and perfect throughput? It is safe to say we are not yet, but we are very comfortable that we know how to do that, and we can optimize that well in advance of any commercial ramp. Since it is very labor-oriented, we have external partners, and one of the reasons we use those partners for instrument manufacturing is they have the capacity and the people. They can flex that up or down as our forecast requires. As long as we maintain those long-lead parts in inventory, the ability to flex up or down is a pretty efficient thing to do when you have external partners who have that kind of capacity. Charles Wallace: Great. Makes sense, and thank you for all the color. Operator: Our next question comes from Kyle Mikson with Canaccord Genuity. Kyle, go ahead with your question. Charlotte Mauer: Hi. This is Charlotte Mauer on for Kyle. Thank you so much for taking our questions. To start, could you elaborate a little bit more on the recent successful sequencing run on Proteus and how the performance compared to your expectations? What were some of the most notable improvements, and were there any specific challenges that need to be addressed before moving forward? Jeffrey Alan Hawkins: Thanks, Charlotte. I will work on that question backwards to forwards. The last part of your question was whether we experienced any challenges testing those samples, and the answer is no. We were able to run those samples successfully. We ran them both on Platinum and on Proteus so we could get a same-time comparison. In this particular situation, these are a series of proteins that the customer has previously worked with and tested in their own lab using a Platinum instrument. What they were focused on for their application was trying to both identify these proteins, and they are also doing some really novel work around developing tools for essentially de novo detection of amino acids. They are really focused on the coverage and the read length. Getting data from Proteus—one is just the amount of output you get. The number of reads is much, much higher with Proteus simply based on the number of features on that chip compared to Platinum. The coverage—as I mentioned in the prepared remarks—not only are we detecting 17 amino acids now, but our detection frequency of the others is considerably higher. And then, when you think about read length, what the customer saw in these particular samples is that the read length on Proteus was about double—about twice as long as what they are used to seeing on Platinum. If we go back to one of my earlier answers to Scott—why would a customer care about more amino acids being detected or longer read lengths? In this case, they are working on samples where they want to identify these proteins and potentially variants or modifications of them. They are thinking about algorithms they are developing for de novo detection. More content, longer reads, more complete information are going to really help them with their exploratory algorithm work in addition to the basic performance in identifying and subtyping those different proteins. Charlotte Mauer: Thanks for that additional color. I also had some questions about the roadshow. It sounds like there has been some strong early interest, but could you dive a little deeper into any relevant feedback or interest that you have received from customers at this point about Proteus, key highlights or takeaways, and any feedback on pricing? Jeffrey Alan Hawkins: Early interest is largely where we anticipated it: customers are really excited to have the ability to analyze PTMs. It is an area of translational research, basic biology research, and mechanisms of action where—outside of phosphorylation—it is a pretty difficult field to tackle even if you have access to some of the highest-end mass spec machines. So PTMs are a big draw. On the two roadshow formats, in the first format where we go to an institution with an existing Platinum and open up the education, we are seeing not just the core lab but many other researchers—translational and basic biology—who have an interest, a study in mind, a potential way to utilize the technology. That has been a really positive learning for us as we think about driving institutional momentum toward funding: helping the core lab see that their internal customers have a desire to get access to the tech. That type of momentum can be really helpful when working through where the funding proposal sits among all the other capital equipment they are looking at. On pricing, we have announced the price. We have not heard any pushback. I would not expect to at this point for two reasons. First, if you are thinking about PTM applications, those folks are often using very high-end mass spec equipment that can cost upwards of $1 million or more. Us sitting at $425 thousand is really attractively priced compared to what they might be spending on one of the high-end mass spec machines. Second, we have not given people enough information today that someone has to really make the decision on the price. The good news is no one is hearing it and running away, so we are not too high. We will get more nuanced feedback as we continue to put out more data or they are able to start getting sample evaluations in hand. Thus far, no one has been concerned. People have thought it is very reasonable for its capabilities, and we will keep driving home the message around the capabilities at $425 thousand versus having to go all the way up over $1 million for a mass spec that can do the same thing. Charlotte Mauer: Great, thank you. And one last question: looking ahead to expectations for 2027 and some of your capital deployment, you mentioned utilizing key external partners for certain development-related activities. Where in the process do you expect to use these partners the most, and how should we think about this reduction in capital deployment relative to your 2026 levels given a full year of spending on commercialization efforts for Proteus? Jeffrey Alan Hawkins: Let me start, and then I will pass it to Jeff for a little additional color. We are using these partners today across some of our consumable development efforts, our optic system that is inside of Proteus, and instrument development. We have partners who are working with us across those various R&D efforts. Some of those partners will flip into our manufacturing partners next year. They will be with us, but it will be more in terms of building inventory and supporting that. Maybe, Jeff, you can give a little feel for how we think about the burn-down after we launch. Jeffry R. Keyes: Regarding total OpEx as we move forward into 2027, we will need some of these partners to help stabilize the program shortly after launch, which is typical for a new development project. But after that, since we are using a significant amount of partners, we are going to be able to ratchet down that R&D spend specifically. As I noted earlier, we would be able to either bank that savings or redeploy it, but we are going to look for opportunities between R&D and other activities to ratchet down our OpEx, and we will gauge that relative to how Proteus uptake goes in 2027. We will be able to manage it going forward. It is definitely on our radar, and external partner R&D spend is the first obvious step, followed by other items we can look at going forward. Jeffrey Alan Hawkins: And, consistent with what we did this year, as we look at our guidance in 2027, we will be able to be more quantitative when we get there in terms of how we think about our adjusted OpEx or cash use. We will continue to provide that guidance. It is just a little early to be providing it right now, but you can gather from Jeff’s and my feedback how we are thinking about rotating those dollars off in R&D, some deployment perhaps into other initiatives, and banking the majority of that savings. Charlotte Mauer: Awesome. Thank you so much for all the time. Jeffrey Alan Hawkins: Thank you. Operator: This concludes the question and answer session. I would now like to turn it back to Jeffrey Alan Hawkins for closing remarks. Jeffrey Alan Hawkins: Thank you for attending our call today. We look forward to providing additional business updates on our next earnings call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by, everyone, and welcome to the Amtech Systems, Inc. fiscal 2026 second quarter earnings conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. I would now like to turn the conference over to Jordan Darrow of Darrow Associates Investor Relations. Please go ahead. Jordan Darrow: Thank you, and good afternoon, everyone. We appreciate you joining us for the Amtech Systems, Inc. fiscal 2026 second quarter conference call and webcast. With me today on the call are Bob Daigle, Chairman and Chief Executive Officer, and Mark Weaver, Interim Chief Financial Officer. After the close of market today, Amtech Systems, Inc. released its financial results for the fiscal 2026 second quarter. The earnings release is posted on the company's website at amtechsystems.com in the Investors section. To begin, I would like to remind everyone the Safe Harbor disclaimer in our public filings covers this call and the webcast. Some of the comments to be made during today's call will contain forward-looking statements and assumptions that are subject to risks and uncertainties, including but not limited to those contained in our SEC filings, all of which are posted in the Investors section of our corporate website. The company assumes no obligation to update any such forward-looking statements and cautions you not to place undue reliance on forward-looking statements, which speak only as of today. These statements are not a guarantee of future performance, and actual results could differ materially from current expectations. Among the important factors which could cause actual results to differ materially from those in forward-looking statements are changes in technology used by customers and competitors, changes in volatility and the demand for products, the effect of changing worldwide political and economic conditions including trade sanctions, and the effect of overall market conditions, including equity and credit markets and market acceptance risks, ongoing logistics, supply chain and labor matters, and capital allocation plans. Other risk factors are detailed in our SEC filings, including our Form 10-Ks and Form 10-Qs. Additionally, in today's conference call, we will be referencing non-GAAP financial measures as we discuss the financial results for the fiscal second quarter. You will find a reconciliation of those non-GAAP measures to our actual GAAP results included in the press release issued today. I will now turn the call over to Amtech Systems, Inc.'s Chief Executive Officer, Bob Daigle. Bob Daigle: Thank you, Jordan. Revenue for the quarter was $20.5 million, which was up over 30% from the same quarter last year and up 8% sequentially. Our adjusted EBITDA was $2.5 million, or about 12% of sales, an increase of $1.1 million from the prior quarter and $3.9 million from a year ago. While reported revenues were at the high end of our guidance range, our adjusted EBITDA margin was a significant beat, as we had guided to high-single-digit EBITDA margins. Higher gross margins contributed to our improved profitability and cash generation. Gross margin approached 48% in the second quarter, up from 45% in the first quarter. Cash on hand at the end of the quarter was $24.4 million, an increase of $2.3 million from the prior quarter and $11 million from a year ago. AI-related sales accounted for over 30% of our Thermal Processing Solutions segment revenue in the second quarter and bookings were very strong. Momentum for AI-related demand continued to build in the second quarter. Advanced packaging has emerged as a critical bridge between silicon innovation and the escalating demands of artificial intelligence infrastructure. As traditional Moore's law scaling slows, the ability to pack more computing power into a single footprint now relies less on shrinking individual transistors and more on how those chips are interconnected. By enabling high bandwidth memory integration, reducing data latency through 2.5D and 3D stacking, and allowing for massive system-on-package architectures, advanced packaging provides the physical foundation necessary for generative AI and large language models to thrive. In short, packaging is no longer just a protective housing for chips; it is a primary driver of the performance, power efficiency, and scale required to fuel the next generation of AI processors. Capital equipment which can deliver high yields and throughput is vital to support this AI revolution. As broadly reported, semiconductor OEMs and OSATs continue to increase investments to expand capacity to support the massive AI infrastructure buildouts. Demand has been very strong for our advanced packaging equipment and AI server board assembly equipment due to our differentiated capabilities that include TruFlat technology and market-leading temperature uniformity, which enables high yields when producing these very complex and expensive products. Although we have limited visibility due to our short lead times, our channel checks support our belief that demand will remain very strong for the foreseeable future. Based on bookings and quoting activity, we expect the percentage of revenue from AI applications in our Thermal Processing Solutions segment to exceed 40% in the third quarter. We are also seeing increased quoting activity and bookings for panel-level packaging. These more demanding packaging technologies are serving more mainstream semiconductor applications, but their process requirements align very well with our differentiated capabilities. To accelerate growth, we are continuing to invest in next-generation equipment to support higher-density packaging to address emerging customer requirements. We plan to launch the first products for higher-density packaging at the SEMICON trade show in Taiwan in early September. We believe the capabilities provided by our next-generation equipment will significantly increase our addressable market and help drive growth beyond 2026. Growth of our Thermal Processing Solutions parts and service business was also a highlight in the quarter. Customer outreach initiatives have helped drive growth, with revenue up 10% sequentially and 56% year over year. I should note that while we are benefiting from demand for our products to support the AI buildout, we are also beginning to use AI software integrated with our ERP and CRM sales tools to help support customers and streamline our sales process. For our Semiconductor Fabrication Solutions segment, we continue to leverage our foundry service and technical capabilities to pursue applications and customers not well supported in the industry. We have built a strong opportunity pipeline and are expanding efforts to replicate successes and grow sales of legacy products. Overall, our IDI Chemicals business revenue was up 15% year over year. We have also made significant improvements in the service levels we provide and have driven outreach initiatives to grow our parts and services business at Intrepix. Revenue for parts and service at Intrepix was up about 40% year over year. I am very encouraged by the early results from our customer-centric growth initiatives. Unfortunately, much of the success from these initiatives in our Semi Fab Solutions segment has been masked by weak sales of our PR Hoffman products due to weakness in demand from our major silicon carbide customers. As I have stated before, 2026 will be an investment year for our SFS business as we execute on our strategy to over-serve the underserved, but we believe that our customer-centric growth initiatives will deliver recurring revenue streams with meaningful profits beyond 2026. The operating leverage and working capital efficiency across the company resulting from our product line rationalization efforts and a migration to a semi-fabless manufacturing model over the past two years helped deliver improved results for the quarter and should result in continued strong cash flow and further increases in gross margins and EBITDA margins as revenues increase. Our semi-fabless model, which includes the consolidation of our manufacturing footprint from seven facilities to four, should also allow us to significantly increase revenue with minimal capital expenditures. We ended the quarter producing nine reflow systems per week and have the capacity and supply chains to accommodate the growth we expect with little or no CapEx. In summary, growth opportunities driven by AI infrastructure investments and our customer-centric strategy, combined with strong operating leverage that results from our asset-light semi-fabless business model, position us very well to deliver meaningful shareholder value. Before I hand the call over to Mark, I have two organization announcements to share. First, as we announced last week, Tom Sabol has been appointed as CFO and will be joining Amtech Systems, Inc. on May 14. Tom brings more than 20 years of CFO experience across publicly traded and private equity-backed organizations, with deep expertise in developing and leading finance teams, driving financial performance, investor relations, and SEC reporting. His background spans several industries, including financial services, software, and advanced manufacturing. I look forward to working closely with Tom as we continue to drive growth and profitability. I would like to take a moment to recognize and thank Mark Weaver for stepping in as Interim CFO. Mark came out of retirement to help us with this transition, and I greatly appreciate his support and his leadership. I am also pleased to announce that Guy Shechter will be joining Amtech Systems, Inc. on May 19 in a newly created President and Chief Operating Officer role. Guy has held various commercial and general management positions with equipment and advanced packaging equipment companies. The extensive experience, customer relationships, and leadership skills that he brings to Amtech Systems, Inc. will be critical as we expand our portfolio solutions for AI applications to accelerate growth. I am looking forward to having Guy join the Amtech Systems, Inc. team. Now I will turn the call over to Mark for more details concerning our Q2 results. Mark Weaver: Thank you, Bob, once again, and it has been a pleasure working with you and the folks at Amtech Systems, Inc. I have truly enjoyed my time here. Now I will review the financials for the fiscal 2026 second quarter. Following the two-year-plus transformation led by Bob, the company is finally at a place where year-over-year revenue comparisons are meaningful. The one consistent characteristic of our revenue comparisons over the past two years has been the positive impact of AI product demand within the TPS segment. In the 2026 second quarter, AI revenues accounted for more than 30% of TPS segment revenue. Bookings for AI applications remain strong, and we are experiencing both book-and-ship in the same quarter as well as book-now-and-ship-later. This has led to the second consecutive quarter of company-wide bookings exceeding sales for the period. Other areas of TPS and SFS sales are also contributing growth on a consolidated basis, which is being partially offset by weakness in select product lines as Bob discussed in his remarks. Total SFS revenues were $5.7 million in the second quarter, up 15% from approximately $5 million in both the prior sequential quarter and the prior-year quarter. Moving on to gross margins, the company's product line rationalization and our focus on growing higher-margin product lines, including AI advanced packaging solutions as well as our recurring parts and services business, are delivering their intended results, particularly as we are benefiting from greater scale. Gross margin as a percentage of sales increased to 47.7% in the 2026 second quarter, up nearly 300 basis points from 44.8% in the 2026 first quarter. Comparison to the prior-year period is not meaningful since that quarter included a $6 million non-cash inventory write-down as part of our broader turnaround and transition, which took margins into negative territory in the 2025 second quarter. Selling, general and administrative expenses increased $0.3 million sequentially from the prior quarter and were relatively flat as compared to the 2025 second quarter. The increase is primarily due to expanding business activities, tax and IT consulting fees. Research, development, and engineering expenses were relatively flat compared to prior periods. The company continues to invest with a measured yet opportunistic approach to R&D, including next-generation products targeting the AI supply chain and our specialty chemicals business. GAAP net income for the 2026 second quarter was $1.2 million, or $0.08 per share. This compares to GAAP net income of $0.1 million, or $0.01 per share, for the preceding quarter and a GAAP net loss of $31.8 million, or $2.23 per share, for the 2025 second quarter. During the 2025 second quarter, the company recorded significant non-cash inventory write-downs and impairment charges, which make the year-over-year comparisons for profitability not really meaningful. The company's 2026 second quarter GAAP net income includes $0.3 million of foreign currency exchange losses versus $0.2 million in the prior quarter, primarily driven by a weakening United States dollar against the Chinese renminbi. Unrestricted cash and cash equivalents at 03/31/2026 were $24.4 million, compared to $22.1 million at December 31, $17.9 million at September 30, and $13.4 million a year ago. The increased cash balances are due primarily to the company's focus on operational cash generation, working capital optimization, strong accounts receivable collections, and accounts payable management. The increase in cash from the first quarter of this year is even more meaningful since we are carrying an additional $0.9 million in inventory to accommodate higher order flow. The company continues to have no debt. As for the $5 million stock repurchase program, the company did not use any cash for this, as no shares were repurchased since the plan was put in place on December 9. Now turning to our outlook. For the third fiscal quarter ending 06/30/2026, the company expects revenue in the range of $20.5 million to $22.5 million. At the midpoint of this range, our guidance is a meaningful year-over-year and sequential quarter increase. AI-related equipment sales for the Thermal Processing Solutions segment are anticipated to drive the majority of our revenue growth and account for as much as 40% of the segment sales in the 2026 third quarter. With the benefit of continued top-line growth and the sustainable improvements in structural and operational cost reductions, Amtech Systems, Inc. expects to benefit from its operating leverage to deliver adjusted EBITDA margins in the low double-digits range. The outlook provided during our call today and in our earnings press release is based on an assumed exchange rate between the United States dollar and foreign currencies. Changes in the value of foreign currencies in relation to the United States dollar could cause the actual results to differ from expectations. And now I will turn the call over to the operator for questions. Operator: Thank you. We will now begin the question-and-answer session. As a reminder, to ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Scott Buck with Titan Partners. Please proceed. Analyst: Hi, good afternoon, guys. Thanks for taking my questions. Bob, I was hoping to get a little more granularity on gross margins in SFS. Looks like it was up about 800 basis points sequentially. So any kind of added color on what is going on there would be great. Bob Daigle: Yes. Again, I think the additional revenue contributed a bit to that, and I think the balance would really be mix-related. There was not anything really structurally different quarter to quarter in that segment. It is more reflective of the mix of products through that business and the incremental revenue. We have a lot of operating leverage, as you might imagine, with the structural changes we have made over the past couple of years. We have positioned ourselves where we do get very solid flow-through of any incremental revenue to our overall results. Analyst: Great. That is very helpful. And then I want to ask about kind of geographic mix and how you are seeing demand trends across regions? Bob Daigle: Yes. So as you might imagine, Asia is really the hotbed for AI infrastructure buildouts. Traditionally in the packaging area, it has been almost exclusively Taiwan, but what we are seeing is a significant buildout of packaging infrastructure in other parts of Southeast Asia—Thailand, Malaysia, Indonesia, India, for example. So we are seeing a broadening of geographic footprint in terms of major investments in the packaging area, almost all driven by AI infrastructure. And I would say more recently, we are seeing quite a bit more activity in North America as well. It was pretty quiet, but we are starting to see some investments being made. I would say more so on the enterprise-level board assembly at this stage than chip packaging, but it is nice to see some increased AI activity in North America as well. Analyst: That is helpful. In terms of Asia, should we be keeping an eye out on any kind of trade policy, tariff, or supply chain dynamics? Bob Daigle: Yes. Specific to the tariffs, we positioned ourselves pretty well there. If you go back a year ago, any equipment coming into the U.S. was basically being manufactured in China, and obviously there were very meaningful tariff impacts as a result of that. But we did establish a partner where we now manufacture equipment for the U.S. in the Singapore/Malaysia area. So we have kind of insulated ourselves quite a bit from the U.S.–China stress levels. And beyond that, there really have not been a lot of cross-Asia issues. Back to your supply chain question, everyone is talking about memory being more expensive and obviously that is the same for us, and we have to adjust our cost and pricing accordingly if memory becomes more expensive. We really have not seen any shortages; I would say it is more that there is a little bit of price pressure that we need to deal with and pass along on the memory side. Analyst: Okay, great. And then last one for me. Cash continues to improve. How should we be thinking about capital allocation? Or I should say, how are you thinking about capital allocation? You have the $5 million repurchase authorization out there. Is that a priority? Or is it more R&D in new products or even potentially M&A? Bob Daigle: Yes. I would say growth is number one, because back to the operating leverage discussion, as we grow with the strong margin leverage we have in our portfolio—and I should mention with all the product lines that we cut from the portfolio rationalization efforts, I would say across the board we have very healthy margins across the entire portfolio right now—so any of the product lines that grow are very meaningful in terms of improving cash generation, gross margins, and EBITDA. From an investment standpoint, we are making those investments. We have been increasing our R&D efforts around next-generation equipment. There could be a little bit of incremental investment needed to drive that home. We are investing in resources to develop the pipeline for SFS in terms of trying to build out our IDI portfolio and the recurring revenue streams. We will continue to incrementally invest in that and do not see that having a meaningful impact on cash needs. And then the other factor I think we want to point out is with our semi-fabless model, we have the ability to scale without meaningful CapEx. As I mentioned in my comments, even looking out a year in terms of high growth and demand for the equipment used for AI packaging, we do not really see the need for deploying meaningful cash for CapEx. The semi-fabless model and our supply chain can handle that growth. So having said all that, long story short is if we find inorganic opportunities, we would deploy cash accordingly. But as I have said to many people, I spent over a decade doing corporate development in a prior life, and I would say we need to be prudent, cautious, and make sure that what we do is generating real meaningful value. So when people ask me, are you going to acquire, I always answer the question with “maybe,” because if we find acquisitions that can create real value, we are going to do those to accelerate growth. But we do have a great pipeline of organic growth that I think can push us forward. And then back to your question about capital allocation, obviously, the priority is growth. If we did not have better uses for that, then of course we would look at providing the cash back to shareholders in some form. Analyst: Perfect. Well, I appreciate all the added color, guys. Thank you very much, and congrats on the strong results. Bob Daigle: All right. Thank you, Scott. Operator: And as a reminder, if you do have a question, please press star then 1 on your touch-tone phone. The next question comes from Craig Irwin with ROTH Capital Partners. Please proceed. Analyst: Good evening. Thanks for taking my questions, Bob. Last quarter, the small delay in one of your AI customers in taking some packaging equipment had a big impact in your stock. Did we maybe see the delivery of that equipment in this current period, or is it expected over the next couple of months? And do you expect the linearity or the overall business to have sort of a smoother trajectory given the size and scale that you are gathering over the next couple of quarters? Bob Daigle: Yes, we did ship that particular equipment during the quarter. And I would say that the visibility—I would not say it is great—but it is getting better because there is a lot more activity in terms of new facilities being put in. And so we are seeing more bookings with deliveries out a quarter, and in a couple of cases, actually a couple of quarters now, which is very unusual for our business because, as I have mentioned before, we have very short lead times, we have a very efficient supply chain, and we turn equipment around very quickly. So we have typically been a book-and-ship, even in this large-scale capital equipment space. But having said that, because people are actually building new facilities now and do not necessarily need all the equipment immediately, we are seeing better visibility, which I think will translate to smoothing things out a bit, frankly, as we get better visibility and bookings that are not just current quarter, but out a ways. Analyst: That definitely makes sense. The next question is one that I get asked fairly often, right? It is more of a big-picture question, Bob. So can you talk a little bit about Amtech Systems, Inc.'s moat in advanced packaging and AI? What has allowed you to dominate this space? There are others that would like to do business in here, but you have maintained a really strong reputation on technology that has allowed you to have those long-term customer relationships and supplier relationships too. What is different about what you are doing that gives you this moat? Bob Daigle: Generally, we win when it is a demanding application, and there are actually three components that usually come into play. In advanced packaging, that TruFlat technology—and unfortunately we do not have graphics in front of you—but these are large conveyorized pieces of equipment, almost half the length of a tractor-trailer bed, that are doing the reflow operations for these packages. You are raising things to very high temperatures; most materials, most substrates, tend to bow and twist and deform as you are heating them up. We have technology which allows us to pull a vacuum and hold the substrates down flat against the belt so things do not basically shift during the assembly process. What does that mean? That means high yield. So in applications where you are trying to process something that is very expensive, you are not going to sacrifice yield; you have to have equipment that is going to be robust. The other thing I would say is temperature uniformity. I think we have a significant advantage in being able to provide uniformity across our reflow—across the belt, within zones. Our latest equipment actually has reconfigurable zones that can be customized by customers. So we have provided capabilities that really are enabling for high-yield, high-throughput processing of these things. And I would say the last thing—which I think I have mentioned before—like our AccuScrub technology, for example, where we can remove the contaminants from the processing fluxes out of the gas stream so that it reduces downtime in the ovens and reduces the risk of contaminating the product. So it is not just one thing; we have a portfolio of capabilities and IP around some of these capabilities that put us in a position where if you are trying to process an AI package, an AI enterprise board, it is expensive. We are worth it, which is why we have captured the strong market position that we enjoy today. Analyst: Definitely makes sense. Well, congratulations on the strong quarter and the strong long-term positioning there. We will hop back in the queue. Bob Daigle: Alright. Thank you, Craig. Operator: And this concludes today's question and answer session. I would now like to turn the conference back over to management for any closing remarks. Bob Daigle: All right. Thank you, operator. In closing, I want to thank you for joining our earnings call today. We look forward to seeing some of you later this month at the B. Riley Annual Investor Conference and then in June at the Planet MicroCap Conference. We hope you can join us at either of these events. Thanks again for your continued support of Amtech Systems, Inc., and have a good evening. Operator: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
Gita Jain: Good afternoon. I am Gita Jain, Head of Investor Relations, and thank you for joining us today for Mind Medicine (MindMed) Inc.’s first quarter 2026 financial results and recent highlights conference call. Currently, all participants are in listen-only mode. This webcast is live on the Investors section of Mind Medicine (MindMed) Inc.’s website at definiumtx.com, and a replay will be available after the webcast. Leading the call today will be Robert Barrow, our Chief Executive Officer, who is joined by Daniel Karlin, our Chief Medical Officer, Brandi L. Roberts, our Chief Financial Officer, and Matthew Wiley, our Chief Commercial Officer. During today’s call, we will be making certain forward-looking statements including, without limitation, statements about the potential safety, efficacy, and regulatory and clinical progress of our product candidates, our anticipated cash runway, and our future expectations, plans, partnerships, and prospects. These statements are subject to various risks such as changes in market conditions, and difficulties associated with research and development and regulatory approval processes. These and other risk factors are described in the filings made with the SEC and the applicable Canadian securities regulators including our Annual Report on Form 10-K and our Form 10-Q filed today. Forward-looking statements are based on assumptions, opinions, and estimates of management at the date the statements are made, including the nonoccurrence of the risks and uncertainties that are described in the filings made with the SEC and the applicable Canadian securities regulators or other significant events occurring outside of Mind Medicine (MindMed) Inc.’s normal course of business. You are cautioned not to place undue reliance on these forward-looking statements which are made as of today, 05/07/2026. Mind Medicine (MindMed) Inc. disclaims any obligation to update such statements even if management’s views change, except as required by law. With that, let me turn the call over to Robert Barrow. Thank you, and thank you all for joining us today. Robert Barrow: 2026 marked a strong start to what we believe will be a pivotal year for Mind Medicine (MindMed) Inc. We remain highly focused on disciplined execution as we have advanced our late-stage clinical programs, prepared for multiple near-term data readouts, and continued to build an incredible team to lead our potential commercialization efforts. As we discussed at our Investor and Analyst Day a few weeks ago, Mind Medicine (MindMed) Inc. is entering a period of meaningful clinical inflection. Our lead program, DT120 ODT, is advancing with four ongoing Phase III studies across major depressive disorder (MDD) and generalized anxiety disorder (GAD), with topline data from EMERGE expected later this quarter, followed by VOYAGE and PANORAMA in the third quarter. Our Phase III programs are designed to evaluate outcomes that we believe represent a meaningful advance for patients, physicians, and the field of psychiatry. These include not only the magnitude of symptom improvement, but also safety, tolerability, and durability of response following a single administration—dimensions we believe will be critical in differentiating DT120 ODT in today’s treatment landscape. We are also encouraged by the increasing recognition of the significant unmet need in these indications. With three Phase III readouts anticipated across two of the largest indications in psychiatry, Mind Medicine (MindMed) Inc. is approaching an important moment for the company and for the patients we aim to help. With Breakthrough Therapy designation for DT120 in GAD, we have established a constructive working relationship with FDA and will move as efficiently as possible towards an NDA submission, subject to positive pivotal data. Beyond our ongoing Phase III programs, we plan to expand development of DT120 ODT into additional indications including post-traumatic stress disorder (PTSD), with the planned initiation of our HAVEN study in 2027. We believe this represents an important opportunity to further leverage the potential of DT120 across areas of high unmet need. Overall, we continue to believe in DT120 ODT as a potential best-in-class product candidate—one that could help redefine what is possible for the millions of people living with depression, anxiety, and PTSD who remain underserved by existing treatments. I will now turn the call over to Daniel Karlin to go into more detail on our clinical programs. Daniel? Daniel Karlin: Thanks, Robert. I will provide an update on the status of our clinical programs with a focus on where each of our late-stage studies stands today and how those studies were designed to assess what we believe would constitute a clinically meaningful outcome. Starting with DT120 ODT, our lead program continues to advance across Phase III studies in MDD, GAD, and now PTSD. In EMERGE, our first Phase III study in MDD, enrollment is complete with 149 participants. We are now in the final stages of trial execution and data preparation and we remain on track to report topline results later this quarter. In GAD, we are rapidly approaching topline data readouts for our two pivotal studies, VOYAGE and PANORAMA. Enrollment in VOYAGE is complete with 214 participants. We have exceeded our updated enrollment target of 200 in PANORAMA and expect to complete enrollment this month. We continue to expect topline data from VOYAGE early in the third quarter and PANORAMA late in the third quarter. Across our pivotal program, our focus has been on rigorous execution, data quality, and consistency across studies and sites. These are large, well-controlled trials designed to evaluate the magnitude of improvement alongside safety and durability of response following a single administration of DT120 ODT. Given our confidence in the clinical profile of DT120 and the strong evidence we have generated to date, our approach is uniquely designed to establish the durability of a single treatment for at least 12 weeks. Our Phase III studies in MDD and GAD were initially powered to detect a placebo-adjusted difference of five points. As part of the protocol-specified design, we conducted sample size re-estimations in VOYAGE and PANORAMA. These analyses were performed without unblinding treatment assignments and were intended to assess key nuisance parameters—standard deviation and dropout rates—to support the maintenance of the intended statistical power. Based on these blinded analyses, which were conducted when half of participants reached the 12-week time point, VOYAGE and PANORAMA are now powered at 99% or greater to detect a five-point placebo-adjusted difference, assuming these nuisance parameters remain consistent in the final study analysis. For EMERGE, the study was powered at 80% to detect a five-point placebo-adjusted change, with statistical significance expected at a little over a three-point difference based on certain nuisance parameter assumptions. We selected this level of power intentionally, as we believe a three-point or more difference represents an appropriate threshold for clinical meaningfulness in MDD. It is also worth noting that EMERGE has a six-week primary endpoint compared to 12 weeks for VOYAGE and PANORAMA, mitigating the risk of an elevated dropout rate in the primary analysis. Additionally, while the studies were powered to detect a five-point difference, we believe that a placebo-adjusted improvement of four points or greater at six to 12 weeks after treatment would compare favorably to currently available treatments for GAD and MDD and other product candidates in the psychedelic category. Durability remains a particularly important dimension for psychedelics. In our Phase II program in GAD, DT120 demonstrated durability through 12 weeks following a single administration of 100 micrograms. Our Phase III trials are designed to further evaluate consistency and duration of response over time. Through Part B of these studies, patients are followed for up to one year, which we believe will provide important information to inform potential labeling, including how frequently treatment may be needed. Beyond DT120, we are excited to also be advancing our Phase II study of DT402 in autism spectrum disorder (ASD). DT402, the R-enantiomer of MDMA, has shown promising prosocial effects with a potentially favorable tolerability profile. We are developing DT402 to target the core characteristics of ASD, specifically addressing social communication that is central to the experience of the disorder. We see this program as a significant opportunity given the high unmet need, the increasing prevalence of ASD, and no FDA-approved therapies that specifically address these core characteristics. As we look ahead, the next five months represent a significant culmination of thoughtful trial design, disciplined execution, and years of work focused on addressing some of the most pressing unmet needs in psychiatry. With multiple Phase III readouts approaching, we believe we are well positioned to deliver decisive data on DT120. I will now turn the call over to Matthew Wiley to discuss our commercial strategy and the broader treatment landscape. Matthew? Matthew Wiley: Thanks, Daniel. I will spend a few minutes discussing the commercial opportunity for DT120, building on what we shared at our Investor and Analyst Day in April. As we discussed, GAD and MDD represent very large and persistently underserved markets. Many existing medicines are constrained by delayed onset, partial or inconsistent efficacy, and tolerability issues that drive high discontinuation rates. Across this landscape, roughly 4.2 million U.S. adults have cycled through two or more treatments without the same benefit—a population that sits at the center of our initial launch focus. We believe that these patients and the physicians treating them are actively looking for a next-generation option that works differently and can deliver durable improvement without the need for chronic daily dosing. To put the scale of this opportunity in perspective, and using Spravato’s average annual price as a surrogate, capturing just 1% of the total addressable market in these indications represents potential for roughly a $2 billion annual revenue opportunity. Our targeting model is built directly around the substantial unmet need. We have identified high-volume health care practitioners—primarily psychiatrists and psychiatric nurse practitioners—who manage concentrated populations of these specific patients. These high-volume prescribers are located within psychiatric behavioral health networks and select integrated health systems where these patients most often receive care. We have mapped these priority targets in detail and plan to focus our launch efforts on engaging these clinicians, particularly those who have experience with or have expressed interest in novel in-office interventions and are supported by care teams capable of monitoring patients during the dosing day. We believe this approach will enable us to reach a meaningful number of appropriate patients from the outset, while establishing a strong foundation for scalable adoption. One of the points we highlighted at our Investor and Analyst Day is the growing awareness of DT120 among clinicians. Through ongoing engagement, we have seen increasing familiarity with its clinical profile and strong interest as a potential new treatment option that could help patients move beyond therapies that are no longer providing adequate or lasting relief. We also shared data showing that patients discontinue current treatments at a high rate, often due to lack of efficacy or tolerability. These challenges are especially pronounced among patients who have been failed by two or more prior therapies, reinforcing the substantial need for differentiated innovations like DT120. Our commercial strategy is shaped by these realities. We are focused on how this therapy can be introduced in a way that is scalable, accessible, and practical within real-world care settings without the necessity of chronic interventions. A key element of our planning includes a centralized hub support model and additional field support to enable a frictionless process of adoption and delivery. In parallel, we continue to engage with physicians, payers, and other stakeholders to better understand decision drivers around adoption, patient identification, and reimbursement frameworks. By pairing a well-articulated unmet need in a receptive market with our disciplined, patient-centric commercial strategy, Mind Medicine (MindMed) Inc. is very well positioned as we near pivotal data readouts and advance DT120 toward potential commercial launch. With that, I will turn it over to Brandi to discuss our financial results. Brandi L. Roberts: Thanks, Matt. Before walking through our financial results, I want to briefly set the context for how we are thinking about capital deployment as we move through an important phase for Mind Medicine (MindMed) Inc. As we entered 2026, we were pleased to have the financial flexibility to accelerate several key initiatives in parallel, including ongoing Phase III execution, NDA preparation activities, market access priorities, and continued engagement with key opinion leaders and leading practitioners. These investments are intended to support our path forward and, if DT120 is approved, position the company to be well prepared for a robust, thoughtful commercial launch. We have also been encouraged by the continued evolution of our investor base in 2026, with strong engagement from existing shareholders and growing interest from new investors as we made progress across our program. We believe this reflects increasing recognition of the opportunity ahead as well as confidence in our disciplined approach to execution and capital allocation. I will now turn to our financial results for Q1 2026, which are detailed in the earnings release we issued this afternoon. Research and development expenses were $41.5 million compared to $23.4 million for Q1 2025. The net increase of $18.1 million was primarily driven by an increase of $15.2 million in DT120 program expenses, $3.2 million in internal personnel costs as a result of expanding our R&D capabilities, and $300,000 in DT402 program expenses, partially offset by a $600,000 reduction in preclinical and other program expenses. For Q1 2026, general and administrative expenses were $17.7 million compared to $8.8 million for Q1 2025. The net increase of $8.9 million was primarily due to $3.9 million in stock-based compensation expenses, $1.4 million in personnel-related expenses, $1.4 million in commercial preparedness-related expenses, $1.4 million in corporate and government affairs expenses, and $1.2 million in legal and patent expenses, partially offset by a $400,000 reduction in other miscellaneous administrative expenses. The year-over-year increase in G&A expenses reflects deliberate investment to support a more mature organization as we prepare for our anticipated Phase III topline data readouts and potential commercialization. Overall, our R&D and G&A expenses for the first quarter were in line with our internal expectations as we continue to make meaningful progress across the DT120 and DT402 programs. Net loss for Q1 2026 was $77.1 million compared to $23.3 million for Q1 2025. As a reminder, our net loss can be significantly impacted by changes in the fair value of our 2022 USD financing warrant, which are marked to market each quarter. For Q1 2026, the impact on net loss from the change in fair value was $20.0 million, reflecting an increase in our share price from $13.39 at 12/31/2025 to $18.90 at 03/31/2026. Turning to the balance sheet, we ended Q1 2026 with $373.4 million in cash, cash equivalents, and investments. We believe our capital position provides sufficient runway to fund planned operations through multiple anticipated clinical readouts and into 2028. 2026 is shaping up to be a data-rich and strategically important year for Mind Medicine (MindMed) Inc. Our financial position allows us to remain focused on disciplined execution while maintaining the flexibility needed to support our priorities and continue building long-term value for shareholders. With that, I will turn the call back to Robert. Robert Barrow: Thanks, Brandi. After years of thoughtful trial design and focused execution, we are entering a period of numerous pivotal milestones that we expect will define the next chapter for Mind Medicine (MindMed) Inc. and our broader field. As we mark Mental Health Awareness Month, the urgency of advancing new treatment options and the responsibility we carry for patients feels especially pronounced. Before we close, I want to say thank you to our incredible team, the investigators and their teams, and to the hundreds of patients who have made this work possible. We will now open the call for questions. Operator: At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question will come from the line now open. Brandi L. Roberts: I am sorry, you cut out for a second. This is for Paul. Operator: Yes, your line is now open, Paul. Analyst: Hi. This is Emily on for Paul Matisse at Stifel. We just had a quick question assuming you have success in MDD and anxiety this year. Could you speak more to your thoughts around how much long-term safety and retreatment data you would need for approval? And in these long-term data, would patients need to retreat a certain amount of time to count as a long-term exposure for safety? Thank you. Robert Barrow: Great, thanks so much, Emily. I will speak briefly to this and then turn it over to Daniel to elaborate. We have had a great dialogue with FDA over the past several years, obviously building towards an eventual plan for an NDA submission subject to positive data and all that has to happen to get ready for an NDA, which we are very well positioned for. In terms of safety data and what is required, we feel really comfortable with the completion of Part A and the data that we will have available at the time of filing and at various milestones between here and there. We have sufficient safety exposure, both single-dose and over longer periods of time. Of course, the interesting dynamic with drugs that you do not have to take continuously or daily is that treatment patterns can diverge across different patient populations, which can mean that six months of treatment can look like one dose or multiple doses. That is something we are really interested in characterizing in our Phase III program. Regardless, we feel very well positioned with the studies we are conducting and that we will be in a great position to move forward, subject to positive Phase III data. Daniel, do you want to add any color? Daniel Karlin: Yes. I will elaborate a bit on the value of the Part Bs of these studies where we are able to deliver triggered treatment based on people having moderate symptoms of GAD or MDD or worse—moderate or severe. The value is multifold. First, it helps keep people in Part A of the study; as you saw from our announced sample size re-estimation outputs, our dropout rates are remarkably low in part because people know that they have this opportunity, if they are still symptomatic, to get open-label treatment in Part B. The ability to follow folks long term for up to a year after their initial blinded dose is another advantage. For folks who get to mild illness or better, we just get to keep watching them in that initial controlled, blinded state unless and until they get sick again, if they in fact do. Then, as Robert said, in those Part Bs we can give up to four additional open-label treatments contingent on people developing moderate illness or worse. That will give us the ability to carefully characterize across these studies the patterns of treatment that emerge when treating people with moderate or worse symptoms, which is pretty well aligned to what we think would likely happen in the real world if approved. With all of those data in hand, we are confident that we will have everything we need to inform FDA and, of course, to inform the clinical and patient community if we do get approved. Analyst: Great. That is super helpful, and congrats on the quarter. Operator: Thank you. One moment for our next question. Our next question comes from the line of David Amsellem of Piper Sandler. Your line is now open. Analyst: Thanks. Just a couple from me. One, in terms of the patient experience—patient monitoring—how confident are you that in practice only one dosing session monitor will be needed to monitor the patient? Sort of a REMS-related question on that front. And then I have a question on the PTSD HAVEN study. A little bit of color on the thought process behind running HAVEN as straight active versus placebo as opposed to including a low 50 microgram dose arm. Thanks. Robert Barrow: Thanks so much, David. Daniel, I will turn it over to you. Daniel Karlin: Great questions. In the clinical trials, per FDA direction, we have an in-person lead monitor and then a secondary monitor who can watch remotely via video. That has been the condition for conduct of clinical trials based on FDA direction. Throughout the trials, we have made every effort to collect regulatory-grade data on what those monitors are doing to provide assistance and comfort for the patients, up to and including what the role of that second monitor actually ends up being. All of this is in service of making the case that a single monitor is absolutely something that should be enabled in the real world. That is our position. In the longer term, if you look at other therapies that have acute consciousness-altering effects, things like monitoring ratios have not been explicitly specified; at the end of the day, it is left to clinical discretion and clinical judgment to ensure that patients are safely monitored. Of course, there is some content in existing REMS, and we will expect to have content in our REMS that relates to monitoring, but it will adhere to the evidence we have established for what constitutes safety and efficacy. On PTSD: across the Phase III program, we have combined studies. We have studies with two arms, and in two cases we have added this lower-enrolling 50 microgram confounding arm. That is not an analytical arm; it exists to confound the understanding of people in the other arms as to what they got. In each case for GAD and MDD, our first study in the condition used a two-arm design with an inert placebo, which we continue to believe is the appropriate control condition for testing psychiatric medications, including DT120 and any other psychedelic for that matter. That is what we did in PTSD. We think head-to-head is the best way to establish evidence of efficacy. As we gather the accumulated evidence and as we are able to read out the evidence from these other three studies that we are conducting and ultimately from ASCEND, which we have guided is starting imminently, all of that will accumulate to help us understand what, if any, effect that 50 microgram dose arm has on the understanding of people in the other arms as to what dose of drug they got and whether they got a treatment dose or not, and also whether that has any effect on the measured outcomes. As we gain more knowledge about the performance of these different studies with the different control and confounding conditions, that will allow us to think about future studies and their design. But for primary evidence of efficacy, we continue to believe head-to-head is the right control condition. Operator: Thank you. One moment for our next question. Our next question comes from the line of Andrew Tsai of Jefferies. Your line is now open. Analyst: Hi. It is Brian Bolton here on for Andrew Tsai. Two questions. First, on patient journey: you mentioned Phase III with your five to eight hour patient journey versus 10 to 12 hours in Phase II. Can you talk about what gets you closer to five hours as opposed to eight? What do you need to establish with the FDA and sensors to make it happen? And secondly, your placebo responses in the GAD study were higher compared to other GAD studies. How are you thinking placebo might trend in the Phase IIIs, and then same for the Phase III MDD study as well? Thank you. Robert Barrow: Thanks so much, Brian. On the first question, some of the changes we highlighted a few weeks ago at our event include formulation—using an orally dissolving tablet in our Phase III program where we see faster absorption that we think could translate into a better profile in terms of resolution of symptoms. Our approach has been intentional from day one. Going into our Phase II program, we included a higher dose, 200 micrograms, and therefore, appropriately conservatively, extended the monitoring period in Phase II up to 12 hours and had an extremely lengthy set of criteria measured to assess when patients could end the monitoring session. Based on learnings and data from the Phase II study, we made revisions to the formulation and to that end-of-session checklist. In Phase III, we feel confident we are moving in a shorter direction, and that is what we are seeing so far. In addition, the change from a 12-hour monitoring period to an eight-hour monitoring period being required for all participants was driven by discussions with FDA and those data. We feel confident we are heading in the right direction there and that, regardless, within that window we see a very attractive clinical profile—one that means patients are not rushed and one that enables providers to have a low-turnover, high-efficiency delivery to patients. On placebo response, we had a remarkably high placebo response in the Phase II GAD study. An 80% likelihood for patients to be receiving some dose of drug tends to drive up placebo response. We also saw that around a third of patients who received placebo guessed they were on drug, and the presence of several lower doses likely enhanced that placebo response. There were also dynamics with dropout—Phase II had nothing to offer patients beyond the initial dose—whereas in Phase III we have Part B and patients are guaranteed access to open-label drug if they continue through the 12 weeks. As we look to Phase III, having a lower allocation ratio and having a reason for patients to stay in the study should reduce placebo, perhaps even below historical averages. That would be true in both GAD and MDD. We also see in other programs, including the pivotal studies for Spravato, lower placebo responses than historically seen for daily antidepressant studies. It would not be surprising if we saw lower-than-average placebo responses across the Phase III programs here. Given that we exceeded a high placebo by a wide margin in Phase II, we feel confident we will be in a great position heading into the Phase III data. Operator: Thank you. One moment for our next question. Next question comes from the line of Mark Goodman of Leerink Partners. Your line is now open. Analyst: Hi, good afternoon. This is Basma on for Mark. Thank you for taking our questions. First, about the PTSD program: can you remind us of your convictions regarding the dose you are using in PTSD? Why do you think it is going to be efficacious? And what are the study powering assumptions? Second, for submission in MDD or GAD—whatever comes next—can you leverage the safety data from GAD, or will you have to collect another set of exposure data in the relevant patient population? Thank you. Robert Barrow: I will take the second one first and then turn it over to Daniel. We certainly expect to have exposure from pivotal studies and efficacy studies in any population we are conducting research in. ICH guidelines for patient exposures are not disease- or disorder-specific, so there is not a requirement to meet some huge population requirement by indication. Daniel? Daniel Karlin: Great question about PTSD. Having done our dose-range finding study in Phase II and gaining great confidence in our Phase III dose—and dose in this formulation—through transitional PK work, we had the confidence to go forward in GAD and MDD and also in PTSD with that dose. From a symptomatic perspective, disease definition overlap, and scale overlap, all of those come into alignment, and there is no reason to think that the variations that make up these differently defined diseases—but that fundamentally have such tremendous overlap—would call for any additional dose adjustment moving forward. So we go into PTSD with the same confidence we went into MDD, with the dose we selected initially for patients with primary GAD. From a powering perspective, we continue to look at a five-point change on the condition-relevant scale as a good sweet spot—HAM-A for GAD, MADRS for MDD, and CAPS for PTSD. Operator: Thank you. One moment for our next question. Our next question comes from the line of François Brisebois of LifeSci Capital. Your line is now open. Analyst: Hi. Thanks for taking the question. You talked about the overlap here. It seems like MDD is more episodic than GAD. In terms of probability of success, is there more confidence in one versus the other? And is there anything about the disease itself with GAD that could trigger a higher placebo response, or is this more from the trial design? Robert Barrow: Thanks so much, François. I will turn that back over to Daniel. Daniel Karlin: Great question. We have introduced new slides to look at the GAD–MDD overlap. In the vast majority of patients, it is something of a temporal distinction. If they have MDD, it is because they have had or are currently in a major depressive episode. Major depressive episodes by definition end—they have start and end points—whereas GAD is more of a constitutive background state of anxiety. The longer someone has high anxiety, the more likely they are to have a major depressive episode, and the more frequent and severe the episodes, the more likely they are to have high background anxiety. Historically, MDD has been an easier target for many classes of antidepressants than GAD. In part, in MDD we are helping folks return to a state they have been in more recently, whereas with GAD we are pushing toward a state someone may not have experienced in a long time. That, in part, gives us great confidence in MDD. We also saw in Phase II that we were able to move the MADRS pretty dramatically in GAD patients despite them starting lower than typical MDD baselines—less room to move—and we still saw meaningful change. On placebo in GAD, it is more the design than the disease. The five-arm design with an 80% likelihood of getting drug, together with lower-dose arms that may feel like something to someone, likely drove a higher actual placebo response and also a higher measured placebo response due to dropout and data replacement strategies. Analyst: Thank you for that. And a quick one for Matt. You mentioned 1% penetration of the TAM equals about $2 billion. How do you handle the overlap of MDD and GAD to get to that number? And on the commercial side, any learnings from the J-code implications for Spravato and how that might have triggered sales? Matthew Wiley: Sure. The 4.2 million patient number I cite includes those with both diagnoses—these are unique patients we have identified, all 18 and over—so the TAM accounts for overlap; dual-diagnosis patients are deduplicated. Regarding the J-code for Spravato, it gives us confidence that there is a path forward to submit for a J-code for DT120 as well. That is in our plans and an operating assumption to submit once we get into the market, if DT120 is approved. Operator: Thank you. One moment for our next question. Our next question comes from the line of Pete Stavropoulos of Cantor. Your line is now open. Analyst: Hi. This is Samantha on the line for Pete. Thanks for taking our questions and congrats on the quarter. For the MDD OLE, you set the trigger for redosing at a MADRS score of 20 or greater. Could you help us understand why 20 was chosen and, through your market research, is that level of severity a threshold where health care practitioners would likely recommend another dosing session? Robert Barrow: Thanks so much. I will turn it over to Daniel. Daniel Karlin: Great question, Samantha. Across our studies, in Part B we set the threshold on the scale at the line between mild and moderate. While scale thresholds are psychometrically validated, they are still somewhat arbitrary choices. We chose the mild-to-moderate boundary because, in talking to a wide community of prescribers, that level is where clinicians would consider initiating or re-initiating medication at all, let alone a more intensive and likely expensive medication. That threshold also corresponds to where people start to accumulate functional deficits—symptoms become severe enough to interfere with activities of daily living such as school, work, and family. That seemed a reasonable place to draw the line in studies and a likely threshold used clinically, though clinical judgment will rule in practice and these scales are not often used routinely due to administration burden. We expect that if clinicians assess functional deficits, that will push them toward using therapies like ours. Robert Barrow: I will add one point, Samantha. While there is discussion about subgroups of MDD and TRD populations, the real driver of personal and economic benefit is improving severity. Finding patients with severe symptoms and improving them to a state with meaningfully improved function is why we set thresholds where we did, and why we are focused on severity rather than siloing into a small subset who failed two SSRIs. Analyst: Very clear. Thank you. If I can sneak in one more: with interventional psychiatry increasingly integrated into practices and health systems, what preparations are underway at clinics to pivot and deliver DT120 operationally? What are you hearing in your commercial prep work? Robert Barrow: Matt, over to you. Matthew Wiley: Thanks, Samantha. Clinicians doing high volumes of interventions today have been preparing for psychedelics coming to market and are allocating space accordingly. We feel encouraged by the anticipation and receptivity of the market for these interventions as they make their way into practice. There is high anticipation for DT120, and the data we shared a couple of weeks ago highlight momentum and receptivity. Our targeting model prioritizes physicians who are receptive to the concept and who have the capability and capacity to accommodate patients for treatment. Operator: Thank you. One moment for our next question. Our next question comes from the line of Matthew Hirschenhorn of Oppenheimer. Your line is now open. Analyst: Hey, guys. Congrats on all the progress, and thanks again for hosting us two weeks ago. As you talk to clinics, what are some of the economic incentives they have to modify capacity for DT120, especially considering moving away from Spravato? Do you see time-based reimbursement and less friction arising from patient turnover compared to Spravato as potential advantages? And perhaps if you have any estimate on how many clinics it would take to eventually treat 100,000 patients per year, considering likely capacity? Matthew Wiley: Thanks for the question. Regarding practice economics, we recognize it is top of mind for physicians. We are building out clear direction on what will be available at launch and which codes we will secure post-launch to ensure physicians are adequately reimbursed for administration. Clinics have been allocating some space initially and anticipate judging market volumes to determine whether to allocate additional space. This will be determined as we get into the market. As we get closer, we will have more market research to share on expected volume and capacity both at launch and in subsequent years. Analyst: Thank you. And one additional question on PTSD: any differentiated advantages for DT120 compared to other psychedelics—psilocybin and DMT specifically—for this indication? Any input or discussions with the VA, considering prevalence among veterans, informing enrollment criteria or data collection? Daniel Karlin: One of the things we hear from sites about the characteristics of DT120 and the patient experience is that it is very well tolerated, particularly emotionally. People find the onset, plateau, and gentle return to normal consciousness to be well tolerated and pleasant in ways other drugs may not be. For folks with high levels of anxious arousal and hypervigilance in PTSD, that predictable and gentle experience—predictable onset and offset with adequate plateau time—may be advantageous. Regarding the VA, we have been working with VA researchers on our research to date. As we move into PTSD, we will continue to deepen and strengthen those relationships. The VA’s expertise in PTSD will be important to the design and execution of those studies as it has been in our studies to date. Operator: Thank you. One moment for our next question. Our next question comes from the line of Sumant Kulkarni of Canaccord Genuity. Your line is now open. Analyst: Good afternoon. Thanks for taking our questions. I have three. First, what are your latest thoughts on filing strategy? Would you file both GAD and MDD at the same time, or do you think GAD, which will have two Phase III readouts earlier, will be your first targeted indication? Robert Barrow: Thanks, Sumant. We are having ongoing discussions with FDA around the appropriate strategy. We have also seen communication from FDA about thinking for filing on studies where there is a high degree of overlap. There is a long regulatory and legal precedent that, when there are highly overlapping indications, a single study may be supportive of expansion into that indication. Some of this will be contingent on how compelling the data are across the studies, particularly in MDD. If we see a smaller effect, we would have less compelling evidence than if there is an extraordinarily large effect that implies small studies might suffice to replicate. Ultimately it will be informed by the data and subsequent discussions with FDA. We feel confident in the position for filing DT120, and regardless of concurrent or sequential filings, we think we will be in a great position to go after both markets, hopefully, and to get into the patient population if we are fortunate to get a drug approved. Analyst: Thanks. Second, for Matt, on commercialization: both GAD and MDD present very large opportunities. Which one could prove more challenging to crack for DT120, and why? Matthew Wiley: Thanks, Sumant. The unmet needs in both indications are high, and there is strong receptivity in our market research for both. Our targeting model and value proposition are aimed at both indications; we do not have a favorite. We believe many patients need help and need this treatment, and if approved with a dual indication, we will go after both with equal measure. Also, the diagnosis of GAD is not as reflective in claims data as MDD, simply because there have not been novel treatments in a couple of decades. We believe there is a lot of GAD that is underdiagnosed in ICD-10 data, and that could change with a therapeutic intervention that meets that need. Analyst: Last one is almost a philosophical question. What are the real-world advantages and disadvantages of receiving a Commissioner’s National Priority Voucher? Robert Barrow: It is a good question. Anything we can do to accelerate and be more efficient in development we are interested in. We have been moving at a lightning speed; we opened this IND less than about four years ago. We focus on what we can control: doing research the right way to move the program forward to pivotal data, which we have coming up very soon. What comes after that—with novel programs at FDA—there can be advantages and also potential risks. One important consideration for our program is the opportunity to potentially go after both indications. If we are in that position, there is a lot to navigate regarding which indication might benefit from a voucher like a CNPV. We have seen positives and risks associated with such mechanisms. We will keep our dialogue with FDA and continue to look for opportunities to accelerate anywhere we can. Right now, getting the data and moving efficiently toward an NDA is where we are focused. Operator: Thank you. One moment for our next question. Our next question comes from the line of Christopher W. Chen of Baird. Your line is now open. Analyst: Hey, everyone. Thanks for taking my question and congrats on the progress. Regarding the EMERGE readout, how granular will your patient time-to-discharge data be? And if you go slightly over the eight-hour window, is it still possible to secure a label with an eight-hour treatment window? Robert Barrow: Thanks, Chris. We are extremely detail-oriented in everything we do and aim for precise definitions of important study characteristics. We have been doing that in analyzing the end-of-session checklist and when patients can be cleared from monitoring. We will look at means, side effects, individual patient data—anything useful. It is something we are very interested in and we look forward to presenting data. Operator: Thank you. One moment for our next question. Our next question comes from the line of Patrick Trucchio of H.C. Wainwright & Co. Your line is now open. Analyst: Hi. It is Arabella on for Patrick. Thank you for taking the question. Now that DEA rescheduling can be done after a successful Phase III, how much time is that realistically going to save? How are you thinking about initiating those conversations once you get the data? Also, could you comment on DT402 in ASD and what metrics or signals you are looking for to move the program forward? Thank you. Robert Barrow: Thanks, Arabella. I believe you are referring to the executive action indicating the DEA should look at scheduling assessment after Phase III data, not after FDA approval. If implemented and DEA could as a result make a decision on scheduling at the same time as an NDA approval, that could save roughly 90 days, which is the current timeline to an interim final rule and issuance of the schedule for an approved product. We have been engaged for a while in exploring opportunities to streamline the process and enhance collaboration across federal agencies to make the timeline from FDA approval to patient access as short as possible. With such a huge need, we should not be waiting any days we do not have to. We continue to have great dialogue with FDA, with CDER, and when able, with DEA. On DT402, I will turn it to Daniel. Daniel Karlin: Thanks for asking about DT402. We are conducting a signal-of-efficacy study in ASD. To do that across the course of a day, we have combined a set of measures we can do repeatedly through the day—pre-dose, early in the dosing experience, late in the dosing experience, and again as the drug wears off. We constructed what might be skinnier instruments than you would ordinarily use for a regulatory approach but that include the construct components of those instruments and can be asked quickly and repeatedly. We have patient-reported outcomes, clinician observations, caregiver observations, and digital behavioral markers (voice, facial expression, eye tracking), all rolled into a dense dosing day with as many measures as we could comfortably include for the patient experience. Operator: Thank you. One moment for our next question. Our next question comes from the line of Amit Daryanani of Needham & Company. Your line is now open. Analyst: Hi, good afternoon. Thanks for taking my question. How much data do you need from Part B—where you examine how long it takes for patients to take a second, third, or fourth dose—before you submit for approval and to inform circumstances of treatment and the label? How much data do you need to have conversations with payers around coverage and pricing? Second, regarding market capacity: to achieve peak potential, how much expansion is needed in the number of clinics equipped to treat with psychedelics in the U.S., and what is the time frame or bottlenecks to see that expansion? Robert Barrow: Thanks so much, Amit. As we approach topline data and Part A readouts, it is worth noting precedent antidepressant approvals are largely based on acute studies with post-marketing commitments for longer-term studies. We are pushing the bounds of what an acute study can do: a single dose with patients followed for 12 weeks, and in GAD a primary endpoint at 12 weeks—patients with GAD do not spontaneously have 12 weeks of significant improvement. That approach is an important component of why we are confident we will be in a great position with Part A data. Part B data will be useful to inform intervals for retreatment, retreatment patterns over time, and outcomes upon subsequent treatment. We already have quite a bit of Part B data and will continue to aggregate across programs throughout the remainder of this year as we progress toward filing. On capacity, we think this is significantly underappreciated. Capacity that exists today is far in excess of what many models project for adoption. We do not see a capacity constraint. As we showed in New York a few weeks ago, setting up a treatment room is straightforward: have a room and someone who can be present for an extended period in a current facility. That is enough. There is not a substantial financial or logistical bottleneck—“infrastructure” is too heavy a word. We expect capacity growth over time and will support patients and providers so they can adopt and deliver treatment if they wish. We believe there will be strong incentive and desire to adopt among treatment centers and patients. Operator: Thank you. This concludes the question-and-answer session. I will now turn it back to CEO Robert Barrow for closing remarks. Robert Barrow: Thank you, everyone, for joining us today. We are very excited about the quarters ahead with three pivotal readouts anticipated across the second and third quarters, and we look forward to sharing those data in due course. Thank you all. Operator: Thank you for your participation in today’s conference. This concludes the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the Company's first quarter 2026 results. This call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 p.m. Eastern Time and run through May 14 on the company's website at www.aswater.com. The slides that the company will be referring to are also available on the website. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. This call will be limited to one hour. Presenting today from American States Water Company are Mr. Bob Sprowls, president and chief executive officer, and Ms. Eva Tang, senior vice president of finance and chief financial officer. As a reminder, certain matters discussed during the conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any financial results, levels of activity, performance, or achievements, and listeners are cautioned not to place undue reliance upon them. Forward-looking statements are subject to estimates and assumptions and known and unknown risks, uncertainties, and other factors. Listeners should review the company's description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. Statements made on this conference call speak only as of the date of this call, and except as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statement. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles, or GAAP, in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I would like to turn the call over to Robert J. Sprowls, president and chief executive officer of American States Water Company. Please go ahead, sir. Robert J. Sprowls: Thank you, Chuck. Welcome, everyone, and thank you for joining us today. I will begin with a discussion of the quarter. Eva will discuss some financial details, and then I will wrap it up with updates on regulatory activity, ASUS, and dividends, and then we will take your questions. We started 2026 with strong financial results, and I am pleased to report consolidated earnings per share for the quarter of $0.76 compared to $0.70 for the same quarter in 2025, an increase of 8.6%. All three of our operating business segments performed well and reported year-over-year increases. Our regulated utilities are on pace to invest a combined $185 million to $225 million in infrastructure investments this year as we continue to invest in our water, wastewater, and electric utility systems for the long-term benefit of our customers. We saw the benefits this quarter of step rate increases for both our water and electric utilities. We filed a new electric general rate case in January covering 2027 through 2030 and are poised to file a new water general rate case in July covering 2028 through 2030. In addition, our cost of capital application was deferred for another year, which I will discuss later. Our contracted services segment performed with much higher construction activity during the quarter, and we continue to have strong water utility, electric utility, and contracted services businesses. American States Water Company remains a leader with our strong earned return on equity and dividend histories, and we continue to deliver value and returns to our shareholders. Lastly, we were recently recognized on Newsweek's list of Most Trustworthy Companies in America and ranked number one in the energy and utilities industry. It is an honor to be recognized based on the views of our key stakeholders made up of customers, employees, and investors. With that, I will turn the call over to Eva to discuss earnings and liquidity. Eva G. Tang: Thank you, Bob. Let me start with our first quarter results. Reported consolidated earnings were $0.76 per share, as compared to $0.70 per share for 2025. For our water utility, Golden State Water, reported earnings were $0.55 per share compared to $0.52 per share for the first quarter of last year. The $0.03 per share increase was largely due to new water rates for 2026, including additional revenues associated with an advice letter project approved last year, partially offset by higher water supply costs overall, operating expenses, interest expense net of interest income, other expense net of other income, and income taxes. Lastly, there was a decrease in earnings of $0.01 per share due to the dilutive effect from shares issued under the parent company's at-the-market offering program. Our electric segment reported earnings of $0.08 per share for the quarter as compared to $0.07 per share for the same quarter last year. The $0.01 per share increase is primarily related to rate increases, partially offset by higher overall operating and interest expenses. Earnings from ASUS were $0.15 per share for the quarter, compared to $0.13 per share for the same quarter last year, an increase of $0.02 per share largely due to higher construction activities and lower interest expenses, partially offset by an increase in operating expenses. Slide 8 shows consolidated revenue for the first quarter. Revenue increased by $21.2 million compared to the same quarter of 2025. Revenue for the water segment increased by $11.1 million largely due to new 2026 water rates. Revenue for the electric segment also increased by $3.7 million, mainly due to fourth-year rate increases and additional revenues from approved advice letter projects in 2025. Revenues from ASUS increased $6.4 million, largely driven by higher construction activities during the quarter due to timing. Turning to Slide 9. Supply costs increased by $5.1 million, mostly driven by higher overall per-unit purchased water cost, included in water rates in 2026 with no impact to net earnings, and higher purchased water volume when compared to the same quarter last year. Looking at total operating expenses other than supply cost, consolidated expenses increased by $10.2 million compared to 2025. The increase was due to higher ASUS construction expenses resulting from an increase in construction activity and an overall increase to operating expenses, some of which is due to timing. In addition, there was an increase in interest expense net of interest income, largely from the impact of capitalizing debt costs related to certain advice letter projects approved by the CPUC in the latest water general rate case that was recorded in 2025 with no similar items in 2026, and reduced interest income from a decrease in regulatory balances for both regulated utilities, partially offset by a decrease in overall interest expense. Slide 10 shows the earnings per share bridge comparing reported earnings per share for 2026 against the same period for 2025. Turning to liquidity, net cash provided by operating activities was $71.6 million for 2026, compared to $45.1 million for the same period in 2025. The increase is largely related to the implementation of new rates at our regulated utilities from approved general rate case proceedings as well as various approved surcharges and additional base rates from advice letter filings. In addition, the increase also resulted from billing and cash receipts for work at ASUS's military bases and timing of its standard payment terms. For investing activities, our regulated utility invested $42.1 million on company-funded capital projects in the first quarter of this year. We project company-funded capital expenditures to reach $185 million to $225 million for the full year of 2026. For financing activities, American States Water Company, under its at-the-market offering program, raised proceeds of $6.2 million during the quarter net of issuance and legal costs, leaving a remaining balance of $34.3 million available for issuance under the program. We do not expect to continue the ATM program once the remaining balance has been fully utilized. With that, I will turn the call back to Bob. Robert J. Sprowls: Thank you, Eva. On the regulatory front, we are in the process of preparing our next water rate case, expected to be filed by July 1. As a reminder, the California Public Utilities Commission, or CPUC, issued a final decision on 01/30/2025 on Golden State Water's prior general rate case requiring the company to transition from a full revenue decoupling mechanism and a full supply cost balancing account for water supply, which were requested again in that general rate case application, to a modified rate adjustment mechanism known as the Monterey-style water revenue adjustment mechanism, or MRAM, and an incremental cost balancing account for supply cost, effective 01/01/2025. As a result, the company may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by its customers and changes in water supply source mix. Golden State Water's earnings have been and will be subject to future volatility from favorable and unfavorable changes in the water supply source mix compared to the adopted mix incorporated in the revenue requirement. Golden State Water's earnings for this first quarter were impacted by an actual water supply source mix that included more purchased water than in the same period of 2025 due in part to certain wells being temporarily offline in a few service areas. In December, Golden State Water received approval from the CPUC to implement its full second-year rate increases, which were effective January 1. This approval results in higher adopted operating revenues less water supply cost for 2026 of approximately $32 million compared to 2025 adopted operating revenues less water supply cost. Included in the 2026 increase is nearly $11 million related to advice letter capital projects under the approved settlement agreement that Golden State Water had with the Public Advocates Office at the CPUC on the general rate case. Beginning in 2025, all of the advice letter projects were allowed to accrue in a memorandum account interest during the construction period at Golden State Water's adopted cost of debt until the assets are in service, and the full rate of return that includes a debt and equity component and all applicable components of the revenue requirement for the projects from the period the assets are in service until the date of the filings for the step increases. The assets from the advice letter projects and the related amount in the memorandum account were added to the adopted rate base for inclusion in the revenue requirement effective 01/01/2026. In comparison, the net change in adopted operating revenues less water supply cost in 2025 over 2024 adopted levels was $23 million. Also, as mentioned on prior earnings calls, the CPUC approved a request by Golden State Water and the three other large investor-owned California water utilities to defer the cost of capital application by another year. CPUC's approval postponed the filing date of the application by one year until 05/01/2027 with a corresponding effective date of 01/01/2028. CPUC also approved the joint parties' request to leave the current water cost of capital mechanism in place through the one-year deferral period. Golden State Water's current authorized rate of return on rate base is 7.93%, which includes a return on equity of 10.06% and a capital structure with 57% equity and 43% debt, based on its weighted average cost of capital, which will continue in effect through 12/31/2027. Turning our attention to Slide 14, we present the growth in Golden State Water's adopted average water rate base. From 2021 through 2026, it increased from $980.4 million in 2021 to [inaudible] in 2026. That represents a compound annual growth rate of 11.3% over the five-year period using 2021 as the base year for the calculation. Golden State Water anticipates robust and sustained growth in its rate base over the next few years. The annual increase in rate base reflects, among other things, the net effect of capital investments less depreciation. The water general rate case decision issued in early 2025 authorized the company to invest $573.1 million in capital infrastructure, which includes $17.7 million of advice letter projects for the 2025 through 2027 rate cycle. In addition, the decision required Golden State Water to treat $58.2 million of capital projects as additional advice letter projects rather than including them in the base rates for 2025. Some of these projects had been under construction since 2023. As a result, you do not see a higher increase in rate base from 2024 to 2025 as these projects were not included in rate base in 2025. However, as noted earlier, all advice letter projects were permitted to accrue either a full rate of return or interest expense in a memorandum account prior to the filing for recovery. As agreed to in settlement, Golden State Water completed these projects and filed them concurrently with the step increase filings in November 2025. CPUC approved the filings in December. As a result, the project costs and accumulated memorandum account balances totaling $80 million have been added to the 2026 adopted rate base, generating an incremental revenue requirement of approximately $11 million beginning in 2026 and onward. Accordingly, you see a healthy increase in rate base in 2026. Now turning our attention to Bear Valley Electric, which continues to be a strong contributor to the company's results. The current general rate case set rates for 2023 through 2026. In January, Bear Valley Electric implemented new rates for 2026, which is the last year of its four-year rate cycle. There were also increases in base rates in 2025 to recover the revenue requirement associated with $23.8 million for capital projects approved for recovery through advice letters that were completed and placed in service, including allowance for funds used during construction, or AFUDC. In January, Bear Valley Electric filed a general rate case application that will determine new electric rates for the years 2027 through 2030. Among other things, Bear Valley Electric requested capital budgets of approximately $133 million for the four-year rate cycle and another approximately $17 million plus AFUDC for capital projects to be filed for revenue recovery through advice letter projects when the projects are completed; a requested return on equity of 11.3% and embedded cost of debt of 5.92%; a capital structure of 60% equity and 40% debt; and a requested return on rate base of 9.15%. Let us continue to ASUS, which contributed earnings of $0.15 per share for the quarter, which was $0.02 per share higher than last year. This was a result of an increase in construction activities, higher management fee revenues resulting from the resolution of various economic price adjustments, and lower interest expense from lower borrowing levels and lower average interest rates, partially offset by higher overall operating expenses. ASUS is projected to contribute $0.63 to $0.67 per share for this year. In addition, we remain confident that we can effectively compete for new military base contract awards in the future based on our strong reputation with the military and our expertise. I would like to turn our attention to dividends. Our quarterly dividend rate has grown at a compound annual growth rate of 8.5% over the last five years. We continue to exceed our policy goal of achieving a compound annual growth rate in the dividend of more than 7% over the long term. I would like to conclude our prepared remarks by thanking you for your interest in American States Water Company. We will now open the call for questions. Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. To assemble our roster. As there are no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Robert J. Sprowls for any closing remarks. Robert J. Sprowls: Thank you, Chuck. Thank you all for your participation today, and we look forward to speaking with you next quarter. Eva G. Tang: Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the MDU Resources Group, Inc. Q1 2026 earnings 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 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Brent Miller, Treasurer. Brent, please go ahead. Brent Miller: Thank you, Operator, and welcome everyone to the MDU Resources Group, Inc. First Quarter 2026 Earnings Conference Call. Our earnings release and supporting materials for this call are available on our website at mdu.com under the Investors section. Leading today's call are Nicole A. Kivisto, President and Chief Executive Officer, and Jason L. Vollmer, Chief Financial Officer of MDU Resources Group, Inc. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. Please refer to our SEC filings for a discussion of risks and uncertainties that could cause actual results to differ. I will now turn the call over to Nicole for her prepared remarks. Nicole? Nicole A. Kivisto: Thank you, Brent, and good afternoon, everyone. We appreciate you joining us today and for your continued interest in MDU Resources Group, Inc. This morning, we reported first quarter 2026 earnings of $80.8 million, or $0.39 per share. Results reflected strong operational performance across our businesses, offset by mild winter weather impacts, which reduced earnings by approximately $0.03 per share. At the same time, rate relief and recent investments such as the Badger Wind Farm and other pipeline expansions contributed positive results, and we continue to see encouraging demand trends, including interest tied to data center development. During the quarter, we concluded our binding open season for the proposed Bakken East pipeline project with continued strong interest received. As a reminder, we have not yet reached a final investment decision on this potential project, but we are certainly encouraged with the approximately 1.4 billion cubic feet per day of submitted interest received in the open season. Of that total, approximately 40% has been signed under precedent agreements, with additional precedent agreements in active negotiation. Included in the signed precedent agreements is a firm capacity commitment of $50 million annually for 10 years from the state of North Dakota. With these results, we are now expecting the design of the potential project to include approximately 353 miles of 42-inch, 36-inch, and 30-inch diameter mainline pipe; approximately 21 miles of 30-inch, 24-inch, and 20-inch diameter lateral pipelines; additional compression at three existing compressor stations; and the construction of three new compressor stations. Based on these assumptions, we are projecting total capital investment for the potential project in the range of $2.7 billion to $3.2 billion, which would be incremental to our current $3.1 billion capital investment forecast. We are encouraged by the level of interest and ongoing commercial discussions that demonstrate continued demand for additional takeaway capacity from the Bakken region, which the Bakken East project could provide. This potential project would also provide natural gas transportation service to meet growing customer demand from industrial, power generation, and local distribution companies in the region. As we look to finance a project of this size and scope, we will evaluate all options, including using our balance sheet to finance the project, pursuing potential partnerships, and various other options. Also during the quarter, we saw continued ramp of our data center load. We currently have 580 megawatts under signed electric service agreements, of which 180 megawatts has been online since mid-2023. Fifty megawatts from the second data center is currently online, with an additional 50 megawatts currently ramping online. An additional 150 megawatts is expected online later this year, with another 100 megawatts expected online in 2027, and the remaining 50 megawatts expected online in 2028. Our current approach to serve these large-load customer opportunities is with a capital-light business model, which not only benefits our earnings and returns but also provides cost savings to our other retail customers. Currently, our average retail customer receives an approximate $70 per year credit on their bill from this approach, and we anticipate this credit to increase to potentially over $200 per year when all volumes are fully online. We do continue to pursue additional discussions with potential data center customers, and we will provide further updates when we reach executed electric service agreements. Depending on the structure of future agreements, we would consider investing capital into new generation, substation, and transmission assets to serve the increased load. Aside from data center load, we also continue to evaluate other potential capital projects related to safely and reliably meeting existing customer demand as well as grid resiliency. On the regulatory front, we are continuing to execute on our plan of filing three to five rate cases annually and working to achieve constructive outcomes in all jurisdictions. At our electric segment, our Wyoming rate case was approved with rates effective April 1, 2026. In our Montana case, interim rates were approved for an annual increase of $10.4 million, with rates also effective April 1, subject to refund. We also anticipate filing a general rate case in North Dakota yet this year. On a slightly separate but related note, during the quarter, the South Dakota legislature approved legislation enabling utilities to reduce wildfire risk through the submission of wildfire mitigation plans and providing associated liability protection. With this action, all four states in which we provide electric service now have wildfire mitigation and liability relief frameworks in place. Moving on to our natural gas regulatory update, new rates from our Idaho case were effective January 1, reflecting an annual increase of $13 million. In Washington, year two rates under our approved multi-year rate plan, representing an annual increase of $10.8 million, were effective March 1, 2026. In April, we filed a revision to decrease revenue by $2.1 million annually due to forecasted capital investments that were not placed in service as of December 31, 2025. Our Oregon rate case is still pending before the Commission, where we requested an annual increase of $16.4 million. As we look ahead, we anticipate filing another multi-year rate case in Washington this year and also plan to file a general rate case in Minnesota later in 2026. Moving on to our pipeline segment, we filed our FERC Section 7(c) application in March for our Align Section 32 expansion project, marking an important regulatory milestone in this project's development. This expansion will provide natural gas transportation service to an electric generating facility being constructed in northwest North Dakota. The project is dependent on regulatory approvals, with construction targeted to be complete in late 2028, with a total capital investment of approximately $70 million, which is included in our $3.1 billion capital plan. We also extended the signed agreement to support the early-stage development of the potential Minot Industrial Pipeline project through late 2026. This project would be approximately a 90-mile pipeline from Iola, North Dakota, to Minot, North Dakota, and would provide incremental natural gas transportation capacity for anticipated industrial demand should we decide to proceed. This project is included in the outer years of the $3.1 billion capital plan, and we will continue to provide updates as the project progresses. Looking ahead, continued strong customer demand at our pipeline segment and progress in our utility regulatory schedule should provide opportunities to meet our long-term EPS growth rate target as we move forward. In addition, our utility experienced combined retail customer growth of 1.4% when compared to this time last year, which is within our targeted annual growth rate of 1% to 2%. This demand and growth provide investment opportunity for customer-driven growth projects at our pipeline and in our utility infrastructure. I am proud of our employees whose dedication to our core strategy continues to drive our business to deliver exceptional performance and positions MDU Resources Group, Inc. with compelling long-term growth prospects. Despite the mild weather headwinds experienced in the first quarter, we are affirming our 2026 earnings per share guidance range of $0.93 to $1.00 per share. We remain confident in our ability to execute our long-term growth strategy and believe our operational focus and financial strength continue to position us well for delivering safe and reliable energy, customer value, and strong stockholder returns. We also continue to anticipate a long-term EPS growth rate of 6% to 8%, while targeting a 60% to 70% annual dividend payout ratio. As always, MDU Resources Group, Inc. is committed to operating with integrity and with a focus on safety. We remain dedicated to delivering value as a leading energy provider and employer of choice. I will now turn the call over to Jason for a financial update. Jason? Jason L. Vollmer: Thank you, Nicole. This morning, we announced first quarter earnings of $80.8 million, or $0.39 per share, compared to first quarter 2025 earnings of $82 million, or $0.40 per share. As Nicole mentioned in her opening comments, milder weather had an approximate impact of $0.03 per share on a consolidated basis for the quarter. Turning to our individual businesses, our electric utilities reported first quarter earnings of $14.5 million compared to $15 million for the same period in 2025. The first full quarter of the Badger Wind Farm being in service was a benefit in the quarter but was more than offset by lower retail sales volumes from 10% to 30% milder weather across our service territory, which impacted earnings results by approximately $2 million when compared to 2025. Our natural gas utility reported earnings of $44.2 million in the first quarter compared to $44.7 million in 2025. Similar to our electric results, warmer weather impacted volumes for the quarter, resulting in approximately a $5 million impact to earnings compared to last year, including temperatures 20% warmer in Idaho, 30% warmer in Montana, and 10% to 30% warmer across the rest of our service territory when compared to the prior year. Weather normalization mechanisms in certain states helped offset the warmer temperatures experienced in the quarter. Largely offsetting the lower volumes was rate relief in Washington, Idaho, Montana, and Wyoming. The pipeline reported earnings of $15.3 million compared to first quarter record earnings of $17.2 million last year. The decreased earnings were driven by lower interruptible natural gas storage withdrawals, along with higher operation and maintenance expense primarily due to increased material costs and payroll-related expenses. Higher Montana property tax accruals also contributed to the decrease in earnings. Partially offsetting the impacts was strong customer demand for short-term natural gas transportation contracts as well as contributions from the Minot expansion project placed in service late last year. Finally, MDU Resources Group, Inc. continues to maintain a strong balance sheet and has ample access to working capital to finance our operations through our peak seasons. In connection with the company's December 2025 follow-on equity offering, a portion of the related forward sales agreements were settled in March 2026, resulting in the issuance of 4.3 million shares of new common stock for proceeds of approximately $81.3 million. That summarizes the financial highlights for the quarter. We appreciate your interest in MDU Resources Group, Inc., and we will now open the call for questions. Operator? Operator: We will now begin the question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is open. Please go ahead. Julien Dumoulin-Smith: Hey, team. Thank you very much for the time, and, again, congratulations. Just really great outcomes here of late, so kudos to you. If I could kick it off here, it is just a remarkable backdrop. I wanted to talk a little bit more about this 40% signed in a precedent agreement relative to the remaining 60%. I know you talk about a $3 billion-plus number here now, but just kind of backing that with customers, investors have been really focused on that today. Can you talk a little bit about the timeline to really zip that up, if you will? Nicole A. Kivisto: Yes, and thank you, Julien, for the question. As we think about where we are today, maybe we will just take a step back. When we entered into the binding open season from the start, what ended up showing up, and what we reported today, is what we expected. We feel really encouraged in terms of where we are and our initial expectations on the overall project. In terms of the 40%, we are very encouraged that we have 40% of that under signed precedent agreements as of this date. As we mentioned on the call and in the earnings release, we are in active negotiations on the remaining interest. We believe we have agreed in large part to many of the key business terms with these remaining customers, but we will continue to work through those. In terms of the overall next steps following that, as we move forward with executing the remaining agreements, the next step is to finalize design based on what shows up there, and then work with our board on a final investment decision. As you know, we did pre-file this project with FERC in December. In that filing, we laid out a schedule that would indicate that we would file the Section 7 application in the third quarter of this year. I am comfortable with the schedule to date. Certainly both WBI and our potential customers hope to reach an FID as soon as practical. Julien Dumoulin-Smith: Got it. So you feel pretty good about getting it done if you are still on track with that third-quarter target timeline, I suspect. Maybe if I can follow this up real quickly here. How do you think about laterals here, whether it is Ellendale or, frankly, other potential customers? And related to that, as far as laterals go, how do you think about the gas strategy perhaps leading an electric or electric gas generation strategy on the utility side as well? I appreciate what you are doing and the expanding scope with this pipeline, but how do you think about that marrying up with what you have on the utility front at the same time? What do you think about the laterals or actually building gas generation? I will note your comments in the remarks about being capital light thus far. How do you think about that being more capital intensive, prospectively? Nicole A. Kivisto: There are a couple of questions packed in there. I will take them in the order that I heard them. On the utility, our method has really been to come forward to the market when we have signed ESAs. We did talk today that we continue conversations with others. Noting those conversations, we also leaned into the fact that we may consider changing that strategy a bit and leaning into some investment. More to follow in terms of those final decisions being made, but we are continuing to discuss with potential customers the ability to serve them from a large-load perspective. As it relates to the pipeline, one of the things we have talked about that is beneficial for our company is, as we think about the data center theme and that buildout, whether our utility can serve that or not is obviously some upside, but the pipeline has the opportunity to serve that whether the utility would be the provider of that data center or not. So, as you are referencing our proposed Bakken East pipeline, we continue to think about how to serve some of that data center load, but even if we do not, it still is a benefit to the overall potential project at large. The theme of data center development is certainly a benefit on both sides of our business, whether that be the utility or the pipeline. On laterals, as we finalize our precedent agreements with our customers, we will keep those in mind. What we have seen across the country is once these pipelines become announced, to the extent we get to a final investment decision, other opportunities may come forward. We will be thinking about that also. It looks like, Jason, you might want to add something here. Jason L. Vollmer: Thanks, Nicole, for that lead-in. You mentioned specifically the Ellendale lateral, Julien, as part of your question. If you look at the updated map, you will not see that lateral built into that map. As we think about the open season process, we did not get interest at that location. We are delivering gas to that site, but the volumes we are seeing on the initial pipe compared to what we had expected going into the open season showed up along the mainline and get us to the same point along the way. We will see additional laterals develop over time off of this pipe, should we decide to proceed. It is a good growth platform going forward, but that Ellendale lateral is currently not contemplated in the design and the new map you would see today. Julien Dumoulin-Smith: Right. So the current CapEx budget does not necessarily include, and could be upsized yet again in the context of any laterals, it would seem. But quickly, Jason, while you have the mic, with respect to financing this, this is an incredibly big bite now that you are contemplating. How do you think about financing this? Are there partnerships? Are there sell-downs to get this done? Jason L. Vollmer: I appreciate the question, Julien. We have been clear with the market that we would provide a range once we had more clarity around the size, scope, and design of the project. By coming out with a range today, we have a much better view. It is a very large number, especially considering our current capital plan of $3.1 billion without this project included. This would be a significant addition. All options are on the table as we look at ways to finance this. A FERC-regulated project with contracted demand for a long period of time will have a lot of ways of getting financing done, whether that is doing it ourselves, incorporating partnerships, or various other structures. Our primary focus is to find an option that provides the best return for our shareholders over the long term, and also gives us the ability to have a majority stake in this project that will be connected to our existing system. It is very important that we would sit in a majority partnership if we go down the partnership path. Julien Dumoulin-Smith: Absolutely. Thank you very much. Best of luck. Operator: As a reminder, if you would like to ask a question, please press 1 to raise your hand. Your next question comes from the line of Ryan Michael Levine with Citi. Your line is open. Please go ahead. Ryan Michael Levine: Regarding the Montana rate case, any color around if you are still pursuing a settlement there given the deadline is coming up later this week? Jason L. Vollmer: Thanks, Ryan. I can take that one. On the Montana rate case, we are encouraged that interim rates were approved and went into effect on April 1, subject to refund until we get through the actual rate case process. As of right now, we have a hearing scheduled for July, or later this summer, for the next steps. Typically, we look for potential settlements along the way where we can, and we will continue to be in discussions on that. Nothing further to state here other than that a settlement would be something we would be open to, but we are proceeding to the next hearing date and will continue to update once we find out more. Ryan Michael Levine: In terms of the Bakken East more broadly, given crude price evolution as negotiations continued and the potential increase in associated gas production from the region, how is that impacting your contracting conversations from the supply side, and any incremental opportunities that could enable? Jason L. Vollmer: Great question. Market dynamics are interesting right now in the commodity space. All of the interest we have talked about with the Bakken East project has been demand pull. This is industrial customers, power generation, and LDCs—not driven by supplier push. I certainly think this is a project that will have interest from suppliers once it is in service, but we are not relying on supplier push to get to the volumes we are talking about here today. This is all demand pull. Ryan Michael Levine: In the cost estimate outlined in your slides, what are the key variables that push you to the higher or lower end of that range? Jason L. Vollmer: The construction period is in the 2029–2030 timeframe for the first in-service in late 2029 and the second phase in late 2030. We have not reached our final decision yet, so we have not locked up contractors. There could be variability in labor as we progress. Steel prices have been moving a bit. We wanted a range that could encapsulate some of that. We now have a better view from the customer demand side regarding where facilities would be located and interconnect with their projects. We have approximately 97% of the route with permission to survey. We are in a good spot from that perspective. The remaining uncertainty is around locking in steel prices for the pipe itself, ordering compression to understand costs, and finalizing labor for construction. There are variables until we get those locked down. We wanted a range to help the market understand the size and scope of how exciting this project can be, while being thoughtful that things can move around a bit before we lock it down. Ryan Michael Levine: Great. Thanks for taking my questions. Nicole A. Kivisto: Thank you. Operator: Your next question comes from the line of Aiden Kelly with JPMorgan. Your line is open. Please go ahead. Aiden Kelly: Hey, thanks for the time today. I want to pick up on the Bakken East project from a different angle. Could you talk about the data center opportunities on top of what you have already been discussing on the pipeline—specifically, the power plants to be built off laterals in certain towns? Are conversations occurring with large-load customers around this opportunity? Nicole A. Kivisto: Yes, certainly. One of the things to think about, as Jason mentioned, is the scope of what showed up in the binding open season and those with signed precedent agreements is demand pull. What is in that number? Some of that is power generation. A piece of what is showing up is power generation to serve potential data centers. Your question goes beyond that, in terms of the utility working with some of these customers or whether there could be additional power generation that shows up after we make a final investment decision on this pipeline. That is yet to be seen in terms of where those things land. Where we are today, this is a demand-pull project, and there is power generation showing up within the binding open season. Aiden Kelly: Separately, on the equity side, it is a big CapEx project and you mentioned potential partnership opportunities. Could you comment on the extent you see that as a possibility? And if so, how should we think about that—another utility or a private equity arrangement? Any thoughts on your appetite to partner up? Jason L. Vollmer: Thanks. As I mentioned earlier, all options are on the table as we think about financing a project of this size and scope, given how significant this project could be for the company. Right now, the team is focused on getting to a final investment decision. That is the primary focus—getting the remaining precedent agreements executed and getting to a position where we can get in front of our board on an FID. If we decide to go down the partnership path, we will step back and look at what makes the most sense for shareholders over the long term. A strategic partner could have a fit, and financial partners would likely have appetite too. We will analyze it carefully to determine what makes the most long-term sense for our shareholders for what would be a very long-lived and important project for the company, should we decide to proceed. Aiden Kelly: Great. Appreciate the insight. Thanks for the time. I will leave it there. Nicole A. Kivisto: Thank you. Operator: There are no further questions at this time. I will now turn the call back to Nicole A. Kivisto, President and CEO, for closing remarks. Nicole A. Kivisto: Thank you again for joining us today and for your thoughtful questions. We appreciate your continued interest in and support of MDU Resources Group, Inc. As we move through the remainder of 2026, we remain focused on disciplined execution of our capital plan, constructive regulatory engagement, and delivering safe, reliable, and affordable energy for our customers. Finally, I want to thank all of our employees for their dedication and commitment. We look forward to staying engaged with you throughout the year. Operator, you may now conclude the call. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Charles River Laboratories First Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions] I would now like to turn the conference over to our host, Todd Spencer, Vice President of Investor Relations. Please go ahead. Todd Spencer: Good morning, and welcome to Charles River Laboratories First Quarter 2026 Earnings Conference Call and Webcast. This morning, I am pleased to be joined by Birgit Girshick, who became our Chief Executive Officer this week, and to introduce our new Executive Vice President and Chief Financial Officer, Glenn Coleman. They will comment on our results for the first quarter of 2026 as well as our financial guidance. Following the presentation, they will respond to questions. There is a slide presentation associated with today's remarks, which will be posted on the Investor Relations section of our website at ir.criver.com. A webcast replay of this call will be available beginning approximately 2 hours after the call today and can also be accessed on the Investor Relations section of our website. The replay will be available through next quarter's conference call. I'd like to remind you of our safe harbor. All remarks that we make about future expectations, plans and prospects for the company constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated. During the call, we will primarily discuss non-GAAP financial measures, which we believe help investors gain a meaningful understanding of our core operating results and guidance. The non-GAAP financial measures are not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. In accordance with Regulation G, you can find the comparable GAAP measures and reconciliations on our Investor Relations section of our website. I will now turn the call over to Birgit Girshick. Birgit Girshick: Thank you, Todd. It is a privilege to speak to you today as the CEO of Charles River. I would like to acknowledge Jim Foster for building this company into an industry leader and reiterate my gratitude for the mentorship that he has provided to me over the years. I step into this role with a clear understanding of Charles River today, what we can become and the tremendous responsibility we have to our clients, to the patients who rely on us, to our nearly 20,000 employees worldwide and also to you, our shareholders. I'm not taking this responsibilities lightly, and I'm energized by what lies ahead as we continue to work to help create healthier lives to capitalize on the significant opportunities ahead of us, both in science and in the marketplace and to enhance shareholder value. Our teams have already put forth significant efforts to plan for the future, and I'm proud to lead the company into its next chapter of growth and evolution. The world is changing rapidly around us. Science is advancing faster than it ever has, and our clients require greater speed, best science and more collaboration. As the industry changes, Charles River will evolve alongside it and lead the way. Together as a company, we will create our own future by reimagining the way we operate and embracing the opportunities ahead of us. We will accomplish this through our refreshed strategic framework, which we are calling pathway to purpose. Pathway to Purpose is a disciplined approach to driving growth and shareholder value through the following key priorities: modernizing our company and the industry, strengthening our world-class scientific portfolio by enhancing our capabilities in strategic locations, while delivering a customized client-centric approach. We will also continue to maintain rigorous oversight on animal welfare, biosecurity and regulatory compliance as well as fostering an exceptional employee experience. We have already established a solid foundation, including through the execution of strategic initiatives and enhancements made over the past few years. And this refreshed focus pathway to purpose will enable us to realize our full potential and ensure our future success. This will lead us to drive profitable revenue growth and optimize our financial performance. We will also continue to take a balanced and disciplined approach to capital deployment, including organic investments, M&A and other uses of capital. We plan to take a much deeper dive into our overall pathway to purpose strategy and these priorities when we host an Investor Day in September. For now, I will provide a high-level overview of each priority as well as some of our recent accomplishments. First, we are diligently working on opportunities to modernize Charles River by building a future version of the company that will be faster, more agile and connected and data-driven. We endeavor not only to transform operationally by driving greater efficiencies and streamlining and simplifying processes, but by creating an environment that allows scientific insights and information to move more quickly. This will enable us to partner even more seamlessly with our clients and expedite the speed at which we're able to deliver solutions, supporting their goals and deepening our relationship with them. We have already made substantial progress in our efforts to drive greater operating efficiencies and optimize processes. As previously discussed, we expect to generate at least $100 million in incremental cost savings this year above the 2025 levels, primarily driven by efficiency initiatives. Cumulatively, we expect to generate over $300 million in cost savings on an annualized basis from actions taken over the past few years. However, our pursuit of operating efficiency does not stop here. We are evaluating new initiatives designed to enable us to continue to modernize the company and how we operate and drive additional savings to generate meaningful operating margin expansion in the future. We have already made great progress on our efforts to further strengthen our leading scientific portfolio, including through actions taken as part of our comprehensive strategic review last year. As we mentioned last quarter, our acquisition of the assets of K.F. Cambodia earlier this year, now Charles River Cambodia, further strengthens and secures the non-human primates supply chain for our Safety Assessment operations. Combined with Noveprim, in which we acquired a controlling stake in 2023, we own and expect to internally source most of our future NHP supply requirements for the DSA segment. In April, we completed the acquisition of PathoQuest to continue advancing our NAMs or new approach methodologies capabilities by adding this in vitro next-generation sequencing platform for quality control testing for biologics drugs. We are pleased to have completed the previously announced divestiture of the CDMO and Cell Solutions businesses on May 6. We also expect to complete the planned sale of our certain European discovery sites later this month in May. These strategic transactions will help us refine and refocus our portfolio on our core competencies and drive synergistic growth in areas in which we have differentiated scientific expertise, including drugs development testing. In addition to our efforts to modernize the company and drive incremental efficiency savings, these divestitures and the K.F. acquisitions are expected to be meaningful levers for future operating margin improvement, including the principal drivers of margin expansion for the year. As we move forward, providing the best science will remain paramount at Charles River. With the combined strength of our core capabilities and scientific rigor, we intend to set new standards for what modern science can achieve and to help our clients enhance the efficiency and speed to market for their life-saving therapeutic programs. We will continue to build our world-class portfolio by investing in core growth areas and providing scientific solutions that are critical to our clients. In particular, we will further strengthen our capabilities in a regulated testing environment, including early-stage drug development, where we remain the industry leader and in complementary testing opportunities to support the clinical and commercial phases. We have identified areas of future growth, including in vitro and related testing services to extend our existing capabilities as well as adding additional NAM solutions and continuing to evaluate our geographic presence, particularly in Asia. To further enhance our growth profile, we are doubling down on our client-centric approach with a go-to-market model that deepens and further customizes client relationships and reinforces our position as a preferred partner to the biopharmaceutical industry. We are leveraging technology, including AI, to improve sales effectiveness, KPI transparency, and lead generation while investing in collaborative tools that enhance how we engage with clients and generate insights. Our Apollo cloud-based platform has already been a core enabler of our client-centric strategy and differentiates us in the marketplace through the speed that we can work with our clients. Apollo delivers a seamless self-service client experience with real-time access to scientific data and decision support tools. Its scope has expanded from RMS e-commerce and DSA pricing into study design, CRADL and our manufacturing businesses with further expansion underway. Technology is embedded throughout our strategy and in everything that we do. We are investing in broadly using technology to help harmonize and streamline processes, including through digitizing core work streams and lab automation, which will enable us to gain better data insights, enhance connectivity with our clients and accelerate their speed to market. AI has been a particular focus in the recent months. Our view is quite simple. AI will support the work that we and our clients do. We believe the efficiencies gained from AI over time will be reinvested in R&D by our biopharmaceutical clients, enabling them to work on more programs throughout the regulated drug development process, including safety assessment. To support this constructive view, recent discussions with our clients and industry surveys indicate that large biopharmaceutical companies are primarily utilizing in R&D to enhance the speed and efficiency of the early discovery process, including target identification, drug design and screening capabilities and also around clinical trial monitoring and logistics. In addition, the Deloitte survey last year indicated that nearly 60% of surveyed biopharmaceutical R&D executives expect AI and lab automation investments will result in an increase in IND approvals due in part to a faster pace of drug discovery over the next several years. Like NAMs the use of AI will be an exciting but gradual evolution led by science and the proper validation of new capabilities. We are leveraging AI and machine learning across the company, including as part of our strategic priority to strengthen our NAMs portfolio through our pioneering approach to virtual control groups or VCGs for safety assessment studies. The recent independent scientific review demonstrated the effectiveness of our VCG process, which preserves scientific integrity with no observed adverse effects compared to traditional control groups while reducing reliance on animal models. The VCG program is guided by our Alternative Methods Advancement Project, or AMAP initiative, focused on reducing the use of animals in research and is also a key priority for our Scientific Advisory Board led by our Chief Scientific and Innovation Officer, Dr. Namandjé Bumpus. Before I discuss our first quarter financial performance, let me provide a brief update on the end market trends. The overall biopharma demand environment stabilized last year, and we are currently seeing pockets of improvement for both global biopharmaceutical and small and mid-sized biotechnology clients. Many of our global biopharma clients progress through their restructuring and pipeline reprioritization activities and demand trends have improved even so overall spending levels aren't yet back to historical norms. Revenue from our global biopharmaceutical client segment increased in the first quarter. From a biotech perspective, demand trends from our biotech clients improved over the past 2 quarters as a result of the reinvigorated funding environment as we exited 2025 and continued health in 2026. The recent increase in biopharma M&A activity has also provided another source of capital infusion for an exit strategy for biotechs, which we also feel favorably. Mid-sized for the more mature biotechs have better access to capital as they approach IND or enter the clinic, while demand from start-up biotechs remains tepid because the earlier-stage and seed funding environment remains constrained despite a recent uptick in IPO activity. Overall, revenue from our small and mid-sized biotechs declined in the first quarter, primarily reflecting softer DSA booking activity last summer and a normal lag between booking and revenue generation. However, even the recent biotechs KPIs, we expect the revenue trend to improve in the next upcoming quarters. Government uncertainty, including funding-based pressures at the NIH has modestly impacted client spending levels, but revenue from our global academic and government client base remained stable in the first quarter, reflecting the essential nature of research solutions that we provide to them. Moving to our financial performance. Let me start by providing several key takeaways from the first quarter. First, we delivered our first quarter results despite the anticipated pressure from several discrete margin headwinds and now have a clear line of sight into the meaningful operating margin improvement that we have forecasted in the second quarter and beyond. In addition, the DSA demand environment remains solid as demonstrated by a net book-to-bill of 1.04x in the first quarter and continues to support a return to DSA organic revenue growth in the second half of the year. And finally, due to the execution of our strategic initiatives around acquisitions, planned divestitures and efforts to modernize our operations, we continue to expect to generate significant operating margin expansion of approximately 120 to 150 basis points in 2026, which supports our goal of driving profitable growth for many years to come. Overall, the first quarter results were in line to slightly favorable compared to our prior outlook. In the first quarter and as expected, revenue declined 1.5% on an organic basis. The non-GAAP operating margin declined 280 basis points to 16.3% and the non-GAAP earnings per share declined 12% to $2.06. The quarterly operating margin earnings decline were largely driven by several discrete factors, including higher stock compensation expense, NHP study-related costs in the DSA segment as well as lower NHP revenue in the RMS segment, primarily due to the timing of shipments. RMS revenue declined 5.5% organically, driven principally by lower revenue for small models in North America and for NHPs due to the timing of shipments. However, these declines were partially offset by solid demand for small models in China from mid-tier biotech and CRO clients. DSA revenue declined 1.4% organically, driven by lower revenue for discovery services, although revenue for Safety Assessment services was essentially unchanged in the quarter. As previously mentioned, we are encouraged that the overall DSA demand environment is tracking to our expectation, resulting in a net book-to-bill of 1.04x and a slight sequential increase in backlog to $1.92 billion at the end of the first quarter. Net bookings totaled a solid $622 million, remaining above the $600 million threshold, driven by continued strength from our small and mid-sized biotech client base. Over the past 2 quarters, Biotech's net book-to-bill and net bookings were at the highest level in over 2 years, showing a resurgence in demand on the heels of the robust funding environment. Demand trends for global biopharmaceutical clients also remained solid in the first quarter, but declined moderately year-over-year after pharma bookings rebounded to start 2025 following a period of budget cuts. Proposal activity posted a healthy increase in the first quarter, a signal that the positive bookings momentum may continue. The strong bookings performance at the end of 2025 and a continuation of favorable trends to start this year leave us cautiously optimistic that the net book-to-bill will average above 1x for the year and support the upper end of our DSA outlook, including a return to organic revenue growth in the second half. However, as a reminder, our business isn't linear, so this does not mean net book-to-bill will be above 1x every quarter. Manufacturing revenue increased 2.9% organically, driven by continued solid demand for Microbial Solutions. Overall, underlying demand trends for Microbial Solutions and Biologics Testing, our manufacturing quality control testing business remains strong as clients continue to advance their late-stage development and commercial programs. The Biologics growth rate is expected to rebound as the year progresses after we anniversary a client-specific challenge that has been a headwind for the past several quarters. As we look ahead, I'm energized by our refreshed strategic vision, and I am confident in the path we are taking to create the future for Charles River. Our focus remains on enhancing our clients' experience, delivering results and increasing long-term shareholder value. I also want to thank our employees for their continued dedication, hard work and commitments to our clients and mission, as well as our shareholders for their continued support. I'm pleased to welcome our new CFO, Glenn Coleman, who joined Charles River on April 6. As I mentioned last quarter, Glenn is a seasoned financial leader and operationally oriented CFO with over a decade of experience in the health care industry. Glenn has been CFO for 3 public companies and also has extensive international operating experience. Glenn will help to ensure that we continue to take a balanced and disciplined approach to capital deployment, including M&A and also ensure we maintain the rigor to drive additional cost savings and efficiencies across the company. Now I will turn the call over to Glenn to provide more details on our first quarter financial performance as well as our 2026 guidance. Thank you. Glenn Coleman: Thank you, Birgit, and good morning. I'm pleased to be joining the Charles River team as Chief Financial Officer. I was joined to the company because of its mission-driven culture and is positioned as a leader in the life sciences industry. Over the past 3 decades, I have led global organizations through financial and operational leadership roles and have been committed to instilling operational and financial discipline, effective capital allocation and driving long-term shareholder value. I look forward to leveraging that expertise and experience as I partner with Birgit and the leadership team to build upon Charles River's strong foundation. As I step into this role, my priorities are clear and fully aligned with supporting our pathway to purpose strategy and driving profitable growth. I'll be focused on continuing to efficiently manage costs, including the delivery of over $100 million in incremental savings this year and identifying new areas of efficiency and process improvement to generate additional savings and drive future operating margin expansion. We will maintain a disciplined and balanced approach to our capital priorities and invest to drive our growth strategy forward. This includes executing on M&A opportunities that strengthen our core capabilities, ensuring the successful integration of acquisitions and regularly evaluating all areas for capital deployment, including organic investments, stock repurchases and debt repayment. Before discussing our financial results, I'll remind you that I'll be speaking primarily to non-GAAP results, which exclude amortization and other acquisition and divestiture-related adjustments, costs related primarily to restructuring and efficiency initiatives and certain other items. Many of my comments will also refer to organic revenue growth, which excludes the impact of acquisitions, divestitures and foreign currency translation. I'll now provide highlights of our first quarter 2026 performance. Overall, our financial performance in the quarter was in line or slightly better than expected across our key financial metrics. We reported revenue of $996 million, representing growth of 1.2% compared to last year. On an organic basis, revenue declined 1.5% and was in line with our February outlook of a low single-digit organic decline. The operating margin was 16.3%, a decrease of 280 basis points year-over-year. The expected decline was primarily driven by lower NHP third-party revenue in the RMS segment, the timing of stock compensation related to the CEO transition and higher NHP sourcing costs and study starts in our DSA segment. As I will discuss in more detail shortly, we do expect the second quarter operating margin to improve meaningfully from these levels as many of these first quarter discrete margin headwinds subside, and we begin to see a margin benefit from divestitures. Earnings per share were $2.06 in the first quarter, a decrease of 12% from the first quarter of last year, primarily driven by the lower operating margin. This exceeded our prior outlook of a high teens decline, largely due to better-than-expected operating performance in the Manufacturing and RMS segments. Another highlight from the first quarter is the repurchase of approximately $200 million in shares under the $1 billion stock repurchase authorization approved last October. This supports our balanced and disciplined approach to capital deployment as well as the confidence we have in our long-term growth and strategic plan. Moving to details on our segment performance. DSA revenue was $597 million in the first quarter, a decrease of 1.4% on an organic basis compared to the first quarter of 2025. Lower revenue for discovery services due in part to prior site consolidation activities was partially offset by stable revenue for Safety Assessment services. The DSA operating margin decreased 290 basis points to 21.0% in the quarter, mostly due to increased study-related direct costs, including higher NHP sourcing costs and study starts. In RMS, revenue was $208 million, representing an organic decline of 5.5% year-over-year due to lower sales of small and large models as well as research model services. Small models revenue was pressured by lower volume in North America, partially offset by a solid increase in China volume. As previously anticipated, large model revenue is primarily affected by the timing of NHP shipments with NHP unit volume in the first quarter expected to be the lowest point for the year. The RMS operating margin declined by 240 basis points to 24.7% in the first quarter due largely to an unfavorable revenue mix from the timing of NHP shipments and lower sales volume of small models in North America. The Manufacturing segment reported first quarter revenue of $191 million, an increase of 2.9% on an organic basis due to strong growth from the Microbial Solutions business, primarily driven by Endosafe and Celsis manufacturing quality control testing platforms. The segment operating margin improved by 280 basis points to 25.9%, driven largely by leverage from higher revenue and the benefit from cost savings. As a reminder, the first quarter CDMO growth rate was negatively impacted by the loss of a large commercial client last year. And as a result, the CDMO performance reduced the manufacturing organic revenue growth rate by approximately 350 basis points in the first quarter. However, this comparison will no longer have a meaningful impact going forward because of the completion of the CDMO divestiture this week. Moving on to other financial metrics. Unallocated corporate costs totaled $63 million in the first quarter or 6.4% of revenue compared to 5.3% last year. The anticipated increase was primarily due to the timing of stock compensation expense related to the CEO transition. For the full year, we continue to expect unallocated corporate costs will be approximately 5.5% of total revenue. Net interest expense was $26 million in the first quarter, a decline of $0.8 million year-over-year. For the full year, our net interest expense outlook has increased by approximately $8 million to a range of $103 million to $108 million, primarily attributable to short-term borrowings to fund stock repurchases in the first quarter. At the end of the first quarter, our net leverage was 2.6x. The non-GAAP tax rate in the first quarter was 22.5%, a decrease of 20 basis points year-over-year due primarily to the favorable impact from last year's enactment of OB3 or the One Big Beautiful Bill. Our non-GAAP tax rate guidance for the full year remains unchanged at 22% to 23%, although it's currently trending towards the lower end of the range due to a favorable geographic mix. Free cash flow was negative $15 million in the first quarter or a reduction of $127 million compared to the prior year period. This decline was expected and mainly driven by higher performance-based cash bonus payments for 2025, which are paid in the first quarter. CapEx declined modestly to $56 million or approximately 5.6% of revenue in the first quarter from $59 million last year. Our free cash flow outlook remains unchanged at $375 million to $400 million in 2026. Turning to 2026 full year guidance. We are reaffirming our organic revenue and non-GAAP earnings per share guidance, which have previously factored in the impact of the divestitures. All of our guidance referenced today assumes the planned divestiture of certain European Discovery sites being completed in May. And as Birgit mentioned, we have completed the divestiture of the CDMO and Cell Solutions businesses this week. We continue to expect an organic revenue decline of 0.5% to 1.5% and non-GAAP earnings per share of $10.80 to $11.30 or 5% to 10% growth over 2025. This guidance includes earnings accretion of approximately $0.10 per share from the divestitures. On a reported basis, we reduced our revenue outlook by 50 basis points to a 4.0% to 5.5% decline because FX rates have become less favorable this year due to the recent strengthening of the U.S. dollar. From an earnings perspective, this FX headwind compared to our original outlook will be essentially offset by the accretion from stock repurchases. As a reminder, the acquisition of the assets of K.F. or Charles River Cambodia, the divestitures and incremental cost savings from our efficiency initiatives are expected to result in meaningful operating margin expansion this year. We expect approximately 120 to 150 basis points of improvement in 2026, with most of the benefit generated in the second half of the year. Combined with the abatement of the discrete margin headwinds in the first quarter, we expect the second half of the year operating margin will be over 500 basis points higher than the first 6 months of the year, with over half of this improvement being driven by completed acquisitions and divestitures as well as the planned sale of certain European Discovery sites. From a segment perspective, our organic revenue outlook for each of the segments remains unchanged from February. Our reported revenue outlook for the segment has been updated to reflect the impact of the divestitures as well as less favorable FX impact. As a reminder, the divestitures are expected to reduce our reported revenue outlook by approximately 500 basis points in 2026. By segment, we now expect a reported revenue decrease in the low to mid-single digits for the DSA segment and in the mid-single digits for both RMS and Manufacturing segments. We expect the most significant margin improvement in 2026 will come from the Manufacturing and DSA segments. Moving to our second quarter outlook. As I mentioned earlier, we expect financial results to improve substantially on a sequential basis due primarily to operating margin improvement and normal seasonal trends in the DSA and biologic testing businesses. We expect reported revenue to decline at a mid- to high single-digit rate year-over-year due primarily to the impact of the divestitures, while organic revenue is projected to decline at a low single-digit rate year-over-year, similar to the first quarter. However, we expect second quarter earnings per share to improve significantly on a sequential basis, increasing at least 30% from the first quarter level of $2.06. The first quarter headwinds from the timing of NHP shipments in RMS and the NHP sourcing costs and study starts in the DSA segment are expected to subside in the second quarter. In addition, the manufacturing operating margin is expected to benefit from the CDMO divestiture. As a result, we expect all 3 segments will show a sequential improvement in operating margin in the second quarter. To conclude, as I step into the CFO role, I'm focused on driving initiatives to generate profitable growth through the disciplined execution of our pathway to purpose strategy. This includes advancing our M&A priorities, successfully integrating acquisitions and delivering on our efficiency initiatives. Collectively, these efforts will strengthen our foundation and position us to deliver long-term shareholder value. Finally, I look forward to meeting many of you in the coming months. As Birgit mentioned, we plan to host an Investor Day in September, where we will provide a more comprehensive update on our strategy, priorities and long-term financial outlook. Thank you. Todd Spencer: That concludes our comments. We will now take your questions. Operator: [Operator Instructions] We'll take our first question from Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: Welcome, Glenn. Nice to be with you again. And for my question, I wanted to just sort of double-click maybe on the demand environment. I appreciate all of the questions comments about the environment. Can you talk about the typical seasonality that we sort of think about in terms of the demand cycle? I know we've typically seen a little bit of a slower start to the year sometimes as people get ramped up in January and February. And then it sort of seems to do that plus obviously, what you were talking about, about some of the funding environment. And then as a funding -- follow-up question, I was wondering if you could comment on sort of NAMs and what you're sort of seeing, any updates in terms of demand conversation with clients? Birgit Girshick: Certainly. Thanks, Elizabeth. Happy to update on demand seasonality and names. So let me start maybe with the seasonality. So we have several of our business see somewhat seasonality in terms of bookings, even proposal volume. Our DSA business is one of them where we're seeing proposals and bookings starting a little slow in the beginning of the year, sometimes also on a revenue basis that we see a slow start. And it generally has to do with budgets being approved, our clients coming back to work, often in January, there's a reprioritization of programs. So it just takes a little while to ramp up. We have a couple of other businesses. Our biologics testing business definitely has a seasonality. They support manufacturing of biologics. And more often than not, the Christmas time is the time that manufacturing is closed down for maintenance and revalidations. And so we are not seeing the same amount of samples coming in. Our microbial business is another one where we see definite seasonality into the fourth quarter actually for this business, where the business is ramping up often in the fourth quarter because companies may have budgets they want to use up because this is there basically a range you can keep on the shelves in inventory often, we see a spike in businesses there. So nothing abnormal. We have seen the same seasonalities in some manner this year. It's expected, and we generally consider that when we do our budgets and our guidance here. As far as the demand environment, I think we all share cautious optimism. Biotech funding quite a bit better over the last couple of quarters, IPO reopening, again, cautiously optimistic that this will continue. And then our pharma clients have definitely worked through a lot of their restructuring, reprioritization of programs. Any discussions we have with them is about speeding up their work, getting more programs through the pipeline rather than holds and reprioritization. So from that perspective, we're quite comfortable with what we're seeing. But certainly, it's early stage, and we always will be cautious about going too far over on our skis. Then let me jump into the names or new approach methods. So names new approach methods are a part of what we do. So they are part of a toxicology study. And we have spent basically 3 decades on the reduction of animals. Names have always been a part of that. NAMs availability has accelerated a little bit over the last maybe decade we have made some acquisitions in this space. We just did one literally a month ago. So the PathoQuest acquisition is squarely in the names category. So as we continue to evolve our business, we will continue to bring names into our business model, either through organic development, in-licensing or M&A. And as technology evolves, as maybe AI -- the ability of AI to predict insights evolves, we will evolve our business model with it. It's an evolution. It's not a revolution. So it will take time, but you will hear more and more and more about us bringing those technologies in. What I want to point out, it's not a separate business. It will always be part of our DSA and other divisions revenue model, and it will just continue to grow. I hope I answered your question. Elizabeth Anderson: Yes, that was super helpful. Operator: We'll turn now to Max Smock with William Blair. Max Smock: Glenn, maybe just following up on that prior question around activity so far here. Start to hear there was some commentary in the deck around seeing a healthy increase in proposals in the first quarter. Wonder if we could just get some more color around what proposals looked like year-over-year and sequentially? And then just more detail around how proposals trended among each client segment would be helpful. Birgit Girshick: Yes, happy to. So we've been quite happy with the proposal volume year-over-year in both segments, so both in our global biopharmaceutical as well as in our biotech segment, proposals were up quite nicely in the, I would say, high single digits. And which would -- gives us a lot of confidence that our booking trend will continue and our net book-to-bill trends will continue. So it does show us that there is a lot of clients that are ready to get restarted on work and the smaller clients and that our pharmaceutical clients, as they have indicated verbally to us, are looking to put more work, more programs through the pipeline to get to more INDs, to get to more programs into the clinic. So quite happy to see that. Glenn Coleman: And I would just add there on a sequential basis, we've seen proposals come up 3 quarters in a row sequentially. So positive trends sequentially as well. Max Smock: Got it. So the high single digit was year-over-year for both cohorts. And then Glenn, you're saying you've also seen some improvement sequentially as well. Glenn Coleman: Correct. We're 3 quarters in a row. Max Smock: Okay. Maybe another unrelated question here on AI. Birgit, it sounded like your comments -- your prepared remarks, it sounded like you feel pretty comfortable with this idea that AI investments in drug discovery are going to lead to more preclinical testing longer term. Are you seeing that play out at all yet? Or is that more something that we really probably don't see until we get a couple of years into the future here? Birgit Girshick: Yes. Thanks for that question. So I'm actually personally very excited about AI and what it will do for the industry and for Charles River in particular. So right now, the sample set of AI discovered or assisted, I should say, drug programs is very, very small. So it's hard to make a real conclusion from that. What I can tell you is that AI-assisted drug discovery companies generally work on a lot of different programs rather than one program at a time. And as we're working with most of them or all of them on their programs as they are wet lab, I'm optimistic that this trend will show itself and that we will see more programs coming through from AI. It also should still need to be seen, lower the cost of early discovery. And with that, there's more money for reinvestment. But again, it's very early days. There's so few programs in the pipeline that are AI assisted. But just theoretically, hypothetically, we know that AI will have a nice impact on that. Operator: We'll move next to Patrick Donnelly with Citi. Patrick Donnelly: Glenn, maybe one for you on the margin side. Certainly appreciate the color on the 2H step-up. And again, it feels like you guys have real tangible reasons to kind of do that build. Can you just talk through a little bit? It sounds like half of it is M&A, half of it some of the other moving pieces. Can you just talk through kind of the bridge there on 2H? And then any reason why that momentum wouldn't kind of continue to build into -- obviously, it's early to talk '27. But just going forward, given the K.F. acquisition, what that means to margins, any reason that momentum wouldn't continue into the go forward? Glenn Coleman: Sure. No, thanks for the question. If we look at the first half of the year, obviously, year-over-year, we're expecting to be down, but we do expect a pretty significant sequential increase in our margins going from Q1 to Q2 that supports the greater than 30% increase in earnings per share. So we do expect a pretty meaningful step-up in our operating margins. That being said, when we look at the half-to-half numbers, we're going to be in the high teens margin-wise in the first half of the year and expect 500 basis points improvement in the second half of the year. I did mention in my prepared remarks, over half of that improvement just coming from acquisitions and divestitures. In addition, if you look at our corporate costs, the onetime discrete items in Q1 that don't recur and some cost savings initiatives, that will drive another big portion of the half-to-half improvement, coupled with the timing of the NHP shipments in RMS and some additional lower costs we're expecting to come out of DSA. So we've got clear line of sight. I know it's a big jump when you look at the half-to-half numbers, but we feel very confident in the numbers, and we've got a clear line of sight about how we get there. Relative to 2027, I think the only comment I'll make is from an acquisition and divestiture point of view, we've already given numbers around the annualized impact of acquisitions and divestitures. So we said for acquisitions on an annualized basis, about $0.60 from K.F. and for divestitures is $0.30. And for this year, in 2026, the equivalent numbers on a part year basis is $0.25 for acquisitions and $0.10 for divestitures. So said differently, if you take the $0.90 less the $0.35, you can expect roughly $0.50 to $0.55 of accretion just from the acquisitions and divestitures in 2027 versus 2026. I think that's the only comments we're going to make around the '27 margin numbers. Patrick Donnelly: Yes. Makes a lot of sense. And then, Birgit, maybe just on the demand side, I certainly appreciate all the color you've given. Can you just talk about that kind of small mid-sized early biotech portion, what you're seeing there? Obviously, to your point, the funding has looked really healthy here for a couple of quarters. How much improvement are you seeing in those conversations? Are those dollars really starting to show up? Where are we in the cycle of that early piece from your perspective? Birgit Girshick: Yes, happy to. So the -- when we talk about our biotech clients there's obviously considerable size differences between the clients. A lot of the funding we're currently seeing IPOs are a little bit bigger companies, later stage. They have easier access to funding. That's definitely also where we're seeing quite a bit of an uptick in their demand. I would say the smaller biotechs, very early stage, that is still a little sluggish, and we see that the funding is a little lower and then also the discussions are still more cautious in that regard. We do see that clients often when they see just general funding come in, get more confidence in their ability to get funding later on and start spending. So we're seeing that a little bit. But we still have this segment was that early company starts being a little bit lower than we would like to see. So we have areas of our business like our CRADL business unit where we don't see the demand being where we would like to see it yet. So still a little bit mixed and still opportunity for improvement there. Operator: We'll hear next from Kallum Titchmarsh with Morgan Stanley. Kallum Titchmarsh: Just as we think about the business review and some of the acquisitions and divestitures announced over the past 6 months or so, any incremental ambitions to add or subtract from the business today? Or can we assume most impactful changes have been actioned. And obviously, see the buybacks, too. So maybe just level set us on capital allocation ambitions from here. Birgit Girshick: Yes, happy to, Kallum. So we will continue and always have to look at our businesses to see which ones are synergistic to the business, which are profitable, where should we be located, what solutions should we provide to our clients. So that will be an ongoing review that we do with our Board. And at times, you will see certainly that we will either consolidate a site or close a site or divestitures could come up again. So that is just the nature of how we run our business. From an M&A perspective, you already saw a couple of M&As this year. We have a clear road map of where we believe the company should be investing in, in terms of M&A and a couple of other smaller partnerships. That is hard to predict as you quite never know when the target is available, can you actually acquire the target? Does it make sense from a returns perspective? And then we continue to invest organically in our business. And then you already mentioned the buyback. So we will continue to look at all areas of capital allocation and make decisions for the best returns for long-term strategy execution as well as shareholder value. Kallum Titchmarsh: Great. And I think you called out $200 million of annual DSA revenue from NAMs before. I'm not quite sure where that is post these acquisitions and divestitures, but could you just give us a sense of the latest slides and how that's been growing? Birgit Girshick: Yes. So that was the number we had provided, I think, in 2020 -- late 2024, 2025 and since then, we have added a few different programs and actually in M&A, so the PathoQuest acquisition is squarely in the NAMs space, where we are replacing in vivo virology work with next-generation sequencing, a really good technology. And then you're right, with the divestiture of the discovery assets in Europe, there is roughly -- we will retain roughly 2/3 of the NAMs revenues that we had called out. So if you take those 2 together, a little bit of organic investment we have done in other areas, we're probably kind of back to where we were. But we will continue to drive that and our focus is on the regulated space here where most of our business is. So it continues to be a very strong commitment of Charles River. And we have established a Scientific Advisory Board under Dr. Bumpus. And we have a lot of activities going on in that space right now. So you will continue to hear about technologies and how we look at this, how we bring new technologies in, what it will replace. We also just made an announcement on virtual control groups and was actually part of our remarks. Just another example of how we look at NAMs for our business and we see it as an integrated approach where we will bring in more and more technologies and run them as hybrid studies together with our conventional approach. Operator: We'll hear next from Justin Bowers with Deutsche Bank. Justin Bowers: So 2-parter for me. One, can you talk about the conversion rates and the velocity of decision-making that you're seeing across the increasing proposal volume over the last 3 quarters? And then part 2, I just wanted to clarify on the comment on large pharma verbally saying that they want to put more work into the INDs. Does that imply that pharma is increasing their overall budget or intend to for preclinical spend this year and beyond? Birgit Girshick: Yes, happy to. So let me start with the conversion rates. So if you look back to the, I guess, the COVID time lines where capacity was quite tight, companies had to plan way ahead. Discussions were like literally 2 years ahead of placing a study. So really long. customers booked out very long because they had to. What we're seeing currently is quite an acceleration of when clients come in, want a proposal and then book and place the study. Generally, when we model it, we're saying from a discussion to proposal to bookings, it's 1 to 2 quarters and then maybe 1 to 2 quarters to get to revenue. However, in some instances, particularly with customers we have a long-term relationship with, that often accelerates because they got scientific data or they're reprioritizing a program, and we sometimes see literally from a proposal to getting revenue within the same quarter. And so conversion rates are obviously generalized accelerated. And this is actually something that gives us a better quality of our backlog because we know that those programs are actually being run and not being canceled later on because reprioritization of budgets have changed. To the second question about the INDs, as you can imagine, every pharma company we talk to talks about more programs into IND, more programs into the clinic. And our counterparts, our contacts will always talk about, but we have to do it with the same budget. But you can imagine that's obviously not possible. But we do see a refocus on the preclinical and earlier-stage efforts in those companies. Otherwise, they would not get the programs to the clinic. Operator: We'll hear next from Joshua Waldman with Cleveland Research. Joshua Waldman: Birgit, I wondered if you could comment more on what you're seeing from global pharma accounts here to start the year? Were bookings from these accounts any better or worse than you expected? And then did the trend improve through the quarter? It sounded like you saw a slow start, but I'm curious if you were more encouraged based on what you saw here in March and April. Birgit Girshick: Yes. So for the Global Biopharma, bookings specifically was below last year's bookings. But let me take you back to last year. We had an incredible booking quarter last year because a lot of the global pharma companies had literally reprioritized for months and then they -- early in the year, they got their new budgets, and there was just a slew of bookings that came in. So this isn't something we didn't expect. We feel bookings are adequate and they are supporting what we're hearing from them that they want to do more work. So with that, I would say that overall, this is a segment that is quite stable and increasing for us. We also see proposals up for them, which will -- which tells us basically that in the next quarters, we should see that bookings rate to come up. Joshua Waldman: Okay. And then you mentioned more biotech M&A being favorable in terms of funding for these accounts. But I'm curious, in the past, have you seen higher M&A activity drive improved access to biotech wallet share? I guess just given your stronger share position in large pharma, do you think large pharma accounts acquiring small biotech ultimately means you get better access to these accounts? Is this a dynamic you've seen historically? Birgit Girshick: Yes. So a lot of times, we actually do work with those small biotechs before they get acquired from pharma. And in that case, we retain the work, and we'll continue to work with them. Some cases, they get acquired, and we actually -- we work with a pharma company and any new programs we get access to. So it's a little bit of a mixed model. So as long as they continue the program, and that's why they're actually acquiring them, we will get our share -- our focus is certainly on making sure that we get a higher and higher share of the wallet from our -- particularly from pharmaceutical companies. And that is why our client centricity program, our initiative of making working with our clients easy and easier, providing them with better solutions and faster time lines is so important. So it could go either way. But in general, it's not a headwind. It is either a tailwind or it's just net neutral. Operator: We'll turn next to Cassidy Vanepps with Jefferies. Cassidy on for David Windley today. Cassidy Epps: So digging a little bit more into margins. So with most of your NHP supply now internally owned, how should we think about the margin impact specifically within DSA? And does this change management's longer-term margin framework for the segment? Glenn Coleman: I'll jump in and take this one. Just keep in mind, we're still working through some higher NHP costs really for the first half of the year. It will get a little bit better in the second quarter, but the real big improvement is Q4 for our DSA segment. We're not going to specifically call out the margin improvement. I think a big part of the reason why we bought K.F. was the supply chain resiliency and giving us better predictability of the supply chain. And obviously, with that, you come improvements in our financial performance, but we'll give more guidance on 2027 and what it means when we get to February of next year. Cassidy Epps: Okay. Perfect. And then following up, so how much of the NHP supply from Noveprim and K.F. is still obligated to external customers? And then when does that fully become available to Charles River? Birgit Girshick: Yes, I can talk about that. So the external customer that you're referring to is actually from our Mauritius farms. And the -- and when we bought the Mauritius farm, we bought the external relationship with the supply. Ultimately, the goal is to use the animals on safety assessment studies and moving them over. And that will kind of be a transition over the next few years. And as you can see, you'll probably see that we already have more and more animals on our safety study. And then that will kind of end over the next few quarters. Operator: I'll turn now to Casey Woodring with JPMorgan. Sebastian Sandler: This is Sebastian Sandler on for Casey. I wanted to first double-click on expectations for biotech revenue pacing over the balance of the year. Within that bigger, later-stage client segment that's been benefiting from M&A and funding starting towards the end of last year, do you expect this specific segment to return to growth in 2Q, maybe ahead of smaller biotechs and biopharma? Or should we just expect more of a back half rebound consistent with your expectation for total DSA growth? Birgit Girshick: Yes. So if you -- so what we're currently seeing in Q1 is that this segment from a revenue perspective is still down. That is coming from the lower bookings last year. And we think -- we believe that will rebound over the next quarter or 2 because of the bookings we're currently seeing. So there's a lag of about a quarter to 2. And so we will definitely see this segment to rebound to more of a growth rate as we enter, I would say, Q3, Q4 for sure. Unknown Analyst: And then you called out strength in research models in China. Can you remind us of the revenue base in China within RMS, what that grew in the quarter and then just expectations for the full year? And then more broadly, how are you thinking about your current exposure to the China market within RMS and DSA outside of the recent NHP acquisitions? And what is your overall level of interest in expanding that through M&A in the future? Birgit Girshick: Yes. So our RMS China business is a small part of overall Charles River revenue. It's approximately 5% and -- or actually less than 5% but it is a critical asset for us as it provides us access to the Chinese market. So the Chinese RMS business is one of the leaders in the industry for providing research models as well as many services that are -- that we also offer here in the Western part. From other services and solutions, specifically the DSA that you asked, we currently don't have any facilities in China. We do get some work from companies that work in China or want to file INDs in China, but not a physical presence. We are continuing to watch this market very closely as a lot of the drug programs are in-licensed from China because of the accelerated innovation. And we certainly will continue to look at this to see if we should expand our structure in China based on customer demand growth rates, but also looking at geopolitical risk on that. Operator: Our next question will come from Ann Hynes with Mizuho Securities. Ann Hynes: Your $300 million cost program, can you remind us what you'll be annualizing as we exit 2026 and any incremental uptake for 2027 and 2028? And then secondly, just on AI, and there's been in the news a lot, some of the big pharma companies investing in AI. And I know during the Great Recession, a lot of the big pharmaceutical manufacturers closed their capacity for early development. Do you think there could be a risk that they increase their capacity again over the next few years? Birgit Girshick: Yes. Let me start and then on the cost savings, and then I will move over to AI. And if Glenn has any additional add-ons to the cost saving, I will ask him to chime in here. But -- so the cost savings are roughly $300 million of costs that we have taken out over the last several years, about 5% of our cost base. For this year, we said it's an incremental $100 million. It's too early to talk about '27 and '28. But as we said, we are continuing to look for cost efficiencies, modernizing the company, seeing how we can reduce time lines, making the operations more efficient. So you should continue to think that -- think about us having cost efficiencies, but we're not in a position right now to give you any specific numbers on '27 and '28. We will provide long-range financial numbers probably through in our Investor Day, and we will also talk more about where those cost efficiencies are coming from. AI is an interesting topic, both for cost efficiencies but then also for how drug development is being performed. So for us specifically, we invest in AI in multiple areas to, a, be more efficient, maximize our capacity, streamline our communication with our clients and also to reduce the number of animals needed on a drug program. Our clients are investing primarily in the early stage and a little bit in the clinical space. In the early stage, that is things like target identification, molecular design that will allow them, hopefully, at some point, if AI delivers to bring drugs into the regulated safety assessment space faster and maybe more programs. I do not think that our clients will want to in-source any of the work that we are doing. So our work that we do is very highly outsourced and not a lot of companies still have capacity nor the skill set to do the work. So -- and from what we're hearing with our clients and the discussions, they are actually looking more for a collaboration on how they can utilize AI in the earlier stage. So before we get the work rather than doing the work that we are doing. So you might see more of in-sourcing in the really early or even in the clinical trials. But definitely, I would not expect it in the preclinical stage. There's just so many complexities and capacity and regulated expertise that is required, it would not make any sense. Glenn Coleman: Birgit, the only thing I would add to your comments is a lot of the great work the team has done over the last couple of years of taking out all of these costs and $300 million of cost has been needed to preserve margins because the top line has not been growing. And so a lot of the cost increases that we see in the business for inflation and normal increases across the business have been offset by these initiatives and cost reductions. I just want to make that point. Operator: We'll turn next to Yujin Park with Baird. Yujin Park: You mentioned that for RMS, 1Q saw increased demand in small models from CRO clients. Was that comment specifically on China? Or was it broad-based geographically? And is this a normal pattern? Or could this be a signal of improving market dynamics? Birgit Girshick: So that comment was specifically to China. We have said that we saw much better demand in China and specifically for CROs and biotech. So we see this as an indication that the Chinese market is rebounding and accelerating and for the need and the demand of the research models that we're providing to them. So a positive indication for the business. Operator: We'll move next to Charles Rhyee with TD Cowen. Charles Rhyee: I'll just leave it with one question here, and this is just kind of going back to the demand environment. Birgit, you kind of mentioned in the slides, biotech kind of highest levels you've seen in the last 2 years, maybe more large pharma kind of slowly rebounding or maybe just more of a year-over-year comps. It kind of suggests maybe that biotech is going to present more opportunities perhaps over the next couple of years? And does that change at all sort of your go-to-market strategy? And maybe any kind of impact on how. Maybe give a sense of how any of those businesses are priced on either side of that? And any kind of comments on that and where you see that mix going? Birgit Girshick: Yes. So we are pretty balanced in our revenue stream from pharma versus biotech. So we have -- historically, we have a very big share with the pharmaceutical clients, but we are -- also have a considerable share with the biotech industry. So our go-to-market strategy for years has focused on a customized approach to make sure that we cater to both small as well as large companies, making sure that they get the collaboration they need and that our teams are basically on the same table with no matter if it's a small or a large company. So -- and that won't change. However, we are investing in a lot of tools and platforms and training to make sure that we are continue to improve this go-to-market customer centricity program that we have in place, so we can be an even better partner for our clients, but also get more of a share of their wallet. In terms of pricing, we see a pretty stable pricing environment. It has really not changed over the last couple of years. Discounting is still strategically, it's still happening. Pricing will change when capacity is changing. So something that will come probably automatically. But at the current time, we are making sure that we stay competitive and that we get the share of the wallet that we want from our clients. And from our proposal volumes, bookings and capture rates, I think we're on the right track here. Charles Rhyee: Great. Congrats on the results. Operator: Our final question will come from Ryan Halsted with RBC. Ryan Halsted: Maybe going back to the discussion on Asia, but asking it from a different perspective from a competitive standpoint. A lot of attention, I think, has been made on competition from Asia and drug development work. And just would appreciate your perspectives on the competitive landscape for the business. Birgit Girshick: Yes. Thanks, Ryan. Interesting question. So yes, so from an Asia perspective, specifically China, a little bit in India, there definitely has been a trend of more outsourcing, early-stage routine work outsourcing going to lower-cost countries. And this is something that we have evaluated for quite a while. We still don't see a lot of outsourcing going to China in complex work or regulated work where we do most of our revenues, but we are evaluating that. And that is also why we said a couple of times now that overall, we're looking at the Chinese market to see how or when we should play in a larger scale there and what are the solutions that we have the right to play with in a marketplace like that. From another perspective, obviously, the in-licensing of more programs from China into the U.S., into global biopharma is another area that we are watching. A lot of times, we actually get to work on some of those programs, but it will have an impact on the industry itself, and we'll need to see where this is playing out too. So definitely, China, a little bit of India outsourcing is a focus areas of us to make sure that we understand what's going on there. But at this point, our core market and our core relationships are very, very strong here in North America, the EU and a little bit in Asia, and we will continue to double down on that. Operator: With no further questions in queue, I will turn the conference back to Todd Spencer for closing remarks. Todd Spencer: Thank you for joining us on the call, and we look forward to seeing you at upcoming investor events. This will now conclude the call. Thank you. Operator: Thank you. That does conclude today's Charles River Laboratories First Quarter 2026 Earnings Call. Thank you for your participation. You may now disconnect.
Operator: Good day, and welcome to Peloton's Third Quarter Fiscal Year 2026 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, Mr. James Marsh, Head of Investor Relations. Please go ahead. James Marsh: Thank you, operator. Good morning, and welcome to Peloton's Third Quarter Fiscal Year 2026 Conference Call. Joining today's call are Peloton Chief Executive Officer and President, Peter Stern, Interim Chief Financial Officer, Saqib Baig; and Vice President of Financial Planning and Analysis, Scott Burch. Our comments and responses to your questions reflect management's views as of today only and will include forward-looking statements related to our business under federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business. Please refer to our SEC filings, today's press release and our earnings presentation, all of which can be found on our Investor Relations website for a discussion of our material risks and other important factors that could impact our results. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures and definitions for our user metrics are also provided in today's press release. I'll turn it over to Peter. Peter Stern: Thanks, James, and good morning, everyone. Our Q3 results are proof that the strategy of evolving Peloton from a connected fitness company to a connected wellness company is delivering results. This strategy is in direct response to consumers not only wanting to add years to their life, but also life to their years. Peloton's content, equipment and beloved brand position us to capture more market share within the growing $7 trillion global wellness economy and to achieve ever greater human impact. As I've shared in prior calls, there are 4 pillars to delivering on our strategy: one, improve member outcomes; two, meet members everywhere; three, make members for life; and four, business excellence. Let's start with our progress on improving member outcomes, which is how we empower them to live fit, strong, long and happy. During the quarter, over 400,000 people took our HiLit classes with Rebecca Kennedy. This contributed to 48% growth in our Pilates modality, which is becoming a central plank of our strength program and an area where we are investing both in R&D and instructors as exemplified by the 3 we onboarded last quarter. Speaking of R&D, our work on producing new equipment in one of our existing modalities is progressing well, and I look forward to introducing some exciting new hardware and features to you this fall. In the space of mental well-being, last week, we launched 140th Peloton instructor-led meditation and sleep classes in the Breathwrk as well as daily meditations and [ breath work ] programming that will begin to develop that app into a preeminent platform to help people relieve stress, sleep and achieve better focus. To further our progress in improving member outcomes, I'm delighted to celebrate the arrival of Sarah Robb O'Hagan, our Chief Content and Member Development Officer. Sarah brings a wealth of experience, serving an executive and Board of Director roles for various well-known brands in the fitness space including Exos, Strava, Equinox, Gatorade and Nike. Sarah is focused on accelerating innovation across our content ecosystem, driving engagement and in so doing, deepening loyalty across our community by evolving the member experience. Second, let's talk about our strategy for meeting members everywhere. This part of our strategy is how we grow our Peloton community. Last week, we announced big news in this area, our content licensing partnership with Spotify. This partnership brings more than 1,400 Peloton classes across strength, pilates, bar, yoga, meditation, outdoor and cardio to hundreds of millions of Spotify Premium subscribers globally, exponentially growing our reach. Our work with Spotify provides a powerful entry point into the magic of Peloton, allowing us to efficiently grow our brand through a platform that people everywhere already know and love while also providing a high margin, diversified revenue stream. We expect to bring hundreds more classes to Spotify Premium subscribers each month. Our commercial business unit is another way we can meet members everywhere by reaching people in tens of thousands of gyms across more than 60 countries. In Q3, we delivered another quarter of standout growth in this unit, as revenue increased 14% year-over-year. To build on this momentum, we recently announced the Peloton Commercial Series, which includes a new bike and treadmill specifically designed for heavy traffic gym environments. This equipment, which brings together Precor's industrial-grade durability with Peloton's unsurpassed connected experience, will become available to gym operators in Q2 of fiscal '27 and will help us continue to grow Peloton's international footprint and gym presence. We see tremendous upside in this category as we estimate that we have only a 3% share of the more than $10 billion and growing global commercial fitness equipment market segment. And I'd be remiss if I didn't mention our recent ad campaign featuring Hudson Williams. This campaign went viral because it's a glorious demonstration of the joy of movement that drives everything we do at Peloton. I want to congratulate Peloton's marketing team, led by Megan Imbres, which has delivered more than 60 million organic social views and significant global earned media buzz, helping us put Peloton back in the center of the Zeitgeist, where we belong. Third, let's talk about our strategy of members for life. This is where we work to keep the members we have. Initiatives such as Club Peloton, personalized plans from Peloton IQ and some reactivation offers we implemented in Q3 helped us deliver net churn that was 7 basis points lower year-over-year in Q3, despite the price change we implemented in Q2. These results demonstrate the substantial value we provide to our members. Last, but certainly not least, is our strategy of business excellence. I believe the numbers here speak for themselves, as we achieved an important milestone of positive year-over-year revenue growth in Q3, along with growth in gross margin, adjusted EBITDA and free cash flow. Free cash flow increased $56 million or 59% year-over-year. While our Q4 expectations reflect that our path to sustained year-over-year revenue growth will not be linear, the underlying vectors of growth have never been clearer. As our business model evolves, we expect investors will see our growth materialize in total revenue first, driven in part by revenue streams like the commercial business unit and content licensing. I'm also pleased to share that we expect Peloton to achieve positive net income on a full year basis in fiscal '26, in addition to our previously stated goal of positive operating income. This would be the first time in the company's history that we have achieved either of these metrics for a full year, let alone both. We have rightsized our cost structure, in particular G&A and are now delivering in excess of $1 million of annualized revenue per employee, and we are well positioned to continue delivering innovations in cardio, strength, commercial, mental well-being, content licensing and beyond within a disciplined envelope for R&D spend. Strong financials and consistent cash flow have resulted in a vastly improved balance sheet. We ended Q3 with a 70% reduction year-over-year in our net debt. Add all this up, and from a financial standpoint, we are no longer operating defensively. Instead, we are operating from a position of profound strategic optionality. This enables us to move to a new stage of financial maturity, characterized by strategic capital allocation. In anticipation of the expiration of the prepayment penalty on our term loan at the end of this month, we are evaluating every avenue to maximize shareholder value, including debt optimization, capital returns and accretive strategic investments. With meaningful excess cash on the balance sheet, we have the luxury of patience. We are actively finalizing our holistic capital allocation strategy, evaluating alternatives, including share repurchases, debt optimization and potentially highly targeted investments. Finalizing and executing on this plan will be a key agenda item for our permanent CFO once they are seated. And speaking of a permanent CFO, our search is progressing well. We have met numerous qualified candidates, and we are gratified by the strong interest they have shown in Peloton. As I wrap up these remarks, I want to reiterate my confidence in Peloton's future. We continue to make great progress on deepening our relationships with our members, growing our opportunities to reach new members globally, diversifying our revenue streams and planting new seeds for future growth, all while continuing to strengthen our financial foundation. With that, I will now pass it over to Saqib, who I'm very grateful to for serving so ably as Interim Chief Financial Officer and who will share more details on our financial results. Saqib Baig: Thanks, Peter. In Q3, we achieved total revenue of $631 million. This exceeded our guidance by $6 million and represents positive year-over-year growth. Our performance relative to guidance was driven by higher Connected Fitness equipment sales across Peloton and Precor brands. We ended Q3 with 2.662 million ending paid Connected Fitness subscriptions in line with the midpoint of our guidance range. Q3 average net monthly paid Connected Fitness subscription churn was 1.2% and improved 7 basis points year-over-year. Moving to gross profit and gross margin. As a reminder, in Q1 of fiscal 2026, we began assigning executive compensation and other corporate overhead expenses associated with corporate facilities across the P&L, as we focused on driving more accountability from cost at a functional level. Prior to fiscal 2026, these costs were all recorded to G&A, but are now assigned to COGS, sales and marketing, G&A and R&D. All of the year-over-year changes discussed today reference last year on an as-reported basis. Total gross profit was $327 million in Q3, an increase of $9 million or 3% year-over-year. Total gross margin was 51.9% in Q3, an increase of 90 basis points year-over-year and 210 basis points below our guidance of roughly 54%. Lower total gross margin relative to guidance was driven by opportunistic promotions across our Connected Fitness equipment sales. We operate within strict LTV-to-CAC hurdle rates. And as we saw a 2x LTV-to-CAC ratio, we see an opportunity to get more aggressive. Please refer to our investor presentation for the segment-level breakdowns for revenue and gross margin. Total operating expenses, excluding restructuring, and payment and supply settlement expenses; were $267 million in Q3, a decrease of $50 million or 16% year-over-year, reflecting the continued progress we have made in rightsizing our cost structure. We remain on track to achieve at least $100 million of run rate cost savings by the end of fiscal 2026. We also continued to deliver strong profitability with $126 million of adjusted EBITDA, an increase of $37 million or 41% year-over-year and close to the midpoint of our guidance range. Q3 free cash flow of $151 million represented an increase of $56 million or 59% year-over-year. Turning to our balance sheet. We ended the quarter with a strong cash position of $1.13 billion, a decrease of $53 million quarter-over-quarter. This decrease was driven by paying down roughly $200 million of convertible debt when it reached maturity in February, partially offset by strong cash flow generation in the quarter. The significant progress we have made in profitability is reflected in our net debt of $173 million, which decreased $412 million or 70% year-over-year. Similarly, our gross and net leverage ratios have improved meaningfully to 2.9 and 0.4, respectively. As Peter mentioned, we are focused on strategic capital deployment. A key element of this is managing dilution through a disciplined approach to equity compensation. Our stock-based compensation expense decreased $15 million or 22% year-over-year in Q3. Next, I would like to take time to provide context for the financial outlook for the remainder of the fiscal year. Our full year fiscal 2026 total revenue outlook of $2.42 billion to $2.44 billion reflects an increase of $10 million at the midpoint compared to prior guidance and 2% revenue decrease year-over-year at the midpoint. The increase relative to prior guidance is primarily driven by higher equipment sales observed in Q3. It is worth noting the anticipated content licensing revenue associated with Spotify partnership we announced last week was already reflected in our prior revenue guidance and will be recorded to the subscription segment. Our full year fiscal 2026 guidance for total gross margin is roughly 52.5%, which reflects a decrease of roughly 50 basis points relative to prior guidance and an improvement of 160 basis points year-over-year. Our full year fiscal 2026 guidance range for adjusted EBITDA of $470 million to $480 million is in line with prior guidance and an 18% year-over-year increase at the midpoint. Our Q4 guidance range for ending paid Connected Fitness subscription is 2.55 million to 2.57 million. Our guidance reflects an expectation that our average net monthly paid Connected Fitness subscription churn rate will be roughly flat year-over-year in full year fiscal 2026 despite the price change we implemented in Q2, while gross additions are expected to decrease year-over-year as a result of lower equipment sales. Generating meaningful free cash flow remains a top priority for us. We expect full year fiscal 2026 free cash flow to be in the vicinity of $350 million. I will now hand the call back to the operator for Q&A. James Marsh: Before I turn the call over to the operator, let me ask a couple of questions from our retail investors. Our first question comes from the leaderboard named [ Vic83 ]. His question is, can you clear up some of the confusion around Section 232 tariffs? Are your products exempt? And what is the new view on tariff impact for the year? Do we expect a refund on previously paid IEEPA tariffs? Peter? Peter Stern: Thanks, Vic, for the question. Tariffs are, as you know, a moving target. So we follow it closely. First, the equipment we manufacture here in the U.S. is obviously not subject to tariffs at all. For everything else, based on the tariff policies that are currently in place, imported Peloton and Precor hardware are no longer subject to the Section 232 tariffs on aluminum and steel content, but they do remain subject to all other applicable tariffs, which include the MFN tariffs as well as Sections 122 and 301. Regarding IEEPA, we're closely monitoring the updates from U.S. Customs and Border Protection on when we'll be able to submit our refund request. Our request is somewhat more complicated than the initial round of requests, but we will submit that as soon as the CBP is ready to receive it. The changes that I just described, along with various inventory ins and outs, drive a net benefit to our tariff exposure. So we expect tariffs to represent roughly $30 million of free cash flow exposure for our full year '26, which is a reduction of $15 million relative to the $45 million that we shared last quarter. James Marsh: Thanks, Peter. Our second question comes from leaderboard named [ John H. Schreiber ]. Please provide an update on the company's capital allocation plan, now that the balance sheet has been significantly improved, thanks to several quarters of positive free cash flow? Can shareholders expect the share repurchase plan to be announced soon? Peter? Peter Stern: Thanks for this, John. It's amazing what a difference 2 years have made in the strength of our balance sheet. And so it's my great pleasure to address your question from where we sit today. As you may know, our $1 billion term loan has a $10 million prepayment penalty that expires at the end of this month. So we haven't wanted to touch that until then. At the same time, we are accumulating cash on our balance sheet, thanks to our disciplined operating approach. And at the end of the quarter, you heard Saqib say that we had about $1.13 billion in cash, and that's after paying down the $200 million of convertible notes that came due during the quarter. We're now approaching zero net debt. And we need a lot less cash than we have on our books to operate our business, given the steady cash flows that our subscriptions business, in particular, generates. So all of this gives us, what I referred to in the remarks as, profound strategic optionality. And so we're working with our banking partners on our plan. We're not ready to discuss the details of that plan right now, and this is ultimately something I want to craft in conjunction with our new CFO once they're onboarded, but I'll tell you the 4-part framework that we're using. First, we're trying to reduce our cost of capital. Our current term loan was entered into at a different time and under very different circumstances. And so we believe there's an opportunity to improve our borrowing rates. Second, we're trying to increase our flexibility. Our current term loan limits our ability to engage in shareholder-friendly actions like stock buybacks, and we'd like to reduce those types of restrictions. Third, and you heard Saqib talk about this, we're working hard to find ways to reduce dilution. There are lots of ways of achieving this. We're already taking steps by reining in stock-based compensation and by moving to net settlement of restricted stock units rather than selling to cover for some of our executive officers. But we're evaluating what else we can do here, including your suggestion of a repurchase. Fourth and last, we're making sure that we have the capital we need to operate our business sustainably and to invest in our future. And this includes rigorously vetted organic and potentially inorganic investments. We'll have more to share on all of this after we've concluded our CFO search. But we have the luxury of time, given the strength of our balance sheet. James Marsh: Great. Thanks, Peter. Sheri, you can open the line for Q&A. Operator: [Operator Instructions] And our first question will come from the line of Simeon Siegel with Guggenheim Securities. Simeon Siegel: Peter, I just want to make sure I understand the response to leaderboard member, John, I don't remember the full name, but it was great. How are you thinking about the timing for the strategic actions? Are you suggesting it's a next month thing? Is it a wait for the CFO thing? Just any help on timing, given the balance sheet really is in just such a different place than you were before. So that's been great to see. And then just a quick follow-up comment on the dilution because you mentioned it twice. I think you changed some approaches to how management is paid and incentivized late last year. Can you just speak to your philosophy around executive comp now? And maybe what types of hurdles you think we should be judging you on going forward? Peter Stern: Absolutely, Simeon. And congrats on the new gig, and we are so happy that you're back in the family. I'll take the first part, and then I'll have Saqib talk about dilution and some of the changes on comp. So as I said, first of all, we do have the ability to be patient. It doesn't mean that we feel patient, but we have the ability to be patient here. And as you know, debt maturities can span many years. And so we think it's unwise for us to rush the process, in particular, and I didn't talk about this in my answer to [ John Schreiber ], but we intend to go through a credit ratings process prior to doing any refinancing. And we want to make sure we do that right the first time. It will be the first time that Peloton gets rated. And of course, as you know, the rating has a very substantial implication on the rates that we would pay over the years of that new debt instrument. So we think we get a better outcome, both on cost of capital and flexibility if we're a bit patient and do it right. And certainly, that includes having a permanent CFO in the seat. So once they're there, we would begin that credit rating process. We'll evaluate the results of that credit rating process, and that will basically guide the pacing of any further actions we take, including the refinancing. Why don't we -- I'll go to Saqib now, and he can talk a little bit about the dilution questions. Saqib Baig: Yes, sure, Peter. The impact of stock-based compensation on share dilution is top of mind. And reducing the dilution over time is a top priority for us. So we are taking steps to reduce dilution. We are doing it through a net settlement program for equity vesting for select executives as well as ongoing disciplined approach to equity compensation. Let me give a little bit more color on that settlement program. So in that program at equity vesting, the company withhold some of their vested shares rather than issuing and selling shares in the market to cover for employee taxes and deliver only the remaining shares to employees. Regarding our disciplined approach to equity compensation, you all can see that in the sequential improvement we have been making in our stock-based compensation expense, stepping down from $300 million in fiscal '24 to $230 million in fiscal '25, and we are tracking around $200 million in fiscal '26. Looking ahead, we see this expense continuing to step down in fiscal '27 and beyond. We have also taken significant steps to pay more on performance-based awards in our organization, and we have structured our SBC awards to better align with this approach going forward. One thing you guys can also note is we are awarding fewer RSUs over time. For example, if you compare our 10-K disclosure in fiscal '25 versus fiscal '24, you'll notice a substantial reduction in the number of shares granted. And one thing I would also like to highlight is because the compensation structure has a multiyear grant, we recognize the benefit over time due to the impact of grants vesting from prior year. Operator: One moment for our next question, and that will come from the line of Arpine Kocharyan with UBS. Arpine Kocharyan: So churn has surprised to the upside for more than 3, 4 consecutive quarters for Peloton here. Peter, do you see churn turn stabilizing enough for you to then think about the delta between subscribers that are churning annually versus gross adds and how you look to close that gap over time? Peter Stern: Thanks, Arpine. We feel good about our Q3 churn results. Ultimately, your question goes to, I think, when do we reach the point where the two lines of our gross adds and our subscriber churn cross such that we get to net adds in subscribers. So let me talk a little bit about what we're seeing there. On gross adds, while the number is still declining, the year-over-year rate of decline in gross adds in Q3 of this year is lower than last year. So we're seeing a decelerating rate of decline. And then on churn, after adjusting for the impact of our pricing changes, we're also seeing that our net churn rates are improving on a year-over-year basis. Putting those two things together, if that keeps changing in the ways that I've described, then we would start to see subscriptions growth. And a big goal for us as a management team is on how we accelerate the pace at which that convergence happens, while making sure that we do it in a sustainable and profitable way because as you can tell from our results, we remain really disciplined in our marketing spend, so that our burden, LTV-to-CAC ratio remains efficient. In other words, we will not engage in unnatural acts to bend this curve. Ultimately, the way forward here, the way to move the needle on gross adds is through our investments in R&D, which will result in us introducing new products that are more accessible in our existing categories while launching new categories as well. I do want to point out that in the meantime, while we wait for subscribers to turn, we have a lot of vectors for revenue growth that don't result in paid Connected Fitness subscriptions. So you'll likely see inflections in growth -- in revenue before you see them in subscribers. And this past quarter was an example of that. So some of the vectors that are at play this quarter and will be in the future are selling additional equipment to our existing members. That doesn't generate more subscriptions, but it does generate revenue. The revenue from our commercial business unit, which we talked about earlier, and that grew 14% year-over-year in the last quarter; that's predominantly equipment based. It doesn't come with very many subscribers. The Spotify deal that we just announced is a revenue driver. But those aren't our subscribers, those are Spotify's subscribers. The pricing changes, again, that was a real positive impact in Q3. No subscribers attached to that, but real high-margin revenue. And then even the promotional levers that you saw us pull in Q3, which helped us beat on revenue, don't come with particularly more subscribers or it's an indirect connection, but it does generate the revenue. So that's a little bit of which should help tide us all over while we wait for the ultimate growth in subscribers. Operator: One moment for our next question and that will come from the line of Youssef Squali with Truist. Youssef Squali: Nice to see you guys making real progress on some of these important KPIs. So maybe a couple of questions. One, maybe talk a little bit about the promotional intensity you saw in Q3. I think you called that out as one of the drivers of gross margin. And try to reconcile basically your Q4 guide for Connected Fitness subscribers with your comments around churn being relatively flat. So maybe just give us some color as to what's going on outside of maybe the seasonally weak period that is this quarter we're going into. Is there anything else going on maybe you're pulling back on the promotional intensity that you've done in Q3? And then just one last one. Peter, you talked a little bit about new hardware coming in this fall. Maybe can you just provide some preview of what those may be? I think, new modalities -- would strength be part of it? Would a cheaper tread be a part of it? Just any kind of color you can provide, knowing that, obviously, you'll provide a lot more this fall, more details. Peter Stern: Thanks, Youssef. There's a lot in there. So let me do my best to try to cover all of it. As I said in my remarks, we use an LTV-to-CAC framework to drive our marketing and our promotional spend, right? And that -- we like that framework because it's inclusive of everything from how much money we spend on marketing to how aggressive we are on promotions. And what we saw about a month or so into the quarter was that we had real marketing efficiency. And so we took that opportunity to do a couple of things. One, we had a promotion that was planned to expire sometime toward the end of February, and we extended that promotion an extra week or so. We also saw an opportunity to take a little bit of a deeper price promotion on a variety of our pieces of equipment throughout the sort of back half of the quarter, in order to take advantage of that. And we were still able to land our LTV to CAC at 2x, which is in our long-term goal range for LTV to CAC. So that's basically what happened in Q3 on that front. We don't have any plans to repeat that activity in Q4, so our guidance reflects the expectation that our gross additions will continue declining year-over-year, and that's just us remaining disciplined and also being increasingly, I think, sophisticated about the best times to be promotional, right? So we've done a lot of work, looked at our successes and our failures in the past. And we see that the periods where we acted in Q3 are some of the most productive ones. And Q4, as you mentioned, seasonality on the churn side, is also of a seasonal period for equipment sales as well. So now turning to your question on gross adds and our guide, the seasonality we just talked about, you raised that as well, that is something well known in our business. I also talked about pulling back on promotional intensity and remaining disciplined in our marketing investment. And so all of that basically adds up to the Q4 that we're projecting. With regard to the question that you had about our new equipment, for competitive reasons and because it's an earnings call, not a big product reveal moment, I'm not going to comment specifically on our unannounced hardware today, but I'll just elaborate a bit and say that, one, bringing more price accessibility in our existing modalities is a top priority for us. We have the ability to do this in the bike category because we've been able to take advantage of the large reservoir of refurb inventory that we have available to us, but we have not had a similar opportunity in our other categories. And so that's really driving our R&D in that area. With regard to new modalities, I want to note that they do take a little longer because we're building from the ground up. But as you mentioned, I will remind you that we're already a leader in the strength category. We have roughly 2 million of our members engaging with strength every quarter. And we see an opportunity to broaden our equipment portfolio in that category, and I wouldn't even view that as a singular opportunity. I think there are multiple opportunities for us to pursue that category, which we define as all forms of resistance training. So I hope that tides you over. Operator: One moment for our next question. That will come from the line of Doug Anmuth with JPMorgan. Bryan Smilek: It's Bryan Smilek on for Doug. I guess just two questions. Obviously, good to see the acceleration on the commercial series and revenue overall. Could you just elaborate more on the demand pipeline and how the product and go-to-market strategy is changing, especially as you launch the new products in 2Q '27? And then I guess, more so on the marketing side, Peter, you talked about managing towards that 2 to 3x average LTV to CAC. Can you talk about some channels where you're seeing some of this efficiency and spend that allowed you to get those deeper promos throughout the quarter? Saqib Baig: Yes. Thank you. I can start with the commercial business. So we -- just to double click on the Q3 performance, as Peter covered in his remarks were that CBU grew year-over-year 14% in Q3. As we look ahead in Q4, we expect CBU revenue growth to be a little softer in Q4 due to elevated CBU revenue in Q4 of last year, as we experienced increased demand ahead of tariff surcharges, which were announced in Q4 of FY '25. So I just want you guys to have a context with that. When you think about the long-term growth potential for the commercial business, we see tremendous opportunity. We estimate that we roughly have around 3% of a growing $10 billion commercial fitness equipment segment market share. The commercial fitness market is expanding as we observed rising global health awareness, we're seeing growth in gym and corporate wellness centers and also an increased demand for digitally enabled fitness facilities. And all of these things drive demand for our high-quality equipment. And we believe we have multiple growth vectors. A lot of them are going to play in the long run, but some of them in the short term as well. First, growing the legacy Precor business, and we can do that through sales enablement, channel partnership, investing in our strategy account. This is the core of our CBU business today. Second, we see an opportunity in investing in commercial product road map. As you just highlighted that this quarter, we announced the Commercial Series, which will feature a bike and tread built specifically for high-traffic gym floors. This is a milestone that combines Peloton Digital fitness leadership with Precor trusted industrial scale. And we have received great feedback, two of the leading industry events in this space and look forward to bringing these market -- into the market in fiscal '27. The third thing that I would like to highlight is the opportunity for international expansion, which is a big opportunity for CBU by leveraging Precor's existing global presence to grow the Peloton brand. Currently, we believe CBU is underrepresented outside of the U.S., and we believe we have significant room to grow our market share internationally. Peter Stern: Doug (sic) [ Bryan ] let me cover the second question that you asked, which was about the various channels that we have and their impact on our LTV to CAC. So let me focus on our first party versus our secondhand sales versus our third-party sales. In 1P sales, we saw good efficiency on web. And of course, a lot of that is driven by our e-mail marketing. We have a team that is just absolutely a crack team at working the funnel and getting ever more efficient at customer acquisition with the leads that we generate. Within our first-party retail, we continue to see really encouraging results from our micro stores. And that is relative to our in-line stores, where I think our micro stores are actually now despite being, give or take, 1/10 the size of our in-line stores, they're significantly more productive than the in-line stores, and it shows some of the things that we've learned about the positioning of those stores. And that has given us the confidence to begin investing in the next round of micro stores that we'll have in line for our fiscal '27. We also saw a good customer acquisition from secondhand sales, which in the quarter generated more than half of our gross adds. And that is influenced by our marketing, right? What we have found in our path to purchase research is that when we market to members, then that begins a process for them of discovering all the ways that they can get access to Peloton equipment. And some of them choose to do so, for example, through Facebook Marketplace or through our Repowered marketplace. And that has turned out to be very productive for us. Relatively less productive in the quarter were our third-party retail and our Fitness-as-a-Service rental business, so those, I would say, just to round out the answer to your question, were among the less productive channels. Operator: One moment for our next question, and that will come from the line of Brian Nagel with Oppenheimer. Brian Nagel: So Peter, the first one I'm going to ask, I mean, I guess a little bit bigger picture. Recognizing you haven't provided official guidance beyond this current fiscal year, but on the commentary around the evolution of Peloton to more of a wellness company and some of these green shoots you're starting to see on that front, how long -- again, what's the duration? Do we see some type of -- within the total company results, a real inflection as a result of these efforts? I mean is it -- I guess is it an event that we could expect in the next fiscal year, or are we waiting longer than that? And then my follow-up question, just to kind of tie this all together, again, I appreciate all the comments with regard to the balance sheet; the forthcoming balance sheet rework, how critical is that in order to drive this next leg of growth within Peloton? Peter Stern: Yes, Brian, thank you. So I think the question you're asking is how long do we have to wait until we get back to sustained growth? And there's a couple of ways of looking at that, right? One is subscriptions, the other is revenue. And as I've shared earlier in the call, what we can expect is revenue to come ahead of subscriptions. We're not ready at this point to call when we get back to subscriptions growth, but I was very pleased that we were able to deliver a Q3 with positive revenue growth. While we won't see that likely sustain in Q4, based on our implied guidance for the quarter, I think we're now in a stage where hopefully we'll see some step forward and some steps back, as we right the ship. And the ways that we do that are not only by continuing to build on our leadership in cardio but as we talked about on this call, starting to expand our impact into some areas like strength, where we know that there is substantial untapped opportunity and we have a really ambitious R&D agenda. It's also in things like what we're doing in mental well-being, where we're generating now Peloton content for the Breathwrk app, and that will generate revenue, but app subscribers, not CF subscribers, which are the ones that we typically see investors tracking. We're also making progress in some other areas like nutrition and hydration, and we'll have more to share about that hopefully in the not-too-distant future. And we also find, of course, that when members engage in multiple modalities, they stay with us longer and that can positively move the trajectory on subscriptions as well as revenue. And so for example, the category of sleep is one where we're already a leader in sleep meditations. I made sure to take one last night before this morning's call, and I'd encourage everyone to do that. So those are some of the categories in the areas that will first get us back to revenue growth and then ultimately set the stage for the subscriptions turn. With regard to the balance sheet, we don't need to refinance in order to be able to drive the strategy that we described, but we'd be foolish not to because we are, from where we sit right now, paying more interest than we need to. And so that could generate additional funds for free cash flow or for investments, and that refinancing would also give us the flexibility to engage in shareholder-friendly actions like buybacks that could help reduce the float and address the dilution that we know is on many of our investors' minds. So all of those things are absolutely on the table along with the fact that under the right circumstances, and it would require the right price and real discipline and rigor because we've worked super hard to accumulate this money, so we're not going to fritter it away. If the right investment or acquisition opportunities come to us, we'll take those really seriously as one of the -- not the only public company in our segment of the fitness market, we are pretty common port of call for companies looking for an exit. And if we find the right one at the right price, we would at least seriously consider that. So those are some of the things that we can do with our excess cash. But first and foremost, it's with the goal of serving our shareholders. James Marsh: We have time for one last question. operator. Operator: And that final question will come from the line of Shweta Khajuria with Wolfe Research. Shweta Khajuria: I guess, could you please talk to how you think about the evolution of the business? So certainly, you spoke to the trends that you're seeing in gross adds and retention, implying that net adds could be flat at some point and then turn positive. But as your business evolves, how do you view the overall market opportunity across commercial business unit and partnerships like the one you just announced with Spotify versus hardware sales, whereby is net adds going to be a key metric for you, if your revenue is coming from other diversified sources, so how do you think about that? Peter Stern: Yes, thanks, Shweta, I'll cover that. I mean, we try to be pretty practical and hard nosed when it comes to the business. So quality revenue ultimately is what matters. And by quality revenue, I mean, revenue with good margins and ultimately, really efficient cash flow generation from that. We know that a substantial fraction of that quality revenue for us comes today from Connected Fitness subscriptions. And so that is also an important metric to us. But it's in service of the revenue metric, it's not an end metric in and of itself. That being said, we are acutely focused on that one because we recognize its importance in our profit generation in particular. But we're incredibly excited about our ability to diversify this business, leveraging the power of the Peloton and the Precor brands. So the commercial business growth that we're experiencing is, one, because gym operators are so excited that Precor is back, right? We were such an important supplier to them for many years. I think we took our eye off the ball for a couple of years there. But gym operators, they're all telling us they can see it that we're back, and that represents what we believe to be a sustainable source of high-quality revenue growth for many years into the future. Content licensing is another area that's attractive for us because it allows us to leverage the investment that we've already made in content for our Connected Fitness subscribers and to generate additional high-margin revenue from that existing space. Going back to the commercial business, the Peloton brand is woefully underexploited in that space. Again, gym operators tell us every time we speak with them that the only brand that their members ask for by name is Peloton. And so we've had people lining up to see our products when we've demonstrated at recent fitness conferences. Those hardware sales will come with some subscribers just to tie those things back, but not at the same ratio as a household, right, where you sell one piece of equipment that's basically shared by a couple or 1 or 2 people in that household. In the case of gym, many people share the same piece of equipment. So that's a little bit about how all those things relate to each other. But the evolution of the business is from Connected Fitness to Connected Wellness across all of the categories of cardio, both residential and commercial, strength, nutrition, mental wellbeing, sleep, recovery, realized through high-quality revenue with subscribers as a secondary metric that fuels that high-quality revenue. Okay. Before we wrap, knowing that many of the people who participate in this call are also our members, I want to point out a few items that you shouldn't miss. So first, check out the 2-for-1 Strength class that features Hudson Williams CoStars, Adrian and Tunde. So you too can build muscles like Hudson. I also want to encourage you to join our Live Spring Cross Training plan. Those classes have been dropping Monday through Friday, and they're also available on demand. And finally, if you're training for a marathon, be sure to try our new Pace Your Race: Marathon program that proudly features our cast of global Tread instructors. With that, thank you for joining today, and please join me in wishing James Marsh a happy birthday. Operator: Thank you. This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Welcome to MACOM's Second Fiscal Quarter 2026 Conference Call. This call is being recorded today, Thursday, May 7, 2026. [Operator Instructions] I will now turn the call to Mr. Steve Ferranti, MACOM's Senior Vice President of Corporate Development and Investor Relations. Mr. Ferranti, please go ahead. Stephen Ferranti: Thank you, Olivia. Good morning, and welcome to our call to discuss MACOM's financial results for the second fiscal quarter of 2026. I would like to remind everyone that our discussion today will contain forward-looking statements, which are subject to certain risks and uncertainties as defined in the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. For a more detailed discussion of the risks and uncertainties that could result in those differences, we refer you to MACOM's filings with the SEC. Management's statements during this call will also include a discussion of certain adjusted non-GAAP financial information. A reconciliation of GAAP to adjusted non-GAAP results are provided in the company's press release and related Form 8-K, which was filed with the SEC today. With that, I'll turn over the call to Steve Daly, President and CEO of MACOM. Stephen Daly: Thank you, and good morning. I will begin today's call with a general company update. After that, Jack Kober, our Chief Financial Officer, will review our Q2 results for fiscal year 2026. When Jack is finished, I will provide revenue and earnings guidance for the third quarter of FY '26, and then we will be happy to take some questions. Revenue for the second quarter of fiscal 2026 was $289 million, and adjusted EPS was $1.09 per diluted share. Demand for our products is strong across our 3 end markets, and our backlog continues to build. Our sequential financial performance improved across most key metrics in Q2, including gross and operating margins. Our Q2 book-to-bill ratio was 1.5:1 and orders booked and shipped within the quarter was 18% of total revenue. All 3 end markets had exceptional bookings with notable outperformance in the Data Center. Our backlog remains at a record level, and we believe this strength reflects that we are in the right markets with the right products at the right time. Turning to recent market trends. Q2 revenue performance by end market was as expected, with all end markets growing sequentially. Industrial and Defense was $120.7 million, Data Center was $98.2 million,and Telecom was $70.1 million. Data Center was up approximately 14.5% sequentially, Telecom was up 3% sequentially and I&D was up 2.5% sequentially. Both I&D and Data Center revenues are at record levels. As we look to the second half of our fiscal year, we expect Data Center and I&D revenues to continue to lead our growth. With the exceptional first half bookings, we are positioned for a strong second half. Additionally, we expect to see momentum from our Telecom segment as we enter our fiscal 2027 due to the anticipated timing of LEO space production programs and associated revenues. We believe our growth strategy of strengthening our core technologies and expanding our product portfolio around 3 central themes: Highest power, highest frequency and highest data rate, is working. We believe we are establishing ourselves as a differentiated strategic supplier to our customers. Next, I'll quickly summarize progress on our 5 goals for FY '26, which we outlined on our last call. First, taking advantage of the data center opportunity. We continue to enhance our design and manufacturing capabilities to support our customers in this market. And we are pleased to raise our Data Center FY '26 revenue growth base case from 35% to 40% to over 60%. Second, expanding our 5G market share. We have developed 2 new process technologies, which will provide us with both performance and cost benefits. GaN 4 is our next-generation process for high-power linear amplifiers for 5G base stations, and we expect our new IPD processes will enable us to in-source these components while achieving better electrical performance at a lower cost. Our technology teams have done a great job making these processes a reality. Third, extending our leadership in I&D. I am pleased that we recently received a Defense Manufacturing Technology Achievement Award sponsored by the Joint Defense Manufacturing Technology panel. The panel includes members from various armed services and the Office of the Secretary of Defense. This award reflects our progress to increase manufacturability of advanced GaN technology. Our team continues to innovate, and we look forward to introducing a wide range of advanced GaN MMIC products in the next 12 to 18 months. Fourth, continued development of advanced III-V semiconductor technologies. We continue to strengthen our semiconductor processing expertise and capabilities. As an example, our team has done amazing work on OMMIC regrowth for advanced high-efficiency GaN amplifiers. In addition, we are developing advanced indium phosphide epitaxial stacks for our next-generation optical products for the data center. And last, management of our capital and investments. As we discussed last quarter, we have numerous strategic investment activities that we believe will support our fiscal 2027 and 2028 revenue growth objectives. We take a disciplined approach to managing capital investments for near- and long-term success. Next, I'll take a moment to review each of our 3 core markets in more depth. Data Center. Based on customer engagements and general market trends, we expect 1.6T deployments inside the Data Center to continue to be strong throughout calendar 2026. Today, our revenue growth is primarily being driven by increased pluggable optical modules and optical cable production volumes using our 800 and 1.6T PAM4 products. As a reminder, our portfolio is highly diversified, supporting NRZ, PAM4 and coherent modulations across EML, silicon photonics and VCSEL-based architectures. We are also seeing modest growth from our lower data rate 100G single-mode and multimode products. Demand for our 200 gig per lane photodetectors continues to grow, supporting 800G and 1.6T optical connectivity. Part of our near-term and long-term growth strategy is to expand our photonics portfolio with both higher-speed photodetectors and CW lasers. We are seeing growing interest in coherent light solutions as coherent modulation can enable higher bandwidth performance with significantly improved power efficiency, especially in shorter-reach applications. We believe coherent light solutions will expand, and we are well positioned to support this trend. We continue to promote linear equalizer products to help extend the reach of copper interconnects at 800G and 1.6T. We are working closely with customers to address their specific program requirements and various use cases. In many cases, our newest products are designed for co-packaged and highly integrated architectures like CPO and NPO. We can differentiate in this market based on our strong customer relationships, IC and system design expertise as well as our unique photonic materials. In summary, as we look ahead, we see many new large opportunities in the Data Center. We believe our SAM is increasing due to the combination of AI-driven market growth, combined with our product portfolio expansion. Our strategy is to collaborate with the leaders in the industry and support their connectivity needs, whether it's scale up, scale out or scale across. Turning to our I&D business. We are seeing many growth opportunities across the Industrial and Defense markets, primarily in the Defense segment. Comparing our first half results of FY '26 with the first half of FY '25, our I&D business grew by 22%. Overall demand remains healthy and notably, we expect revenues from our top 25 defense customers to significantly increase from FY '25 to FY '26. Our Defense customer base is large and very broad, and we typically support radar systems, missile and missile defense systems, drone and drone defense systems, communication systems and wideband electronic warfare systems. Today, we support a wide range of production programs across a diverse range of applications. We are also involved with redesigns and upgrades of existing platforms to improve performance against new threats and to improve overall system performance with more capable and modern electronics. Finally, the DoD is pushing our customers for rapid design and deployment of new systems and capabilities, spanning from modern radars to better electronic warfare systems, new space-based sensors and even more secure communications. These systems are typically using higher frequencies, higher RF or microwave power levels and higher levels of integration. In some cases, high-performance optical systems are deployed such as RF over fiber for remote antenna systems. The pace of innovation in the Defense market is accelerating by both the traditional defense primes and the newer, more nimble defense companies. These demanding requirements play directly to MACOM's strengths, and we offer our customers turnkey support from custom chip design to subsystem solutions. All of this is driving incremental semiconductor content growth opportunities and opening up new design win opportunities. MACOM has numerous competitive advantages within the I&D market. At the heart of these is MACOM's deep expertise in high-performance IC design capabilities spanning RF, microwave, millimeter wave and optical domains. We have a growing team of system designers with architectural knowledge, which enable us to engage much earlier in our customers' project design cycles, and we present the full scope of MACOM's capabilities to help solve the customers' technical challenges. MACOM also offers European and U.S.-based wafer fab and U.S.-based hybrid manufacturing capabilities at scale with proven technology, reliability and long-term supply assurance, factors that are increasingly important as defense customers prioritize domestic sourcing and supply chain security. Within the Telecom end market, satellite-based broadband access and direct-to-device, or D2D, opportunities remain robust with numerous LEO networks in the planning and production stages. The number of LEO satellites planned to be launched continues to grow as more companies compete to provide commercial broadband data, voice and video communications by satellite. These networks typically use microwave or millimeter wave frequencies and free space optics or FSO communications for satellite-to-satellite or satellite-to-ground communications. Today, we are supporting LEO broadband constellations and D2D programs that are either in development, low rate initial production, or LRIP, or full production. LEO and MEO constellations have many key areas where MACOM can contribute, including large phase array antennas with active beam steering, D2D links operating at UHF or S-bands, data center-like electronics with high-speed optical links transferring data within or across the satellite, free space optics for satellite-to-satellite communications and ground terminal and gateway linearization for high-power transmitters. I'll note the backhaul networks for these constellations continues to move higher in frequencies. The 40-nanometer GaN technology, which MACOM recently licensed from Hughes Research Lab, HRL, is being transferred to MACOM's fab. This technology will enable high-capacity satellite links using E-band, W-Band and D-band. Ground stations and gateways are also a key part of the LEO networks. MACOM specializes in designing products and solutions that overcome nonlinearity of RF, microwave and millimeter wave signal transmission for satellite communication systems. In many cases, ground-to-satellite links prefer linearization of SSPAs or TWTAs to boost the linear power efficiency of the link. Turning towards the 5G segment of Telecom. Our global team continues to secure new business and macro base stations, driven by the need for high-performance amplifiers and multiband radios. Our RF power team is now sampling our new GaN 4 products to customers, which we believe will further improve our competitiveness. We expect the global RAN market will be flat in 2026 with some regional variations. However, for MACOM, we expect our future 5G growth will be driven by content and market share gains as we have; one, recently added new resources; two, roll out new products and technologies like GaN 4, SOI control products and power amplifier modules or PAMS; and three, gain market share in high and low-power macro and MIMO amplifiers. We are making good progress improving the overall performance and competitiveness of our base station portfolio, especially in the 2.7 to 3.5 gigahertz bands. And last, we believe the cable TV infrastructure market segment is also improving. We have been releasing new products and working with customers on design wins to support the upgrades from DOCSIS 3.1 to DOCSIS 4.0. Before turning it over to Jack, I would like to quickly highlight how teamwork across the organization directly impacts our financial results with operations and engineering being a great example. Our North Carolina fab has been increasing wafer production while simultaneously improving yields and lowering cycle times. This performance is driving improved customer satisfaction and contributing to new business and enabling us to win new customers. Our Massachusetts fab has been installing complex processing equipment to support production ramps in some areas while maintaining production continuity in other areas. Seamlessly adding this capacity is enabling us to gain market share from our competitors. Our global planning team continues to partner with key suppliers and partners to ensure that customers are getting the deliveries they need on time. This results in brand loyalty and enables us to fully leverage our entire technology portfolio into the market and capture market share. These examples illustrate how dedication, commitment to excellence, teamwork and coordination of our manufacturing, engineering and planning community is directly leading to market share gains and revenue growth. In summary, our strategy is to continue to build a best-in-class diversified semiconductor portfolio that will enable MACOM to capture a larger share of the 3 markets we focus on. Our agility and strong teamwork across our organization helps us address opportunities and ultimately beat the competition that are often larger and have more resources. Jack will now provide a more detailed review of our financial results. John Kober: Thanks, Steve, and good morning to everyone. The results from our second quarter improved from Q1, and MACOM again achieved multiple new quarterly records associated with our financial performance. We have seen operational improvements across the organization, which is driving increased revenue growth and profitability. Fiscal Q2 revenue was $289 million, up 6.4% sequentially and up over 22% year-on-year, driven by growth across all 3 of our end markets, with Data Center leading followed by I&D and Telecom. The strong bookings across all our end markets resulted in a book-to-bill of 1.5:1. This was the largest quarterly bookings in the company's history. Adjusted gross profit for fiscal Q2 was $169 million or 58.5% of revenue. This represents a gross margin increase of 90 basis points over the prior quarter. We continue to make solid progress to increase our capacity and improve product yields, and we expect to see ongoing incremental progress across our fab operations during the remainder of fiscal 2026. The increase in product demand across the business have resulted in improved utilization of our operations and supported the recent gross margin improvement. As we move forward, we expect ongoing sequential gross margin improvements through the remainder of fiscal 2026. Total adjusted operating expense for our second quarter was $88.6 million, consisting of research and development expense of $59.1 million and selling, general and administrative expenses of $29.5 million. The anticipated sequential increase in adjusted operating expense compared to Q1 was primarily driven by ongoing R&D investments and employee-related costs. As our business expands, we expect associated OpEx growth will be primarily related to increased R&D investments and higher variable costs. Consistent with past practice, we will remain very focused on managing our OpEx to balance long-term revenue growth and profitability with continued investment in the business to support all of our end markets. Depreciation expense for fiscal Q2 2026 remained relatively stable at $9 million, slightly above the prior quarter. Adjusted operating income in fiscal Q2 was another record coming in at $80.5 million, up 8.8% sequentially from $74 million in fiscal Q1 2026 and up 34.5% year-over-year. I would like to note that our Q2 adjusted operating margin was 27.8% and has increased over the last 3 fiscal quarters. We expect our adjusted operating margin to be approximately 30% next quarter, highlighting the leverage in our financial operating model. For fiscal Q2, we had adjusted net interest income of $6.5 million, a decrease of approximately $200,000 sequentially from $6.7 million in Q1. The slight decrease was primarily due to the planned repayment of $161 million of our 2026 convertible notes during the quarter. We are pleased to have been able to retire this debt and further delever our balance sheet. Our adjusted income tax rate in fiscal Q2 was 3% and resulted in an expense of approximately $2.6 million. We expect our adjusted income tax rate to remain at 3% for the remainder of fiscal 2026. As of April 3, 2026, our deferred tax asset balances were $202 million. We anticipate further utilizing our deferred tax asset balances, including R&D tax credits through the remainder of fiscal 2026 and beyond. Depending on the jurisdictional mix of our income, we expect the U.S. government's recent tax legislation to support a low to mid-single-digit adjusted tax rate for the next few fiscal years. Fiscal Q2 adjusted net income increased approximately 7.8% to $84.3 million compared to $78.2 million in fiscal Q1 2026. Adjusted earnings per fully diluted share was $1.09, utilizing a share count of 77.6 million shares compared to $1.02 of adjusted earnings per share in fiscal Q1 2026. We continue to optimize the business' performance, which has contributed to sequential increases in our adjusted operating income and EPS over the past 11 quarters. Now on to operational balance sheet and cash flow items. Our Q2 accounts receivable balance was $160 million, consistent with our Q1 2026 balance. Our days sales outstanding averaged 50 days compared to the previous quarter at 54 days. Inventories were $252.2 million at quarter end, up sequentially from $238.9 million, largely driven by additional work-in-process inventory at our fabs as well as higher balances to support increasing demand across the business. Inventory turns remained steady at 1.9x, the same level as the preceding quarter. Fiscal Q2 cash flow from operations was approximately $78.7 million, up $35.8 million sequentially. The sequential change was primarily due to the typical timing of supplier payments and other changes in working capital balances. We expect that our Q3 cash flow from operations will be in excess of $80 million. As our business continues to grow, there will be variations in cash flow from quarter-to-quarter. MACOM's business model has demonstrated strong cash flow from operations over the past few years. As an example, our cash flow from operations was $163 million in fiscal year 2024, $235 million in fiscal year 2025, and we believe we are on track for our cash flow from operations to exceed $300 million for fiscal year 2026. Capital expenditures totaled $13.2 million for fiscal Q2. We estimate fiscal year 2026 CapEx to be in the range of $55 million to $65 million as we expand capacity to meet demand requirements across our end markets and also upgrade and enhance our production and engineering equipment as well as our facilities. Next, moving on to other balance sheet items. Cash, cash equivalents and short-term investments as of the end of the second fiscal quarter were $664.9 million. We view our cash balance as a strategic asset that can be used to help fund ongoing investments to support our growing business. We are in a net cash position of approximately $325 million as of April 3, 2026, when comparing our cash and short-term investments to the book value of our remaining $340 million of convertible notes, which mature in December 2029. Our strategy has been to focus on growing our profitability and managing our operating asset base, which has supported an improved return on invested capital over the past several years, demonstrating our goal of building long-term financial strength for the company. During the first 2 fiscal quarters of 2026, the entire MACOM team has contributed to helping achieve these record financial results. This hard work has established a strong foundation for us to build upon, and I look forward to the second half of our fiscal 2026. I will now turn the discussion back over to Steve. Stephen Daly: Thank you, Jack. MACOM expects revenue in fiscal Q3 ending July 3, 2026, to be in the range of $331 million to $339 million. Adjusted gross margin is expected to be in the range of 59% to 60% and adjusted earnings per share is expected to be between $1.31 and $1.37 based on 78.5 million fully diluted shares. We expect sequential revenue growth in each of our 3 end markets. We expect that Data Center will achieve approximately 35% sequential growth, and we expect Industrial and Defense to achieve growth approaching 10% and Telecom to achieve low single-digit sequential growth. As Jack highlighted, we are excited to deliver more growth and profitability during the second half of FY '26. As we continue to scale the business, we expect to see increased operating margins and profitability. I would now like to ask the operator to take any questions. Operator: [Operator Instructions] Our first question coming from the line of Blayne Curtis with Jefferies. Blayne Curtis: Great results. Maybe I want to start on gross margin. Obviously, there's a lot of revenue drivers, but 100 basis points in the quarter. Can you just talk about volume and then mix? And obviously, Data Center is outperforming, so that must be a driver. I just want to see how to think about it, particularly as you go through the rest of the calendar year. Stephen Daly: Yes. Thank you for the question, Blayne. So certainly, volume is contributing to the improvements in the gross margins. We are seeing that our Lowell fab as well as our North Carolina fab have been increasing outputs, and so that's certainly having a positive effect on gross margins. The other thing I'll add is you're correct to notice that our Data Center revenue as a total percentage of our revenue is increasing. In some instances, that's contributing to the improvements in gross margins. And in other areas, it isn't. So we -- in all of our market segments, we have a normal distribution of gross margins. But generally speaking, the team has been very focused on yield enhancement, efficiencies, cost reductions as we're scaling across a whole wide range of technologies, some of which I talked about in the prepared remarks. So generally speaking, a lot of great work. As Jack mentioned in his commentary, we expect continued improvements in gross margin. A few quarters ago, we had said publicly, we were setting a target to exit the year around 59%. And I think today, we're updating that number to be most likely closer to 60%. And Jack, maybe you can comment further. John Kober: I think you covered off on it, Steve. There's definitely multiple factors that are helping to drive our gross margin improvements that we've seen here in the March quarter, where we were up 90 basis points. And then if you look to the midpoint of the guide being up 100 basis points. It does become a bit more challenging as the gross margins go up to squeeze more savings out of it, but our teams are continuing to work hard. And as Steve had mentioned, we expect to see further gross margin improvements as we work our way through this year and into next year. Blayne Curtis: And then I wanted to ask, you mentioned coherent light. There's a lot of talk about scale across these days. Kind of just curious your thoughts on how that market is developing? And then maybe a silly question, is it in Data Center or Telecom? Stephen Daly: So we would put coherent light in the Data Center category. And as you know, historically, we have put the metro/long haul, which is more DCI in the Telecom segment. So we are definitely focused on that, and this is an area where MACOM has really nice differentiation. And so historically, there's been more ZR type platforms, and now they're moving to really higher data rate, higher gigabaud data rates. And just in the last 3 years, you've seen platforms go from 64 gigabaud all the way up to 128 gigabaud. Now even people are talking as high as 192 gigabaud. So this is an area of strength for MACOM. And depending on what hyperscalers do in terms of deploying coherent light, we want to participate. So we are in a very good position. It does touch a number of our product lines where we really have differentiated technology. Operator: Our next question coming from the line of Tom O'Malley with Barclays. Thomas O'Malley: My first is on the SATCOM business in LEO. Through the earnings period here, you've heard companies talk about 7,000 to 10,000 launches over the next 3 years. Would you agree with that number? And then maybe if you could spend some time talking on the content per satellite, if that's possible. You mentioned a lot of the different products, the phase array antennas, optical electronics, et cetera. But just some framework for thinking about the upside that could offer you. And then on the timing of that, it looks like Telecom is up low single digits in June, but you mentioned it improves in the back half of the fiscal year. Do you see a substantial step-up in the September quarter there? Stephen Daly: Thanks for those questions, Tom. There's a lot there. Let me try to address as many as I can. I think it's important to put in perspective that MACOM has been servicing the space market for decades. And so we are a known entity, not only on the defense side, but more and more so on the commercial side. I think you're correct to highlight that there's growth in terms of the pure number of LEOs being launched, and these are typically smaller satellites going on affordable launch vehicles and whether it's servicing broadband, direct to sell or even future talk about data centers in space, we want to participate in those. So we don't necessarily want to comment on what the absolute quantities are. I think there's a lot of information in the market about how much this market is growing. So I think there's good information out there that's probably more accurate than ours. But I would just highlight that we are absolutely engaged with the major players across the market. And as I mentioned in my commentary, it really plays to our strengths. So yes, there's certainly huge demand, and we're trying to focus on getting wins as best we can. In terms of the timing of our various programs, I would just say that we have active LEO production programs today. We have more that are in the sort of LRIP phase. One of the larger programs that we've talked about in the past is in the phase of delivering what we call EM modules. So basically, our customers sort of finalizing their system design. And we do expect that to go into full rate production later this year or early next year, which is consistent with what we've said in the past. I don't think you should expect a step-up. You're going to see a ramp-up, and that will happen during the course of calendar 2027. And just as a reminder to everybody, we're involved in really 3 pieces of the puzzle for these networks. The first is on the satellite, what people refer to as the payload. The second is the gateways. And then the third is that we are seeing opportunities in the terminals with some of our components. And so a very exciting time for MACOM to be participating across so many different customers and our module and our chip design team is very busy satisfying the requirements in this market. Operator: Our next question coming from the line of Tore Svanberg with Stifel. Tore Svanberg: Congratulations on the strong results. I had a question on the Data Center growth now basically targeting more than 60%. Just curious, above and beyond just higher CapEx from some of your end customers, what's some of the delta here, some of the new revenue that's layering in? Stephen Daly: Very much the expansion of our product portfolio. And we have talked about really over the last 12 months, the ramp-up of some of our optical components. And so that has certainly helped drive some of the growth. But I would say, generally speaking, our focus is on 1.6T, 800 gig. These are areas where we're seeing a lot of strength. We expect that strength to continue. And in fact, we're seeing more and more demand as we sort of enter our second half. In terms of the new revenue or the new categories of revenue for our fiscal '27, certainly, the higher data rates, so 3.2T, possibly some coherent light ramp-ups. And also depending on the work that we're doing with our laser portfolio, we may be able to add some revenue to our fiscal '27 or even fiscal '28 on CW lasers. So a lot of good activity there. We have been also, as everybody knows, engaged with people that are deploying copper and providing equalizers not only onboard the PC boards, but also cable-based. So very excited about those opportunities as well. Tore Svanberg: Very good. And as my follow-up, Steve, you talked more than usual on this call about team collaboration, making sure capacity is in place. It sounds like your operations execution is allowing you to gain some share. Just curious why you brought that up on this particular call. Are you seeing competitors perhaps not have enough capacity and not good planning to keep up? Or is there something else that's driving that inflection point? Stephen Daly: Well, I think Jack and I are just privileged to be able to represent our employees. And so I think it's important to highlight the work that they're doing in collaborating to make these results happen. And so as you know, last year, the company grew by over 30%. And this year, we're on a path certainly to be in that range or higher. And we have a lot of different technologies ramping at the same time. And that absolutely requires coordination, collaboration, good, clean discussions with customers to set proper expectations. So we just wanted to highlight that. In terms of sort of opportunities, I'll just note that because there is certainly some constraints within the Data Center market, we believe that's opening up interesting opportunities for MACOM, including, by the way, what I would consider the legacy class of lasers as med customers are, and competitors, are pivoting to more, let's say, the higher power or CW lasers to support silicon photonics, that's creating a little bit of a gap in DFB lasers. And we have a very strong broad DFB laser portfolio that can support what I would consider legacy data center 100-gig modules. And so that could be a great business for us over the next 1 to 2 years, and those products are ready today. Operator: And Our next question in queue coming from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Steve, I just wanted to follow up on the laser question. I think in the past, you said you had a couple of customers that were evaluating your CW lasers. You thought it would still sort of be a 6- to 12-month eval process. But could you give us any update on how you're feeling about the CW laser opportunity? Are you more confident that those could ramp and contribute to fiscal '27 growth? Stephen Daly: Yes. I don't think too much has changed in the last 3 months. We have excellent optical performance of our 75-milliwatt class lasers. Customers have tested and validated performance. What our fab is doing today is dialing in a process of record. That work is not complete. So we continue to tweak the process to optimize really reliability. It's all about reliability. Typically in these systems, the weakest link is the laser. And so you need to make sure you have a very robust laser. So there's a lot of qual work running in parallel with developing a process of record. And so that work continues, and that's all MACOM internal work. When we're ready and we feel like we have a reliable product, then we'll start working with module customers so that they can start their module quals. And then after that comes the hyperscaler qualification. So when you add all that up and look at the time line, you're really talking about potentially, and this is assuming everything goes well and oftentimes it doesn't, a fiscal '27 or '28 time frame of contribution. We are absolutely getting pull from the market. We know there's demand. And so we just have a lot of work to do to convince ourselves that we're ready to ramp this kind of a product into high volume. So I would, at this stage, not put your CW laser in your models, certainly not for fiscal '26 or I would say even '27. I think there's going to be a lot of other great things happening that will allow us to perhaps not only do as well as we've done this year in terms of growth, but maybe even exceed it next year because we have a lot of other irons in the fire. Quinn Bolton: And then I guess I wanted to come back on the utilization rates. I think over the past couple of years, you had mentioned the Lowell utilization rate was sort of suffering from some puts and takes in a couple of the larger defense programs and I think lower demand on the industrial side, MRI in particular. Has that utilization rate come back with the I&D business recovering? Or do you still feel like there's further room for improvement in the utilization rates of Lowell and obviously, that could be a margin tailwind as utilization increases. Stephen Daly: I think you're correct in those comments, and we are seeing increased utilization on our traditional Lowell-based defense business. And our Defense business this year is trending to certainly over 20% full year growth. And that -- much of that, not all of it, but much of it is coming out of our Lowell fab. So that is beneficial to the sort of gross and operating margins. Your commentary about our MRI business, which we categorize as industrial, is also improving. And we have a very strong franchise for high-voltage, nonmagnetic really kilovolt level diodes that are used in these MRI coils. We are seeing positive trends on that business, and we expect those trends to continue. So yes, those 2 things are definitely helping the Lowell utilization. There's 2 other important things going on in our Lowell fab as well. The first is developing the advanced GaN that I talked about in my prepared remarks. And the second is the ramping up of our optical product line within the Lowell, which is an indium phosphide-based product. Operator: Our next question coming from the line of Sean O'Loughlin with TD Cowen. Sean O'Loughlin: Congrats on the really solid results and momentum. First question, I just wanted to get maybe an update or offer you the opportunity to update some of your comments on the fiscal '26 segment growth other than datacom. We got the 60% growth, but I think last quarter, we talked about high teens growth in I&D. You kind of just alluded to maybe over 20% and high single digits in Telecom. Any updated thoughts there? Is that still what we should be thinking about? Stephen Daly: Yes. I'll make some comments and then maybe Jack can also talk about sort of P&L-related items. So I do think we have a solid plan for 2026. As I mentioned, our revenue growth is going to be driven by Data Center and Defense. Today, we're definitely trending towards top line in that sort of 30% range. I can tell you that last year, we did about 32%, and it would be nice to beat that. And we also ideally would like to exit the year with at least 60% margin. We're not sure if that's going to happen. We still have a lot of wood to chop between now and the end of September, which is the end of our fiscal year. But we do see a path to having strong revenue and earnings growth. Earnings growth should be quite nice this year, certainly coming from the second half. In terms of your commentary specifically about I&D and Telecom, I think we're thinking above 20% today for I&D, and we're going to try to push Telecom to be low double digit. John Kober: I think the only other item I would add, and obviously, the Defense piece has been quite strong for us over the past year plus. Industrial, we've been working our way through that. We touched upon the medical piece of Industrial with the last question. But more broadly, within Industrial, it is a fairly broad category. We have seen a bit of an uptick there that's helping out with our Lowell utilization. It's also driving some of that revenue or top line improvement that we see in that combined Industrial and Defense end market. And really, as we look at filling out the rest of the P&L with some of that revenue growth, we are very much focused on improving those earnings and improving the leverage and the drop-through from an operating income and also from an EPS perspective as we work our way through the remainder of '26 and then focus more on '27 as well. Sean O'Loughlin: That's helpful color. A quick follow-up. Just on the input side, I know that indium phosphide is one of the materials that you use. And so I don't want to over-index to these comments, but we've had some comments from public substrate suppliers about price increases and just maybe generally across your manufacturing footprint, is that something that you're either having to absorb and there's a timing mismatch? Or is the pricing environment for a lot of these products such that you're able to sort of pass those through? Or is that not really something that you're seeing outside of the indium phosphide? Stephen Daly: I'm not sure we want to get into the cost basis of any materials we buy. We're constantly buying gases, precious metals, gold, indium phosphide substrates, silicon carbide substrates, and we have a very strong supply chain that works very closely with our partners to make sure we're getting what we want when we need it at a fair price. Although I will mention maybe one thing. You may have seen recently where MACOM announced a small investment in a company called IQE. We put out a press release on April 27, and this is sort of somewhat related to your question. And people may not be familiar with IQE. So they are a U.K.-based company that provides epitaxial services, and they went through a -- recently, they went through a fundraising event where MACOM participated. They raised GBP 80 million. We participated with a GBP 45 million investment. And just to break that out very quickly, it was GBP 30 million in equity for about 11% ownership and a GBP 15 million convertible note. And ultimately, what we did as part of this transaction is put in place a long-term supply agreement to make sure that we have adequate supply of the technologies that we're currently acquiring from them and from others. And so the why we did it really revolves around your question, which is what is MACOM doing to ensure we have strong supply chain security and resiliency. And I think this is a great example of a strategic transaction, which is going to shore up not only our business regarding indium phosphide, but also the silicon carbide. And so where we stand right now with that is it's going through regulatory approval. There will be a shareholder vote, and it's expected to close in the next 30 to 60 days. And so this is sort of an example of MACOM proactively looking at risk and retiring risk. And so this will backstop our expected growth, not only as it relates to indium phosphide-based products, but also silicon carbide-based products and some other technologies as well. Operator: And our next question coming from the line of Will Stein with Truist Securities. William Stein: Congrats on the very strong outlook. The main thing I wanted to ask about was, Steve, in your prepared remarks, you talked about addressing the user terminal market within the LEO satellite industry. And this is, I believe, a pretty big change in strategy, at least relative to what I've heard the company talk about. We had the message previously that your focus was going to be essentially in infrastructure, the satellites and the gateways. User terminals, of course, look more like it's customer premise equipment, right, and sort of the consumer market. That's sort of uncharacteristic for you. So can you talk about what changed? What makes you want to address that market? What products you're selling and sort of timing to ramp there? Stephen Daly: Yes. I think that's a great question. And to be clear, when we look at that market, we're looking to be opportunistic. And so we are seeing some AESA technology basically using a wide range of control products, which would fit very nicely into our AlGaAs diode-based portfolio. So you're correct to conclude we're not chasing SoCs or receivers or highly-integrated customized chips for user terminals. That is not the case. But we are seeing inbound requests for some of our control products. And so we will opportunistically look at that. William Stein: Great. And then as a follow-up, I guess, the big-picture question is you had a huge book-to-bill this quarter. Obviously, that's not all for delivery in fiscal Q3. Can you talk about the spread across end markets and the duration of that? What's changing there? Stephen Daly: Well, certainly, as I mentioned, the strongest portion of our new orders was in the Data Center. But I will say that all 3 markets had a very strong booking event. Typically, these orders will be spread out over multiple quarters. And so I don't really want to get into any more detail than that. We typically, just as a practice, only recognize bookings that are within a 12-month period as well. So this 1.5 book-to-bill really reflects orders that would be delivered within 12 months. Operator: And our next question in queue coming from the line of Christopher Rolland with Susquehanna. Christopher Rolland: Congrats. I wanted to drill down on Data Center, particularly in June. So it's just absolutely inflecting. I don't think we've seen this kind of growth before. And so my question is, why now? It sounds like a lot of it is optical. When it comes to discrete components, I'm just trying to figure out kind of why the inflection? Is it just a units play? Is there something here like new DSPs that don't contain TIAs and drivers? Or is it really this move to 1.6? What's really driving that over $30 million inflection in Data Center sequentially? Why now? Stephen Daly: Yes. Thank you for the question. And so if we pull back and look at the general trends of our Data Center business over the last 3 years, in 2024, we grew our Data Center business by 35%. In 2025, we grew it by 48% and now we're, in '26, forecasting over 60%. So the trend is there to see in terms of the long-term growth. And clearly, we're investing in a variety of technologies that would be suitable for this market. We tend to gravitate towards the highest data rate type products. We were one of the early suppliers to the 1.6T rollout, and that is paying big dividends right now as that use case expands across the data center and various hyperscalers. And so we're able to solidify strong positions there. And of course, we're overlaying our optical components. We talked about the PDs, the photodetectors. We're working on the lasers. They're not quite there yet. So I don't know that there's an inflection point rather than a trend. And the trend is that our portfolio is broad in nature, and we're gaining traction at a wide range of customers selling a variety of functions. And as part of our strategy, we want to be diversified. So as you know, we don't sell DSPs just for the record, but we want to support module manufacturers that are, for example, using LPO or if a particular customer wants to electrify copper or maybe they want to experiment with coherent or coherent light. So these are all things that we're very focused on. These are long-term activities that are now starting to pay dividends. So it's not really an inflection point. I would say it's consistent with really the unit growth within the market as well. And so we're just trying to keep up with the growth, and that's some SAM expansion as well as portfolio expansion. John Kober: The only other item I would add, Steve, is, yes, the higher speeds are definitely helping to contribute to the growth that we've seen, but also some of the lower speeds, 100G and below has continued to hang in there over the past number of quarters and would expect that trend to continue as well. Christopher Rolland: Excellent. Perhaps as a follow-up on copper this time. If you could talk about engagements, particularly on kind of large-scale architectures, whether they're trending towards ACC or LE and kind of your outlook for this market? Do you think this is kind of the next big thing? Or this is, at this point, a little bit more of a TBD? Stephen Daly: Yes. I would put it in the category of a TBD, and we are seeing real demand, real hardware, real production ramps on the optical side. And that is certainly the vast majority of our revenue today. So the electrified cable is a great opportunity for us and will be additive in the future. And of course, as I mentioned, we are going after equalizers not only for sort of traditional high-speed 1.6T, but also PCIe and other applications that are closer to compute, let's say. So we are very active with our equalizer portfolio at various accounts, and there is a wide range of use cases that we're chasing. Operator: And our next question coming from the line of Timothy Savageaux with Northland Capital Markets. Timothy Savageaux: And I'll add my congrats on that guide, pretty spectacular. My question or at least first is just trying to understand more about the size of your photonics or optical device business, which we're talking about more and more here. And I don't know what kind of color you're able to provide. Does that business get to 10% of Data Center revenue in any one of these quarters in the second half? That seems possible? Or is it already there? Or as you look at your sequential growth here in Q3 and heading into the second half of the year, is that a meaningful proportion coming from the optical device side? And then I'll follow up. Stephen Daly: Great. Thanks for the question. And just to highlight that we don't typically break out revenue by product line, and that would be a very -- mainly for competitive reasons. And that -- so that would -- what you're asking is a very specific question that we would prefer to not answer so directly. I will say that we have a very strong product. I think our PD has definite advantages over what we're seeing in the market in terms of our ability to mass produce these with industry-leading dark currents, [indiscernible] chips, lens integrated onto the device. We have developed in our Ann Arbor fab, a very strong epi recipe that is providing the industry with very high levels of sensitivity. So all of those things are certainly playing into some of the successes we're having with the PDs. The other thing I'll note is we demonstrated, I think, a year ago at OFC, the idea of stacking the PDs on our TIAs. And so that has certainly been beneficial in terms of supporting not only TIA growth, but also PD growth. But we do have a diversified portfolio. We're not going to break out how much is concentrated on any one product at any one time because it's constantly changing. Timothy Savageaux: Okay. But it sounds like it's getting to be material. Maybe we can get a binary answer on that. But either way, I do have a follow-up about kind of the inflection. And the question is about within Data Center, customer diversification, right? I mean you have a very big customer in China is doing extremely well, and that could be a lot of it. But could you address maybe your reach throughout other major module suppliers in other places? And to what extent is that a big factor versus growth in your current major module customers? Stephen Daly: Right. And I think embedded in that question is really what's your exposure to the hyperscalers because that -- and so it really starts there in understanding what their needs are and understanding who they're using within their supply chain, and then we try to align ourselves with both. And depending on the hyperscaler, the platforms, the technology they're working, we try to align ourselves either directly to their road maps or to their vendors' road maps. I will say that from maybe a year or 2 years ago, our diversity today is far stronger. And so we see revenue today in scale up, scale out and scale across. So we are actively positioned in each one of these different areas. And that exposure varies by the module manufacturers, certainly varies by the hyperscaler. But at the end of the day, a lot of this is 1.6T. That is sort of the main event. Today, it's going to continue, as I mentioned, throughout the course of our fiscal '26, calendar '26 and even into '27. And if we pull back and we look at the work that we're doing there, as I mentioned earlier, I think we have potential to do really well in our fiscal '27, where obviously, we'll have to wait and see how things go. But we are getting large orders that go out in time that support real production programs. Operator: And our next question coming from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: I have two, if I may. Steve, your book-to-bill of 1.5 appears to be a record, certainly multiyear record anyway. Should we expect meaningful capital investments in fabs to support this backlog? Or do you have the necessary capacity and assurance of supply to address this growth? Stephen Daly: So we are investing in our fabs, and that's -- I think that's a very interesting question to ask, and let me just very briefly talk about that. So about a year ago, we talked about increasing the wafer production capacity in our North Carolina fab by 30%. We said that would take 15 months. That work should be done by the end of this calendar year. And so we invested less than $20 million. That was about $15 million to $16 million. We had the opportunity to buy heavily discounted fab equipment from the market. So that's baked into our numbers and the capital numbers. When you look at our Massachusetts fab, we are investing in equipment for advanced GaN. We're investing in equipment to expand indium phosphide capacity and production, and we're doing general modernization. And then in our French fab, we're moving the entire product line from 3-inch to 6-inch. That equipment is already in place. There's been very little money spent to do that. However, we are installing a new MOCVD reactor in France to support some of the volumes that we anticipate in the next couple of years. So there is definitely moderate investments. As we think about our business and being diversified, you will not see us greenfielding -- building a new fab, building a new factory. We think -- we have a target. Now that we hit $1 billion of revenue, we want to hit $2 billion. And we don't need to buy a fab or build a fab to do it. What we need to do is expand incrementally capacity within the walls of our existing facilities. And that's a very -- and that's why, as Jack mentioned in his commentary, you're going to start to see tremendous earnings growth. Capital should be in that 4% to 5% of revenue range, and we have no major big investments planned. Do you want to add to that, Jack? John Kober: That's correct. So we're -- I think the guide that we put out for the remainder of our fiscal year '26 was $55 million to $65 million, depending on the timing of the completion of some of these items and when the capital was purchased. But we've been very disciplined and don't expect the CapEx number to exceed that 5% of revenue. And I think history has demonstrated that we'll be very prudent with what we're doing, but also opportunistic to make sure we can meet the capacity requirements that are out there. Karl Ackerman: Yes. Very clear. For my follow-up, last quarter, you spoke about how one of your competitors had exited the RF power game market. Do you believe that remains a tailwind for you throughout the second half of this year? Or has the benefit now largely been realized? Stephen Daly: So the benefit has not been realized, and it won't -- if there is a benefit, right? If there is -- so it won't -- it hasn't been realized yet. It won't happen in '26. The revenue will start to shine through in '27. And the reason for that is as we see some of the customers pivot and engage MACOM on new platforms, it takes time for those design wins to translate into revenue. So it's really, I would say, best case, a back half of '27 contribution. And as that competitor exited the market, they put in place last time buys, they built inventory for customers. They're doing it very responsibly. So really, what we're intersecting is new programs and new opportunities as opposed to existing programs that are in flight or in production. Operator: And our next question coming from the line of Vivek Arya with Bank of America Securities. Unknown Analyst: This is [indiscernible] on behalf of Vivek. Congrats on the results as well. A follow-up on earlier gross margin question. And clearly, you said you're investing a lot in incremental capacity. At the same time, you're really scaling a lot in volume and you're improving yields. So I just wanted to know the puts and takes into what really goes inside gross margin medium to long term as you're already kind of at that target model level? John Kober: Yes. Not sure if we've put a target model out there, but definitely been working to try and improve our gross margin. As I've stated previously, there's a lot of moving pieces that contribute to the gross margin, right? We've got some of the normal costs that are out there, including labor, facility costs, equipment depreciation, those types of things as well as material costs that's all working its way through our gross margin. So yes, we've been pleased with the progress we've made over the past few quarters. And as we look out to the remainder of '26, look for continuing improvements on gross margin and also as we work our way through 2027. Unknown Analyst: Got it. And then more of a longer-term question. So obviously, fiscal '26 is really looking exceptional. As we look into '27, and I think a lot of the same drivers should relatively remain. So the 1.6T transition, the 200G PDs and et cetera. So do you see any other potential risks that would lead to results otherwise? So for example, I think an earlier question to supply availability, maybe some component cost increase or any quarterly lumpiness or just your customer exposure mix. Any help in understanding how next year should traject should be helpful. Stephen Daly: Thank you. And I think, yes, to all of those elements that you described, that those are things we deal with on a regular basis. And that's also why we're always hesitant to talk about long-term targets and growth because there's a lot of variables that are outside of our control. But that said, we are in a position where we have -- as I mentioned on my script, we're in the right place at the right time with a great product portfolio, and we have a lot of interest across the 3 markets. So we do expect our fiscal '27 to be a strong year. And we don't think that this growth we're seeing in this quarter is sort of a onetime event. We expect to see solid growth in 2027. I think it's the normal list of risks that you brought up. There's always geopolitical, supply chain type issues that you have to deal with, and we think we do that reasonably well. So that's also, of course, offset by new growth opportunities. And the Defense market right now is very active, not only here in the U.S., but also overseas. We have a growing customer base in Europe. When we were looking at our recent growth rates, between North American and European Defense customers, they're both growing at the same rate, and we are very pleased to see that. So the Europeans are spending more money on electronics and defense systems, and we're participating in that. So that's certainly going to help next year. The Data Center, we're not expecting a slowdown. The hyperscalers continue to invest. That's clear. And on the Telecom side, we're well positioned in SATCOM to have a very strong year in our fiscal '27. Operator: Thank you. And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Daly for any closing comments. Stephen Daly: Thank you. In closing, I would like to thank all of our dedicated and talented employees who made these results possible. Have a nice day. Operator: That does conclude our conference for today. Thank you for your participation, and you may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Ardmore Shipping's First Quarter 2026 Earnings Conference Call. Today's call is being recorded, and an audio webcast and presentation are available in the Investor Relations section of the company's website, www.ardmoreshipping.com. [Operator Instructions] A replay of the conference call will be accessible any time during the next 2 weeks by dialing 1 (888) 660-6345 or 1 (646) 517-4150, and entering passcode 89653. At this time, I will turn the call over to Gernot Ruppelt, Chief Executive Officer of Ardmore Shipping. Please go ahead. Gernot Ruppelt: Good morning, and welcome to Ardmore Shipping's First Quarter 2026 Earnings Call. First, let me ask our President, Bart Kelleher, to discuss forward-looking statements. Bart Kelleher: Thanks, Gernot. Turning to Slide 2. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause the actual results to differ materially from those in the forward-looking statements is contained in the first quarter 2026 earnings release, which is available on our website. And now I will turn the call back over to Gernot. Gernot Ruppelt: Thank you, Bart. Let me outline the format of today's call, which you can see here on Slide 3. First, I'll give you a brief overview of our first quarter highlights and cover key strategic and capital allocation actions we have taken since our last call. I will then hand over to Bart, who will cover the market outlook and update you on our financial and operating performance. Thereafter, I will conclude the presentation before opening up the call for questions. But before we discuss our earnings, I'd like to take a moment to acknowledge the major disruption in the Middle East and the significant impact this has had on the maritime industry, in particular, on seafarers and their families. While Ardmore has not had any ships in the region since the beginning of the conflict, we express our solidarity with those currently living through this period of hardship and distress. And we continue to engage with and actively support industry organizations, such as The Mission to Seafarers, INTERTANKO and other industry partners who have been playing a vital role in working with the people directly affected by these recent events. Now turning to Slide 4 for earnings highlights. In addition to last week's activity update and TCE guidance, we report today adjusted earnings of $23.6 million or $0.58 per share. We are declaring a dividend of $0.39 per share, in line with our recently updated dividend policy of paying out 2/3 of adjusted earnings effective Q1. Disruption in the Middle East is adding further tightness to an already firm market. Our Q1 TCE performance reflects these market conditions and momentum is accelerating into the second quarter. Our MR tankers earned $33,700 per day for the first quarter and $52,100 per day so far in the second quarter with 55% booked. Our chemical tankers earned $22,300 per day for the first quarter and $32,500 per day so far in the second quarter with 65% booked. MR spot rates are, therefore, at levels nearly 5x our operating cash breakeven of $10,800 per day. And as we'll discuss in the next slide, we are executing on a clear and deliberate long-term strategy, targeted fleet investment, while simultaneously increasing the return of capital to shareholders in a meaningful manner. Moving to Slide 5. Here, we highlight 3 significant updates since our last call. First, we have ordered 2 highly efficient and versatile Handysize tankers at Wuhu Shipyard at a price of $44.9 million per vessel. This price includes a $3 million upgrade package to make the vessels fully IMO2 capable, as well as advanced MarineLine tank coatings. In addition, we are commissioning further performance and safety upgrades. Deliveries are scheduled from late 2028, and we have the option to acquire 2 additional vessels on the same terms. Second, we are doubling our quarterly dividend payout ratio to 2/3 of adjusted earnings. 2025 was a heavy CapEx year, which entailed an extensive dry docking program and significant vessel efficiency and commercial upgrades. This is now behind us. Importantly, we also invested over $100 million in 3 vessel acquisitions that have substantially increased in value since, arguably by about 30% to 35% on a like-for-like basis. And as always, dynamic in our approach to capital allocation, we increased our percentage dividend payout effective this quarter. We have also agreed the opportunistic sale of a 2014-built MR tanker for $35.5 million. At the time of agreement, the delivery window was about 3 months forward, allowing us to continue participating in the strong market with delivery to the buyer expected in June 2026. We believe this is an attractive transaction, not least in conjunction with the previous newbuilding announcement and in context of the aforementioned acquisitions. Overall, these decisions reflect our disciplined through-the-cycle approach to value creation, growing the business in a thoughtful way, investing in high-quality assets that match our strategy and unique organizational capabilities, all while enabling meaningful distribution of capital to shareholders. Moving to Slide 6 for a bit more detail on the newbuildings just mentioned. The vessels will be handysize product and chemical tankers built to full IMO2 specifications with MarineLine coatings. These upgrades will enable us to trade across a wide cargo slate from mainstream oil products to edible oils, renewable fuels and complex commodity chemicals. As a reminder, we upgraded our existing chemical fleet last year with MarineLine coatings, and we are capturing significant benefits through access to premium cargo options and shortened cleaning times. We have undertaken an extensive review of shipyards in China, Korea and Japan, and we believe Wuhu offers a compelling combination of high construction quality and value. In terms of funding, we have ample capacity under our existing revolving credit facilities and access to a wide range of alternative sources. With that, I'd like to hand it over to Bart. Bart Kelleher: Thanks, Gernot. Turning to the market, starting with Slide 8 and some significant shifts in trade flows. This slide illustrates the rerouting of refined product cargoes as a result of the conflict in the Middle East. Shortages in the East are being filled long haul from the Atlantic Basin. Flows from the U.S., Europe and West Africa are replacing lost Middle East volumes with voyage lengths roughly doubling. As Gernot mentioned, unfortunately, there are approximately 130 product tankers currently trapped in the Middle East Gulf. This is having an impact on the available vessel supply. In addition, the recent Jones Act waiver is further supporting U.S. bicoastal trade flows. Moving to Slide 9 for more detail on current market drivers. The effective closure of the Strait of Hormuz is disrupting approximately 15% of the global oil product flows and 30% of crude flows. As a result, refining margins in the Atlantic have reached their highest level since the pandemic recovery, creating notable arbitrage. Asian refineries have needed to reduce throughput with replacement products sourced via long-haul imports from the Atlantic, boosting U.S. exports. Vessels bouncing back to the Atlantic Basin had a further layer of fleet inefficiency, tightening effective supply. This run-up in the Atlantic market has resulted in a lack of vessels in the East, accelerating rates in the Pacific in recent weeks. Product inventories have been significantly drawn down. Looking ahead, a substantial post-conflict restocking requirement should support elevated trading activity for an extended period, all while damaged refining capacity may take several years to restore with replacement volumes continuing to move on long-haul voyages. Turning to Slide 10. Looking beyond the immediate disruption and focusing on the longer-term fundamentals. Energy security is front and center, supporting long-term demand forecast. Meanwhile, refining capacity continues to shift east with closures in Europe and the U.S. adding to ton-mile demand. While the markets understandably pay attention to the situation in the Middle East, these fundamentals are driving the market over the long term. Moving to Slide 11 for the supply side. The chart on the left depicts how the MR fleet has continued to age during this century, while the current order book represents just 15% of the fleet. The Handysize segment is a connected market. But if we look at the Handy order book in isolation, it stands at just 5% against an average fleet age of 18 years. The chart on the right highlights the same story from a different angle. Within the next 5 years, half of the global MR fleet will be over 20 years old and approaching the scrapping window. As a reminder, even if these vessels are not initially scrapped as a result of strong market conditions, their utilization levels notably decline. Turning to Slide 13 and our capital allocation summary. As outlined in our late April press release and commentary today, we have been active across all pillars of our capital allocation policy. And this slide further highlights the numerous actions taken in recent quarters. We're dynamically investing in the business while returning capital to shareholders, including the doubling of our dividend payout ratio to 2/3 of adjusted earnings. Moving to Slide 14, where we detail our financial position. As always, Ardmore remains focused on optimizing TCE performance, closely managing costs and preserving a strong balance sheet. Our low cash breakeven level of $11,700 per day or $10,800 per day, excluding dry dock CapEx, gives us financial flexibility. Considering forward new build CapEx, which we can fund through our existing credit facilities or other alternatives, overall pro forma leverage remains at a modest level. Turning to Slide 15 for financial highlights. Ardmore is well positioned with strong operating leverage. Every $10,000 per day increase in TCE rates translates to an additional nearly $2 per share in annual earnings. For the first quarter, we are reporting adjusted EBITDAR of $37.3 million and as noted earlier, earnings per share of $0.58. We continue to frame EBITDAR as an important comparable valuation metric against our IFRS reporting peers. A full reconciliation is in the appendix alongside our second quarter guidance figures. Moving to Slide 16 for fleet operations. As a reminder, we have limited dry docking activity through 2027. Existing fleet capital expenditure is expected to decline significantly to approximately $8 million this year versus $30 million last year. We have our refreshed fleet on the water capturing the current market. With that, I'm happy to hand the call back to Gernot and look forward to answering any questions at the end. Gernot Ruppelt: Great. Thank you, Bart. Moving to Slide 18. Allow me to summarize. On top of compelling long-term fundamentals, product markets continue to experience significant near-term disruption driving ton-mile demand as is reflected in our TCE performance on this slide. Commodity dislocation and product supply gaps, urgent inventory restocking needs as well as continued structural demand growth point to sustained strength. Ardmore continues to progress through a disciplined, deliberate and dynamic approach to capital allocation. We have made targeted investments in the fleet over the past years through value-focused newbuilding and secondhand acquisitions as well as upgrades to the existing fleet, all while increasing shareholder returns and maintaining responsible debt levels. As always, our investment decisions are guided by the company's strategy, strong corporate governance and a long-term value approach. We now welcome your questions. Operator: [Operator Instructions] Your first question comes from Jon Chappell with Evercore. Jonathan Chappell: I'll start with the dividend policy. I know you've spoken about it a little bit in the prepared remarks, but just trying to understand the timing and the thought process behind it. Again, I understand you've sold the vessel, you have far less capital commitments as it relates to fleet maintenance this year. But is this kind of a sign that investing in this part of the cycle where asset values where they are, just doesn't offer the same type of returns that you think a doubling of the capital return policy to the investors provides? Gernot Ruppelt: Yes. Great question, Jon. I think we really want to look at dividend policy as a subset of returning capital to shareholders as part of our capital allocation policy, which we've been quite consistent with. If you go back to end of 2024, of course, we saw some opportunity in our stock price, and we did some buybacks, continue to pay dividends all throughout. But last year, we also saw some really interesting opportunities to reinvest in the fleet through the acquisitions we've mentioned, some really interesting retrofits, paid down the pref on top of the interesting refi, and we're able to also pay back some debt. So I think for us, this is really a way to reshift and rebalance, acknowledging, of course, that half of debt prices have moved up, but also not in any way, I think, taking away from this kind of rebalanced approach to capital allocation that you really need to see across quarters and across the whole game, which will continue to balance thoughtful and measured reinvestment in the fleet with returning capital to shareholders while maintaining healthy debt levels. Jonathan Chappell: Okay. That makes sense. And then as it relates to fleet strategy, I know you have a couple of time charter outs right now. It feels like in the larger crude asset classes, time charter rates have spiked to all-time record highs, and there seems to be a pretty decent amount of liquidity, especially in the [ VEs ]. Is there a similar thing transpiring in the MR and chem market? And if there is, what's your appetite to kind of lock in at some of these really elevated rates with guaranteed cash flows versus maintaining that optionality in the spot market that you speak to? Gernot Ruppelt: So time charter rates have definitely reacted and moved up significantly. We have not executed on those time charters in the past quarter because we don't quite feel that the value proposition is maybe as pronounced as you would see in crude tankers. And sometimes these things take some time to build just to the nature of the timing and the rhythm of the time charter markets. But we'll continue to monitor that. We, of course, do take note that a lot of the time charter interest right now is coming from oil majors, refiners and major traders, including some long-term interest, and we think that's really encouraging. And we have in the past, opportunistically engaged in time charters out and time charters in. But for now, we've been monitoring, and we're looking at it with great interest, of course. Operator: [Operator Instructions] Your next question comes from Omar Nokta with Clarksons Securities. Omar Nokta: Clearly, nice quarter, and it looks like definitely more to come. I just want to ask, you've got the MRs, which are historically and continue to be your biggest footprint. You've also got the chemical tankers or the handy chemical tankers. Can you just talk a little bit about those segments and how they performed in this market given the Hormuz disruption just in terms of the 37 and the 25 deadweight that you have? Are those capturing similar earnings together? Or would you say there's a detachment where the 37s are closer to the MRs and the 25s are separate? Any color you can give on how those are traded? Gernot Ruppelt: Yes. I think this is actually a great question and maybe something we didn't highlight enough. For us, the order we committed to, these are handysize tankers that cover the full range of liquid products, which includes chemicals, but this is really all about creating trading options for these ships and for the company. It's not some fundamental philosophical leaning deeper into chemicals. For us, it's always been enabling the full range of oil products, which, of course, includes jet fuel and naphtha and all the other road fuels that are in extremely high demand. And equally then alternative cargoes, emerging cargoes because we think this offers really interesting long-term strategic perspectives for the business. And in the near term, it already offers substantial triangulation opportunities. So these ships that we have ordered and the way we're approaching our existing chemical tankers too, these ships are fully conversant in both markets. And we will basically continue to follow the money and just benefit from this added optionality. So right now, even our 25,000 toners that you mentioned, which make up the majority of our existing chemical fleet, half the size of an MR, and typically, under sort of normalized market conditions, they would probably trade 90% in non-CPP cargoes, but we have been redirecting those ships where they now trade almost exclusively CPP because that's where the money is. So really, for us, about trading options, not trading obligations, and continuing to be very versatile players across the full spectrum of products and nonproduct cargoes. Omar Nokta: Okay. That's quite detailed and helpful. And I guess then just as you place those orders and you look to be something that you're looking to be a bit more opportunistic on as you see an opportunity there, as we kind of think about then your footprint going forward, not necessarily saying you're going to potentially deemphasize MRs because clearly, that's your main market, but should we kind of think about you potentially pivoting into maybe expanding more within that business or maybe bringing them both together in size over the long term? Gernot Ruppelt: Yes. I think very important, the way we treat these ships already is in a very integrated fashion where we don't have a separated sort of product or separated chemical part of the business, very much the relationships, cargo flows, market insights are used in a very integrated fashion. So for us, it's really just continued progress along this product and chemical space. For us, we felt like these ships really are terrific strategic fit given our current and our forward strategy. We will continue to follow all sources of deal flow, of course, as we have in the past. It felt that last year, there was a much stronger value in secondhand MRs where we saw values drop by arguably 20%, 25% on the back of concerns on tariffs and what that could mean for the global economy, liberation day and the likes. And we then acted very decisively on MRs. And of course, that was money well spent, given the fact that they are under money by 30%, 35%. And we now saw the value proposition much clearer on these very forward-looking, very versatile fuel-efficient assets. If you compare the price between the 12-year-old MR we just sold to the newbuildings, we're committing to the delta on a like-for-like basis is less than $10 million. So again, it is a combination of strategic fit on one hand, which is products, products with full versatility and flexibility to trade into more complex cargoes, but of course, there's a strategic fit and then there's opportunity and just relative value and being opportunistic at times when we have that -- when the market gives us that chance. Operator: Ladies and gentlemen, there are no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings and welcome to the W.W. Grainger, Inc. First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kyle Bland, Vice President of Investor Relations. Thank you. You may begin. Kyle Bland: Good morning. Welcome to W.W. Grainger, Inc.’s first quarter 2026 earnings call. With me are Donald G. Macpherson, Chairman and CEO, and Deidra Cheeks Merriwether, Senior Vice President and CFO. As a reminder, our comments today may include forward-looking statements that are subject to various risks and uncertainties. Additional information regarding factors that could cause actual results to differ materially is included in the company’s most recent Form 8-Ks and other periodic reports filed with the SEC. This morning’s call includes non-GAAP financial measures, which reflect certain adjustments in previous periods as noted in the presentation. There were no adjusting items in the first quarter 2026 period. We have also included organic revenue adjustments in the presentation, which normalize sales growth to reflect our exit from the U.K. market, including the Cromwell divestiture and the closure of Zoro UK, both of which were completed in 2025. Definitions and full reconciliations of our non-GAAP financial measures with their GAAP measures are found in the tables at the end of this presentation and in our earnings release, both of which are available on our IR website. We will also share results related to MonotaRO. Please remember that MonotaRO is a public company and follows Japanese GAAP, which differs from U.S. GAAP, and is reported in our results one month in arrears. As a result, the numbers discussed will differ from MonotaRO’s public statements. Now I will turn it over to Donald G. Macpherson. Donald G. Macpherson: Thanks, Kyle. Good morning, everyone, and thank you for joining today. We are off to a strong start in 2026 with both our business segments performing well. Despite the ongoing tariff uncertainty and the broader geopolitical climate, we are encouraged by the positive signals we are seeing in the demand environment. By staying focused on what we can control, we continue to drive performance through solid execution and by consistently delivering value to our customers. I had the opportunity to experience this firsthand on a recent visit with a major agricultural customer. While many of our large customers are complex, our approach is simple: start with the customer, stay curious about how their operation works, and then bring our full suite of capabilities to solve their MRO challenges end to end. What differentiates W.W. Grainger, Inc. with this customer and with other contract customers where we are seeing growth is our ability to deliver highly coordinated capabilities beyond the products themselves. That same coordinated approach was on display at our most recent W.W. Grainger, Inc. sales meeting in March. This event showcased the breadth of our products, services, and solutions, with more than 10 thousand customer, supplier, and team member attendees; the event demonstrated the power of listening, asking good questions, and staying focused on the problem the customer is trying to solve. We invest in this meeting because it results in stronger teams, stronger partnerships, and ultimately improved performance. Earning trust and building strong relationships is also at the core of how we approach our workplace and culture. While awards are not the goal, they serve as useful signals that we are executing the right way. In recent weeks, W.W. Grainger, Inc. was once again recognized as a top workplace, this time being named one of the Fortune 100 Best Companies to Work For and a 2026 Platinum Employer on the Where You Work Matters list, which is powered by the American Opportunity Index. We do not take recognition like this for granted; we are proud that it reflects the experiences we create for team members and the outcomes we deliver to our stakeholders. On the subject of team members, you may have seen that several of our senior leaders recently took on new roles within the organization. We are fortunate to have a broad and deep set of leaders at W.W. Grainger, Inc., a clear strategy, and a high-performing company. Having such a strong foundation allows us to provide leaders with new experiences to develop for the future. Now moving to Q1 results. We delivered a strong quarter of profitable growth, meaningfully outpacing the expectations we communicated back in February. Results benefited from healthy price realization, strong operational execution across both segments, and improved market demand. The broader MRO market showed positive momentum as we moved through the quarter and appears to have sustained that strength in April. At the same time, our high touch growth engines are gaining traction and the Endless Assortment segment is continuing to power the flywheel. Total company reported sales for the quarter were up 10.1%, or 12.2% on a daily organic constant currency basis. Operating margin was strong at 16.7%; diluted EPS finished the quarter up over 18%. Operating cash flow came in at $739 million, which allowed us to return a total of $345 million to W.W. Grainger, Inc. shareholders through dividends and share repurchases. I also want to mention that we recently announced a 10% increase to our quarterly dividend, marking the 55th consecutive year of dividend increases. This reflects our continued commitment to returning cash to shareholders through a balanced and return-focused approach. Overall, the quarter finished ahead of expectations; we are increasing our 2026 guidance to reflect the strong start and continued momentum we are seeing. I will now turn it over to Deidra Cheeks Merriwether for the financial results. Deidra Cheeks Merriwether: Thanks, DG. As mentioned, we had a great start to the year, with total company sales up 10.1%, or 12.2% on a daily organic constant currency basis, which included strong growth across High-Touch Solutions and Endless Assortment. Gross margin for the quarter was healthy at 40%, up 30 basis points versus the prior-year period as we saw expansion in both segments. Operating margin was up 110 basis points year over year as gross margin flow-through and leverage in both segments helped drive results. Both gross margin and operating margin benefited from the exit of the U.K. market. Overall, we delivered diluted EPS for the quarter of $11.65, up 18.2% versus 2025. Moving to segment-level results. The High-Touch Solutions segment delivered sales growth of 10.5% on a reported basis, or 10% on a daily constant currency basis. Sales growth included roughly equal contributions from price and volume. From an end-market perspective, we believe that MRO market demand gained momentum in the period. This view is supported by various market indicators as well as the activity we are seeing on the ground with customers. For W.W. Grainger, Inc. specifically, we saw broad-based acceleration across end markets with strong contributions from manufacturing, government, and contractor customers. On profitability, gross margin finished the quarter at 42.6%, up 20 basis points versus the prior year as positive mix and freight were partially offset by the impact of the annual W.W. Grainger, Inc. sales meeting. We also continued to experience LIFO inventory valuation headwinds in the quarter. Relative to our verbal guide, gross margin results exceeded expectations for the quarter as price/cost was roughly neutral, feeling better than anticipated on stronger price realization. Further, we saw cost timing favorability compared to expectations on lower sell-through of certain SKUs within our private label inventory. We anticipate this cost pressure will now hit in the second quarter. On SG&A, we gained nice leverage year over year as we benefited from strong sales, productivity, and a tailwind from the W.W. Grainger, Inc. sales meeting. This more than offset continued marketing investment and higher payroll and benefits expense, including higher incentive-based compensation given our strong start to the year. This helped drive operating margin for the segment to 18.3%, up 60 basis points versus the prior-year period. All told, it was a great start for the High-Touch segment and we are excited about the momentum we have as we move through the rest of the year. Now focusing on the Endless Assortment segment. Sales increased 19.6% on a reported basis, or 21.9% on a daily organic constant currency basis, which normalizes for the closure of the Zoro U.K. business and the impact of foreign currency exchange. Zoro U.S. was up 18.7% on a daily basis, while MonotaRO achieved 24.3% in local days/local constant currency. At a business level, Zoro saw strong growth from its core B2B customers along with improving customer retention rates. The team continued to deliver on core foundational capabilities, improving the customer experience across pricing, fulfillment, and website functionality. At MonotaRO, sales were strong with continued growth from enterprise customers, coupled with solid acquisitions and repeat purchase rates with small and mid-sized businesses. Additionally, MonotaRO continued to benefit from an increase in web traffic stemming from a competitor cyber outage, which provided a meaningful tailwind to sales in the period. As expected, this impact waned as we moved through the quarter. On profitability, operating margins increased 190 basis points to 10.6%, with favorability across the segment. MonotaRO margins remained strong at 12.9%, up 90 basis points, and Zoro margin improved to 7.3%, up 210 basis points, with both businesses benefiting from healthy top-line leverage. Overall, it was another strong quarter for the Endless Assortment team. Before moving on, I wanted to share a brief update on the inflationary environment as we navigate tariffs and geopolitical cost pressures. We continue to manage the business with the goal of maintaining price/cost neutrality over time. With this, we passed further price increases in January, in response to previously delayed tariff inflation and to offset annually negotiated cost increases with our suppliers, which were largely in effect as of February 1. These actions were net of a partial rollback on certain Chinese tariffs announced at the end of last year. As it relates to the recent Supreme Court ruling on IEPA tariffs, we are only anticipating a modest impact on the business since the tariff rate differential with prevailing Section 122 duties is minimal. With this, our May pricing actions were net neutral in total. Where we have seen modest cost reductions, namely on products that W.W. Grainger, Inc. is directly importing, we adjusted prices as part of our May update. For the remainder of our assortment, we are working with supplier partners to assess cost reduction opportunities and will take subsequent pricing actions as warranted. Moving forward, the team is busy evaluating further inflationary pressures from recently announced tariff changes and the knock-on effects from the conflict in the Middle East. On fuel, we are working with our supplier and transportation partners to minimize cost headwinds that have risen as diesel prices remain pressured. We ultimately strive to pass these costs through to customers, but there is some leakage since a number of our customers do not fully pay for partial shipping. While currently only modest in total, these heightened costs are pressuring our margins and this will likely continue until our next pricing window. We have included this fuel impact in our updated guidance. On the recently announced Section 232 modifications, given the significant complexity, we are still working to understand what the full impact might be across our assortment, but our initial analysis suggests it is likely minimal. Separately, we are starting to see supply pressure from the conflict in the Middle East related to certain raw material inputs on some categories like nitrile-based gloves. As of now, this is minimal in the U.S. business, but we are starting to see more strain in Japan given the region’s reliance on energy inputs which move through the Strait of Hormuz. We will continue to assess the situation and are working with our suppliers and manufacturing partners to minimize supply impacts, including changing our sourcing strategy where needed. Despite these challenges, we are not anticipating a step change in cost inflation from these pressures at this time, and thus have not included any impact in our updated guidance. However, if the conflict persists, these impacts could result in incremental costs for the business and this will be felt more quickly in the U.S. based on LIFO accounting. Lastly, we are also monitoring for the potential recovery of previously paid IEPA tariffs where W.W. Grainger, Inc. is the importer of record, but the timing and the magnitude of any recovery remains uncertain at this time. As you might imagine, the broader inflationary landscape remains highly fluid, as it has been for the last several quarters. Importantly, our team is staying agile, and we continue to be confident in our ability to maintain supply for our customers while adhering to our core pricing tenets. Now turning to our guide. As a result of our strong start and continued momentum, we are raising our full-year 2026 guidance. On the top line, our new outlook includes expected daily organic constant currency sales growth between 9.5% and 12%, reflecting first-quarter strength, continued strong execution, and improved MRO market demand. Our operating margin expectations for the full year have ticked up slightly at the midpoint to incorporate our first-quarter outperformance. This is partially offset by headwinds from higher incentive-based compensation and leakage related to increased fuel costs. While incremental margins remain healthy, you will see that the added revenue dollars for the balance of the year are less profitable because of these transitory headwinds. Taking all this together, EPS is expected to be between $44.25 and $46.25, representing nearly 15% year-over-year growth at the midpoint. This represents a $1.75 improvement at the midpoint versus the prior guidance range. We have also updated our supplemental guidance in the appendix, which includes an increase in total company operating cash flow compared to the prior guide. We have continued our strong momentum into the second quarter, with preliminary April sales up north of 13% on a daily organic constant currency basis. This start supports our expectations for second-quarter sales north of $4.9 billion, or approaching 12% on a daily organic constant currency basis, which is 330 basis points lower on a reported basis when normalizing for the U.K. market exit and currency headwinds. We expect operating margins will be down sequentially in the second quarter compared to the first quarter. Beyond normal seasonality, we expect this step-down will be exacerbated by headwinds from fuel costs, along with increased costs on our private label inventory, the latter of which is in line with what we had expected to hit in the first quarter. All told, we anticipate second-quarter operating margins will be in the low-15% range for the total company. With that, I will hand it back over to DG for his closing remarks. Donald G. Macpherson: Thanks, Dee. Overall, we feel good about how the business is operating and are confident in our strategy. I am encouraged by our ability to continue to grow profitably in this ever-evolving environment while staying focused on creating value for the long term. Looking ahead, we will continue to focus on what matters most for our customers and earn their trust through strong execution, differentiated capabilities, and a consistent focus on doing the right thing. We recognize significant uncertainty in the macro, but we will stay nimble to serve customers and perform well in any environment. We will now open the call for questions. David John Manthey: Good morning. First off, I appreciate that you finally moved away from the myopic quarter-to-quarter share gain discussion, particularly in a quarter where you could have taken a major victory lap. So thanks for that. We will draw our own conclusions. My first question is on price. Could you just tell us in simple terms what was price contribution by each segment and overall? Deidra Cheeks Merriwether: Dave, thank you for the question. When you look at North America, we are about five points of price. David John Manthey: Okay. All right. And then, Dee, maybe you could update us on the pacing of margins through the year. When I look back to last quarter, you said seasonally, gross margin would deviate from its normal pattern. You had LIFO, price/cost, and the show impacting that. And you said that first-half gross margins would be at or slightly below the annual guide and then rebounding in the back half, and operating margins would follow a similar trajectory. I was just wondering if you could give us an update on your view there. Deidra Cheeks Merriwether: Yes. I would say now we believe it is going to have more of a U shape. Part of that is because Q1 performance did very well from a price realization perspective, as price continued to build based upon the changes that we made in 2025 and then, of course, the change we made in January. You heard in prepared remarks that we had expected to sell through more of our private label inventory in Q1, which would have created a drag. Not as much sold through; we are starting to see that sell through already in Q2, so we expect that negative impact to hit in the second quarter. We also have the normal seasonality decline that happens from Q1 to Q2 because we take a larger price increase in January and that bleeds off through the year. As you also heard us talk about, the impact that we have related to fuel will build. That was not necessarily anticipated in the original guide, so that is new news here that we have added to the guide. The challenge that we have with the majority of our very large customers is free parcel shipping in their contracts, and as a result of that, it is more difficult for us to pass on accessorials and other fuel charges to them. That is going to take us some time. We noted that we will have some leakage and then we are going to have some timing implications. However, we are confident that we will find a way to work through that—i.e., the U shape—and as the year goes on, we will have a means to pass some of that price onto those customers and some of our broader customers while still remaining competitive in the marketplace. Jacob Frederick Levinson: Good morning, everyone. It might be a little too early to really see any impact here, but if we look at Japan, I think that is probably a blind spot for a lot of us on this call. Is the team at MonotaRO seeing anything to be concerned about? I know they have certainly borne quite a bit of the energy shock here. Donald G. Macpherson: You are right that East Asia, in particular, bears more of the brunt here given most of their oil and natural gas, frankly, comes through the Strait of Hormuz. What we have seen is some price pressure with some products there, and we have seen a little bit of buying at the end of the first quarter of those products that are potentially at risk. It has not been material yet, but it could become so depending on how long it goes. Jacob Frederick Levinson: Okay. That makes sense. And just on the private label side, I assume no news is good news, but that was a potential concern last year. Have you been able to adapt that business given the tariff environment? It is kind of hard for us to know what all the moving pieces are there. Donald G. Macpherson: It is not a simple challenge either. There have been some private label products where the cost spread between them and the national branded products has compressed, and we have seen some impact there and some more buying of national branded versus private brand. Some of that will probably work its way out over time, and we think we will get back to having an appropriate gap and having very high-quality products at reasonable prices for customers in a private brand. I would also note we are having tremendous success with leveraging the W.W. Grainger, Inc. brand for certain areas of our private brand as well, so we are pretty excited about the path there. Overall, we are still very confident in our private brand path, but there has been some impact for sure. Ryan James Merkel: Nice job this quarter. Question is just on the demand environment. DG, what was the surprise for you on revenue in the quarter? Was it just better end-market demand, or is the company-specific story also a part of it? Donald G. Macpherson: I think it is a bit of three things. One is the end-market demand. We did flip; it had been negative for several years, and most signals would suggest volume growth in the market turned slightly positive. That is a benefit. Our price realization has been higher than we had anticipated to start the year, so that is a benefit. And our share gain has been strong as well. All of that has conspired to create a really strong demand environment for us. Ryan James Merkel: Got it. That is great. Okay. And then second question is on gross margin for Dee. You did 40%. I think you thought it would be 39%. So is all of the beat this mix/timing? What drove the mix/timing? And then can you unpack why in the second quarter the cost increase in the private label is a negative? Thank you. Deidra Cheeks Merriwether: We achieved better price realization in the first quarter than what we had anticipated, based upon some of the SKUs that customers were purchasing. That was very helpful to us. On the private label inventory, we had assumed that with some of this growth, we would be selling through much more of our lower-cost private label inventory and have that impact in Q1. We sold through a lot less than anticipated, and we are now seeing it come through already in April; it will hit in the second quarter. In addition, we have normal seasonality with gross margin because of the price increase that we take in January that then normally subsides as we go through the year. Donald G. Macpherson: While we are mostly on LIFO, our private brand inventory is on FIFO, which adds complexity. That has always been the case; it is just that in the last year it has become more necessary to talk about. We did not sell through layers yet that are higher cost, and now we are. Christopher M. Snyder: Thank you. I appreciate the question. Could you talk about the impact that the leading on the price/cost—primarily on the private brands—had on Q1 gross margin? Deidra Cheeks Merriwether: It was about 20 basis points in the first quarter. Christopher M. Snyder: Thank you. And then on the price conversation, to make sure I am understanding it right: you did the typical January start-of-year price increase, and then there was another round in May. Was May in response to all the inflation we are seeing now between metal, freight, tariffs, everything? Could you provide any relative sizing for either of those two? Donald G. Macpherson: January 1, May 1, and September 1 are our normal price cycles. The May 1 action was not in response to anything in particular; that is simply the timing at which we can take it, and we incorporated relevant factors in that cycle. Deidra Cheeks Merriwether: January incorporated any lag we had from being able to take tariff actions from 2025 plus what we were negotiating late in the year that would impact us in 2026. That was a slightly positive pricing action and net of certain Chinese tariff rollbacks announced in November. May, which is a normal time to take pricing actions, was really net neutral—true-ups and corrections related to January, incorporation of 122 actions, offset by IEPA rollback for our private label products that we directly source where we know the standard price changes. Christopher D. Glynn: Thanks. Good morning. You talked in the past few quarters about an elevated backdrop for a chunkier contract cycle. What pace are you seeing those rolling into the outgrowth, and how long is the tail for a more elevated cycle for chunkier wallet share pickup? Donald G. Macpherson: I would not describe it as significantly chunkier than the past. Our contract business has been net positive to start the year. We have had a number of successes in implementations. We are seeing a lot of customer demand to serve them on-site in ways that are important to them. There is less labor with many of our customers, so we are being asked to do more things, and we are providing more services on-site than we have historically. It is not a significant departure from the past, but we have had success in growing our large customer volume in the last six months. Christopher D. Glynn: And what are you now seeing in terms of the most productive use cases for AI? Donald G. Macpherson: There are many use cases. I would put them in a couple of categories. First, use cases that drive productivity in the business—customer service tools assisting our agents, finance and back-office applications, and supply chain applications to drive more one-piece flow in our warehouses. Second, customer experience use cases that are critical for long-term success—improving search and merchandising capabilities. It is pervasive and will be even more so. Pointing at the right things to create advantage, in addition to driving productivity, is really important. Christopher D. Glynn: Zoro—website functionality as a driver—what are the implications for margin and outgrowth as that normalizes, implementing lessons learned? Donald G. Macpherson: Website changes and improvements are in process; we probably have not seen too much benefit yet from those. We have seen a lot of benefit from improving repeat business and the quality of customer acquisition, and the business improved both margins and growth rate as a result. The website improvements will be a fast follow and drive a lot of benefit too. We are excited about what they are building. Analyst: Can you hear me? Donald G. Macpherson: Yes, we can. Analyst: Question on the guidance range. A lot of debate on the stock has been about your ability to push pricing, and I think gross margin this quarter reflects success. But most of the raise reflects the beat in the quarter. How should we think about sustainability of this pricing momentum into the second half? Donald G. Macpherson: That debate has not been happening internally. As we went through the tariffs, we said we would lag in terms of getting to price neutrality; we did it—you see that in the first quarter. Now there are some things—fuel and private label timing—that may cause the U shape and we will do it again, and that is partly because we are on LIFO. The fundamental of price/cost is strong and very stable. As for not flowing through more for the second half, it is the things we talked about—potential fuel costs, private brand costs coming through, and seasonality. You can argue whether we are being conservative on increased fuel cost—there is a lot of uncertainty. If the conflict ended and the Strait opened quickly, that would be great, but we are forecasting some challenge with fuel and that is the reality. Analyst: Could you size the LIFO impact this quarter relative to other quarters, just directionally? Deidra Cheeks Merriwether: LIFO never goes down; it normalizes and subsides. From Q4 to Q1 at the total company level, we think it is about 70 basis points. Stephen Volkmann: Good morning, everybody. A couple of growth questions. On your slide where you show the various end markets—pretty nice inflection. Would you say any of these were specifically benefiting from share gains more than the others, or is it more broad-based? Donald G. Macpherson: It is more broad-based in terms of share gain. Share gain for us typically comes from providing great service, helping customers find the right product, and providing on-site support for inventory management. It is a set of core things that we do, and generally those impact most segments at the same time if we are performing well. That is what is reflected here. Stephen Volkmann: Any potential that you saw some customers buying a little extra inventory given uncertainty around price and availability? Donald G. Macpherson: Not in the U.S. We have also not seen customers stop projects given the uncertainty. Things are kind of normal status in the U.S. We mentioned in Japan at the end of the first quarter we saw a little buying ahead to secure petroleum-based products, but not in North America. Stephen Volkmann: Competitively, we hear pockets of availability issues. Are you seeing competitors do more or less pricing, be able to pass through diesel, or having issues getting anything? Donald G. Macpherson: It is too early to really know that. In North America, we do not anticipate challenges. If there were challenges, it would be things going on in Southeast Asia where we are all procuring the same things. So far, we have not seen trouble getting product in the U.S., and we have not seen any unusual competitor behavior. Deane Michael Dray: Good morning, everyone. What was the benefit to margin in the quarter from the two European exits, and what would be the benefit for the year? Deidra Cheeks Merriwether: Year over year, it is about 45 basis points, equally split between gross margin and SG&A. As it relates to top line, Cromwell sales are about a 210-basis-point impact on total company and a 110-basis-point impact on Endless Assortment for the Zoro U.K. exit. Deane Michael Dray: For DG, is free shipping on partial shipments non-negotiable—just part of the service you need to offer? What is the impact—small sliver or meaningful? Donald G. Macpherson: It is a meaningful portion of the total. It is very common to build free partial shipping into contracts with large customers in our space. We have the ability to do certain things to mitigate this over time depending on how long it goes, so we are not concerned about it; in the short term, it creates a headwind. Part of the issue with large customers is their average order value is significantly higher, so parcel costs as a portion of the overall are pretty small relative to smaller customers. Guy Drummond Hardwick: Hi, good morning. Excellent results—congratulations. You have had about six months now, if you include April, of better-than-expected trading and are guiding to double-digit organic growth this year. DG, does that give you room for investing more for organic market share gains, or do the inflationary pressures preclude that? Are your marketing/investment budgets for this year set, or subject to change? Donald G. Macpherson: If we have the ability to invest profitably for growth, we will do it. We do not have a cash problem. I do not expect our budgets this year to change much. We set our budgets based on what we have seen from a cause-and-effect basis in areas like marketing and Salesforce coverage. In general, added growth does not mean we will invest more mid-year, and in difficult times you often will not see us invest much less either—if something is worth doing for the long term, we will do it to be successful through anything. Guy Drummond Hardwick: And for Dee, on SG&A growth of 6%, is that a sensible number to use for the rest of the year? Deidra Cheeks Merriwether: Five and a half to six is what we look at, so for the rest of the year that is a fair range. Patrick Michael Baumann: When you are looking at the sequential move in margin into the low-15% range for the second quarter, is all of that decline coming from gross margin sequentially? Could you bridge the drivers between seasonal versus the private label costs, fuel costs, or meeting timing? Deidra Cheeks Merriwether: It is about a one-point difference on gross margin. Roughly 60 basis points is normal seasonality. About 20 basis points relates to the increased cost of private label inventory moving from Q1 to Q2. The remainder is leakage we expect from increased fuel costs. Some of that is timing because fuel hits now and we are not in a pricing cycle to address it; our next pricing cycle is when we can start to recoup some of that back. That gets you from about 40% gross margin to about 39%. On operating margin, we also have normal seasonality in stock comp and merit, where we delever from Q1 to Q2. Patrick Michael Baumann: That would imply SG&A growth goes from about 6% to high single digits, but you said 5.5% to 6% for the year. What is the difference? Deidra Cheeks Merriwether: If we continue to grow, we still have investments that we are making through the year. On average, we expect 5.5% to 6%. Patrick Michael Baumann: What is embedded now for the guide for the year in terms of market outlook and for price? Donald G. Macpherson: Market outlook is around 0% to 1% volume growth—we think it will be positive for the year. Price probably moderates and goes down from maybe five in the first quarter to around four for the year. Thomas Allen Moll: Good morning and thank you for taking my questions. DG, you made some comments at the Annual Shareholder Meeting last week on sales force adds. I think you added 110 last year across two geographies. Is that a gross or a net add number, and what do you have baked in for this year? Donald G. Macpherson: That is a net number. We have been adding fairly consistently over the last several years, probably between 3% and 4% to the Salesforce every year, and we expect this year to be in the same general area. Some of the value from having better customer data has allowed us to identify places we can fill in coverage. We have been doing it region by region. We should be mostly done with those changes by 2027. Thomas Allen Moll: On your distribution network, you commented on the progress in Houston and in the Northwest facility. Looking ahead, are there other big geographies where you are contemplating a greenfield opportunity or a substantial increase in an existing footprint? Donald G. Macpherson: Portland is going live this year; it is ramping up as we speak. Houston will go live in 2028. It is a very big building, which expands our capacity in the Texas market, which is important. As we go forward based on our growth, there may be other areas where we add to existing positions or scale from midsized to much larger positions. We are not really missing geographies at this point. There will still be investments, but they are more likely to be expansions or moves rather than fully new greenfields. Operator: Thank you. There are no further questions at this time. I will hand the floor back to management for any final remarks. Donald G. Macpherson: Thank you for joining the call. We really appreciate your time. We feel good about the way things are going. There is uncertainty in the world, but our job is to perform through that uncertainty and to make sure we are building for the future. We are focused on doing those things, we are a resilient business, and we are in good shape. We are optimistic about where we are headed. Thank you, and have a great rest of the week. Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Collegium Pharmaceutical's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded. I'll now turn the call over to Ian Karp, Head of Investor Relations at Collegium. Thank you. You may now begin. Ian Karp: Great. Thanks so much, and welcome to Collegium Pharmaceutical's First Quarter 2026 Earnings Conference Call. I'm joined today by Vikram Karnani, our President and Chief Executive Officer; Colleen Tupper, our Chief Financial Officer; and Scott Dreyer, our Chief Commercial Officer. Before we begin today's call, we want to remind participants that none of the information presented today is intended to be promotional and that any forward-looking statements made today are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. You are cautioned that such forward-looking statements involve risks and uncertainties as detailed in the company's periodic reports filed with the Securities and Exchange Commission. Our future results may differ materially from our current expectations discussed today. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website. And with that, I'll now turn the call over to our President and CEO, Vikram Karnani. Vikram Karnani: Thank you, Ian. Good morning, everyone, and thank you for joining our first quarter 2026 earnings call. At Collegium, we are building a leading diversified biopharmaceutical company committed to improving the lives of people living with serious medical conditions. In the first quarter, we made meaningful progress on our 2026 strategic priorities and took an important step forward with the proposed acquisition of AZSTARYS, a differentiated commercial ADHD treatment for people 6 years and older. The addition of AZSTARYS accelerates our growth trajectory by strengthening our position in ADHD, complementing JORNAY PM and extending revenues into the late 2030s. This strategic acquisition reinforces our long-standing commitment to improving patient care while delivering long-term shareholder value. In the first quarter, we also made meaningful progress on our other 2026 strategic priorities, driving additional growth for JORNAY and continuing to enhance the durability of our pain portfolio. For JORNAY, we delivered continued strong growth across prescriptions, prescribers and market share. Prescriber adoption reached another all-time high this quarter, reflecting the positive impact of our sales and marketing investments. We also delivered another solid quarter for our pain portfolio with total pain portfolio net revenues growing 4% year-over-year, driven by growth from both Belbuca and Xtampza ER. Steady cash flow generation from our pain portfolio continues to provide a strong financial foundation that supports our disciplined approach to capital deployment and business development. We are off to a strong start in 2026 and remain well positioned to continue executing against our strategy and deliver long-term value for our shareholders. In the first quarter, we demonstrated strong execution across our entire portfolio. JORNAY prescriptions grew by 14% year-over-year and generated $38.9 million in net revenue, up 36% year-over-year. Our pain portfolio generated $154.6 million in net revenue, up 4% year-over-year, reinforcing our confidence in its continued durability. We achieved both top and bottom line growth with total net product revenues up 9% and adjusted EBITDA up 9% year-over-year. In addition, we generated more than $57.1 million in cash from operations and ended the quarter with over $421.8 million in cash, up $35 million from the end of 2025. With a clear focus towards the future, we also successfully executed a key element of our capital deployment strategy, announcing the proposed acquisition of AZSTARYS in March. As mentioned, this acquisition will add a differentiated and highly complementary medicine to our existing portfolio, strengthening our position in ADHD. We believe AZSTARYS has significant future growth potential, and we plan to leverage our established commercial infrastructure and expertise to maximize its performance. The acquisition is expected to strengthen our ADHD portfolio, broaden our revenue base, support margin expansion and extend the longevity of our portfolio with patent protection through December 2037. The required waiting period under the Hart-Scott-Rodino Act has now expired, and we remain on track to close in the second quarter of this year. Turning now to other recent corporate updates. In the first quarter, our partner, Hikma Pharmaceuticals, launched authorized generic versions of both Nucynta and Nucynta ER. Our authorized generic agreement with Hikma supports our strategy to maximize the life cycle of our pain portfolio while maintaining patient access. This agreement provides us with a significant profit share, positioning us to compete effectively with potential third-party generics. In March, we launched our Embrace Your Sparkle campaign with Paris Hilton, who is treated with JORNAY to help manage her ADHD symptoms. This campaign aims to encourage broader understanding and open dialogues about ADHD. Together, we are reframing common stereotypes and highlighting experiences that are often part of living with ADHD, including the importance of talking to a doctor and finding an individualized treatment plan. In February, we announced a new partnership with Boston Legacy Football Club, a member of the National Women's Soccer League. Aligned with our commitment to healthier people, stronger communities, we are sponsoring a sensory room that will be available at every home game this season to help create an inclusive experience for all fans. In partnership with the organization known as Children and Adults with Attention-Deficit/Hyperactivity Disorder, also known as CHADD, we are designing this room to support comfort and regulation for fans who may need a break from the visual and auditory stimulation of a match day experience, helping ensure a positive and inclusive guest experience. More recently, in April, we announced updates to our Board of Directors. Dr. John Fallon will retire from our Board at our Annual Meeting of Shareholders on May 14. We thank Dr. Fallon for his years of service to our company, Board and shareholders. In addition, Michael Donovan has been nominated to join our Board, and his nomination will be presented for shareholder approval at the 2026 Annual Meeting. Mr. Donovan most recently served as an audit partner at Ernst & Young, where he has held several leadership roles. He brings financial expertise gained from over 36 years of extensive business, accounting and financial experience serving public and private companies in the life sciences industry. Finally, we remain dedicated to our commitment to leading with science. In the first quarter, we presented real-world data highlighting our ADHD and responsible pain medicines at the American Professional Society of ADHD and Related Disorders and PainConnect. These are important meetings for scientific exchange, and it was encouraging to see our medicines highlighted. As we look ahead to the rest of the year, we remain focused on 3 key priorities. First, we will continue to drive growth for JORNAY. In 2026, we expect to deliver $190 million to $200 million in revenue, an increase of 31% at the midpoint of our guidance range. As Scott will touch on later, we are seeing the positive impact of the sales and marketing investments we made in 2025 to raise awareness of JORNAY and drive growth. Second, we will continue to maximize the durability of our pain portfolio. Our pain medicines generate significant revenues and cash flows that will continue to support our future aspirations. And third, we remain committed to executing our capital deployment strategy, which balances business development, debt repayment and opportunistic share repurchases. In the near term, we are focused on closing and then seamlessly integrating AZSTARYS into our product portfolio, further accelerating our growth trajectory and increasing our impact within the broader ADHD community. We are confident that we can achieve our strategic priorities and remain well positioned for growth as we work to help improve the lives of patients and create long-term value for our shareholders. With that, I will turn it over to Scott to discuss commercial highlights. Scott Dreyer: Thanks, Vikram, and good morning, everyone. Our lead growth driver, JORNAY PM is off to a strong start to the year, building on the positive momentum we generated in 2025. In the first quarter of 2026, we grew prescriptions, prescribers and market share year-over-year. JORNAY is a highly differentiated medicine and the only ADHD stimulant with once-daily evening dosing that provides symptom control upon awakening through the afternoon and into the evening. Many patients, including pediatrics, adolescents and adults, report challenges starting their day, which is an area of key differentiation for JORNAY as it's already starting to work when patients wake up in the morning. In addition to efficacy upon awakening, symptom control throughout the day is important for most patients because it can eliminate the need for an additional booster at school or work and JORNAY delivers efficacy that lasts throughout the day. HCP perceptions of JORNAY are very positive and have gotten even better following enhanced commercial efforts. Based on new market research conducted in the first quarter of 2026, HCPs continue to give JORNAY a high favorability rating and rank JORNAY as the #1 branded ADHD medicine in terms of product differentiation with the score significantly higher than all other medicines in the same category. In addition, 70% of surveyed HCPs indicate a strong intent to increase prescribing, which was the highest among all other branded ADHD medicines. As we've previously highlighted, since acquiring JORNAY, we've made targeted investments strategically designed to increase awareness, specifically by increasing the size of our ADHD sales force and launching new digital marketing programs. We're highly encouraged by the latest market research, which shows that HCP awareness of JORNAY has significantly improved since last year. Unaided recall among targeted HCPs increased to 67%, up from 52%, approaching the awareness levels of established brands like Vyvanse and Concerta. Patient and caregiver requests for JORNAY also increased, and market research shows that when a patient or caregiver specifically asks to try JORNAY, more than 70% of HCPs will honor that request. We were particularly pleased to see that Collegium was ranked #1 in reputation among pharmaceutical companies specializing in ADHD. Health care providers rated Collegium sales representatives favorably, particularly in comparison to our competitors. And our messages around efficacy were seen as impactful and easily recalled. These results indicate that we're focused on the right messages and that our sales force is highly effective in delivering them. JORNAY continues to be the fastest-growing stimulant for the treatment of ADHD. In the first quarter of 2026, over 206,000 prescriptions were written, up 14% year-over-year. Importantly, we saw growth across both patient segments of the business, pediatrics and adults. In the first quarter of 2026, the pediatric and adolescent segment, representing about 80% of total prescriptions grew 12% year-over-year. The adult segment, representing about 20% of total prescriptions grew 23% year-over-year. JORNAY's broad prescriber base also hit an all-time high of approximately 30,000 in the first quarter, up 17% year-over-year. We continue to see growth in new prescribers along with increases in depth of prescribing among our targeted physicians. JORNAY's market share of the long-acting branded methylphenidate market grew to 26% this past quarter, up 5.8 percentage points year-over-year. In addition to increasing awareness among HCPs, caregivers and patients, 2026 growth opportunities include initiatives to increase depth of prescribing, improve patient persistency and deepen penetration in the adult market. Our research indicates that adult patients place greater importance on the need for morning efficacy than HCPs. We believe closing this perception gap between adult patients and their providers will help drive future prescription growth. Turning now to the proposed acquisition of AZSTARYS, which represents a highly complementary and differentiated addition to our ADHD portfolio. Despite several different treatment options available today, many patients struggle to find the right individual treatment solution. Market research indicates that on average, ADHD patients try about 3 different ADHD medicines before finding the right treatment. One benefit of adding AZSTARYS to our ADHD portfolio is that it's complementary to JORNAY, and it meets the needs of a different patient type. For patients who need efficacy upon awakening in the morning and throughout the day without the need for a booster medicine in the afternoon, JORNAY represents a unique treatment option. AZSTARYS is the first and only ADHD treatment with both fast and long-acting medicines in one capsule, providing patients with rapid efficacy about 30 minutes after they take it that lasts later into the evening. This is important because it offers flexibility for patients. For example, patients who may not have a consistent schedule and need rapid efficacy after they take their prescription in addition to duration of effect may be particularly drawn to AZSTARYS. Based on this different profile compared to JORNAY, AZSTARYS usage is a bit more weighted towards adults than JORNAY, with about 1/3 of prescriptions in adults and roughly 2/3 in children and adolescents. HCP perceptions of AZSTARYS are also very positive. In the same new market research I noted earlier, health care professionals rated AZSTARYS high in terms of product differentiation and brand favorability. Approximately 54% of HCPs indicated a strong intent to increase prescribing of AZSTARYS -- like JORNAY, we know that if a patient or caregiver specifically asked to try AZSTARYS, 70% of HCPs will honor that request. We're encouraged by these results, and it shows that perceptions of AZSTARYS are strong. We're receiving highly positive feedback from prominent KOLs regarding the potential addition of AZSTARYS to the Collegium portfolio, particularly regarding the opportunity to bring 2 best-in-class products together, 2 methylphenidate treatments that address distinct patient needs. KOLs also view this as an opportunity and an important signal for Collegium's long-term commitment to advancing care in ADHD. Like JORNAY, we see opportunities to raise awareness among HCPs, patients and caregivers by leveraging our commercial expertise and infrastructure. In summary, AZSTARYS is highly complementary to JORNAY, and both brands offer differentiated treatment options for different patient types in the stimulant segment of the market. The stimulant segment is large. In 2025, about 98 million stimulant prescriptions were written, and AZSTARYS and JORNAY each generated over 760,000 prescriptions. Given the differentiation of each brand and the size of the stimulant segment, we believe there's significant opportunity to increase market share moving forward. And importantly, the combination of both JORNAY and AZSTARYS into a single commercial organization will better serve the growing ADHD patient community and increase our standing among health care professionals. For the remainder of the year, we'll focus on driving accelerated growth for JORNAY and seamlessly integrating AZSTARYS into our ADHD portfolio following the acquisition close. We continue to launch new marketing efforts aimed at raising awareness of JORNAY among health care providers, patients and caregivers. Earlier this year, we launched our Embrace Your Sparkle campaign with Paris Hilton to help encourage a broader understanding and open dialogue about ADHD. Finally, we remain committed to maintaining broad patient access for JORNAY. As we announced earlier this year, we secured new formulary access under a major commercial health plan, which went into effect on May 1, increasing JORNAY's coverage for an estimated 4.5 million covered lives. Driven by these strategic investments and continued commercial execution, we're confident we can deliver significant prescription growth and achieve our JORNAY net revenue guidance. Lastly, as we approach the expected close of the AZSTARYS acquisition, -- we're focused on rapidly integrating this medicine into our portfolio and leveraging our commercial infrastructure and capabilities to drive additional growth of the brand while generating meaningful operational efficiencies. We look forward to keeping you updated on our continued progress. Turning now to our pain portfolio. Collegium is the leader in responsible pain management with a unique and differentiated portfolio of medicines. Belbuca, Xtampza ER and Nucynta ER collectively represent about half of the branded ER market. Our pain portfolio is highly differentiated with strong brand fundamentals. Belbuca remains the only long-acting opioid medicine that uses buprenorphine buccal film technology. In market research, it was ranked as the #1 branded ER opioid in terms of differentiation and favorability. Similarly, Xtampza, the only extended-release oxycodone medicine that uses our proprietary best-in-class abuse-deterrent technology, DETERx, was ranked as the #1 ER oxycodone medicine in terms of differentiation and favorability. In the first quarter, we delivered consistent performance in our pain portfolio, which continues to fuel the financial foundation of our business. We grew revenues for both Xtampza and Belbuca year-over-year, in line with our expectations. Revenues from the Nucynta franchise, including revenues associated with our authorized generics were stable, which was also in line with our expectations. As expected, prescriptions for all products were pressured by typical first quarter dynamics where deductibles reset and out-of-pocket costs increased for patients. Overall, performance across the pain portfolio was positive, reinforcing our belief that the life cycle of these medicines may prove to be longer and more robust than is currently appreciated in the market. We remain committed to maximizing the revenue from our overall pain portfolio while maintaining broad payer coverage. In closing, our commercial team started the year strong, delivering solid performance across both ADHD and pain. For the rest of the year, we'll concentrate on driving further growth for JORNAY, maximizing the value of the pain portfolio and seamlessly integrating AZSTARYS. I'll now hand the call over to Colleen to discuss financial highlights. Colleen Tupper: Thanks, Scott. Good morning, everyone. We are encouraged by our first quarter results, which reflect significant JORNAY PM growth, consistent pain portfolio performance and robust cash generation. Total net product revenues were $193.5 million in the quarter, up 9% year-over-year. JORNAY net revenue was $38.9 million in the quarter, up 36% year-over-year. It is important to note that JORNAY's year-over-year comparison is impacted by approximately $4 million of destocking that occurred in Q1 of 2025. This created a lower prior year comparator. Belbuca net revenue was $52.6 million in the quarter, up 2% year-over-year. Xtampza ER net revenue was $50.8 million in the quarter, up 7% year-over-year. Total Nucynta franchise net revenue was $47 million in the quarter, flat year-over-year. This includes $2.7 million in revenue from the profit share on the authorized generic versions of Nucynta and Nucynta ER distributed by Hikma. GAAP operating expenses were $86.4 million in the quarter, up 14% year-over-year. Non-GAAP adjusted operating expenses were $69.3 million in the quarter, up 11% year-over-year. The increase in operating expenses includes the targeted investments we made to drive JORNAY growth, including the expansion of our sales force and new marketing campaigns. As a reminder, 2026 results will include the full year impact of these investments. GAAP net income was $14.5 million in the quarter, up 500% year-over-year. Non-GAAP adjusted EBITDA was $103.9 million in the quarter, up 9% year-over-year. GAAP earnings per share was $0.45 basic and $0.40 diluted in the quarter compared to $0.08 basic and $0.07 diluted in the prior year quarter. Non-GAAP adjusted earnings per share was $1.76 in the quarter compared to $1.49 in the prior year quarter. Please see our press release issued earlier today for a reconciliation of GAAP to non-GAAP results. We generated operating cash flows of $57.1 million in the first quarter. And as of March 31, 2026, we had $421.8 million in cash, cash equivalents and marketable securities, up $35.1 million from the end of 2025. Our strong financial position enabled us to continue to execute our capital deployment strategy and enter into an agreement to acquire AZSTARYS. As previously announced, we plan to acquire AZSTARYS for $650 million in cash. Corium shareholders may also be eligible for up to $135 million in potential additional payments contingent on future commercial and manufacturing milestones. We plan to fund the acquisition through a combination of $350 million in cash on hand, a testament to the strength of our underlying business and $300 million from our delayed draw term loan. We estimate that our net debt to adjusted EBITDA will be approximately 2x following the close of the transaction and our future cash flows from operations will continue to support -- will support continued rapid delevering. Importantly, we expect the deal to be immediately accretive to adjusted EBITDA and estimate that AZSTARYS will generate over $50 million in pro forma net revenues in the second half of 2026. We also expect to generate more than $50 million of cost synergies within 12 months following deal close based on our ability to leverage our existing ADHD commercial infrastructure. The addition of AZSTARYS is also expected to meaningfully extend our revenues through 2037 as AZSTARYS is protected by 6 Orange Book patents, most of which don't expire until December 2037. We are on track to close the acquisition in the second quarter of this year. We are reaffirming our current 2026 financial guidance, which reflects our existing business, not including the impact of the proposed acquisition of AZSTARYS. We expect total product revenues in the range of $805 million to $825 million. This represents a 4% increase year-over-year, driven by JORNAY growth and durable revenues from our pain portfolio. We expect JORNAY revenue to be in the range of $190 million to $200 million, a 31% increase year-over-year. We expect JORNAY gross-to-net to remain stable in 2026 in the mid-60% range. As a reminder, gross to nets tend to fluctuate on a quarterly basis, and we expect gross to net to be highest in the first quarter and higher in the first half of the year compared to the second half due to typical seasonal dynamics. We expect adjusted EBITDA in the range of $455 million to $475 million, up 1% year-over-year. We plan to provide updated 2026 financial guidance for the combined business, including AZSTARYS after the acquisition closes. Our capital deployment strategy is focused on creating long-term value for our shareholders by executing on business development, paying down debt and opportunistically returning capital to shareholders. Our proposed acquisition of AZSTARYS is a result of our thoughtful and disciplined business development approach. We have a long track record of successful business development and a proven ability to rapidly integrate commercial products and accelerate their growth. After closing the AZSTARYS acquisition, we estimate that our net debt to adjusted EBITDA will be approximately 2x, and we remain committed to rapidly delevering consistent with our capital deployment strategy. Finally, we continue to consider opportunistic share repurchases as an important tool to return value to shareholders. Since 2021, we have returned $222 million in value to shareholders and currently have $150 million remaining in the share repurchase program that has been authorized by our Board through December 31, 2026. I will now turn the call back to Vikram. Vikram Karnani: Thank you, Colleen. 2026 is off to an exciting start. We are focused on our strategic priorities of driving significant growth for JORNAY PM, maximizing the durability of our pain portfolio and executing on our capital deployment strategy, including closing and rapidly integrating AZSTARYS into our portfolio. The addition of AZSTARYS strengthens our ADHD portfolio, accelerates our growth trajectory and increases our top and bottom line potential. This represents an important strategic step forward as we build a leading diversified biopharmaceutical company, create long-term value for our shareholders and deliver meaningfully differentiated medicines for patients. We are grateful to the patients who rely on our medicines, the health care professionals who care for them and our employees whose execution continues to drive our progress. I will now open up the call for questions. Operator? Operator: [Operator Instructions] Our first question today comes from the line of Brandon Folkes with H.C. Wainwright. Brandon Folkes: Congrats on a very good quarter. Maybe just 2 from me. Can you talk about once you bring AZSTARYS into the portfolio? How do you balance the focus on going deeper with both brands in the current 30,000 prescribers you called out on JORNAY? Are you looking to grow the breadth of prescribers once you bring in AZSTARYS? And then can you just update us on your thinking in terms of positioning the 2 brands in the reps bag and in terms of prioritizing a reps call in front of a physician? How do you balance those 2 products? Is it different per physician? Just help us think through that. Vikram Karnani: Thanks, Brandon. Maybe I'll kick us off, and then I'll invite Scott to offer some more color. So it's important to remember that AZSTARYS and JORNAY are highly complementary to each other. And as a reminder, the reason for that is because they appeal to different patient types. right? I think in our prepared remarks, we mentioned that if a patient needs efficacy upon awakening in the morning, physicians think about JORNAY as the appropriate medicine for them. However, if you are a patient that has less structured schedule, for example, and are more in need for rapid onset of action and that impact lasting throughout the day, AZSTARYS may be more appropriate for you. So at the core of our commercial strategy and our positioning is that important differentiation between those 2 medicines and the patient types. Maybe Scott can elaborate a little bit further on the go-to-market balance between having those 2 products in the same bag. Scott Dreyer: Yes. I think in terms of the positioning and the balance, one thing that's important to reinforce is there's also obviously a high overlap of physicians. So I mentioned the 30,000 prescribers for JORNAY. AZSTARYS in the first quarter had almost 26,000 prescribers and they're high overlap. So it's the same targets that we're going to. You asked if we're here to grow both, the answer is yes. We're looking to grow products. And the positioning is very clear. The positioning is focused on the differentiated patient type that Vikram mentioned. At the physician level, we'll determine prioritization of order. But the biggest thing to take away is we will grow both products with a focus on those clear patient types. The other thing I'll just reinforce is the physician perceptions of both drugs are so strong. So in my commentary, I mentioned JORNAY is #1 on product differentiation and favorability, high future intent to prescribe. AZSTARYS is ranked just a little bit below that, also very high on product favorability, differentiation, future intent to prescribe. So you put all that together, and it just puts us in a place to leverage the breadth of this portfolio and grow both brands going forward. Operator: The next question is from the line of Les Sulewski with Truist. Jeevan Larson: This is Jeevan on for Les. Yes. So I was wondering if you could just describe how your success with JORNAY reads through to a similar trajectory for AZSTARYS. And also, how should we think about your longer-term strategy in ADHD versus maybe expanding into adjacent CNS or psychiatric complaints? Vikram Karnani: Yes. Thanks, Jeevan. Maybe Scott take the first one, and I can pick up the second one on future adjacencies. Scott Dreyer: Yes. No, it's a great question. Look, the first thing I want to reinforce is when you look at AZSTARYS Corium did a really good job launching the product, right? They got momentum going. They grew the brand. I mentioned prescribers, but with limited resources. And so when I look at the overlaps of what we've done with JORNAY, part of this acquisition is the fact that we can effectively leverage our expertise, leverage the learnings, what we've done from both a physician and a consumer standpoint and our financial wherewithal to invest in AZSTARYS from here to grow. And that's the focal point of kind of what we'll do as we'll bring both brands together. Vikram Karnani: Yes. And I'll take the question on adjacencies. Look, as we've said before, our business development approach remains focused on acquiring commercial or commercial-ready medicines that are primarily in the areas where we already have made significant commercial investments. To the extent that, that is actionable and to the extent that there are differentiated medicines at the right profile, that would be an area of focus. However, we are also aware of the fact that we are open to exploring other adjacent areas, both within CNS, but also outside of it. The bar is higher from a business development standpoint there. We want to make sure that we are acquiring assets that can be grown through efficient sales and marketing approach. And part of that is leveraging what we have or those areas that may not need significant investments in sales and marketing. And we've talked previously about an example of that being rare disease. So our strategy remains unchanged in terms of how we are looking for further growth through further business development. Operator: The next question is from the line of Dennis Ding with Jefferies. Unknown Analyst: This is [Anthea] on for Dennis. Congrats on the quarter. Two questions from us. One, we'll see early data from an orexin agonist in ADHD in the second half. So I'm just curious how you're framing readouts from that class of drugs? And if you expect any impact to JORNAY or AZSTARYS? And then secondly, how should we think about the impact of the Nucynta AG and other generics over the next several quarters? I think IQVIA is showing 75% and 50% share of the branded still in ER and IR. Is that aligned with what you were expecting and what's contemplated in the guidance? And do you expect that to stabilize? Vikram Karnani: Thank you. I think if your first question, if I understood you correctly, was around the early data that you're seeing from a different class of medicines, look, I think there's a lot that still needs to be proven out. We look at the data. We're following the data. But until something -- until we have more information until these drugs are further along in their development programs, I don't think we would want to speculate or comment. What we believe we have in the near future is our 2 potentially very differentiated medicines in AZSTARYS and JORNAY PM. And we look forward to continuing to drive growth for both products, as Scott said, within the ADHD community. And with that investment, that makes us one of the most committed organizations that are serving the ADHD community. Colleen, do you want to take the Nucynta question? Colleen Tupper: Yes, absolutely. On the Nucynta front, what I would say is our 2026 revenue guidance remains unchanged. The total revenue -- net revenue guidance of $805 million to $825 million contemplates the impact of the various generic dynamics. And thus far, we don't see anything that changes our expectations. Operator: Our next question is from the line of Serge Belanger with Needham & Company. Serge Belanger: First one regarding the ADHD portfolio. Can you remind us about access, whether both JORNAY and AZSTARYS will have comparable access once both products are under your control? And then secondly, regarding the pain portfolio, had a pretty nice performance over 1Q. I know that the scripts were down pretty significantly for a couple of products year-over-year. So just curious what drove the performance here? I know you took a price increase, but were there other factors that led to the better performance than expected? Vikram Karnani: Yes. I think on the ADHD portfolio, I think it's important to understand, both JORNAY as well as AZSTARYS are in a very good position from an overall payer coverage standpoint. So access is available to patients. And I think for us, from a forward-looking standpoint, we will -- we've always been committed to making sure that we provide or we support broader coverage, broader access and support patients via -- and reduce or try to help them control their out-of-pocket expenses with a good co-pay assistance program, and that will be our approach going forward. And on the pain products, the specifics on the financials, maybe Colleen take that question, please. Colleen Tupper: Absolutely. So for both Xtampza and Belbuca, as expected, Q1 dynamics were at play on the volume front. The year-over-year growth is driven by profitability improvements in line with our payer strategy, combination of the price increases and a little bit of gross to net benefit as well. Operator: The next question is from the line of David Amsellem with Piper Sandler. David Amsellem: A couple for me. First, on the sales force for ADHD, can you just remind us what portion of ADHD prescribers or ADHD volumes your current sales organization covers? And then over time, what do you aspire to in terms of coverage of both prescribers and volumes? -- in terms of your commercial infrastructure for ADHD. So that's number one. And then number two, as you look at JORNAY and maybe to a lesser extent, AZSTARYS, heavily weighted towards pediatric use. I guess over time, what's your view on the mix between peds and adults and where that could evolve to for both products, particularly JORNAY since it's been so heavily skewed towards the pediatric setting? Vikram Karnani: Yes. Thanks, David. Scott, maybe you want to take both and if you have any other commentary on that. Scott Dreyer: Yes, sure. So first, starting off with sales force. If you look at how we're currently structured, I think the main thing I want to reinforce is we size to effectively cover the market, right? So there's no piecemeal approach to our sizing. If you look right now, it's a pretty concentrated business. So about 20,000 physicians cover 1/3 of all TRxs in the country, right? And so we go to about 25,000. That gives us about 60% coverage of the branded market. And that's exactly as optimal as we can do without going to white space and being inefficient. So we're sized right. Now as we bring in AZSTARYS, we're doing the work to figure out exactly any tweaks we'd make on the footprint. But the main thing I want you to know is we will optimally size to cover the market, and that's what we do now. Second, when it comes to JORNAY, what was the second question? Vikram Karnani: The second question was about the mix of adult and peds. Scott Dreyer: Yes. So mix of adults and peds. So the first thing is you look, they're both methylphenidate products, right, David. And so that market is about 70%, 30% peds. AZSTARYS leans a little bit more to adult, we think mostly driven by the profile of the drug and the fact that you take it and get 30-minute efficacy quick, it's a little more flexible dosing for flexible schedules. That pushes it a little more adult. For JORNAY in the 80-20 that we're at now, we do expect to continue to penetrate more into the adult market, which would drive a little bit of a mix difference. And the primary driver of that is what I mentioned is this insight we have that there's a bit of a disconnect that adult patients, about 50% say they actually need efficacy immediately upon awaken, right? What JORNAY provides, you wake up, the drug is already working, and yet HCPs don't view that need as highly. And so we'll be leaning into that and expect that our growth will continue there. Overall, we're growing volume very well in both segments right now. So right, 14% in the first quarter. That was 12% year-over-year ped growth. That was 23% adult growth. So we're growing now, but we expect the mix to continue to shift. Operator: At this time, this will conclude our question-and-answer session. I'll hand the floor back to Vikram for closing remarks. Vikram Karnani: Thank you. Thanks to everyone for joining our call, and hope you have a wonderful day and weekend. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation, and have a wonderful day.
Operator: Thank you for standing by, and welcome to Targa Resources Corporation's First Quarter 2026 Earnings Webcast and Presentation. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Tristan Richardson, Vice President, Investor Relations and Fundamentals. Please go ahead, sir. Tristan Richardson: Thanks, Jonathan. Good morning, and welcome to the First Quarter 2026 Earnings Call for Targa Resources Corp. The first quarter earnings release, a supplement presentation and our latest investor presentation are available in the Investors section of our website at targaresources.com. Statements made during this call that might include Targa's expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our latest SEC filings. Our speakers for the call today will be Matt Meloy, Chief Executive Officer; Jen Kneale, President; and Will Byers, Chief Financial Officer. Additionally, members of Targa's senior management will be available for Q&A, including Pat McDonie, President, Gathering and Processing; Ben Branstetter, President, Logistics and Transportation; Bobby Muraro, Chief Commercial Officer. I'll now turn the call over to Matt. Matt Meloy: Thanks, Tristan, and good morning. This year is off to a pretty remarkable start here at Targa. We had record first quarter adjusted EBITDA, Permian volumes and NGL fractionation volumes despite the impacts of severe winter weather and periodic producer shut-ins from weak Waha gas prices. We are continuing to see strong production activity in the Permian and are on track for our volume forecast this year despite being impacted by more shut-ins than we previously estimated. A huge thank you to our field operations and engineering employees who worked tirelessly to support our producer customers through very cold weather across much of late January and early February and to also quickly resolved an unplanned outage towards the end of the quarter at a portion of our LPG export facility. The efforts by the Targa team supported another record quarter and strong start to the second quarter. The short, medium and long-term outlook for Targa growth has continued to improve. Higher prices and supply disruptions in the Middle East create tailwinds for our business and underscore the importance of secure and reliable energy supply for the United States. With growing cost-advantaged natural gas and NGL supply from the Permian Basin and significant expansions underway across our integrated value chain, Targa is well positioned to meet the growing demand for natural gas and NGLs across domestic and global markets. We believe that there are significant advantages to being on the Targa platform, a track record of constructing Permian gas processing plants on time or early. We have the largest system with best-in-class redundancy and fungibility across the Permian Basin, and we continue to invest and grow our system as further evidenced by 2 additional gas processing plants in the Permian Delaware announced today. We have a large and growing portfolio of transportation assets in both NGLs and intra-basin residue gas, a leading fractionation footprint in Mont Belvieu with Train 11 now online, 5 trains added over the last 6 years and Trains 12 and 13 currently under construction. And our LPG export facilities, which we are expanding our capacity to more than 19 million barrels per month time very well for the increase in demand for long-term LPG export contracts. Looking back over the last 6 years, we have brought into service 27 major projects, including 16 Permian processing plants, 5 fractionators and 3 NGL transportation pipelines with every one of these major projects over this period coming online on time or ahead of schedule. We have also successfully and seamlessly integrated several Permian acquisitions. This track record of execution is a credit to our best-in-class engineering and operations teams and to our commercial team for continuing to identify attractive opportunities to grow our footprint. Today, we increased our adjusted EBITDA outlook for 2026, which is bolstered by continued and disciplined production growth from our customers and a strong opportunity set in our downstream business across LPG export and marketing and optimization opportunities. This increase highlights Targa's strength and the durability of our business across environments. At Targa, we continue to focus on execution and believe the strength of our large integrated asset footprint positions us to be successful across commodity environments as we continue to invest in attractive integrated opportunities and return increasing amounts of capital to our shareholders. Targa now has more than 3,600 employees. And before I turn the call over to Jen, I want to express my thanks to all my colleagues. We have a lot of positive momentum and a lot going on. And as we discuss internally all the time, safety is our first priority. So a huge thank you to our employees for their continued focus on safety. Jennifer Kneale: Thanks, Matt. Good morning, everyone. Operationally, it was a solid quarter as our Permian natural gas inlet volumes were a new record, primarily driven by the successful integration of and volume contributions from our acquisition that closed at the beginning of the year as well as continued strong producer activity, partially offset by the impacts of Winter Storm Fern and other severely cold weather plus some gas price-related shut-ins. Currently, our Permian volumes are more than 250 million cubic feet per day higher than the first quarter average, even with more shut-ins to start the second quarter from some of our producers given weaker Waha natural gas prices. Average volumes through the first 4 months of the year are consistent with what we forecasted coming into this year, which is remarkable given we currently have between 200 million and 400 million cubic feet per day of Permian gas temporarily shut in by producers on any given day, depending on what is happening with gas prices. And while it is difficult to predict with precision how producers are managing egress constraints in the short term, we continue to feel good about our low double-digit Permian volume growth estimate for 2026. Importantly, we have demonstrated the strength of our strategy and resiliency over the last several years by ensuring that we have sufficient takeaway capacity from the Permian for our producers and by continuing to identify marketing optimization opportunities through our growing portfolio of natural gas transportation assets. We expect that marketing opportunities will continue likely until later this year when incremental Permian egress capacity is added. We are also continuing to execute on our major projects along our Permian footprint to accommodate the growth from our customers. In Permian Midland, our East Pembrook plant, which was scheduled for the second quarter, began service early starting at the end of the first quarter. Our East Driver plant remains on track to begin operations in the third quarter of 2026. In Permian Delaware, our Falcon II plant successfully came online in the first quarter, and our Copperhead, Yeti 1 and Yeti II plants remain on track to begin operations as previously announced. Our new Permian Delaware plants announced today, Roadrunner III and Copperhead II are both expected to begin service in the first quarter of 2028, which will be much needed to accommodate the expected growth from our customers in the very active Delaware Basin. We have multiple Permian intra-basin residue projects on track as scheduled that will add connectivity and fungibility across our system for our customers and offer access to multiple premium markets. Additionally, we expect Blackcomb, a natural gas pipeline in which we have an equity interest, will provide much needed egress relief for the Permian when in service in the fourth quarter of this year. Traverse will further enhance market connectivity when it comes online in mid-2027. The Permian natural gas egress environment is set to improve as we exit 2026 and the prospects for sustained higher Waha gas prices with improved egress will be a positive for Targa and our Permian producers. Shifting to our Logistics and Transportation segment, Targa's NGL pipeline transportation volumes averaged 1.02 million barrels per day and fractionation volumes averaged a record 1.145 million barrels per day during the first quarter. Both transportation volumes and fractionation volumes were impacted by the winter weather and shut-ins that impacted our G&P volumes, but consistent with what we are seeing in G&P have rebounded nicely as the underlying fundamentals of our business remain very strong. We are also making great progress on some of our key downstream projects as our Delaware Express NGL pipeline is currently in startup and our Train 11 fractionator began operations early in the second quarter. Speedway, our large expansion of our NGL pipeline transportation system remains on track for the third quarter of 2027 and Trains 12 and 13 remain on track for the first quarter of '27 and the first quarter of '28. With 4 Permian plants now in service since we announced Speedway and 6 Permian plants now under construction, we continue to expect a meaningful and growing supply of available NGLs behind our system to baseload Speedway's initial capacity of 500,000 barrels per day and supply our Mont Belvieu fractionation and LPG export footprints. Turning to our LPG export business at Galena Park. Our loadings averaged 13.1 million barrels per month during the first quarter despite the unplanned outage at a portion of our facility that reduced our loadings towards the end of the first quarter and early in the second quarter. Our LPG exports are highly contracted, and our team is doing a great job of trying to figure out how to support the high global demand by getting incremental volumes across the dock. We have some flexibility at our facility to move more butanes during periods of high demand and have been able to secure some additional contracts across this year that we expect will drive record Targa loadings in the second quarter. Longer term, we are in a really good position to continue to secure incremental multiyear contracts given the increasing supply that will be in our system through all of our G&P, transportation and fractionation expansions underway and increased global demand for U.S. Gulf Coast LPGs. We expect our large LPG export expansion will be much needed when it comes online in the third quarter of 2027. We are exceptionally well positioned operationally and believe that our wellhead-to-water strategy driven by activity in the Permian Basin will continue to put us in excellent position to execute for our customers and shareholders. I will echo Matt's appreciation for all of our employees that are focused on delivering for our customers and are doing it safely and with great pride. Your efforts are greatly appreciated. I will now turn the call over to Will to discuss our financial results and outlook in more detail. Will? William Byers: Thanks, Jen. Targa's reported adjusted EBITDA for the first quarter was $1.4 billion, which is 5% higher sequentially. The increase was primarily a result of contributions from our Permian Basin acquisition, which closed in early January and from optimization opportunities in our marketing businesses. The increase was partially offset by winter weather that impacted both G&P and L&T volumes. We are increasing our estimate for full year 2026 adjusted EBITDA to be in a range of $5.7 billion to $5.9 billion. The new midpoint is $300 million higher than what we provided in February, supported by higher first quarter adjusted EBITDA than we were estimating, meaningful natural gas marketing and LPG export opportunities for the full year and continued strong performance of our underlying businesses. We continue to estimate net growth capital for 2026 of approximately $4.5 billion, with no change despite announcing 2 new Permian gas plants today. We also continue to estimate 2026 net maintenance capital spending of $250 million. In March, we successfully completed a $1.5 billion debt offering comprised of 4.35% notes due 2031 and 6.05% notes due 2056. As a result, we are in an excellent liquidity position as we execute on our capital program. At the end of the first quarter, we had $3.1 billion of available liquidity and our pro forma consolidated leverage ratio was approximately 3.6x, well within our long-term leverage ratio target range of 3 to 4x. Shifting to capital allocation, our focus is more of the same from Targa, maintain our strong investment-grade balance sheet, continue to invest in high-returning integrated projects and return an increasing amount of capital to our shareholders. We declared a first quarter common dividend of $1.25 per share, which is a 25% increase relative to the first quarter common dividend for 2025. We also opportunistically repurchased $55 million in common shares at an average price of $241.43 per share during the first quarter. We expect another record year at Targa across multiple dimensions and remain well positioned to create value for shareholders over the long term. And with that, I will turn the call back over to Tristan. Tristan Richardson: Thanks, Will. For the Q&A session, we ask that you limit to 1 question and 1 follow-up and reenter the queue if you have additional questions. Jonathan? Operator: And our first question for today comes from the line of Jeremy Tonet from JPMorgan Securities. Jeremy Tonet: Just want to start off with the Waha basis, if we could, and I guess, the impacts on the basin and Targa going forward here. There's a lot of production that seems being curtailed with the low prices. And just wondering how you see the interplay between GCX and other pipes coming online over the balance of this year, how the basis trends and when these curtailed volumes could return? And then at the same time, the interplay with the uplift that you have gained on the marketing. Just wondering if you could provide some color on how you think that mixes together over the balance of the year. Jennifer Kneale: Jeremy, this is Jen. I'd say that Waha is largely playing out as we expected this year, which is that as we go through the year ahead of the incremental pipes coming online as well as the GCX expansion, it's going to continue to be really tight. And I think you are seeing that manifest really all throughout this year. And it's arguably going to continue to get worse before it gets better as we think about the cadence of volume growth that we're seeing on our system and that we're seeing more broadly in the Permian and how that interplays with not enough takeaway capacity. I think importantly, from Targa's perspective, we have available capacity to ensure that our producers' volumes flow, which is, of course, of paramount importance to us in making sure that we are delivering for our customers. So for us, it's not physical constraints. It's really the interplay of prices that are resulting in some producers making decisions, frankly, day by day, week by week to shut in volumes in certain areas within our footprint. And I think that's largely based on a view of when there's planned maintenance on pipes coming, that creates more visibility to the fact that it could get a little bit tighter and that could create more weakness in pricing. And of course, if there's unplanned maintenance, then that impacts the basin as well. As we look forward, the GCX expansion and then Blackcomb and [indiscernible] will bring much needed relief, and we believe that we will see that collapse in basis, and we'll have significant capacity of Permian egress, call it, towards the end of this year and heading into 2027. [Technical Difficulty] and prices relative to what we see today for Waha. Jeremy Tonet: That's helpful. And is it fair to say, I guess, the guidance bakes in optimization kind of only what's visible right now? Or just trying to get a sense for how that fits in. Jennifer Kneale: I'd say that we tend to be very conservative about how we forecast optimization opportunities. So we've got 4 months of visibility that's realized so far this year. And then, of course, we've got some visibility into what our expectations are for May. And then beyond that, we try to be modest about how we forecast marketing benefits across a range of scenarios. So really, the guidance uplift for 2026 is driven by strong fundamentals, as we've talked about on the volume side, what we've seen year-to-date on the marketing side, plus some modest expectations for go forward and then just increasing demand for global LPGs where we've been successful operationally in managing to plan to get an incremental cargo or cargoes across our dock across this year as well. So it's a confluence of factors, but the fundamentals are just really strong at Targa, and it sets us up exceptionally well exiting this year. Jeremy Tonet: Got it. That's very helpful. And if I could just follow up on that last point real quick, the LPG export dynamics. Just wondering how much upside that could bring here and particularly as it relates to, I guess, the butane side, as you said, and just wondering what that looks like and what you see. Benjamin Branstetter: Jeremy, this is Ben. I think you hit on a key point. As you know, we did have an outage in the first quarter. And I just want to, first of all, say thanks to our operations and engineering team again for bringing it back so quickly. But also thanks to our commercial team and our customers. It was really a hand-in-hand exercise to get as much as we could across the dock during it and then afterwards. And then part of us getting back on track and having line of sight to additional spot volumes across the dock is, of course, the product mix. And so what we've seen as a result of the Iran conflict is an additional call on butane. So we're working with our core portfolio of customers to move more butane across the dock as they need it and the world needs it. And then that does have the additional benefit of freeing up space on the dock for additional cargoes as we co-load that product. So of course, we came into the year, as we always do, very well contracted across the dock, but that does -- ultimately, that product mix does shift a little dock space in our favor. Operator: And our next question comes from the line of Michael Blum from Wells Fargo. Michael Blum: I wanted to ask -- notwithstanding the recent curtailments and the Waha weakness, I'm curious if you're seeing any change in producer conversations or planned activity in light of the higher price deck and just the Middle East volatility. Matt Meloy: Yes, sure, Michael. I think what we're seeing is just really continued strong activity across our footprint. We haven't seen any dramatic changes in response to prices moving up. I think we would suspect as the prices stay elevated for longer and the back end of the curve moves up, I would anticipate there to be some tailwinds for us as we kind of look out into '27, '28 and beyond. But I think what we're seeing this year is just really strong activity, continued, I'd say, outperformance on the gas side. As Jen mentioned, with 200 million to 400 million shut-in, we're on track with our volumes. I would say kind of coming into this year, thinking there could be some downside to volumes for the year for us, given all the expected shut-ins that we're going to have, it was just kind of a big unknown. I think we're -- now that we're in the midst of really weak Waha prices and that our volumes are on track. I think it sets us up well for kind of back half of this year when that egress comes on for a volume picture and then going into '27. So I'd expect producers to continue to drill. We've even had some tell us that they're kind of pushing and delaying some of their completions and activity into the back half of this year. And so even with some of that happening, us being on track for our volumes in the first part of the year with these shut-ins, I think it just paints a really good picture for us as that activity ramps when there's sufficient egress on the gas side. Michael Blum: Got it. And then just on the LPG exports, I wanted to ask a little bit of a longer-dated question. I'm just -- clearly, you're seeing an uptick in demand, as you would expect. I'm wondering if you think you'll see higher rates or perhaps longer contracts going forward in light of just the global volatility in that market? And quarter beyond what you've already committed to, what's in flight in terms of expansions, do you think you could see even further expansions of your LPG capacity? And do you have the room to do that if demand was there? Benjamin Branstetter: Michael, this is Ben. In terms of expansions, I'd just step back and point to our export program is really part of our integrated system. So that's something that we're looking back to the wellhead across our millions of dedicated acres and seeing what kind of supply we have coming out of the Permian and really across the U.S. And so as we look at expansions, we're really looking at our integrated supply footprint. And clearly, we're very bullish about that, and we see it growing '26 and into '27. And so we'll keep monitoring that and to the extent we see the need for additional chilling to move product through the system. That will, of course, be a nice expansion that we have room for at our Galena Park facility and would be a really relatively inexpensive next step for another chiller. So that always remains on the horizon. And then in terms of -- you asked about rates and contracts, I'd just say, as I mentioned earlier, on butane, we have seen just additional long-term -- near-term and long-term interest in firm butane volumes. So over time, if that's sustained, we could move a little more than we had initially thought out of our export facility. And then I'd say just generally on the contracting side, we are, of course, working with our current portfolio of customers. And then we have more inbounds than I've certainly ever seen just from others across the world, thinking about getting into the U.S. LPG export market, the surety of supply that comes with working with us here. And I'd say those are multiyear contracts that we are in discussions on and have been actively closing. So I think it's a very constructive environment for us to continue to be highly contracted across our export facilities. Operator: [indiscernible] Unknown Analyst: Just on the processing side, it seems like you've seemingly been announcing new capacity every quarter here recently. Just curious how you're thinking about the cadence of new plants from here and if you see potential upside to the 3 plant per year run rate that you've outlined in the past? Jennifer Kneale: This is Jen. I think ultimately, it will be the pace of producer activity of our, what I'll call sort of foundational existing contracts already in place and then the cadence of new contract adds that our best-in-class commercial team are working on securing day in and day out that will ultimately dictate how much incremental capacity we need on the processing side and of course, what that will mean for incremental assets that we'll need all along the value chain. I think that we've got a great set of customers. We continue to add contracts. We feel very, very good about the short, medium and long term. You see the cadence of plant adds that we've got going now with the addition of Roadrunner III and Copperhead II. So we'll have 3 plants online in '27, now 2 plants online in the first quarter of 2028. And I think whether it's 3 plants more or less, that's ultimately going to be dictated by producer activity. But I think we're feeling very bullish about really the short, medium and frankly, long term for continued activity and growth from our Permian Basin contracts that are already in place. And I think that puts us in great stead to just continue to have a portfolio of growth looking forward. But it's a little bit hard to predict 2, 3, 4 years out what exactly the cadence of plant adds will be. I think the fact that we've got 50 plants built and in progress is recognition that we've got the largest footprint across the basin, which puts us in a great position to compete for incremental contracts as well with the most reliable, most fungible, most redundant system already in place where we've just continued to have a cadence of plant adds year in and year out and bringing those online on time or early, as Matt described in his remarks, is just a testament to our outstanding team. And I think, again, just puts us in a really good position to continue to capture growth going forward. Unknown Analyst: That's helpful. And maybe just to follow up on your comment there about that process and kind of feeding down the value chain. Can you just remind us your latest expectations here just in terms of how quickly you expect Speedway to ramp once online? And then realize you have 2 more fracs in the works already, but I guess how soon might you need to start thinking about another frac as well? Jennifer Kneale: I think we tried to provide pretty good visibility on the ramp of Speedway by both talking about fairly early that we were going to be overcapacity on our existing Grand Prix line, which meant that we were going to need to utilize third-party offloads, which you can expect we are currently doing and that when Speedway comes online, those volumes will be available to baseload over to Speedway. And then as I described in my scripted remarks, all of the plants that have come online since we announced Speedway as well as all the incremental plants that we've added since then, mean that we are in a really good position to generate a very attractive rate of return on our Speedway investment similar to what we did for Grand Prix and have, I think, good visibility to continued plant adds beyond the 2 that we announced this morning, which will, again, bring a lot of incremental NGLs in our system, and those will move down our pipeline to our fractionation footprint, and then we'll have incremental propanes and butanes available for export. Operator: And our next question comes from the line of Keith Stanley from Wolfe Research. Keith Stanley: How much of the '26 guidance raise would you attribute to marketing with the wide Permian gas spreads and spot LPG exports versus more core volume and margin outperformance in the business? And I'm trying to get at how much of the pretty meaningful guidance raise is repeatable beyond 2026? Jennifer Kneale: Keith, this is Jen. I'd say it's a combination of factors. But certainly, when we forecasted our guidance for 2026 in February, we probably sounded a little bit conservative even on that call in saying that given the visibility we were seeing and the fact that we had only included modest marketing gains, there was definitely the potential for upside there, and we're definitely seeing that play out for this year. But I think what you also heard me say in some of my earlier comments was that what we are including in the revised guidance range is still a relatively modest set of outcomes for the balance of the year. Good visibility to the first 4 months of the year that are realized, good visibility to May. But beyond that, I think that we've been, again, pretty modest in what we have forecasted into our new guidance range. So we'll have to see how that plays out. I'd say importantly, what is definitely repeatable is what we are seeing on the volume side going all the way through our integrated system. And as Matt described, when we get those Permian lines online, we're going to see pretty good ramp in volumes here across the rest of this year. And that ramp, we believe, is going to continue into 2027 and well beyond that. So I think it's a mix. But of course, a lot of the fact that we're raising guidance by as much as we are a couple of months after we gave our initial guidance range is definitely because we are seeing significant marketing opportunities on the gas side. And then as Ben described, also some good incremental opportunities on the LPG export side, too, which we didn't factor in. Keith Stanley: That's helpful. And then I want to kind of revisit growth in a little bit of a different way. You now have 6 plants under construction and 5 in the Delaware. So that's over 1.5 Bcf a day of new plant capacity that you're adding by early '28. Historically, Targa has filled up plants very quickly, almost immediately. Do you expect that to still be the case with these 6 plants under construction? And I ask because -- I mean, it's a 25% increase in your plant capacity relative to your inlet volumes all by early 2028. Jennifer Kneale: This is Jen again. I mean I'd say that we generally try to be incredibly capital efficient, but we also want to make sure that we are creating white space for our producers. So if a producer wants to accelerate and/or if a producer has better results than they're forecasting that we, of course, can handle all of that incremental volume. So a lot of what you're seeing us do, particularly in the Delaware now, which is similar to what we had in place in the Midland Basin already was create a lot of that system reliability and fungibility. We're also adding a lot of sour gas infrastructure to, again, make sure that we're positioned if producers are forecasting less sour gas than materializes, we're going to be able to handle it. And if we've got peers that aren't able to handle it, then hopefully, we can handle incremental volumes even above and beyond what is even contracted at Targa today. So I'd say that based on our forecasting, we believe that these plants are going to be very much needed and well utilized when they come online. So there's nothing that's different about how we are forecasting when plants are added or how much volume growth we expect when the plants come online. I'd say that part of what we do is we get to a final investment decision on a new plant when we've got visibility with contracts in hand to fill up that next plant. And then what invariably happens is our commercial guys do a great job of going out and adding incremental contracts. So by the time that plant comes online, we've actually added more volumes than we were forecasting when we got to the investment decision. And I think that's part of why our plants continue to be very well utilized. And I can assure you that our commercial teams are working very hard to continue to identify incremental opportunities to add to our already several million acre base of contracts today. Matt Meloy: Yes. And -- well said, Jen. And just to add to that, we've talked about over the last couple of years of having kind of outsized commercial wins, some on the sour side, some on the sweet, and it's been disproportionately on the Delaware side. So you see the kind of shift of us putting in more Delaware plants compared to the Midland. We still think Midland is going to have strong growth going forward, but a lot of the success we've had over and above the dedicated acres and the activity on existing contracts, existing acreage that we have, we just had a tremendous amount of success over the last several years. And us building these additional plants is in response to the volume curves we have from producers and what their anticipated drilling activity is going to be. Operator: And our next question comes from the line of Elvira Scotto from RBC Capital Markets. Elvira Scotto: Just a couple of follow-up questions. Are you embedding any scenario of sustained higher commodity prices in your Q2 plus volume expectations? Or are you assuming prices normalize back to kind of previous levels? Also, can you talk a little bit about what you're seeing on the GOR trends in the Permian? Jennifer Kneale: This is Jen. I'd say related to forecast, we tend to get longer-term forecasts from most of our producers that aren't moving sort of month by month as the price curve shifts. You are seeing some smaller and private producers that may accelerate activity into a higher commodity price environment. But for the most part, we're putting infrastructure in place based on a longer-term forecast. And so I'd say that, that longer-term forecasts are largely consistent with what they were even back in February in a lower commodity price environment. So I wouldn't say that we've got a material increase in activity based on where commodity prices have moved over the last couple of months. It's really more based on a disciplined set of producers that have multiyear programs in place, and they are executing on those multiyear programs. As it relates to GOR trends, I'd say that we continue to expect that we will have a higher gas-to-oil ratio as we think about where producers are drilling and just the results that we are continuing to see in our system. So that will provide a continued tailwind for us going forward. Elvira Scotto: Okay. And then just on capital allocation, what's your latest thinking here on opportunistic M&A? You talked about acquisitions. Are you seeing attractive acquisition opportunities in the Permian? And then just kind of thinking about some of your other assets that are not in the Permian, what's the kind of strategic importance of some of those assets? And could they be monetized over the kind of medium to longer term? Jennifer Kneale: This is Jen. I'd say that we're always looking at opportunities to add to our footprint. We have a lot going on organically and very high focus organizationally on making sure that we continue that strong track record of project execution. But we continue to look at opportunities. I think we're really pleased with the acquisition that we made that closed at the beginning of this year and really grateful for the new employees that have joined the Targa team and how successful that integration has been. So I think we have a good track record of executing acquisitions and integrating them well. But again, for us, primary focus right now is executing on what we have under foot in terms of the projects underway. And then I think related to non-Permian assets, I think related to all of our assets, part of our job is to always evaluate if somebody has a view that something is worth more to them then that's something that we would certainly consider in terms of monetizing assets. But we're in such a strong balance sheet position. And I think we've got a lot of option value in many of our assets that I call non-Permian that we're really excited about the outlook for our entire footprint. And ultimately, our base case is that we will continue to execute with the assets that we have under foot, but of course, are always open to any discussions on any assets that others might value more highly. Operator: And our next question comes from the line of Jackie Koletas from Goldman Sachs. Jacqueline Koletas: I just wanted to go back to your comments on guidance. You noted the new guide continues to be somewhat modest on optimization. Where could you expect the most outperformance or upside from here that could kind of drive you to the near or above the top end? And then specifically, what could that come from? Is that all incremental Waha or something else? Matt Meloy: Yes, sure. This is Matt. I think Jen kind of articulated where we are in our guidance and how really good we feel about our guide, even albeit $300 million higher. I think from here, we have a relatively conservative forecast for the back half of the year in terms of marketing and optimization. We'll see how that plays out. That could be some further upside. But we'll just kind of see how Waha plays out in the back half of the year with the incremental pipeline capacity coming on. Then I think just in terms of production activity and volumes through our system, we're still seeing on any given day, it is pretty volatile, the amount of shut-ins we have on our system. When exactly that's coming back, is there, frankly, more gas there than we really think. It's a bit of an unknown of kind of how much comes back and where volumes settle out once we're in an environment where we have sufficient takeaway capacity. So I'd say there's some -- probably some volume up -- potential volume upside and both gas marketing and LPG export upside as well. Jacqueline Koletas: Got it. And then just to go back a little bit to capital returns. With '26 capital -- CapEx being maintained for the year and increasing EBITDA guidance, what is your appetite to increase shareholder returns from here? William Byers: This is Will. I'll take that one. Thank you for the question. When we look at our return of capital strategy, it's one that we've been pretty consistent adhere to, and that is to have a strong balance sheet to invest along our value chain at attractive returns and return increasing capital to our shareholders. If you just look at the first quarter, we did all of those things. We had a strong balance sheet at 3.6x leverage. We invested in our business and significant capital investments. We also closed an acquisition. We bumped our dividend 25%, and we bought back $55 million worth of stock. So I think you'll see us continue to execute on that plan and try and grow our shareholder value. Operator: And our next question comes from the line of Manav Gupta from UBS. Manav Gupta: Congrats on the strong result. Your press release says your inlet volumes in 2Q are trending significantly above your 1Q. I was hoping you could quantify that significant a little bit for us. And also what's driving the quarter-over-quarter volume growth, if you could talk a little bit about that? Jennifer Kneale: Manav, as I said in my scripted remarks, right now, our current volumes are about 250 million cubic feet a day higher than the Q1 average. And then I also described that on any given day, we've got about 200 million to 400 million cubic feet a day of shut-ins on our system that are really driven by the low Waha gas prices that we are seeing. So I think that makes it difficult to forecast the quarter in terms of volumes with precision. But what we are seeing is material growth over the first quarter. The first quarter, again, impacted by severe weather as well as some shut-ins, say, second quarter, seeing really good strong underlying fundamental activity, but also seeing increasing shut-ins because of lower gas prices, and we've got a number of -- we've had some planned maintenance on the egress side and some unplanned maintenance that has impacted that as well. So those are all the data points that we tried to give this morning and color around our volumes. And really, the underlying premise is just there's a lot of volume growth. And when we get these incremental pipes online later this year, I think you're going to see a material step-up in our volumes just because of the shut-ins that we're experiencing. Manav Gupta: Perfect. My quick follow-up here is one of your peers who was somewhat of a late entrant in sour gas is finally acknowledging that they're seeing a big activity in that region. And I was wondering if you're also seeing higher rig count in that part of Delaware and Lea County? And do you expect your sour gas volumes to also ramp up in the second half of this year? Unknown Executive: As we've discussed before, we have, for a long time, invested in sour gas infrastructure in the Delaware Basin. And one of the things as the larger producers develop their acreage positions, they really develop sweet gas for a long period of time because they didn't have confidence in sour gas takeaway treating, et cetera. But over the last 3, 4 years, we have seen a significant increase in sour gas activity, certainly because we put the infrastructure in place. We've been able to tie up and dedicate acreage under our sour gas infrastructure. We continue to see volumes ramp. We do have discussions with producers where some of the Bone Spring, Avalon development that they had put off for a period of time, they are now stepping into. So quick answer is yes, we expect to continue to see sour gas growth. And we have the infrastructure in place, really comparable -- nobody is comparable to us in that footprint. So we feel really good about that incremental opportunity and the margins associated with it. Operator: And our final question for today comes from the line of Brandon Bingham from Scotiabank. Brandon Bingham: Just wanted to maybe go back to the setup into next year, especially as more producers are coming out with, at least in the Permian, incrementally positive commentary or updates. I think Diamondback, in particular, mentioned pulling forward some Barnett development. Just curious, given all of this plus the forthcoming egress capacity and forward curve pricing, at least on the crude side that sits comfortably above what people would consider mid-cycle. Is there potential for something more than just a modest pulling forward of incremental pads thinking '27, '28 and beyond? Jennifer Kneale: Brandon, this is Jen. I mean I'd say that just the overall environment as we look at short, medium and long term, just feels really constructive for continued producer activity. And given the system that we're sitting on, the contracts that we already have in place, the millions of dedicated acres, I think there's going to be material volume growth here for years to come. I think part of what makes us really well positioned as well is the infrastructure adds that we have underway. So we'll add the East Driver plant on the Midland side here in the third quarter of '26. And then as we get into 2027, we'll add Copperhead on the Delaware side in the first quarter, then Yeti in the third quarter and Yeti II in the fourth quarter. And all of those incremental adds combined with the largest system just puts us in a really good position to be able to handle any incremental growth above and beyond what we were already expecting to be a very robust growth year in 2027. So I think we're just feeling really good about the outlook, and there's nothing that we're seeing so far this year that doesn't support that continued view that 2027 is going to be a really, really strong year for Targa. Brandon Bingham: Okay. Great. And then just quickly, it looks like East Pembrook came online ahead of schedule. I think Falcon II was previously pulled forward as well. Just curious how much opportunity is there to continue that trend of plants in service early? Or is it maybe constrained by customer volume expectations or anything out of your control? Jennifer Kneale: I think that our engineers and operations teams do a fantastic job, along with our supply chain team of making sure that we've got the infrastructure to construct of working really well together to try to get assets online as quickly as possible. I think that we try to be very conservative in the initial dates that we come out with relative to our projects, just to make sure that we can deliver both internally and, of course, for our customers. And then as we move through a project cycle of getting it fully complete, we do sometimes have the opportunity to pull it forward. And I think we're constantly probably quite annoyingly challenging our engineering team with questions of can we move something forward even if it's a week or a month or in some cases, you've seen us successfully move projects forward as much as a quarter or so. So that's something that I think we just pride ourselves a lot on is making sure that we bring our projects on time or early and are consistently challenging ourselves to do that while also maintaining the high quality of service that I think really sets us apart for our customers. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Tristan Richardson for any further remarks. Tristan Richardson: Thanks to everyone joining the call this morning, and we appreciate your interest in Targa Resources. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, ladies and gentlemen, and welcome to Energy Recovery's First Quarter 2026 Earnings Call. During today's call, Energy Recovery may make projections and other forward-looking statements under the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995 regarding future events or the future financial performance of the company. These statements may discuss our business, economic and market outlook, growth expectations, new products and their performance, cost structure and business strategy. Forward-looking statements are based on information currently available to the company and on management's beliefs, assumptions, estimates and projections. Forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. We refer you to documents the company files from time to time with the SEC, specifically the company's annual Form 10-K and quarterly Form 10-Q. These documents identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. All statements made during this call are made only as of today, May 6, 2026, and the company expressly disclaims any intent or obligation to update any forward-looking statements made during this call to reflect subsequent events or circumstances, unless otherwise required by law. Our hosts for today's call are David Moon, President and Chief Executive Officer of Energy Recovery; and Aidan Ryan, Interim Chief Financial Officer. I would now like to turn the call over to Mr. Moon. David Moon: Thank you, operator, and good day, everyone. Earlier today, we released a letter to shareholders on the Investor Relations section of our website that reviews business and financial performance during the quarter. Prior to opening the line for questions and answers, I'd like to highlight a few important takeaways from that letter. First is our new product, the PX Q650. We launched the product in March, have already received our first commercial order and are working with multiple large customers to design it into large desalination plants. It's off to a strong start, and we're excited about the commercial momentum that we've achieved in such a short time. Second, two leadership updates. I've informed the Board of my intention to retire and a search for my successor is underway. Until that person is named, I'm fully engaged in my role. Behind me is a strong bench of talent here at ERI that will ensure a smooth transition. We're also announcing that Mike Mancini has resigned as CFO. Aiden Ryan, who joined in 2024, will take over as interim CFO and ensure business as usual from a finance and shareholder standpoint. Third is the war in Iran. As we talked about in our letter, we have meaningful exposure to the Middle East, and we know the conflict will impact us. As such, our original financial guidance for 2026 is no longer reliable, and we're temporarily withdrawing guidance until we have better visibility on the evolving conflict. We've seen these situations in the past. And while timing is a key factor, we know the demand is there, and we are building inventory to serve customers when they are ready. Our strategic direction will not change during this uncertain time. We remain focused on product innovation, cost discipline, manufacturing transformation and the growth of our wastewater business. With that, we will now move to the question-and-answer portion of our conference call. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Ryan Connors with Northcoast. Ryan Connors: David, congratulations on the retirement decision. And Aidan, congratulations on the elevation. Actually, a quick question on that. Will the search lean internal or external? Or is that just sort of everything is on the table in terms of your replacement, David? David Moon: Ryan, everything is on the table. Ryan Connors: Okay. And then in terms of just unpacking the Middle East situation a little bit. I think we got two different types of issues, right? One is a short-term delay, a project gets pushed out six, nine months. I think everyone -- that's totally -- that's not a big deal even from a modeling standpoint. But there's this sort of concern that the nature of this conflict and some of the images that were out there that people are seeing and potential investors in the region are seeing could kind of just sort of deflate confidence in the region for a little longer period and kind of just take away some of the growth economically and tourism and whatnot that underpins some of the project activity. I mean, I know you don't have a crystal ball either, but what's -- I'd love to get your take on that issue and whether the delays are likely to be the first sort or more of the second sort, which would be a little more concerning. David Moon: Yes. So, I think, Ryan, obviously, it's still early days. But what we're hearing both internally and as we talk externally to others that are in the industry is that the project delays will be just that. There are likely to be some delays as we move from '26 into '27. But the fundamentals that are driving desalination and wastewater, but primarily desalination in the Middle East is water scarcity and water security, right? And so, populations continue to grow. Those aren't going away. And so, while we may see some projects delayed, we still feel good about the long-term fundamentals of desalinization. Ryan Connors: Yes. Yes. I have to just keep track of it, I guess, as it plays out. David Moon: And Ryan, we're not hearing anything that would tell us otherwise at this point. Ryan Connors: Sure. One of my questions, David, you answered to some extent, which is I was going to ask how you're managing inventory and production schedules given that kind of uncertainty. But you did mention just there at the end of your prepared remarks that you're building inventory to be ready to serve customers. So, I guess that was -- my question is twofold there. One is what gives you confidence to be building that inventory when things could push further right or not on a certain project? And b, given the good news on the 650 gaining traction, how do you know which inventory to build? Because might -- if some of these things are delayed a year or so, might you actually have the opportunity to try to spec in some of the 650s in place of what was supposed to go in? Or is that just not feasible? David Moon: Yes. I think the answer to that is yes, but we already know projects that are on the board over the next 12, sort of 24 months that are Q400 spec and frankly, are so far along in the design phase, it's unlikely that those projects will change product. And so, we've got a pretty good -- given where we're at today, we've got a pretty good crystal ball of sort of the Q650 transition time. And so that's sort of number one. Number two is that we saw the Q300 Q400 transition sort of take sort of two-plus years to play out to get it to where the Q400 is our primary product today. And so, we think it's going to take even with sort of this early momentum around the 650, we think it's going to take a couple of years the 650 to become our primary product. And that's probably 2028 before we see that. So, we feel pretty good about how many Q400s we need to be building over the next couple of years and how many 650s that we should be building as well. Ryan Connors: Yes. Okay. And then my last one, and then I'll pass it on is just obviously, the delays are focused on the Middle East and the conflict. But the conflict itself has led energy prices higher. Obviously, desal is very energy intensive no matter where on the globe people are doing it. Now the PX device is going to lower that energy footprint, but still versus a few months ago, any project is going to look a little more expensive. So is there any sign that there's any kinds of delays outside of the Middle East, just given the higher energy cost spike? David Moon: Yes, it's a really good question. So, the answer is no, not to this point. We have seen a few delays in some wastewater projects because of the cost -- input cost of materials. And so -- but there have been small projects and pretty small scale. So, nothing really at this point that would say desal projects in general globally are being impacted even given sort of the high energy price at this point are being impacted by the war. TBD, right, if it continues. But so far, the answer is no. Operator: Our next question comes from the line of Ryan Pfingst with B. Riley Securities. Ryan Pfingst: Maybe just a follow-up to the last one on the flip side with the Middle East uncertainty, are there other geographic regions where you're particularly enthusiastic about project development on the mega project side? David Moon: Yes. I think if you think about sort of the next two years, we're excited about China and some of the desal activity that looks to be ramping up there. And I would say South America, which would be the sort of second area where we see some activity that's starting to pick up there. So I'd say those are the sort of the two dual areas. The third, I would say, is the wildcard would be Texas. There's been a lot of talk about desal projects for the last couple of years. Should some of those projects really start to prove out and start to happen, that could be some really nice business for us. And so I would say those are sort of the three areas that we're watching pretty closely. Ryan Pfingst: Got it. And then has there been any change or update to how you're thinking about your manufacturing footprint expansion globally, just given the recent geopolitical events? David Moon: No. I think the strategic reasons for us looking in the Middle East are still the same regardless of conflicts, right? So first and foremost, it's our biggest base of business and looks like it will be over the next five to 10 years. And so that's sort of reason number one, right? Reason number two is we've got customers there that are really, really pulling us for local content as it relates to building PXs on the ground. And so we're really -- and so that -- and that's not going away in the near term. And then I think the third thing is that the sort of the icing on the cake would be the low-cost benefits that we get by moving a manufacturing facility to the Middle East. And so look, we continue to be full speed ahead in our planning. It's still our target by Q1 to be able to start manufacturing Q400s, assembly Q400s overseas. And so we continue to push down that path. Ryan Pfingst: Appreciate that. And then maybe just one more on wastewater. The prior 2026 outlook was $10 million to $15 million in revenue. Is that still how you're thinking about wastewater revenue for this year? Or should we consider that on hold as well? Aidan Ryan: So, we are pausing -- Ryan, this is Aidan. We are pausing our guidance on both desalination and wastewater. So we're not going to comment specifically, but there's a lot of good things going on in wastewater. We also have some challenges, like David mentioned, and we look to update that when we update our overall guidance, hopefully here in Q2 or Q3. Operator: Our next question comes from the line of Larry Solow with CJS Securities. Unknown Analyst: It's Pete Lucas on for Larry. You covered a lot in your previous answers. I guess just one for me. Given the short-term uncertainty, how do you think about cost cutting as a lever to pull to maintain free cash flow? And how should we think about that as an option for you? Aidan Ryan: Yes. Some of those things are definitely part of the existing plans, as we highlighted in the shareholder letter, our focus is on maintaining cost discipline. So we've talked about reducing manufacturing costs domestically with lean and Kaizen programs. David just talked about the manufacturing footprint strategy. That is part of our plans to reduce cost, and we're always focused on that. David Moon: Yes. I would say the other thing, Pete, is that we did we did a major reduction in force last year. We did a reduction in force to start at the beginning of this year. And so as we think about further cost cutting in SG&A other than the belt tightening and continuing to sort of turn around the edges, there's not a lot of big onetime opportunities left. I think we've done a pretty good job of reducing there where we have the opportunity. I think where we see opportunities going forward is really productivity gains at the factory and sort of continuing to get smarter where we work in our SG&A to the extent that there are opportunities. But sort of no big time opportunities left. Operator: And we have reached the end of the question-and-answer session. I would like to turn the floor back over to CEO, David Moon, for closing remarks. David Moon: Thank you, operator. So, I just want -- just to repeat what I had said in my opening remarks, our strategic direction will not change during this uncertain time. We will remain focused on product innovation. I think we've proven that with the Q650. We've got more products on the drawing board as we move forward, cost discipline, our manufacturing transformation efforts, both here and overseas and then the growth of our wastewater business are all things that we'll remain focused on as we move throughout the year. Thank you, operator. Operator: Thank you. And this concludes today's conference, and you may disconnect your line at this time. We thank you for your participation.
Operator: Hello, and thank you for standing by. Welcome to ATN International's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to hand the conference call over to Michele Satrowsky, Senior Vice President and Head of Investor Relations and Treasury for ATN. You may now begin. Michele Satrowsky: Thank you, operator, and good morning, everyone. I'm joined today by Naji Khoury, ATN's new Chief Executive Officer; and Carlos Doglioli, ATN's Chief Financial Officer. This morning, we'll be reviewing our first quarter 2026 results and reiterating our 2026 outlook. As a reminder, we announced our 2026 first quarter results yesterday afternoon after the market closed. Investors can find the earnings release and conference call slide presentation on our Investor Relations website. Our earnings release and the presentation contain certain forward-looking statements concerning our current expectations, objectives and underlying assumptions regarding our future operations. These statements are subject to risks and uncertainties that could cause actual results to differ from those described. Also, in an effort to provide useful information for investors, our comments today include non-GAAP financial measures. For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect our future operating results, please refer to our earnings release on our website at ir.atni.com or the 8-K filing provided to the SEC. I would now like to turn the call over to Naji. Naji Khoury: Thank you, Michele. Good morning, and thank you for joining us today. It's a pleasure to be here. It's only been a few weeks since I joined, and I'm very excited about the opportunity. While I will not be providing a financial operational update on today's call, that will be covered by Carlos. I would like to share some initial observations from my early days in the role. Over the past several weeks, I've had the chance to spend time with our team across many of our markets and throughout the organization. I am encouraged by what I've seen so far, and it's evident to me that the organization has a solid operating foundation in place and meaningful business momentum to build upon. At the same time, I see further opportunities to simplify the way we operate, which I believe will help us optimize performance across each of our business and segments. I can say that we will remain focused on disciplined capital allocation and ensuring that our investments are aligned with long-term value creation. Now as it relates to our intended use of our proceeds from the sale of the tower portfolio, we continue to expect to use approximately $70 million of the initial proceeds to repay the outstanding balance of our revolving credit facility. This will allow us to maintain liquidity and financing flexibility. Beyond that, we're still evaluating our options for the remaining proceeds, which will include potential investments in existing operations as well as advancing select growth opportunities. I expect to provide more detail as appropriate in the months ahead. Throughout my many years in the telecom industry, I've seen firsthand that consistent operational and strategic execution is essential to create long-term value. It's early in my assessment process, and I will have more to share with you as we translate these early observations into more concrete plan. I am excited about the opportunity to build on the progress our teams have delivered so far. With that, let me now turn it over to Carlos to walk through the quarter and discuss the financials in more detail. Carlos Doglioli: Thank you, Naji, and good morning, everyone. Before I get started, I would like to thank our teams across all our markets as well as the broader organization for their continued commitment to building value as reflected on our first quarter performance. Turning now to our first quarter 2026 results. Overall, we are pleased with how the year started. We saw improved performance during the quarter across both our U.S. and international segments, with year-over-year growth in total revenue, operating income and adjusted EBITDA. Our base of high-speed broadband homes passed expanded year-over-year, largely due to a fixed wireless deployment in Alaska during the second half of 2025, and our high-speed subscribers expanded year-over-year, driven by improved penetration in our Guyana fiber network. Our mobility subscriber base was up slightly versus last year as we saw growth in postpaid subscribers, which offset slight declines in our prepaid subscribers related to billing system conversions. Total revenue for the quarter was $182 million, up nearly 2% from a year ago. Adjusting our base revenues to exclude construction and the impact of the previously announced loss of the high-cost support subsidy, core telecom revenues grew 3% year-over-year. The improvement was driven primarily by increases in business, carrier services and other ancillary revenues, which helped offset the expected subsidy-related decline. We delivered operating income of $11.7 million for the quarter, up $9 million versus last year. This improvement was largely driven by revenue growth, our ongoing cost management efforts and reduced depreciation and amortization expense. We incurred approximately $2 million of restructuring and reorganization expenses in the first quarter and expect to incur an additional $1 million to $2 million of these costs in the second quarter. As we previously stated, these actions are embedded in our adjusted EBITDA outlook. On the bottom line, we reported a net loss attributable to ATN stockholders of $3 million or $0.29 per share, an improvement of approximately $6 million compared to last year's first quarter loss of $9 million or $0.69 per share. Across both our international and U.S. segments, we achieved growth in the quarter, bringing total adjusted EBITDA to $49 million for the quarter, up 10% year-over-year. Total adjusted EBITDA margin improved 200 basis points to 26.7% compared to the prior year period. This improvement reflects our continued focus on cost discipline and margin expansion across the business. Let me turn now to segment performance. In our International segment, we continue to see steady top line growth and margin expansion. Total revenue increased 2% to $96 million, and adjusted EBITDA was $34 million, up 6% from the same period last year. The revenue increase reflects growth in carrier services and other ancillary revenues, combined with increases in business and postpaid consumer mobility subscribers, which offset the decline in prepaid mobility subs. Fixed consumer revenue declined year-over-year due to the anticipated end of the government support in the USDA. On a like-to-like basis, revenues grew 3% when normalizing the impact of the support revenue. Higher revenue combined with lower costs drove the increase in adjusted EBITDA and expanded the adjusted EBITDA margin by 140 basis points from 34.3% to 35.7% for the first quarter. In our Domestic segment, revenue was $86 million, up about 2% year-over-year. Adjusted EBITDA increased 11% in the quarter to $19 million. Higher carrier services revenue resulting from steady progress in some of our key projects, combined with an increase in fixed business revenues more than offset the absence of construction revenues in the quarter. Normalizing the impact of construction revenues, revenues were up 3% year-over-year. Higher revenue levels, combined with cost discipline drove the increase in profitability. Now turning to the balance sheet and cash flow. We ended the quarter with a total of $123 million in cash, cash equivalents and restricted cash, up $6 million from year-end. Total debt was $570 million, up $5 million from the end of 2025. Our net debt ratio improved to 2.3x from 2.36x at the end of 2025, benefiting from higher adjusted EBITDA. Approximately 3/4 of our outstanding debt sits at the subsidiary level and is nonrecourse to ATN parent. Net cash from operating activities decreased by approximately $6 million compared to Q1 last year, primarily driven by higher working capital requirements related to the timing of certain government program payments. First quarter capital expenditures were flat at $21 million versus the same period last year. Reimbursable CapEx spend declined to $14 million versus $22 million last year. It's worth noting that we manage our capital expenditures on an annual basis, and we expect spending to remain in line with our guided range for 2026. Turning now to our outlook for 2026. As a reminder, in February, we announced that our Comnet subsidiaries entered into an agreement to sell a portfolio of 214 towers and related operations in the Southwestern U.S. for up to $297 million. We remain on track for an initial closing in the second quarter with expected gross cash proceeds in the same range of $250 million to $270 million as initially communicated. Additional closings totaling $27 million to $47 million are anticipated over the following 12 months tied to construction and operational milestones. Excluding any impact from the tower transaction, we expect full year 2026 adjusted EBITDA to increase modestly from 2025 levels in the range of $190 million to $200 million. Following the initial tower sale close in the second quarter, we would expect a reduction in annual adjusted EBITDA of approximately $6 million to $8 million. We plan to reassess and update as appropriate, the 2026 full year outlook after the initial closing. We also expect capital expenditures net of reimbursable spending to remain in the range of $105 million to $115 million for the year. Overall, we experienced momentum and saw progress in the first quarter. Looking ahead, our financial priorities remain the same: improving margins, expanding cash flow generation and maintaining a healthy balance sheet. We're encouraged by our recent performance, and our 2026 outlook reflects the commitment towards those goals. With that, I'll turn the call back to Naji for closing comments before we open it up for questions. Naji Khoury: Thank you, Carlos. As you've heard, we started the year on a good note. And as stated at the beginning of the call, I am encouraged by the strength of our teams, the solid foundation across the business and the revenue and profitability gains in the quarter. I see clear opportunities to simplify how we operate, sharpen execution and continue to ensure disciplined capital allocation. I am confident our team will deliver on our priorities. My focus will be to translate these observations into concrete actions that support long-term value creation. With that, we'll now open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Greg Burns of Sidoti. Gregory Burns: Just in regards to your disclosures, why did you stop disclosing total broadband homes passed and subscribers? Carlos Doglioli: This is Carlos. Yes, we felt that it included a number of the legacy products that we were actively decommissioning. So we thought that kind of like focusing on the high-speed subs, which is where we're putting all the efforts and investment was more appropriate. Gregory Burns: Okay. And then in terms of monetization of all the investment you've made over the last couple of years in your network, what do you think has been the biggest bottleneck in terms of driving faster growth or adoption in some of your markets? Has it been like increased competition, has it been pricing pressure? Like why haven't you've been able to drive that kind of the stronger subscriber growth now that you've kind of moved past the investment phase and we're in the monetization phase, why hasn't that monetization been stronger? Carlos Doglioli: Yes. So look, we believe that there's been a good amount of monetization, Greg. When you look at the revenue trends, we've seen growth year-over-year. Certainly, there's been additional competition, especially on the mobility side of things. But we believe that things are tracking in the right direction. I don't know, Naji, if you want to add any comments. Naji Khoury: Greg, I think also we have to focus on migration from subscribers in our copper network as well. So there's a bit of execution on the ground, but everything indicates that we're heading in the right direction. So at this stage, I'm not worried about our ability to add subscribers to fiber network. Gregory Burns: Okay. And then any update around BEAD or other government subsidy programs, maybe the pipeline of opportunities there or the timing on awards that you've won, the timing of like build and monetization of the awards you've already won? Carlos Doglioli: Yes. I think we're working through some of the programs that we already had and that we talked about in previous calls, which are in the range of a couple of hundred million bucks. In addition to that, then we have the provisional awards of BEAD that are over -- around $140 million in total between the Southwest and Alaska, and we're very excited. We believe that those are good areas that we were awarded and that they will give us access to around 10,000 or so homes and obviously, whatever we're able to access on our way to some of those locations. So we're excited about that. Gregory Burns: Does your full year guidance for this year contemplate, I guess, the beginning of revenue monetization of some of these previous programs you've been awarded? And would BEAD be more of like a '27, '28 incremental opportunity? Carlos Doglioli: Yes. So BEAD is going to be more like the next -- the coming years. It's not going to have any significant impact or impact on 2026. We -- there's still a process to be completed before that gets going. So we'll see that in the future years. Operator: This concludes the question-and-answer session. I would now like to turn it back to Naji Khoury, Chief Executive Officer, for closing remarks. Naji Khoury: Thank you again for joining us today and for your questions. Our team looks forward to continuing the dialogue through upcoming conferences and in one-on-one meetings and updating you on our progress as we move through 2026. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekom conference call and live webcast to present and discuss the first quarter 2026 financial and operational results. [Operator Instructions]. The conference is being recorded. [Operator Instructions]. We are here with the management team, and today's speaker is Omer Karademir, CFO. Before starting, I kindly remind you to review the disclaimer on the earnings presentation. Now I would like to turn the conference over to Mr. Omer Karademir, CFO. Sir, you may now proceed. Omer Karademir: Hello, everyone. Welcome to our 2026 First Quarter Results Conference Call. Thank you for joining us today. Let's go to Slide #3. I will start with a quick update on markets and our leading position. Global markets in Q1 '26 were shipped by rising geopolitical tensions and the feds cautious staff. The Fed kept its guidance that further easing will be approached carefully, pending a sustained improvement in inflation. Regional tension in the Gulf and geopolitical developments triggered a spike in energy prices and volatility in global risk appetite. In Turkey, the Central Bank cut its post rate by 100 basis points in January, but kept it on hold in March and April in response to heightened global uncertainties and risk to the inflation outlook. Year-end inflation expectation in the April 2026 market participant survey stood at 27.56%. Aim at this environment as Türk Telekom Group, we remain focused on sustaining our strong operation and financial performance through our disciplined and proactive approach. We started the year with our strategic long-term investments and strong operational and financial results in the first quarter. I would like to emphasize our key investments in our major business fixed line and mobile, which together represents a significant majority of our group revenues and profits. On the fixed line side, we continue to capitalize on our fiber network exceeding 550,000 kilometers as the fixed line concession has been with us for 24 years. Fixed Internet delivered robust KPIs beyond our expectations and along with corporate data, contributed to solid revenue growth and healthy margin improvement. Fixed subscribers opt for higher speeds. On the mobile side, as of April, 5G was launched successfully across all provinces in Turkey. We offer high speed, low latency and superior mobile network performance, supported by our fiber position. Rational competition environment prevailed in the mobile markets, operators took pricing actions in January and April, subscriber acquisition momentum remained strong. Overall, Türk Telekom Group, we are in a unique leading position in Turkey to provide integrated digital services to our millions of customers across the country, we are excited about our company's future vision and growth opportunities and remain focused on delivering strong financial results. Let's move next slide, Slide #4, for financial and operational overview. Consolidated revenues increased by 9% to TRY 65 billion, supported by fixed and mobile segments. Including the IFRIC 12 accounting impact, revenue growth was 6%, in line with our full year guidance. 70% year-on-year EBITDA growth was well ahead of the revenue growth, pushing our EBITDA to TRY 27.4 billion, along with a solid 300 basis points margin expansion year-on-year to 42.3%. Our net profit increased by a solid 56% to TRY 10.5 billion, supported by strong operational performance. CapEx excluding solar investments and license stood at TRY 17 million. It was higher in year-on-year terms due to our long-term 5G investments. Excluding concession and 5G license related payments, unlevered free cash flow stood at positive TRY 1.7 billion. This figure indicated a decline from TRY 10 billion in first quarter of last year as a result of higher CapEx and one-off base impact in last year from change in net working capital. Net leverage stood at 0.99x compared to 0.6x at 2025 year-end. Excluding payment of USD 1.1 billion in first quarter related to concession renewable and 5G license, net leverage would have remained constant. Moving to Slide #5. I will provide update on our net subscriber additions. Our total subscriber base exceeded 57 million with 613,000 net additions Q-on-Q. Excluding the 163,000 loss in the fixed voice segment, quarterly net additions were 776,000. Fixed broadband subscribers slight declined by 19,000 Q-on-Q2, EUR 15.4 million. Despite the retail price action we took in January, the activation volume was similar to what we have seen in the first quarter of last year. Q1 churn increased modestly in year-on-year terms, while declined Q-on-Q under the impact of accelerating contract expirations. Both retail activation and churn performance are positively impacted by the acceleration in our greenfield fiber investments. Retail net additions exceeded our expectations, thanks to lower churn whose subscriber base didn't change materially. Mobile segment added 712,000 subscribers on a net basis, pushing up the total base to 32.2 million. Both actuation and churn volume remained higher in year-on-year basis, driven by the postpaid segment. Mobile net additions were supported by 571,000 of MTM additions by the corporate segment. Subscriber growth remained on a strong track with 87,000 net postpaid additions excluding MTM postpaid and prepaid segments added 50 -- sorry, 668,000 and 54,000 subscribers. If you can go to Slide #6, let's look at our fixed broadband performance. We had a very strong performance in fixed broadband. We introduced a retail price division for new acquisitions in January as most places in the market followed our price adjustments. Price parities have rebalanced in favor of our retail activations by the end of the quarter. Subsequently, we adjusted the steel segment price for existing customers in March. The contracting volume scored significantly higher year-on-year. ARPU growth remained strong at 18% year-on-year in Q1 despite the last year's high base of 19%. The combination of solid upsell and sustains the contracting performance along with successful price implementation enabled us to maintain high growth. We expect the robust ARPU trajectory to continue in 2026. Average of both our total and retail subscriber base increased by near to 111 and 120 megabits. 6% of our subscribers now use 50 megabits and above package compared to 51% a year ago. Moving on to mobile performance. Let's go to Slide #7. Our strong customer growth continued in mobile segment, the ratio of competitive environment visible by the end of 2025 prevailed in the first quarter of 2026, price revisions were made in January and April. M&P market size, which was higher in the first quarter of 2026 in year-on-year terms declined slightly from its historical height at the end of 2025. Postpaid segment recorded 658,000 net additions in the first quarter. With that, total net additions surpassed 712,000 in total. The ratio of our postpaid subscribers in total portfolio rose to 80% from 76% a year ago. Excluding MTM, postpaid base added 87,000 subscribers. Mobile ARPU excluding MTM came down by 4% year-on-year over last year's strong 21% base. In the first quarter 2026, we are seeing a normalization in annual mobile ARPU growth as already seen in the third and fourth quarters of 2025. Let's go to Slide #9 to update you on our summary financial performance. Consolidated revenues increased by 9% to TRY 65 billion from TRY 60 billion in the same period of the period year. Fixed broadband, corporate data and ICT projects led growth, revenues rose strongly in the quarter, driven by the acceleration in fiber investments. Excluding the FX accounting impact, Q1 '26 revenues reached TRY 61 million, up 6% year-on-year, including increase of 17 points ,8% in fixed broadband, 15% in TV and 28.1% in corporate data, while mobile international and other revenues declined by 1% and 27.5% and 0.7%, respectively. Fixed voice remained flat year-on-year. Fixed internet and mobile revenues together accounted for 77% of operating revenue. Fixed internet made the largest contribution to growth TRY 3.2 billion higher revenues in total year-on-year. Corporate Data and ICT solutions added a further TRY 2.3 billion white call center intentional revenues and equipment sales declined by a combined TRY 2.1 billion. Mobile revenues were lower by TRY 253 million. ICT Solutions recorded significant growth supported by new projects won by our subsidiary, Innova, the decline in cost center revenues in line with our expectation was attributable to projects that completed in the second half of the last year. While our international business was impacted by the decline in international voice revenues, which is kind of a seasonal business with lower margins. Moving on to EBITDA. Direct costs fell 3.5% year-on-year. The decline in interconnection cost was driven by contracting international voice revenues. The equipment costs were lower year-on-year as well. Commercial costs rose 27.7% while the cost declined 2.5% year-on-year. The increase in commercial cost was driven by higher spending across sales and marketing and advertising line items. Between other costs, network expense increased 1.3% year-on-year. The 4.1% year-on-year decline in personnel costs can be explained by the reduction in head count at our call center subsidiary due to project completions in the second half of 2025. Excluding the accounting impact, OpEx to sales ratio improved from 61% in Q1 '25 to 58% pointing to continued enhancement in operational leverage. Consolidated EBITDA increased by 17.1% year-on-year to TRY 27 billion, while the EBITDA margin improved by 300 basis points year-on-year to 43.3%. Excluding the accounting impact, the EBITDA margin expanded by 395 basis points year-on-year to 44.1%. Coming to our net profit. Net financial expenses increased by 27% year-on-year and 66% Q-on-Q. The interest income declined from TRY 2.3 billion to TRY 659 million Q-on-Q as we made a payment of USD 1.1 billion in the first quarter regarding 5G and concessions renewable. Moreover, FX hedging expenses rose 108% year-on-year and 28% Q-on-Q on the back of higher FX liabilities. The average hedge costs remained flat on a Q-on-Q basis. On the balance sheet side, monetary gains surged by 80% year-on-year to TRY 14 million as nonmonetary assets of 5G license and fixed concession extensions were included in our balance sheet in the first quarter of 2026. These long-term assets revalued each quarter with inflation index. In Q4, a total excess of TRY 7.1 billion as deposits, largely consisting of deferred tax expense. The effective tax rate was 40%, mostly due to inflation accounting. We assessed that the deferred tax expense recorded will have a very limited impact on near-term cash flows with the total FX spread over an extended time horizon. Overall, Türk Telekom Group recorded a net income of TRY 10.5 billion for the period, up by 56% year-on-year. driven by strong operational performance. Let's go to next Slide #10 to review our CapEx numbers. CapEx spending rose to TRY 17 million in the first quarter compared with TRY 10 million last year on the back of higher 5G rollout expenditures. As usual, fixed line CapEx, most importantly, the fiber access and core network investments took higher shares in total bit 51% rate, 23% of spending went to mobile, while another 50% went to IT and project investments and rest other investments. Moving on to Slide #11, you can see our debt profile. Türk Telekom have total 30.4 billion cash and cash equivalents of which 56% is FX based. The FX exposure includes U.S. dollar to 2 months of 3.3 billion of FX denominated debt, 2.7 billion concession and mobile stance liabilities, 3.1 million of total hedge position and 382 million of hard currency cash. Net debt over EBITDA increased to 1x from 0.6 as of 2025 and on the back of 5G and concession renewal payments. Net debt over EBITDA would have remained flat Q-on-Q, excluding those payments. In January, we paid the first installment of 5G license, namely USD 365 million and plus 215 million and the VAT amount of concession extension word of USD 500 million. By the end of the year, we will have also paid the second installment of 5G license and the first installment of concession extension. We prepared detailed schedule of payments and income statement and balance sheet impact for your easy reference. You can find it in the appendix of this presentation. I want to emphasize that the increase in FX liabilities is due to our longer-term investment in 5G spectrum and concession. Our future payments are extended over a long-term period until 2035 and the payments will be in Turkish lira. We also actively manage our FX exposure risk through hedge. Moreover, while concession and 5G liability has been additional FX exposure. On the asset side, they are revalued under inflation accounting and hence, creating monetary gains, which, as a result, balance P&L impact overall. Let's go to Slide #12, where we provide update on our cash flow and FX exposures. We recorded USD 2.5 billion short FX position compared to USD 102 million as of year-end due to booking of USD 2.7 billion 5G and concession general liabilities. Excluding those payments, our net FX loan position is positive USD 162 million. Finally, we generated positive TRY 1.7 billion of unlevered free cash flow in Q1, excluding 5G and concession renewable payments compared to THB 3 billion in Q4 and TRY 10 million in the same quarter last year, annual decline is mostly due to higher CapEx. Moving on Slide #13. We provide update on 2026 full year guidance. Our business performance as a whole was in line with our expectations in Q1. We expect operational revenue growth to accelerate in the remaining quarters of 2026. Yet, first quarter inflation came in slightly higher due to regional geographical developments, putting pressure on real growth. We will update our revenue growth guidance, if necessary, based on the performance of our business line in first half and the cost of inflation. We currently do not see major downside risk to our 41% to 42% EBITDA margin guidance. Türk Telekom Group we remain cautious, especially regarding inflation expectations and prudently monitoring regional geopolitical developments and taking necessary actions. This concludes my presentation. Thank you for your listening. And now we can open up the Q&A session. Operator: [Operator Instructions]. The first question comes from the line of Cemal Demirtas with Ata Invest. Cemal Demirtas: Congratulations for good results. My first question is about your short FX position. It's TRY 2.5 billion. Could you further elaborate this in terms of risks going forward? Most possibly, it's going to be critical for the next 2, 3 years? And what are the plans on your sites? And I would like to understand the hedging costs. Did you see any increase in the hedging cost in April compared to March? And do you see any risk on your guidance for CapEx considering the risks on the FX side? This could be very helpful from the CapEx and FX position side. And the other question is about the business side. We see some decline in the mobile side, could you also further elaborate that? And connected with this, how do you see the outlook so far for the second quarter in terms of the business lines. Omer Karademir: Thank you. For your first question of the FX position. Actually, we have -- we don't have a short position. We have long position if we exclude our future 5G and concession payments. So that means for our net sales financial debt, financial payments, we are securing our FX position. And for the -- when these payments happens, so the next schedule is the December of this year, I am reporting our which payments -- the installments of the 5G and the concession payments that will be made in December. After we have made these payments, we will also hedge this open position. We are planning to hedge this open position. So right now, our main strategy is to hedge our financial debt. Based on the hedging cost, actually, we are using the cost costs declining instruments for our hedging policy, and we have access to onshore, offshore and also Central Bank NDF channel we are using the lowest cost for these hedging transactions. So the average cost of hedge didn't change compared to last quarters of 2025. And it is -- it was -- I mean, it was similar for the first quarter. But in April, we have seen some in at, I mean, from the payment side from the cost side. In April, we have witnessed slightly an increase for hedging costs. But the main factor of our expenditure for this hedging transactions comes from the hedge volume. The payments for 5G and concession in the first quarter with the VAT. As a total, it is USD 1.1 billion. That's increased our total hedge amount. The main difference comes from this hedge volume. But with the help of this inflation program of Central Bank and the government as we have witnessed in the second half of the last year, the hedging costs, we are expecting to decline in the hedging costs but hedging volume will be similar until the end of this year. I hope this answers your first question. For your second question, CapEx guidance. You know, we have -- our guidance was -- our guidance is -- for this year is 23% to 24%. It was realized -- sorry, 33% to 34% for this year. The last year's realization was somewhere 29%. The main difference was coming from our mobile investments for the 5G rollout. The first quarter's realization is 26.3% as we have announced based on the FX increase, unexpected FX increase, we -- our budget numbers, budget numbers are in nominal terms. So we try to limit -- we try to be in the boundary of this budgetary volume. In case of an unexpected FX shock. So right now, we are still stick to our guidance for the CapEx. But we cannot predict easily what's going happen since there is a regional conflict and it will, of course, affect the supply chain we haven't seen it is effects in our CapEx spending at the moment but there will be some effects. We are admitting that. But on the other -- hence, our contracts are not 1 year term. They are 2 to 4 years of term that fixed the price of CapEx spending that will also have us. And for your third question, the business side of mobile, our revenue growth is -- the total revenue growth is almost 6%. And the inflation was for the first quarter, almost 10% that was beyond our expectations. That affects the revenue growth, the increase in the inflation higher than the expectation. But we are still in line with our budget target for the first quarter since the fixed broadband compensated our mobile site. But basically, for the mobile maybe you are referring to our ARPU growth. Cemal Demirtas: Yes. Omer Karademir: The mobile parts, there are 2 main effects we can state. One is base effect. The other is inflation for the base FX, we have realized many higher ARPU growth in the late 2024 and 2025. That is one reason. But another reason is the competitive environment in 2025. That happened, let's say, in the middle of the year. But we saw a rationalization and normalization at the end of the last year. And for this year, we are also witnessing -- we are also witnessing continuation of this normalization since we and other operators to be able to make their price division for January, we have 30% of increase in mobile. And for April, we have 15% with the half of this price adjustments -- and with the half of this normalization in the market, we can expect to -- we can expect a recovering revenue growth that ARPU growth. But it will be in the second half of the year, I can say. Operator: The next question comes from the line of Maddy with HSBC. Madhvendra Singh: Yes. I have a few quick questions. The first is on -- maybe I missed it in the comments, but what has been the price actions this year if you could share that. I think the last price hike was in Jan, but if you could talk about any further price actions you have seen so far? And then the second question is on your energy cost. I understand that most of your network is on grid power. So have you seen any price hikes from the -- on the electricity side -- so if you could share that, any anticipation of higher electricity prices, that will also be great. And then the final one is on the -- under the new fixed construction and licensing, which we have issued for 5G and all. Is there any in the asset ownership clauses or is the asset still owned by the government and you just have the right to operate it? So if you could share any color around that. Omer Karademir: So for your last question, is it for fixed or mobile side? Madhvendra Singh: For the ownership of both. Omer Karademir: Thank you. For your first question about our projections of this year, for the mobile, we have 30% adjustments in January and 13% in April for the mobile. We have 2 price actions for the mobile side. For the fixed side, in January, for 21% for new activations and 17% in March for the existing customers. These are our projections of this year. For energy costs, yes. We are both operating in fixed and mobile interest structure. So we have electricity consumption in our business. as we meet the major of our electricity needs from the 3 markets and national tariffs. Although we observed increased volatility in the market prices from mid-February onwards and the first quarter results were in line with our expectations. The energy markets regulatory authority increased retail electricity price by 6% for the lower tier and 18% for the higher tier of the public and private services sector subscriber groups, and it's effective in fourth of April. And I mean it is lower than our expectations, the increase in electricity by the government. And our energy expenses while decreased by 14% year-on-year constitute almost 5% of our OpEx base in the first quarter of 2026. This rate was 6% for the whole year of 2025. And also, we have a solar power plant. It is now operational and installed capacity of 96 megawatts. It is operational in the beginning of this year. and it will meet 15% of our whole consumption, and we will have 2 more power plants. And as a total, we are expecting to meet 65% of our whole consumption from this solar power plant. And additionally, for the climate environment, climate environment of truck for this year because of the rains, the hydroelectricity plants are fully operational. There is -- the cost of producing electricity is lower than the -- than their peers. So this is also an advantage for us. And in briefly, we haven't witnessed an energy cost up to now. And the last -- and for your last question, the ownership. For the fixed -- the ownership is government. We have this concession -- I'm sorry, the -- for the mobile, all the assets are our own, but for the mobile but we will transfer to government at the end of the license period -- we have additional comments from our [indiscernible]. As [indiscernible] said, the fixed line concession is a great achievement because as you know, the new concession they added a new scope. So as you know, we have the leading operator. We have all the assets. And as Türk Telekom, we developed a brand marketing everything at the end of the concession, if it is not extended, we have to transfer the assets to the government. But obviously, we always extend it and keep our investments. And it is similar and same -- not similar same for all operators. Operator: [Operator Instructions]. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turk Telekom management for any closing comments. Thank you. Omer Karademir: Thank you all for joining us today. Have a good evening. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling. Good afternoon.
Operator: Good morning, ladies and gentlemen, and welcome to the CrossAmerica Partners First Quarter 2026 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026. I would now like to turn the conference over to Randy Palmer, Investor Relations. Please go ahead. Randy Palmer: Thank you, operator. Good morning, and thank you for joining the CrossAmerica Partners First Quarter 2026 Earnings Call. With me today are Maura Topper, CEO and President; and Jon Benfield, Interim Chief Financial Officer. We'll start off the call today with Maura providing some opening comments and an overview of CrossAmerica's operational performance for the first quarter, and then Jon will discuss the financial results. We will then open up the call to questions. Today's call will follow presentation slides that are available as part of the webcast and are posted on the CrossAmerica website. Before we begin, I would like to remind everyone that today's call, including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics and opportunities and expectations of the organization. There can be no assurance that the management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations. Please see CrossAmerica's filings with the Securities and Exchange Commission, including annual reports on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment of CrossAmerica's management as of today's date, and the organization disclaims any intent or obligation to update any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to U.S. generally accepted accounting principles or GAAP. We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast, and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days. With that, I will now turn the call over to Maura. Maura Topper: Thank you, Randy. Thank you to everyone joining us this morning. We appreciate you making the time to be with us today. I would like to lead off by saying that I'm excited and grateful to be with you today in my first call as CEO. Stepping into the CEO role over the past 2 months has been both humbling and energizing. I'm grateful for the opportunity to lead this organization and to keep learning alongside our team every day. I also want to take a moment to thank Charles Nifong for his care and thoughtfulness as our CEO over the past 6 years. We have become a larger and stronger organization under his leadership. I have learned much from him over the years that we have worked together, and I deeply appreciate his mentorship. I'm also happy to introduce Jon Benfield as our Interim Chief Financial Officer, who will be going through the quarterly financials in more detail. Jon has been with the partnership since 2012 and has worked in various capacities in our accounting and finance team over the years. Jon's deep familiarity with the partnership makes him exceptionally well suited for this role, and I'm glad to have him with us on the call today. We are working with a strong foundation here at CrossAmerica. Over the past few years, we have been deliberately shaping the partnership, increasing our exposure to retail operations and retail fuel pricing through our class of trade conversion activities and utilizing targeted real estate asset sales to generate capital to reinvest in the business. These portfolio optimization efforts have positioned CrossAmerica to perform well across a range of economic environments as I think our first quarter results demonstrate. Our team remains focused on ensuring the competitiveness of our sites in the markets where we operate with continued investment to drive growth and enhance the durability of our earnings. The result is an organization that is both disciplined and flexible and one that we believe is well positioned to capitalize on the opportunities ahead. If you turn to Slide 4, I will review some of the operating highlights of our first quarter. Overall, we had a strong first quarter, generating $35 million of adjusted EBITDA, a record amount for the first quarter and a 45% increase when compared to the first quarter of 2025. We benefited from strong gross profits from our retail segment, driven by motor fuel margins and merchandise sales and focused expense control across our operations. For the first quarter of 2026, our retail segment gross profit increased 18% to $74.3 million compared to $63.2 million in the first quarter of 2025. The increase was driven by an increase in motor fuel gross profit due to higher retail fuel margins for the quarter compared to the prior year, along with strong growth in merchandise gross profit. For the quarter, our retail fuel margin on a cents per gallon basis was $0.437 per gallon compared to $0.339 per gallon in the first quarter of last year. We experienced a strong start to the year on a fuel margin cents per gallon basis during a relatively benign pricing environment in January and February, helped by better sourcing costs and a favorable retail market conditions. As we entered March and continuing into April, we, along with the broader industry, have experienced a generally rising but also very volatile price environment. Historically, that type of rising fuel environment would have resulted in fuel margin compression, though with pockets of volatility providing margin opportunities. During this period of rising prices, however, fuel markets have generally remained rational with retailers quickly transmitting their increased costs to the pump, providing a practical floor to fuel margins during this period, which benefited our results. The corollary to our fuel margin cents per gallon results is obviously fuel volume. On a same-store basis, our retail segment reported a 7% decline in volume year-over-year, though with fuel gross profit ultimately $8.7 million higher than last year as a result of our strong cents per gallon results. Our team remains focused on ensuring our retail locations are competitively priced to balance long-term customer loyalty with the day-to-day volatility we are currently experiencing. Our volume results differed between the two classes of trade in our retail segment, company-operated locations and commission locations, which I'll spend a few moments talking about. Same-store volume at our company-operated locations was down approximately 4% for the quarter, with January and February experiencing less of a decline and March, a higher decline as we and the industry began to feel the impact of the higher fuel price environment we find ourselves in. This volume performance is relatively in line with reported industry averages for the first quarter of 2026 from the sources we review. For our commission class of trade, our commission same-store site volume was down approximately 14% for the quarter. As we have noted for the last 2 quarters, the decline was due in part to our decision at select sites to adjust our pricing strategy to better balance volume and margin while ensuring competitiveness within our markets whenever possible. Our commission location volume was also impacted by the overall volume decline in the market. Moving from our retail fuel operations to our store sales. Our first quarter 2026 results continued a series of important positive performance trends in this critical area of our business. On a same-store basis, our overall inside sales were up 2% for the first quarter compared to the prior year, with growth in the areas of packaged beverages, other tobacco products and food, both branded and proprietary. As we've noted in a number of our recent quarterly calls, during 2024 and 2025, we made important investments to expand our food operations at locations across our company-operated footprint with those investments contributing to both our results and customer traffic at this point in their life cycle. The first quarter of 2026 was also a high watermark for the partnership for our merchandise margin percentage. We reported a merchandise margin gross profit percentage of 29.7%, up 180 basis points from the prior year. We benefited from a better merchandise mix and better execution that improved margins on some of our core categories. This includes such promotions around breakfast sandwiches and chicken tenders that we ran during the quarter. A good example of our team leaning into growth, a focus on execution and providing value to our customers. The strong sales and margin percentage results contributed to an increase in our merchandise gross profit of 8% to $27 million. Jon will touch on this more in his comments, but we also had a very positive quarter focusing on expense control in our retail locations. Our results in this area [ took ] great amount of focus from our operations team as well as technology-assisted improvements that are benefiting our operations. Closing out my comments on the retail segment, we finished the quarter with 340 company-operated retail sites, down 12 sites from the fourth quarter of 2025 and 36 sites relative to the first quarter of last year due to our asset sale and class of trade conversion activities. We remain up 85 locations from the end of 2022 when we began our strategic activities to increase our retail operations. While the pace of our class of trade conversions has slowed in recent quarters, we continue to focus on maximizing the value of each site through class of trade conversions while focusing on being in retail in the right markets. In the period since the quarter end, we have benefited from continued strong fuel margins through April in spite of the rising price environment, so with volumes experiencing more pressure than our first quarter results. Moving on to the Wholesale segment. For the first quarter of 2026, our wholesale segment generated gross profit of $23.3 million compared to $26.7 million in the first quarter of 2025. The decrease was primarily driven by a decline in fuel volume and rental income, primarily driven by our class of trade change activities. As a reminder, our wholesale segment rental income declines when we convert sites to our retail class of trade and when we divest locations. Wholesale segment fuel volumes are also impacted by conversions to the retail segment, though less so by divestitures as we look to maintain a supply relationship with most sites we are divesting. Our wholesale motor fuel gross profit decreased 8% to $14.5 million in the first quarter of 2026 from $15.8 million in the first quarter of 2025. This was driven by a 3% decline in fuel margin per gallon and a 6% decline in volume for the quarter. Our first quarter fuel margin of $0.094 per gallon was a generally strong quarter as we continue to benefit from our fuel sourcing efforts. With regards to our volume performance, our same-store volume in the wholesale segment was down approximately 2% year-over-year, with the remaining decline primarily due to the net loss of independent dealer contracts. Our same-store volume performance in the first quarter of 2026 continues our outperformance relative to national benchmarks that we have seen for several quarters in a row now for our Wholesale segment. I'll close out my comments with a few words on the asset sale portion of our portfolio optimization activities during the first quarter. We continued with our real estate rationalization work during the first quarter, selling 16 properties and realizing approximately $12.7 million in proceeds that we primarily used to pay down debt. As we discussed in February, 2025 was the biggest year ever in regards to property sales for the partnership. We are continuing our targeted real estate sales efforts in 2026, and we continue to have a strong pipeline for the balance of the year, though at a lower level than 2025. Jon will touch on this more during his comments, but I did want to mention that we reduced our credit facility balance by approximately $10 million during the quarter and decreased our credit facility defined leverage ratio from the prior year. These both highlight our disciplined approach to our balance sheet in conjunction with our strong first quarter. The first quarter was a solid quarter for the partnership with a material increase in our EBITDA versus the prior year and solid operational results across the business. Our priorities remain paying down debt, generating strong and durable cash flow for our unitholders and investing in the quality and competitiveness of our network. And I believe our first quarter results reflect exactly that continued focus. Before I turn it over to Jon, I want to be sure to thank our team members around the country for their hard work and dedication this quarter. We navigated the winter months in a volatile fuel price environment together, and our results speak for themselves. Our organization succeeds because of our people, and we thank all of you for your hard work. With that, I will turn it over to Jon for a more detailed financial review. Jonathan Benfield: Thank you, Maura. First of all, I am humbled and grateful for the opportunity to serve as Interim CFO, and I'm excited to work more closely with the broader organization in this expanded role. Now if you would please turn to Slide 6, I'll go over our first quarter financial results. We reported net income of $10.7 million and adjusted EBITDA of $35.1 million for the first quarter of 2026 compared to a net loss of $7.1 million and adjusted EBITDA of $24.3 million for the first quarter of 2025. Adjusted EBITDA increased 45% or $10.8 million year-over-year. Net income increased primarily due to the increase in adjusted EBITDA and a decline in interest expense from $12.8 million for the first quarter of 2025 to $10.8 million for the first quarter of 2026. Net income also benefited from lower impairment charges included in depreciation, amortization and accretion expense. As I mentioned, adjusted EBITDA increased significantly compared to the prior year period. As Maura noted in her comments, this increase was driven by a series of positive factors across the business, including an increase in motor fuel margin per gallon and an increase in merchandise gross profit in the retail segment as well as a decline in operating expenses. Our distributable cash flow for the first quarter of 2026 was $21.5 million, more than double over the $9.1 million for the first quarter of 2025. The increase in distributable cash flow was primarily due to higher adjusted EBITDA, along with lower cash interest expense and lower sustaining capital expenditures. The decline in interest expense we experienced during the quarter was due to a lower average interest rate and a lower average outstanding debt balance on our credit facility during the period due to our strong results combined with our asset sales. Our distribution coverage ratio for the first quarter of 2026 was 1.07x compared to 0.46x for the same period of 2025. For the trailing 12 months, our distribution coverage ratio was 1.25x compared to 1.04x for the trailing 12 months ended March 31, 2025. During the first quarter of 2026, the partnership paid a distribution of $0.525 per unit. Turning to the expense portion of our operations. In total across both segments, we reported operating expenses for the first quarter of 2026 of $56.4 million, a $2.4 million decrease year-over-year and our sixth consecutive quarter of declining operating expenses across the organization. Retail segment operating expenses for the first quarter declined $1.7 million or 3% and wholesale segment operating expenses declined by $0.7 million or 10%. In our Retail segment, our average segment site count was down approximately 4% year-over-year. On a same-store, store-level basis, operating expenses in our retail segment were down approximately 3% for the first quarter of 2026 compared to the first quarter of 2025. The decline was primarily driven by reduced store-level employment costs as we remain focused on efficient staffing in our stores as well as continued reductions in repairs and maintenance spending year-over-year at both our company-operated and commissioned class of trade locations due to realized ongoing efficiencies in our maintenance operations. As we have touched on during the last few quarterly earnings calls, we have cycled through the first year of operations at many of our locations in their new classes of trade, which typically results in elevated expenses to onboard and upgrade the converted locations. As a result, we are experiencing a stabilization of our expense profile in our current class of trade site count. We will, of course, continue to experience seasonality of certain types of operating expenses in our stabilized portfolio, like increased labor in the summer and increased snowplowing in the winter. Returning to our Wholesale segment. Operating expenses declined by $0.7 million or 10% for the quarter. This decline was driven primarily by a 23% decline in lessee dealer or controlled site count within the segment year-over-year due to asset sales and to a lesser extent, conversions to our retail class of trade. We reported G&A expenses for the quarter of $6.5 million, a $1.2 million decline year-over-year, primarily driven by lower legal fees and equity compensation expense. We remain focused across the organization on efficient expense management at our locations as well as at the corporate level, ensuring that we are investing in customer-facing areas at our locations that will drive the long-term health and sustainability of our sites and driving operating efficiencies in our above-store operations. Moving to the next slide. We spent a total of $3.4 million on capital expenditures during the first quarter with $2.1 million of that total being growth-related capital expenditures and $1.3 million of that being sustaining capital expenditures. The decline in sustaining capital expenditures versus the prior year and the 2025 quarters is in line with our expectations as we experienced a stabilization of our current class of trade site count as well as a reduction of our real estate assets controlled site count. Regarding our growth capital spending, we remain focused on our company-operated locations, especially in food-related investments that will contribute to our merchandise sales and margin results. One additional item I wanted to touch on is that we entered into an amendment of our lease with Getty in January of this year that covers 106 of our leased sites and extends the term by 10 years to April 2037. The amendment triggered a reassessment of our lease accounting, which resulted in us accounting for this lease fully as a finance lease. While the economics overall are not all that different, the change in accounting will result in $3 million of the rent payments under this lease being accounted for as principal and interest, whereas previously, that $3 million was accounted for as rent expense. For the same reason, we will have higher interest expense on lease financing obligations going forward, although the impact to the quarter was negligible. Lastly, our finance lease obligations on the balance sheet increased $56 million from the December 31, 2025, balance. Turning to our balance sheet. The asset sale activities that Maura noted in her comments helped us reduce our credit facility balance by approximately $10 million during the quarter. The decrease in our balance, along with the gains on sale generated from our asset sales resulted in a decrease in our credit facility defined leverage ratio to 3.35x compared to 4.27x as of March 31, 2025. Our management team remains focused on the cash flow generation profile of our business, utilizing our normal course operations and our targeted real estate optimization efforts to manage our leverage ratio at approximately 4x on a credit facility-defined basis. Our asset sale activities during the quarter reduced our credit facility balance and the lower average interest rate environment also helped improve our cash interest expense during the first quarter of 2026. Our cash interest declined from $12.4 million in the first quarter of 2025 to $10.3 million in the first quarter of 2026. Our existing interest rate swap portfolio continues to benefit us as well. At this time, more than 55% of our current credit facility balance is swapped to a fixed rate of approximately 3.4% blended and our effective interest rate on the total credit facility at the end of the first quarter was 5.6%. In conclusion, the partnership has started the year with a strong first quarter and with the portfolio positioned for continued success as we move deeper into 2026. Our strong results, along with our asset sales, enabled us to reduce our debt by $10 million this quarter while also positioning our portfolio to generate durable and consistent cash flows into the future. We are looking forward to the summer driving season, maintaining a strong balance sheet and generating value for our unitholders. With that, we will open it up for questions. Operator: [Operator Instructions] Maura Topper: As it appears we don't have any questions coming in at the moment. We want to thank everybody for joining us here this morning and for your interest in the partnership. If you do have any follow-up questions, please feel free to contact us, and have a great day. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.